PRA consults on international banks supervision and booking model expectations

What does this mean?

The updated criteria for operating as a branch 

The PRA's current expectation is that significant retail activity should take place through a subsidiary rather than a branch, with a branch generally being unable to hold no more than £100m in FSCS protected deposits from retail and small company depositors. The PRA is updating these requirements following the failure of Silicon Valley Bank (SVB) UK, because this event reinforced the potential risks posed by loss of access to non-FSCS protected deposits. 

In light of this the PRA is proposing a new criteria which would prevent branches from taking more than £300m in total retail and small company deposits. As with the existing £100m FSCS limit, this threshold would be indicative and firms will be assessed on a case by case basis. 

The PRA proposes to include a reference in SS5/21 to indicate that it may allow an international bank to operate through a UK branch, even if its retail demand deposits are above the indicative thresholds, in cases where this is caused by deposits from high net worth individuals (HNWI). 

Corporate deposits from companies not deemed to be ‘small’  are deemed to be wholesale deposits and are not subject to the thresholds. However when assessing whether a bank can operate as a branch the PRA will consider the extent of demand deposits from corporate customers undertaking UK economic activity and that are likely to be dependent on that branch as their sole provider of transactional banking.

The PRA has also stated that where international banks are subject to requirements set by their home resolution authority which the BoE is able to rely on in delivering resolvability, that this could permit the PRA to allow a branch to take deposits that would normally be outside the PRA’s risk appetite. 

Branch reporting 

The PRA is also proposing a number of changes to the Branch Return. These include the introduction of semi-annual reporting of total retail and small company deposits held in transactional or instant access accounts (currently branches only report on those that are FSCS protected), instant access non-financial corporate deposits and the number of unique clients or customers covered by the categories above. 

The PRA is also proposing changes to improve the reporting of whole-firm liquidity data by introducing semi annual reporting on whole firm Liquidity Coverage Ratios (LCR) and Net Stable Funding Ratios (NSFR). The PRA already collects whole firm liquidity data from branches and this proposal is aimed at simplifying and standardising this process. 

Updated expectations on booking models  

CP11/24 proposes a number of updates to the expectations on the management of booking models set out in SS 5/21. These updated expectations have been developed due to the outcome of the ECB’s desk mapping review and industry developments. The expectations now apply to both international banks and UK headquartered banks which have trading activities in the UK and overseas. 

The PRA is proposing a number of considerations for banks planning material changes to their booking models. These include ensuring that any changes which will result in greater fragmentation of risk management do not undermine effectiveness. These include requirements to ensure split desks between the UK and other jurisdictions and greater remote booking do not undermine risk management and ensuring that any changes to booking models are justified by an economic rationale. 

If a firm has a pre-existing control weakness in a relevant area then these must be remediated before any changes to booking models in these areas can be made. Firms should also inform the PRA when they plan to make any material changes to their booking model. The PRA is also consulting on expanding the guidance on booking model management and controls, reflecting queries from firms and the outcome of reviews the PRA has undertaken since 2021. 

Other amendments to SS 5/21

The PRA is also proposing a number of other targeted amendments to SS 5/21. These include clarifying that use of third parties to source deposits (i.e. deposit aggregators) will be taken into consideration in the context of the deposit thresholds, providing more detail on the PRA’s approach to determining equivalence of other jurisdictions, clarifying that the PRA’s expectations regarding innovations in digital money and money-like instruments apply to some international banks and removing references to the temporary permissions regime now it has concluded. 

What do firms need to do?

Bank branches in the UK will need to consider the impact of the PRA’s proposals. The PRA does not expect that its proposals will require any branch to have to subsidiarise, based on current available data. Despite this, firms should assess the extent to which they meet the additional criteria set out in the consultation (particularly the new £300m threshold) based on current and future growth projections. Firms with large balances of HNWI or larger corporate deposits that do not contribute to the thresholds should also start to prepare for a dialogue with the PRA on these. Branches should also prepare for the changes to the Branch Return to ensure timely and accurate reporting. 

Many international banks are currently assessing changes to their operating model in the UK and EU. It will be important that banks factor the PRA’s updated expectations around management of booking models into these considerations. In particular it will be important to engage early with the PRA on planned changes to booking models, with robust evidence that any changes do not negatively impact risk management capabilities and that there is suitable governance and controls in place to mitigate any risks.

Next steps

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