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PRA may fight EU rules preventing ‘proximity to failure’ disclosure

FSA Building Front View 480

The Prudential Regulation Authority may fight European rules which prevent it from disclosing to firms its assessment of their “proximity to failure”.

The FSA and the Bank of England today published a document setting out the regulatory approach of the PRA.

The document outlines the method the PRA will use to assess how close it believes a firm is to failure. The Proactive Intervention Framework, or PIF, will be used to identify the risks of individual firms.

There will be five stages in the PIF, ranging from ‘low risk to viability of firm’ to ‘firm in resolution or being actively wound up’.

The PRA says the Bank of England and the FSA blocked plans to tell individual firms where they sit in the framework due to concerns these firms could then be obliged to disclose it to the market under European legislation.

The document says: “The PRA would prefer to disclose PIF stages to regulated firms as a means of summarising the PRA’s overall judgement on safety and soundness.

“In view of the current disclosure obligations in European legislation, however, the Bank and the FSA have decided not to do so, given the risk that in some cases the firm may be under a legal obligation to disclose its PIF publicly.

“The PRA will engage with HM Treasury to discuss whether it would be appropriate to pursue changes to relevant European legislation to support disclosure of such supervisory judgements to firms but not to the market generally.”

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