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PRA warns big regulatory fines put firms at risk of failure

Prudential Regulation Authority chief executive Andrew Bailey says large conduct fines are putting financial firms at risk of bankruptcy.

Speaking to the Treasury select committee today, Bailey pointed to the US, where fines are highest for regulated firms, as posing the greatest risk to financial stability.

Bailey said large fines could create prudential problems and all regulators must be involved in assessing the impact on stability.

TSC member and Conservative MP Steve Baker raised the example of the Co-op Bank where some have accused the regulatory restrictions imposed as threatening the future of the bank.

Bailey says: “There is a point when the scale of the fine or nature of business restrictions imposed as part of a fine which could have prudential implications. It’s hard to predict those points because they are dependent on the state of the world at the point it happens as well as the reaction of counter parties including customers creditors and counter parties.

“In a world where that happens there must be strong coordination between authorities involved including prudential. We have to judge and advise on how it can be handled without disturbing financial stability.

“I regularly get told that it is not the intention to make firms fail – and that has not happened to date. I can’t tell you where the cliff is because it depends.

“It depends on having a strong dialogue and taking measures where there could be problems. I would like to see stronger coordination.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Or….
    ….large conduct fines could indeed cause a couple of institutions to fail, and this could finally bring some of the others into the land of complying with the rules, and everyone could recognise that this is a good thing.

    Too big to fail, too big to fine, too big to bring to heel. I think not.

    If we are not going to fine these businesses material amounts of money to force them to obey the law and regulation then the only option is to prosecute their executive board for the crimes the banks have committed in the same way that we prosecute individuals who commit crimes within the bank (when the banks don’t hide the fact that crimes have been committed), and with an evidential barrier that the executives with responsibility for that area are guilty unless they took enough steps to prevent the crimes committed.

    I say ‘we’ as I, like most of the readers of this blog, am a member of the society who has granted a special licence to practice in my country to these companies, and as such has appointed a group of individuals to oversee their operation.

    Mr Bailey your remit is to ensure stability for the benefit of society. Corruption and dishonesty eat at the very roots of our society, and cannot be endured. The more senior and powerful the corrupt and dishonest, the more important that they are brought to book.

    Your job as a regulator is to regulate, if you are unable to do so because if you are effective you will cause the system to fail, then the system is broken, and must be reformed to prevent organisations becoming large enough to prevent you doing your job.

    We all benefit from strong, honest, successful banks. We all suffer from dishonest banks whether strong or weak.

  2. It is all relative. The “big fines” may well be large in terms of £’s however in the scheme of a years worth of trading it really is minuscule. Keep the fines coming but make those responsible for the firm being fined accountable. Heavily fine them personally AND ban them from the industry. All this crap about needing “orld class talent” in these organisations to run them… It is this so call talent that lead to so much catastrophe in the first place.

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