UK Finance has responded to the PRA’s Consultation Paper on International firms:

Updates to SS5/21 and branch reporting.

The Consultation Paper sets out some targeted changes and clarification to the PRA's approach to the supervision of international banks operating in the UK, reflecting developments since the publication of Supervisory Statement. In particular, this CP includes:

1. the introduction of some additional indicative criteria that the PRA would consider when determining whether it would be appropriate for an international bank to operate in the UK as a branch rather than a subsidiary
2. clarifications to the expectations of firms’ booking arrangements and extending their formal application to a subset of UK firms.

As general comments in our response, we support the PRA’s efforts to update SS5/21 which will help it meet its primary objectives of reducing risks to UK depositors and financial stability and its secondary objectives of promoting competition and the UK’s international competitiveness. However, we believe that some aspects of the proposal are unclear or require further consideration.

This CP contains a number of changes to the PRA’s expectations. Key ones covered in our response include.

Branch risk appetite

In determining whether an overseas bank should operate as a branch or subsidiary in the UK, the PRA proposes to include an additional indicative threshold of £300 million of total retail and small company demand deposits (i.e. including non FSCS-covered deposits), as well as maintaining the existing threshold of £100 million of retail and small company demand deposits under the FSCS coverage limit. Above this £300 million threshold the international banks would be expected to operate as a subsidiary. This builds on lessons learned from the failure of SVB UK in March 2023.

We agree with the need to introduce this new indicative threshold to address cases where a branch is holding material demand deposits over the FSCS maximum compensation limit. This will enable the PRA to identify earlier any growth in a branch’s uncovered demand deposit activity. But we recommended that a final decision of the amount of the threshold should be delayed until after the PRA and FCA forthcoming review the deposit protection limit as well as the current legislative work on the Bank Resolution (Recapitalisation) Bill is finalised.

Booking arrangements

The PRA has developed its expectations on booking arrangements following close engagement with the ECB during its ongoing desk-mapping review, industry developments and firms request for further clarity. In particular, the PRA is proposing a number of considerations for all international and UK trading banks to avoid undermining the effectiveness of risk management controls and capital optimisation when they plan material changes to their desks.

For example, a firm is required to notify the PRA when it plans to make material changes to its booking model, but it will also be expected to justify these changes to the PRA which, if not satisfied by the appropriateness of the changes, may impose conditions or restrictions on a firm’s booking model changes. We ask for the PRA to clarify what the PRA would deem a “material” change as well as the purpose and specific requirements of the additional information required. And we also suggested that the PRA’s expectations should not be applied retrospectively to existing desk structures but only to future changes.

As next steps, the PRA proposes that the changes to SS5/21 resulting from this CP would be implemented during 2025 Q2, the changes to the material relating to branch reporting would be implemented on 31 December 2025.