Featured Product

    PRA to Impose No Further Restrictions on Proprietary Trading by Banks

    September 21, 2020

    PRA published a report that reviews the extent of proprietary trading engaged in by PRA-authorized deposit takers and investment firms incorporated in UK. The report discusses the extent of the proprietary trading activity, the risks it poses to the safety and soundness of firms, the tools PRA has to mitigate these risks, and the experience of other countries in restricting proprietary trading within the banking sector. It also addresses whether the ring-fencing regime, together with the other tools available to PRA, are sufficient to mitigate the risks proprietary trading poses to financial stability and soundness of firms. The analysis concludes that, at present, no further restrictions ought to be imposed on proprietary trading by banks.

    The report has been prepared pursuant to Section 9 of the Financial Services (Banking Reform) Act 2013. During the debates which preceded the 2013 Act, the question arose as to whether the UK should impose some form of ban on proprietary trading by all banks, as, for instance, the United States had with the Volcker Rule. Parliament took the view that there should be strong restrictions on proprietary risk-taking within ring-fenced banks, but that a complete ban for all banks was not justified by the evidence available at the time. Instead, PRA was required to review the case for further restrictions on proprietary trading within a year of the commencement of ring-fencing. As mandated in the legislation, this report has been submitted to HM Treasury and laid before Parliament. This report, which is a result of the mandated review, concludes that no further restrictions ought to be imposed on proprietary trading by banks. 

    The review also points out that PRA already has substantial supervisory powers for mitigating the risks created by proprietary trading in its various forms, where appropriate; therefore, it does not need new powers to address these risks. Different risks are addressed using different tools, including capital requirements, disclosure, supervisory expectations concerning controls, governance and risk management, and senior management attestation. The analysis also highlights that certain policy measures in the implementation phase will improve the treatment of some proprietary trading risks within banks. Prominently, the fundamental review of the trading book, being implemented as part of the Basel 3.1 package, will clarify the boundary between banks’ trading and banking books and will improve the capitalization of trading book risks. There is some risk that conditions may change to make proprietary trading, including classic proprietary trading, more attractive for firms within the banking sector once again. While this seems unlikely at present, it is possible. Thus, PRA will continue to monitor a number of indicators that could indicate a growth in the risks arising from proprietary trading activity by relevant authorized persons and will investigate if these show a substantially higher trend.


    Related Links

    Keywords: Europe, UK, Banking, Proprietary Trading, Volcker Rule, Credit Risk, Market Risk, Ring Fencing, Basel, PRA

    Featured Experts
    Related Articles
    News

    EBA Launches Stress Tests for Banks, Issues Other Updates

    The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.

    January 31, 2023 WebPage Regulatory News
    News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News
    News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8700