Britain should not join 'race to bottom' on financial rules, BoE Deputy Governor says

By Sinead Cruise

LONDON (Reuters) -Bank of England Deputy Governor Sam Woods said Britain should avoid participating in a "race to the bottom" on financial regulation, amid concerns the United States might opt out of reforms designed to strengthen the world's banking system.

U.S. Federal Reserve Vice Chair of Supervision Michael Barr on Monday announced he would resign early from his regulatory role, raising questions about how President-elect Donald Trump might reshape Wall Street's oversight during his second term.

Woods, who leads the regulatory arm of the UK central bank, told a parliamentary session that new goals to support British financial sector's competitiveness and growth would not lead to lower standards, and that resilience and competitiveness could "go hand in hand".

"Financial crises in particular are extremely expensive and very bad for growth," he said.

The Prudential Regulation Authority is already assessing a possible loosening of reporting requirements for banks and insurers, which Woods said the watchdog would elaborate on in 2025.

This would be complemented by the launch of a "matching adjustment accelerator", to make it easier and faster for insurers to invest in certain assets that have previously required regulatory approval.

DEREGULATION

As the U.S. financial system awaits potentially significant deregulation under Trump, analysts say other regions may have to follow to help their domestic financial industries compete.

The global implementation of Basel III bank capital rules, painstakingly crafted over more than a decade, could be first to hit the skids, experts said.

"As the Trump administration weakens banking regulations and/or supervision, this will embolden European and British banking lobbyists to weaken Basel III and other banking rules in those regions as well," Mayra Rodriguez Valladares, managing principal at MRV Associates, told Reuters.

Britain has already said it will adjust some Basel proposals to the needs of its domestic banking system, including capital requirements for small business lending - a move the BoE's Woods said was "not a small thing."

"We're putting less capital into the system than we might otherwise have done, actually out of line with international requirements, but to a degree that is tolerable," he told lawmakers.

British Prime Minister Keir Starmer wrote to more than 10 national regulators on Dec. 24, asking them to present pro-growth initiatives to Downing Street by mid-January.

Woods said the Prudential Regulatory Authority was already responding to government calls to encourage sensible risk-taking in the financial industry by scrapping a cap on bank bonuses and looking to significantly reduce the time bankers must wait before accessing payouts.

"Regulators naturally have a fear that, in the abstract, they'll get very strong encouragement to allow more risk taking, and then when an actual concrete risk crystallizes, politicians will say, 'Well, we didn't mean that risk'," he said.

"But I think that's just life, and you've got to try and balance these."

(Reporting By Sinead Cruise; Editing by Lawrence White and Tomasz Janowski)