Chairman asks PRA how it intends to ‘bear down’ on proprietary trading

03 April 2013

The Parliamentary Commission on Banking Standards has today published a letter from its Chairman (PDF PDF 589 KB), Andrew Tyrie MP, to the Chief Executive of the Prudential Regulation Authority (PRA), Andrew Bailey, asking how the PRA intends to give effect to the Commission’s recommendations on proprietary trading, contained in its Third Report

Commenting on the letter, the Chairman of the Parliamentary Commission on Banking Standards, Andrew Tyrie MP, said:

Proprietary Trading carries large risks, both prudential and for banking standards. It is not a suitable activity for UK-headquartered banks but a blanket ban now is not the most effective approach to mitigating these risks.

Attempts to impose a complete ban on proprietary trading in other jurisdictions are finding it difficult to define. Any such ban now would also impose a significant burden on the regulators. For these reasons, the Commission did not feel it appropriate to recommend the immediate prohibition of proprietary trading.

We have instead asked the PRA to use its powers to monitor whether banks appear to be engaging in proprietary trading. Where necessary, regulators should use existing supervisory tools – which are significant – to bear down on it.

Many banks told the Commission that, at present, they do not engage in proprietary trading, nor do they wish to do so. The PRA must exercise its judgement. It should hold the banks to their word.

If the PRA concludes, after a period, that it lacks the authority or the tools to carry out this work, it should make clear to Parliament where the current legislation or tools fall short.

The PRA should be given the opportunity to try to bear down on proprietary trading. A Volcker-style ban may subsequently be needed.

In a few years, we will be in a much better position to decide what, if any, further action should be taken. We will also be able to benefit from the experiences of other jurisdictions currently attempting to define and enforce a ban on proprietary trading.

 Image: iStockphoto

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