This page includes
- CP24/15 which sets out how the PRA proposes to implement the Financial Policy Committee’s (FPC) Direction and Recommendation on a UK leverage ratio framework.
- A PRA statement on housing tools that sets out the PRA’s intended implementation approach to FPC Directions on housing tools, outlined in the FPC’s Policy Statement ‘The Financial Policy Committee’s powers over housing tools’, published on 1 July 2015.
Background on CP24/15
On 1 July 2015, the Financial Policy Committee (FPC) directed the Prudential Regulation Authority (PRA) to implement a UK leverage ratio framework. This consultation sets out how the PRA intends to achieve this. It is proposed that firms in scope will be required to meet a minimum leverage ratio requirement and to consider whether they hold an amount of Common Equity Tier 1 that is greater than or equal to their countercyclical leverage ratio buffer (CCLB), and if the firm is a Global Systemically Important Institution (G-SII), their G-SII additional leverage ratio buffer (ALRB).
The consultation is relevant to PRA-regulated banks and building societies with consolidated retail deposits equal to or greater than £50 billion.
Summary of proposals
The consultation sets out the PRA’s proposed approach in relation to the implementation of a domestic leverage ratio framework and its key components, such as scope of application, minimum leverage ratio requirement, leverage ratio buffers, definitions and reporting and disclosure requirements.
To enable the framework to be fully effective in promoting safety and soundness of firms, the PRA proposes to require firms in scope to report and disclose an averaged leverage ratio by applying daily averaging to on-balance sheet exposures and monthly averaging to the capital measure and off-balance sheet exposures. The PRA proposes a transitional period of twelve months for firms to comply with the averaging requirement.
The PRA proposes that the framework should come into force on 1 January 2016.
The appendices in the CP set out:
- Appendix 1 – proposed rules on the UK minimum leverage ratio and buffers
- Appendix 2 – proposed rules on UK leverage ratio reporting
- Appendix 3 – proposed rules on UK leverage ratio disclosures
- Appendix 4 - a draft supervisory statement setting out the PRA’s expectations in relation to the application of the UK leverage ratio framework
- Appendix 5 - a draft supervisory statement setting out the basis on which firms would be expected to report leverage ratio information required under the UK leverage ratio framework.
- Appendix 6 – proposed reporting template FSA083 leverage ratio
- Appendix 7 – proposed transitional reporting template FSA084 leverage ratio - transitional
This consultation closed on Monday 12 October 2015. Views are welcome on all aspects of the PRA’s proposals to implement the FPC’s Direction and Recommendation on leverage ratio tools. In particular, respondents are encouraged to provide comments on the reporting and disclosure requirements proposed, as these were not discussed in the FPC’s consultation on its leverage ratio framework in 2014. Responses that provide a detailed quantitative assessment of firms’ incremental compliance costs as a result of complying with the averaging requirements would be particularly welcome. Respondents’ feedback is important in helping the PRA to shape the framework.
The PRA will consider the feedback received and will publish a policy statement, finalised rules and supervisory statements by the end of 2015.
PRA statement on housing tools, 10 July 2015
Final policy in relation to this consultation is available under related links.