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The Bank of England’s top financial watchdog has announced plans to ease the burden of its rules on banks and insurers, saying changes can be made without triggering a “race to the bottom” in financial regulation.
Sam Woods, chief executive of the BoE’s Office of Prudential Regulation, told a House of Lords committee on Wednesday that financial resilience and economic competitiveness “go hand in hand” as he outlined new moves to meet the government’s demand to support economic growth.
He said PRA it would relieve insurers of the need for pre-emptive investment approval by allowing retrospective approval. Woods added that the regulator would also outline plans to reduce bank reporting requirements this year, after already cutting them by a third for insurers.
Woods told the House of Lords Financial Services Regulatory Committee that the “adjustment investment accelerator” would speed up investment by insurers, which are sometimes delayed while awaiting regulatory approval.
He said reforms to solvency rules for insurers had already reduced reporting requirements for the sector by a third. While he doubted the PRA could achieve the same scale of cuts for banks, Woods said “there have to be some things we can do there,” with proposals coming later this year.
Newly elected US President Donald Trump promised a more impartial approach financial regulationraising fears that other countries will relax many of the safeguards agreed in the past decade to avoid a repeat of the 2008 financial crisis.
British Prime Minister Sir Keir Starmer is vowed to “tear apart” the British bureaucracy and urged regulators to prioritize growth. He wrote to many watchdogs, including the PRA, last month asking them to respond with proposals to boost economic growth by next week.
Woods said he is working on a response from the PRA. He called on the government to streamline the 25 areas it requires regulators to “have respect for”, which he said made its policy-making “more bureaucratic”.
“I think we should avoid a race to the bottom,” Woods said. “But I don’t think that’s what parliament asked us to do.”
The previous Conservative government gave the PRA a new objective of supporting competitiveness and growth, secondary to its primary objective of promoting financial safety and stability and protecting policyholders.
He said the new goal led to “a very significant change in what we do and in the organization.” It came at an “opportune time” as the post-crisis reform phase was winding down and Brexit gave the PRA more powers to make policy independent of the EU.
“It puts us in the line of fire,” he said. “Where is the right place to draw that line? We make these judgments all the time.”
He said there was “strong industry pressure to soften things up and at the moment I would say the political wind is going in that direction”.
While regulators had to “keep an eye on it,” Woods said he didn’t “feel a lot of discomfort,” adding, “I don’t think we think it’s impossible to do, but it’s challenging to do.”
PRA is already written off caps on bankers’ bonuses it inherited from the EU and watered down plans to increase capital requirements for British banks as part of the so-called Basel accord between international regulators. In November, he also proposed changes to the rules to allow bankers’ bonuses to be paid more quickly, with fewer deferrals of several years.
