Transfer of roles and responsibilities to the Bank

This webpage provides further information for regulated firms and other interested parties on the functions that will be transferred to the PRA from the European Supervisory Authorities when the UK exits from the EU.

Introduction

This webpage provides information on the legal responsibilities that would transfer to the UK regulators, following the UK withdrawal from the EU without an implementation period in place.

The communication sets out how the PRA plans to fulfil these responsibilities, and will be of interest to regulated firms and other key stakeholders.

Where the transfer of responsibilities to the PRA will not result in any change from the perspective of the regulated firms, no further information is provided in this update.

In the event an implementation period is not agreed the PRA will use transitional powers to temporarily delay the effect of some changes; further information will be made available in due course.

1. Solvency II technical information

One of the responsibilities that will be transferred is the publication of technical information required under Regulation 4B of the Solvency 2 Regulations 2015/575 and Article 3(5) of the Solvency II Delegated Act 2015/35. On 28 March 2019, we updated the statement we issued on 28 February 2019 on ‘The transfer of the function to produce Solvency II technical information to the PRA’, relevant to insurance firms and other insurance industry participants to reflect that 29 March 2019 was no longer ‘exit day’. The purpose of the statement is to provide firms and other interested parties with information on how the PRA intends to fulfil this responsibility after exit day. Information published by EIOPA is available on its Solvency II technical information webpage.

2. Correlation Matrices - Solvency II

Under Solvency II, capital requirements under the standard formula are calculated using a complex modular approach. Correlation matrices are used in determining the capital requirements and in aggregating together the sub-modules in order to provide the overall risk to which a firm is exposed.

Under regulation 4 of The Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019  (the “Solvency 2 Amendment Regulations”), responsibility for the correlation matrices in Delegated Regulation 2015/35 (and listed in Schedule 3 to the Solvency 2 Amendment Regulations) is transferring to the PRA. In accordance with Regulation 4, those matrices will be deemed to be rules made by the PRA.

For day 1, firms should continue to use the correlation coefficients given in the onshored Delegated Act 2015/35.

3. List of Common Equity Tier 1 (CET1) eligible capital instruments under the CRR

In line with the legal obligations set out in regulation 83 of the Capital Requirements (Amendment) (EU Exit) Regulations 2018, the PRA will establish, maintain and publish a list of the forms of capital instruments that qualify as CET1 instruments in the United Kingdom.

4. List of regional governments and local authorities that may be treated as central governments for the calculation of capital requirements under Solvency II

Under ITS 2015/2011/EU exposures to certain regional governments and local authorities are to be treated as exposures to the central government.

While ITS 2015/2011/EU is to be onshored under the Withdrawal Act, the PRA has, on Thursday 18 April 2019, published final amendments made under the delegated power in Regulation 3 of the Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018.

These cover the deletion of those regional governments and local authorities other than the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly.

5. List of identified financial conglomerates

The PRA, or Financial Conduct Authority (FCA), will supervise financial conglomerates in line with The Financial Conglomerates and Other Financial Groups Regulations 2004, as amended by The Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019, and Annex U of the PRA Rulebook (EU Exit) Instrument 2019.

The PRA will publish and keep up-to-date on its website the list of financial conglomerates.

6. Mappings of External Credit Assessment Institutions (ECAIs) credit assessments under the Capital Requirements Regulation (CRR), Solvency II and for securitisation positions

In line with legal obligations set out in regulation 224 of the Capital Requirements (Amendment) (EU Exit) Regulations 2018 and under Part 6, section 11 (4) of the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019, one of the responsibilities that will be transferred to the PRA and Financial Conduct Authority (FCA) is the development of technical standards on External Credit Assessment Institutions (ECAI) mapping. After exit, firms will only be able to use new ratings issued by credit rating agencies (CRAs) that have registered or certified with the FCA or have applied for registration and entered the temporary registration regime as set out in The Credit Rating Agencies (Amendment, etc.) (EU Exit) Regulations 2019 (CRAR SI). However, through a combination of the transitional arrangement introduced by the CRAR SI and use of the transitional power by the Bank, PRA and FCA, after exit day firms may continue to rely on all existing ratings so long as they were issued or endorsed, and not withdrawn by credit rating agencies registered in the EU before exit day. A link to the existing ratings can be found below:

Mapping of ECAIs structured finance credit assessments to Credit Quality Steps (CQS)

The mandate under Article 270e of the CRR to produce Implementing Technical Standards (ITS) mapping the credit assessments of ECAIs to the CQS specified in the CRR for the purposes of calculating risk-weighted exposure amounts under the SEC-ERBA method will be transferred to the PRA and the FCA. The PRA expects the PRA-authorised firms to use the illustrative Basel securitisation ERBA mapping for long-term ratings, as set out in Table 1 in SS10/18 ‘Securitisation: The new EU framework and Significant Risk Transfer’  for long-term ratings. For short-term ratings, the PRA expects firms to use the existing short-term mapping in Commission Implementing Regulation (EU) 2016/1801 on laying down technical standards with regard to the mapping of credit assessments for securitisation. These tables will be superseded once the relevant ITS has been updated by the regulators.

7. Technical equivalence decisions under the CRR and Solvency II

Some EU financial services legislation contain provisions which allow the European Commission to determine that a non-EU country (“or third country”) has a regulatory and supervisory regime that is equivalent to the EU’s corresponding regulatory framework, including the CRR and Solvency II.

HM Treasury have onshored several equivalence provisions contained in CRR and Solvency II using powers in the EU Withdrawal Act 2018. Using these powers, HM Treasury have also onshored and retained existing equivalence determinations that have previously been made by the European Commission. This means that these equivalence determinations will continue to apply in UK law after the UK has exited the European Union, ensuring continuity. The retained equivalence determinations have been amended by the Equivalence Provisions for Financial Services and Miscellaneous Provisions (Amendments etc.) (EU Exit) Regulations 2019 so that they continue to be operable after exit. Schedule 2 of the SI lists the European Commission Tertiary Legislation that have been retained, including the existing equivalence determinations made by the European Commission under CRR and Solvency II.

The onshored Solvency II equivalence provisions are retained in the Solvency 2 and Insurance (Amendments etc.) (EU Exit) Regulations 2019.

The onshored CRR equivalence provisions are retained in the Capital Requirements (Amendments etc.) (EU Exit) Regulations 2019.

Further information about the UK’s future framework for making equivalence determinations, including the respective roles of HM Treasury and the UK regulatory authorities, including the PRA, is contained in the explanatory memorandum to the Equivalence Provisions for Financial Services and Miscellaneous Provisions (Amendments etc.) (EU Exit) Regulations 2019.

This framework will apply from exit day to those third country equivalence determinations previously made by the European Commission. It does not apply to the PRA’s existing approach to authorising and supervising international bank branches as described in Supervisory Statement (SS)1/18, and insurance branches, as described in SS2/18.

Further information on the future framework for technical equivalence decisions under CRR and Solvency II will be provided by the PRA in due course.

This page was last updated 25 April 2019
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