It’s important, first and foremost (following on from my last post), to read the PRA’s letter to firms about the likely authorisation requirements of Brexit as an objective assessment of what it sees as the current position. The long term importance of financial stability and of the “continuity of existing cross-border contracts” are too important, and strength of the regulatory culture too great, to play political games.
Judged by this light, Sam Woods’ carefully crafted letter is about as positive as could be expected at this critical juncture. I’ve posted previously about the ticking clock of the authorisations’ process and the narrow, unforgiving nature of the window within which the UK and EU needed to agree to move on from “divorce” and set a transition period. Neither of these are yet definitive, but the PRA’s analysis is that they are sufficiently advanced to enable some provisional decisions.
There are caveats here - with regulators there always will be – but if last April’s letter was a subtle red light/stake in the ground, yesterday’s is an only slightly amber-tinged green one.
Essentially, in old (pre-FSA) Bank speak, it constitutes a provisional “non-objection” to the great majority of EEA banks and insurers (and all non EEA branches) being able to conduct regulated activities in the UK post Brexit on the same basis as they do now. The caveats (below) are important but relatively narrow, covering branches that:
- Are systemically important to the UK
- Take “material” retail deposits
- Whose home regulator the PRA is able (eg through lack of cooperation) to judge equivalent – interestingly, this is also applied to UK firms looking to establish operations in the EU.
All of this is inevitably contingent on the progress – presumably not smooth or steady – of the wider negotiations, and clearly much can still go wrong.
By the same token, there will need to be much, sometimes tortuous, navigation by firms of PRA and FCA authorisation, while the thresholds and definitions implied by the caveats won’t be as clear in practice as they seem on the page. And both regulators will be stretched – probably beyond their theoretical breaking points - by the resource demands of Brexit, both in Authorisations and more widely.
So the letter, and the consultations that accompany it, signals the beginning not the end of the authorisation road. There are many intricacies in the letter and beyond that will need intelligent interpretation, but it provides a solid basis – probably more solid than expected – for firms to plan ahead.
The foundation of the Bank of England’s approach is the presumption that there will continue to be a high degree of supervisory cooperation between the UK and the EU. On this basis, EEA banks and insurers may (if they are not conducting material retail business) apply for authorisation to operate as a branch in the UK.