The Bank of England plans to slash the “reporting burden” on UK banks and allow insurers to make riskier investments without initial approval, as it comes under government pressure to ease regulations introduced after the financial crisis.
Sam Woods, a deputy governor at the Bank who leads its regulatory arm, the Prudential Regulation Authority (PRA), said the central bank had rowed back on rules that appeared to be “overcooked”, as he suggested it might have gone too far and harmed the financial sector.
However, Woods, who was speaking to members of the House of Lords financial services regulation committee on Wednesday, insisted he did not want to see a regulatory “race to the bottom”.
Both the PRA and fellow City regulator the Financial Conduct Authority have come under renewed pressure to support UK growth by easing rules on the financial services sector. In November, the chancellor, Rachel Reeves, ordered the watchdogs to encourage more risk-taking across the industry.
The former Tory government introduced rules to force the City watchdog to consider whether its regulations were promoting growth and competitiveness among companies, rather than simply protecting consumers.
The drive has included removing the cap on banker bonuses and softening capital requirements as part of new Basel 3.1 rules. But Woods said further changes were afoot, including for banks, which have long complained about the level of compliance they face in the UK.
“We’ve already cut reporting on the insurance side by a third,” Woods said. “We do want to look at what scope there is to reduce the reporting burden on the banks. And that’s something, again, we’ll come forward on this year.”
Meanwhile, the insurance sector could be given the green light to invest in riskier assets without formal prior approval.
The Bank is planning a new mechanism, “a matching adjustment accelerator”, to ease processes for insurance companies, which need to make rapid investment decisions but often need authorisation before putting money into certain assets. “So the idea is like a sandbox. They should be able to go ahead, come to us later for approval,” Woods said.
However, some critics are concerned that the UK is watering down rules that would ultimately help avoid another financial crisis.
Lax regulation was blamed for creating the conditions that led to a string of costly state interventions, including the bailout of Royal Bank of Scotland, now NatWest Group, in 2008. EU and UK governments later tightened regulations in order to rein in risk-taking and keep a closer watch on the industry.