- Sam Woods begins 5-year term as PRA chief executive on Friday
- Bank of England is in crisis-fighting mode after referendum
Sam Woods isn’t going to have time to ease into his new job.
Woods begins a five-year term atop the Prudential Regulation Authority on Friday as the U.K.’s main bank regulator tries to steer the European Union’s largest financial hub through the turmoil loosed by Britain’s decision to quit the bloc. The central bank is in crisis-fighting mode, unleashing emergency liquidity to ensure lenders have access to cheap funds.
Yet for now, Woods won’t have much latitude or incentive to alter the rules for banks, with the U.K. in political disarray and years of negotiations still to come on the country’s future relationship with the EU. As Bank of England Governor Mark Carney said on Thursday, “nothing in financial regulation has changed as a result of last week’s referendum,” and won’t until secession is complete.
“In the near term, this implies no real deviation from the path the PRA is already on with regards to how it exercises its authority,” said Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland. “We don’t know yet what kind of deal the U.K. will strike with the EU, but I suspect there will continue to be quite of lot of collaboration among the central banks and regulators, even if that doesn’t always mean that exactly the same rules are applied.”
The PRA, part of the BOE, will implement its post-Brexit contingency plans and continue “heightened monitoring of firms,” Carney said in the PRA’s annual report published on Thursday. The regulator will continue to work with the rest of the BOE “to consider the implications of this outcome on the PRA’s statutory objectives,” he said.
The BOE’s Financial Policy Committee met earlier this week to discuss the turmoil and impact on banking stability, and is scheduled to release its latest Financial Stability Report on July 5. The FPC will also “take any further actions it deems appropriate to support financial stability,” Carney said.
“The result of the referendum is clear,” Carney said. “Its full implications for the economy are not.”
For the banks, the implications aren’t encouraging. While increased capital requirements have bolstered lenders, Barclays Plc, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc saw their shares plummet after the June 23 referendum.
“While Brexit has stability implications for the global economy and financial system, these are no where near as dangerous as the systemic financial stresses which accompanied the recent financial crisis,” Reid said. “Hence the resources available to underpin the U.K. financial sector should be more readily available.”
Woods worked for alcoholic-beverage and management-consulting firms before entering public service. He joined the Financial Services Authority in 2011 and moved to the BOE in 2013. He last served as head of insurance supervision. Carney described Woods as a “dedicated public servant, a forward-looking policymaker and a natural leader.”
Yet he’ll have to wait to leave his mark on U.K. financial rules.
Until the U.K. formally exits the EU, the bloc’s rules remain in force in the country. “The law is the law,” Carney said. “Rules are rules. The Bank is continuing to implement the current regulatory framework until any new arrangements with the EU take effect.”
Even after it leaves, British rules will probably have to be deemed equivalent to EU law in any arrangement that gives U.K.-based firms access to the EU’s single market. In the talks on the U.K.’s future relationship with the EU, the PRA and the Financial Conduct Authority will help to demonstrate Britain’s financial rules are as strong as the Continent’s, according to Sharon Bowles, a former head of the European Parliament’s Economic and Monetary Affairs Committee.
“In terms of the negotiations, the main role of both the PRA and FCA would seem to be in terms of helping out the U.K. side with any technical information they needed and in persuading the Europeans that we’re not going to shoot off and do anything different,” Bowles said in an interview.
Another factor limiting rule changes is the global regulatory system. The Basel Committee on Banking Supervision and the Financial Stability Board, led by Carney, set standards that are then implemented by member countries. Woods will represent the BOE on the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee.
Andrew Bailey, Woods’s predecessor at the PRA, said before the referendum that there would be no “bonfire of regulations” upon a U.K. exit from the EU in part because it would be held to Basel standards.
And even if the PRA were to deviate from EU norms, history suggests that it might take a tougher stance than adopted on the continent, as it has on conduct and bank-structure issues.
“The U.K. has tended to want to be stricter than the rest of Europe on banking rules,” Bowles said. “The biggest moan about prudential regulation from the U.K. about European regulation is it wasn’t tough enough, and when the U.K. wanted to gold-plate it couldn’t.”