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Prudential Regulation of Credit Institutions and Investment Firms

Volume 709: debated on Tuesday 1 March 2022

Following the global financial crisis, the international Basel Committee on Banking Supervision (BCBS) agreed standards for prudential regulation to improve the resilience of the banking sector. Prudential regulation ensures that banks, building societies, and investment firms control risk and hold sufficient capital to better absorb economic shocks.

The UK has played an active role in negotiating and agreeing these standards— commonly known as the “Basel 3” standards—and has always been committed to their implementation. The Financial Services Act 2021 (the “FS Act”) was introduced to enable the PRA—as experts—to implement these standards.

The FS Act also introduced the framework for the investment firms prudential regime (IFPR), a bespoke prudential regime for investment firms that do not pose a systemic risk to the financial system, to be implemented by the Financial Conduct Authority (FCA).

This instrument is part of a package of instruments which supports the implementation of the IFPR and Basel 3 standards.

The purpose of this instrument is to:

make changes, including consequential amendments, to primary, secondary, and retained EU law following the introduction of the IFPR and implementation of the Basel 3 standards on 1 January 2022.

make transitional provision for certain securitisations following the implementation of the IFPR. These provisions support requirements which aim to align the interests of the sell-side parties in a securitisation (e.g. lenders) and the buy-side parties (e.g. investors), by ensuring the sell-side parties retain some risk in the product.

make amendments to the Banking Act 2009 to ensure that short-term liabilities owed to investment firms with permission to underwrite or deal on own account will continue to be exempt from bail-in.

address legal deficiencies arising from the withdrawal of the United Kingdom from the European Union.

This instrument will primarily be made under the powers in the Financial Services Act 2021. It also uses powers in the Banking Act 2009 and the European Union (Withdrawal) Act 2018.

As required under the “enhanced scrutiny procedure” set out in schedule 8 of the European Union (Withdrawal) Act 2018, the draft instrument and explanatory memorandum will be published online for a period of at least 28 days before the instrument is formally laid in Parliament. To read the full draft statutory instrument and explanatory memorandum, please visit: