The Prudential Regulation Authority (PRA) is required under the Financial Services and Markets Act 2000, as amended by the Financial Services (Banking Reform) Act 2013, to make policy to implement the ring-fencing of core UK financial services and activities.
This CP is one of two papers published by the PRA on 15 October, which form part of the post-crisis reforms to enhance the resilience and resolvability of firms. Restructuring efforts, including through ring-fencing of core activities, will support bank resolvability and increase the resilience of ring-fenced bodies (RFBs) to risks originating in other parts of their group or the global financial system and facilitate restructuring of banking groups before and after resolution. CP38/15 ‘Ensuring operational continuity in resolution’ also published on 15 October is available via Related Links.
This consultation paper (CP) is relevant to banks which will be required to ring-fence their core activities. This includes both those groups with ‘core’ deposits – broadly those deposits from individuals and small businesses – in excess of £25 billion and those groups with growth plans which expect to exceed this threshold by the Government’s stated implementation date of 1 January 2019. It will also be of interest to financial and other institutions and customers who have dealings with these banks.
The Government has stated its intention for ring-fencing to take effect from 1 January 2019. The PRA intends to undertake further consultation and to publish final rules and supervisory statements in 2016 to provide firms with sufficient time for implementation. Further information is available on the dedicated ‘Structural reform’ webpage – see Related Links.
Summary of Proposals
This CP sets out PRA policy proposals in three areas:
- the capital and liquidity requirements applicable to a ring-fenced body and how the PRA will determine the adequacy of its financial resources;
- the management of intragroup exposures and arrangements; and
- the use of financial market infrastructures.
The CP also includes a preliminary discussion on potential reporting requirements, setting out the PRA’s initial thinking ahead of future consultation. Chapter 8 therefore does not include specific policy proposals.
The PRA expects firms in scope to submit near-final plans for implementing ring-fencing by 29 January 2016 to their PRA and FCA supervisors, which build on the initial plans that were sent on 6 January 2015 and/or any subsequent updates submitted by firms during 2015. PRA supervisors will contact firms directly to specify the level of information the PRA expects to receive in the plans.
The CP appendices include:
- Appendix 1 and 2 - PS10/15 contained near final rules and a supervisory statement which have been subsequently amended and incorporated in appendix 1 and 2.
- Appendix 3 - Draft amendments to SS16/13 – Large Exposures
- Appendix 4 - Draft amendments to FSA078 – Pillar 2 Concentration risk minimum data requirements
- Appendix 5 - Draft amendments to Statement of Policy ‘The PRA’s methodologies for setting Pillar 2 capital’
- Appendix 6 - Draft amendments to the SS32/15 ‘Pillar 2 Reporting Schedule ‘ Appendix 2
- Appendix 7 - Glossary
Responses and next steps
The consultation closed on Friday 15 January 2016. The PRA invites feedback on the proposals set out in this CP, including in relation to the preliminary discussion of reporting requirements in Chapter .
Please address any comments or enquiries (structured by Chapter) to CP37_15@bankofengland.co.uk.
The PRA plans to publish a policy statement setting out feedback to the consultation responses, as well as final rules and supervisory statements by mid-2016.