Prudential Regulation Authority: Financial Services

(asked on 20th January 2021) - View Source

Question to the HM Treasury:

To ask Her Majesty's Government what plans they have to legislate to authorise the Prudential Regulation Authority to carry out stress tests on the adequacy of capital at (1) hedge funds, and (2) private equity firms.


Answered by
 Portrait
Lord Agnew of Oulton
This question was answered on 8th February 2021

The Prudential Regulation Authority (PRA) was established as the prudential regulator of firms which manage significant risk on their own balance sheet as a core part of their business and regulates and supervises banks, building societies, credit unions, insurers and systemic investment firms in the UK. This does not include any hedge funds or private equity firms, although such businesses may fall into scope of the PRA’s regulatory activity to the extent that they are part of wider banking or insurance groups. The Financial Conduct Authority is responsible for the regulation of other financial services firms not supervised by the PRA, including non-systemic investment firms.

The Financial Policy Committee (FPC) acts as the UK’s macro-prudential authority, tasked with identifying, monitoring and addressing emerging risks and vulnerabilities across the financial system. In its August 2020 Financial Stability Report, the FPC identified the need for further work domestically and internationally to review the resilience of investors and markets under stress, including leveraged investors. The relevant UK authorities are working with their international partners at the Financial Stability Board (FSB) to assess the role of leveraged investors in core funding markets, as set out in the FSB’s November 2020 Holistic Review of the March Market Turmoil.[1]

These institutional arrangements strike the right balance in securing a resilient and stable financial system and maintaining the UK's position as a leading financial centre for hedge fund and private equity investment - providing high quality jobs and capital investment to support businesses. The Government does not currently have plans to change these arrangements.

[1] https://www.fsb.org/wp-content/uploads/P171120-2.pdf

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