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The Bank of England’s top financial supervisor has announced plans to ease the burden of its rules on banks and insurers, saying changes can be made without unleashing “a race to the bottom” on financial regulation.
Sam Woods, chief executive of the BoE’s Prudential Regulation Authority, 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 government demands to support economic growth.
He said the PRA would free insurers from needing pre-emptive authorisation of investments by allowing retrospective permission. Woods added that the regulator would also outline plans to cut banks’ reporting requirements this year, having already cut them by a third for insurers.
Woods told the House of Lords’ financial services regulation committee that the “matching adjustment investment accelerator” would speed up investments by insurers, which are sometimes delayed while waiting for regulatory approval.
He said reforms to solvency rules for insurers had already cut reporting requirements for the sector by a third. While he doubted the PRA could achieve the same scale of reduction for banks, Woods said “there must be some things we can do there” and proposals would come later this year.
US president-elect Donald Trump has pledged a more hands-off approach to financial regulation, raising fears that other countries will water down many of the safeguards agreed in the past decade to avoid a repeat of the 2008 financial crisis.
UK Prime Minister Sir Keir Starmer has vowed to “rip up” Britain’s bureaucracy and urged regulators to prioritise growth. He wrote to many watchdogs, including the PRA, last month with a request for them to reply with proposals to boost economic growth by next week.
Woods said he was working on the PRA’s response. He called for the government to streamline the 25 areas for which it requires the regulator to “have regards”, which he said made its policymaking “more bureaucratic”.
“I do think we should avoid a race to the bottom,” Woods said. “But I don’t think that is what parliament has asked us to do.”
The previous Conservative government gave the PRA a new objective to support competitiveness and growth, which is secondary to its primary goal to promote financial safety and soundness and to protect policyholders.
He said the new objective had led to “a very significant change in what we are doing and in the organisation”. It came at “an opportune time” as the post-crisis reform phase was ending and Brexit gave the PRA more power to make policy independent of the EU.
“It does put us in the firing line,” he said. “Where is the right place to draw that line? We are making those judgments constantly.”
He said there was “strong industry pressure to go softer on things and at the moment I would say the political wind is very much in that direction”.
While regulators had to be “mindful of that”, Woods said he did not “feel a sense of great discomfort”, adding: “I don’t think we think that is an impossible thing to do, but it is a challenging thing to do.”
The PRA has already scrapped a cap on bankers’ bonuses it inherited from the EU and diluted plans to increase capital requirements for UK banks as part of the so-called Basel agreement between international regulators. In November, it also proposed rule changes to allow bankers’ bonuses to be paid out faster, with fewer of them being deferred over several years.