The Prudential Regulation Authority (PRA) have issued a ‘Dear CEO’ letter relevant to both (i) existing banks and (ii) e-money / stablecoin issuers that are looking to obtain a banking license. The letter sets out measures which the PRA expects banks to take in when they are both accepting deposits, and issuing e-money and regulated stablecoins, including:

  • Use of separate entities – if banks (or entities within their group) want to issue e-money or regulated stablecoins to retail customers, the PRA expects this to be done from a separate non-deposit taking entity that:
  • has distinct branding to the bank (and their group); and
  • is insolvency-remote (i.e., the failure of the EMI / stablecoin issuer would not have adverse impacts on the rest of the bank’s group and the continuity of its deposit-taking services).

Firms who: (i) have issued e-money or regulated stablecoins to retail customers; and (ii) are seeking to apply for a banking license, are expected to transition their UK customers to deposits at a separate deposit-taking entity as soon as practicable. The PRA expects these firms to engage with them on their plans to do so.

  • Depositor protection considerationsbanks looking to innovate the way they take deposits from retail customers (for example, by taking tokenised deposits) need to do so in a way that meets the PRA’s rules for eligibility under the Financial Services Compensation Scheme rules. Banks will also need to ensure that the relevant requirements under the Depositor Protection Part of the PRA Rulebook are met in respect of these deposits.

  • Senior management responsibilities – the PRA expects boards and senior management teams to understand the potential safety and soundness implications of any innovations adopted in respect of deposits, e-money and regulated stablecoins. In particular, an individual approved by the PRA to perform an appropriate Senior Management Function should be actively involved in reviewing and signing off on the risk assessment framework for any planned use of new technology in the provision of important business services and critical functions. (The PRA has shown its willingness to hold senior managers personally accountable in relation to IT failings, having fined TSB Bank’s former Chief Information Officer (CIO) £116,000 earlier this year for his failures overseeing their IT migration.)

If you would like more information on any of the above, please do get in touch.


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