PCBS asks PRA to “bear down” on proprietary trading

On 3 April 2013, the Parliamentary Commission on Banking Standards (PCBS) published a letter sent to Andrew Bailey, Chief Executive Officer of the Prudential Regulation Authority (PRA), regarding proprietary trading by banks.

In the third report of the PCBS, a summary of which can be found here, it was concluded that, whilst it was not a suitable activity for UK-headquartered banks, it would not be appropriate to attempt immediately to prohibit proprietary trading.  Instead, the PCBS recommended that the PRA should monitor indicators of whether banks appear to be engaging in proprietary trading and, if necessary, use existing supervisory tools to “bear down” on such activity.  Accordingly, the PRA is asked to confirm how it intends to respond to this recommendation, in particular:

  • how it will conduct heightened monitoring of trading activities and judge whether these are ultimately conducted to serve customers;
  • what processes it would expect to follow and what measures it would take if its monitoring activities raised concerns;
  • how it will report, and require banks to report, on the outcomes of monitoring and any actions taken; and
  • whether legislative change is needed to give it the authority and tools to carry out these actions.

In an accompanying press release, the PCBS Chairman, Andrew Tyrie MP noted that a Volcker-style bank may ultimately be required, but that the UK would be in a better position to determine whether this was actually the case in a “few years”.

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