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A friendlier face for UK bank supervision

By Tyler Davies
22 Oct 2020

Prudential rules will become more supportive for UK banks after Brexit.

UK financial authorities have set about tailoring EU banking regulation this month. 

In the last two weeks, HM Treasury and the Bank of England have said how they think the Bank Recovery and Resolution Directive (BRRD II) and the Capital Requirements Directive should be designed in a UK context. 

The country is still committed to adopting most of the rules laid out in these texts, but it is reserving the right to modify elements of the rules in light of its imminent departure from the bloc. 

UK financial institutions are hardly likely to balk at any of the proposals for divergence. 

In fact, the powers that be seem to have focused in on the EU rules that are most maligned by market participants. 

The framework for calculating the maximum distributable amount, for example — which determines whether a bank can make discretionary distributions — will be softened from 2021. 

And the UK will also do away with the idea of a pre-resolution moratorium on payments, which BRRD II introduces alongside powers that already exist in the case of failed banks.  

This idea was met with strong criticism when it was first floated back in 2016, owing to concerns it could lead to early runs on deposits, as well as other unintended consequences.  

There have been few if any upsides to Brexit so far for UK banks, which have seen their funding costs whipsaw since the referendum in 2016. 

A friendlier system of supervision could soon be the first of them. 


By Tyler Davies
22 Oct 2020