Over the past five or so years the PRA has authorised 22 new UK banks which have a wide variety of business models. The competition created by these new banks is positively spurring wider innovation within the established banking space, improving the banking experience for customers, which UK Finance fully supports, as it does a more proportionate approach for such banks.

Some of these banks, along with longer established ones, have grown quite rapidly. In 2018 the FPC asked the PRA to review the possible risks to financial stability posed by fast growing firms and it undertook a deep dive on twenty such banks. The June 2019 ?Dear CEO? letter from the Director, UK Deposit Takers Supervision reviewed the findings of the review and particularly reminded firms of the importance of ensuring that their governance and risk management capabilities remain aligned with their business model risk profile and appetite.

 In CP 9/20 the PRA proposes a new Supervisory Statement that will:

·         help banks understand how and why PRA expectations become more demanding as they grow

·         clarify the expectations of a new and growing bank as it matures

·         require that new banks calculate their PRA capital buffer as six months of operating expenses, rather than on a ?wind-down? cost, which may have implications for ?in flight? banking authorisation applications

·         emphasise that the PRA does not operate a zero-failure regime and that banks should be able to fail in an orderly way and evidence a solvent wind-down plan

·         stress the importance of open, constructive, and forward-looking communication between the bank and the PRA.

In its engagement with new member banks UK Finance often hears that the supervisory expectations of newer banks as they enter their 'teenage years? are less clear than in the start-up phase. So, UK Finance welcomes the creation of this new Supervisory Statement which should provide helpful clarification for investors as well as bank boards about how the supervisory relationship will develop.

At the same time as responding to this CP UK Finance will continue to engage with the PRA as it considers if a more proportionate regulatory and supervisory regime is appropriate for non-systemically important banks and how it could be shaped.

Simon Hills took part in a webinar with Sarah Breeden about the CP and her related speech on Thursday 30 July. Further details can be found on UK Finance's website here.