Featured Product

    Victoria Saporta of BoE Outlines Ideal Post-EU Regulatory Framework

    March 10, 2020

    While speaking at a conference in London, Vicky Saporta of BoE discussed how banks and other financial firms should be regulated now that UK has left EU. Ms. Saporta sets out a framework for thinking about an ideal system of regulation for the future and argues that the financial system in the UK is more stable because the regulatory authorities are independent. In her speech, she builds on the principles that Sam Woods had set out last year to which any future UK regulatory framework should adhere. She builds on these principles to propose an ideal framework from the perspective of achieving the objectives of BoE. She then looked at whether the existing empirical evidence, including some new research, supports the framework.

    Ms. Saporta maps the principles outlined by Sam Woods last year into three ideal features of the institutional structure of the prudential regulation: dynamism, time consistency, and legitimacy. She highlights that the regulatory authority needs to be given a mandate to achieve legitimacy. A mandate provides a regulator with legitimacy in two ways. First, it ensures there is democratic control over the shape of the regulatory regime; for example, the objective or objectives of the prudential regulation, the types of firm in scope, and the issues the regulator must have regard to in making policy. Second, it makes possible to hold the regulator to account. 

    Next, she sets out four alternative models for the institutional structure for prudential regulation. In the first model, prudential regulation is specified in primary legislation. In the second model, prudential regulatory power-setting could lie with government ministers. In the third model, these powers could be given to an independent regulatory body. This model is likely to ensure that prudential regulation is both dynamic and time-consistent. An expert regulator would be able to identify and implement necessary dynamic adjustments, and, for reputation reasons, it would have an incentive to maintain prudential standards provided that it avoided industry capture. However, in the absence of further accountability mechanisms to enhance it, this model would lack legitimacy. Keeping this in mind, she sets out and advocates the fourth model of prudential regulation. 

    This fourth model involves an independent regulatory body with a clear mandate set out in primary legislation and a clear set of accountability mechanisms to Parliament. This model combines the benefits of an expert regulator that can adjust prudential regulation dynamically, with an objective that incentivizes the regulator to maintain prudential standards, while using the mandate and the accountability mechanisms to ensure legitimacy. In theory at least, this fourth model is preferable because, unlike the other models, it possesses all three of the ideal features, according to Ms. Saporta. In this context, she also examines the mandates of various financial sector regulators in the UK. She highlights that this model of independent regulators with mandates making rules is common practice in most jurisdictions outside the UK. Finally, she discusses the evidence supporting the theory that the independence of prudential regulation increases financial stability with no cost to efficiency.

     

    Related Links

    Keywords: Europe, EU, UK, Banking, Post-Brexit, Regulatory Framework, Brexit, Victoria Saporta, BoE

    Related Articles
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    EIOPA Consults on Reporting and Disclosures Under Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7293