BoE official warns against return to ‘light-touch’ regulation

Sam Woods says moves to retreat on bank rules are ‘misguided’

The UK’s top banking supervisor has warned against rolling back reforms made in the wake of the financial crisis, arguing against any “retreat” to light-touch regulation after Brexit and the election of President Donald Trump.

Writing in the Financial Times, Sam Woods, the head of the Bank of England’s Prudential Regulation Authority, cautioned that moves to cut bank rules are “misguided”.

While he did not mention Mr Trump or Brexit by name, his comments run contrary to the anti-regulation stance adopted by the new US president, and to lobbying by parts of the City that want to do away with what they see as overly burdensome rules from Brussels after the UK’s departure from the EU.

On Friday, Mr Trump said he would install a task force in every federal agency to see through his pledge to cut red tape in a bid to boost jobs. He has also vowed to do away with key parts of the Dodd-Frank act, which introduced a far-reaching regime for derivatives regulation after the crisis.

But Mr Woods argued that post-crisis regulation encourages job creation.

“Regulators around the world have spent years transforming prudential standards in order to repair the financial system. This is no time for a retreat. Jeopardising the benefits of a more stable financial system, which supports the real economy to grow and create jobs, would be misguided,” he wrote.

Both the US and UK are also strong voices at the Basel Committee on Banking Supervision, which sets global standards. The committee is gearing up for a series of vital meetings over the next three weeks which are meant to sign off a series of reforms designed to stop banks’ gaming of existing post-crisis rules.

The reform package has already suffered from a transatlantic split between the US and the EU late last year — even before questions were raised over the direction the US would take under Mr Trump.

Despite Mr Woods’ tough stance, he argued that regulators should be alert to unintended consequences from existing rules. He cited the example of an overhaul of the way the PRA calculates smaller lenders’ and challenger banks’ bespoke capital, announced on Friday, and intended to alleviate a competitive disadvantage newer banks and politicians have complained about.

The PRA is keen to burnish its credentials in this area after the Treasury select committee has criticised it for not doing enough to break the monopoly of too-big-to-fail lenders on the high street.

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