The Prudential Regulation Authority is inching closer to the regime it will use to relax rules for smaller lenders to cut costs and support more borrowers.
The Bank of England regulator has published a “near-final” version of its “strong but simple” framework for smaller lenders with assets below £20bn, trading books below £44m and 85% of their credit risk in the UK.
It said its proposals would “significantly simplify the prudential regime” for smaller lenders or small domestic depository institutions by relaxing their capital buffers, financial reporting and liquidity holdings.
The regulator, which oversees around 1,500 financial institutions, said the move would “increase competition in the UK banking sector as simplification will reduce the cost of SDDT.”
“This will improve SDDT’s ability to support growth for clients and the wider UK. It will also support the UK’s competitiveness by making the UK a more attractive place for foreign banks to do business.”
The regulator plans to introduce a single capital buffer for these lenders, which banks must hold as a shock absorber against financial stress.
This will replace the multiple buffers they currently hold and will be set at “no less than 3.5% of risk-weighted assets”.
Other relaxations include scrapping 38 financial reporting templates and “replacing most counterparty credit risk reporting with simplified templates.”
The PRA plans to publish the final version of its small banks regime by the end of the first quarter of next year.
The Bank of England’s Financial Policy Committee, which is responsible for macroeconomic risks, welcomed the move.
The document “will simplify the capital regime for SDDT companies, making it easier and less expensive to comply, while maintaining overall resilience levels by keeping capital requirements and buffers for this group broadly similar to those outside the SDDT regime,” the report said.
All financial regulators are under pressure to cut red tape after Chancellor of the Exchequer Rachel Reeves gave a speech at her official residence in November, in which she said it was necessary to boost the UK’s economic growth.
