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

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    BIS Bulletins Discuss DeFi Lending and Aspects of Crypto-Assets

    The Bank for International Settlements (BIS) published bulletins on lending in decentralized finance (DeFi) system, on blockchain scalability and fragmentation of crypto, and on extractable value and market manipulation in crypto and decentralized finance.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8292