The Prudential Regulation Authority edged closer to the regime it will use to relax rules for small lenders to cut costs and support more borrowers.  

The Bank of England regulator released a “near-final” version of its ‘Strong and Simple’ framework for small lenders with assets under £20bn, a trading book under £44m, and with 85% of credit exposures in the UK.

It says its proposals “significantly simplifies the prudential regime” for these lenders by easing capital buffers, financial reporting and liquidity holdings for small lenders, or small domestic deposit takers.

The watchdog, which supervises around 1,500 financial institutions, says the move will “enhance competition in the UK banking sector because the simplifications will reduce costs for SDDTs. 

“This will increase SDDTs’ capacity to support their customers and broader UK growth. It will also support the competitiveness of the UK by making it a more attractive place for foreign banks to do business.” 

The regulator plans to introduce single capital buffers for these lenders, which banks must hold as shock absorbers against financial stress.  

This will replace the multiple buffers they currently hold, and will be set “at no less than 3.5% of risk-weighted assets”. 

Other relaxations include scrapping 38 financial reporting templates and “replacing most counterparty credit risk reporting with a simplified template”. 

The PRA intends to publish the final version of its small banking regime by the end of the first quarter of next year. 

The Financial Policy Committee, responsible for macro-economic risk and which is also part of the Bank of England, welcomed the move. 

It says the document “will simplify the capital regime for SDDT firms, making it easier and less costly to comply with, while maintaining the overall level of resilience by keeping capital requirements and buffers for this cohort broadly similar compared to what they would be outside the SDDT regime”. 

All financial regulators have been under pressure to cut red tape following a Mansion House speech by Chancellor Rachel Reeves last November, where she said this was an imperative to boost UK growth.