UK Finance has responded to the Prudential Regulation Authority (PRA)'s discussion paper on developing a simpler prudential framework for those firms that the PRA does not consider to be systemically important or internationally active.

Proportionality in banking regulation helps support competitiveness by adapting the nature and intensity of banking regulation to the specificities and systemic impact of an individual bank or building society. We welcome the PRA's acknowledgment that complex approaches can be disproportionately costly for smaller firms. The discussion paper proposes some welcome first steps to a more nuanced approach to capital and liquidity assessment.

A key consideration is whether to adopt a 'streamlined? or a ?focused? approach. The former is a modified version of the existing prudential framework while the latter is a narrower, more conservatively calibrated set of prudential requirements. While UK Finance represents a diverse range of firms, an overall majority would probably indicate support for a streamlined yet flexible approach. We have also suggested that firms should have the choice as to whether they opt in or out of any future strong but simpler regime.

A genuinely simpler regime would improve the efficiency of regulatory reporting and accessibility of the source requirements on which they are based. Creating a holistic view of complex on-shored EU regulations, relevant EBA Q&As, Supervisory Statements and PRA rules is challenging. A single source of all applicable rules and regulations would be of considerable benefit to all PRA regulated firms, not just smaller ones

While our response flagged a wide range of areas for further consideration, we believe the Pillar 2A approach for smaller firms is in particular need of reassessment. We have proposed that by increasing the conservatism of Pillar 1, it may be possible to remove Pillar 2A as well as countercyclical and capital conservation buffers altogether for smaller, non-systemic firms.

Finally, we shouldn't forget those ?mid-tier? firms who are likely to be out of scope of this framework. It is important that these firms can operate in an environment conducive to their growth. We therefore recommended that the PRA considers a new framework for this group of firms too in parallel to the strong and simple regime.

We applaud the PRA's foresight in considering how the UK regulatory architecture could be simplified, and recognise that this initiative is a genuine, once in a generation opportunity to reform the regulatory structure for the smallest firms. We look forward to working closely with it to ensure any new regime achieves the twin objectives of reducing complexity without compromising systemic stability.