In the Autumn, the Chancellor unveiled the so-called ‘Edinburgh reforms’ – although many had been well trailed in advance (e.g. ring fencing).
There are signs of the PRA flexing its independence post-Brexit – see, for example, the proposals to scrap the non-performing loans backstop.
But from a capital perspective, there is little to get too excited about in the reform proposals.
The proposals that were most well-trailed were changes to the ring-fencing rules. These included increasing ring-fencing thresholds to £35 billion as well as other technical amendments to the ‘strength’ of the ring-fence.
While this may reduce compliance burden for certain firms, it’s unlikely to be transformative. Many banks at and below this threshold do not have significant corporate or investment banking activities that would fall outside the ring-fence.
More interesting is the hint that the Government is open to more wide-ranging reforms, pending a review of the alignment of ring-fencing with the recovery and resolution frameworks – due to happen in 2023.
So, as with the Strong and Simple framework, watch this space.
Challenger banks should pay close attention to proposed changes to the securitisation rules (and associated capital framework). Look beyond the announcement, though, and HM Treasury has proposed limited change.
Where we might see some change in emphasis is on the Senior Managers and Certification Regime (SMCR), which has now been in operation since March 2016. A review and refresh is a welcome development to assess what’s working and what isn’t.
