The PRA's methodologies for setting Pillar 2 capital

Statement of Policy

Update 12 December 2017

This SoP was updated following updates to Policy Statement (PS) 30/17 ‘Pillar 2A capital requirements and disclosure’ and Supervisory Statement (SS) 31/15 ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’ (Appendix 1).

Overview

This Statement of Policy sets out the methodologies that the Prudential Regulation Authority (PRA) uses to inform the setting of Pillar 2 capital for firms to which CRD IV applies.

There are two sections:

  1. Section I: Pillar 2A methodologies. This sets out the methodologies we will use to inform the setting of a firm’s Pillar 2A capital requirement for credit risk, market risk, operational risk, counterparty credit risk, credit concentration risk, interest rate risk in the non-trading book (hereafter referred to as interest rate risk in the banking book (IRRBB)), pension obligation risk and RFB group risk.
  2. Section II: Pillar 2B. This provides information on the purpose of the PRA buffer, how it is determined and how it relates to the CRD IV buffers. Section II also provides details on the PRA’s approach to tackling weak governance and risk management under Pillar 2B and RFB group risk.

Firms are required by the Reporting Pillar 2 part of the PRA Rulebook, or may be asked, to submit data to inform the PRA’s approach to setting Pillar 2A capital requirements. Data may be requested on an individual, consolidated and/or sub-consolidated basis as applicable.

Updates

December 2017

On 12 December 2017, this SoP was updated following updates to Policy Statement (PS) 30/17 ‘Pillar 2A capital requirements and disclosure’ and Supervisory Statement (SS) 31/15 ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’ (Appendix 1). See under ‘Future version’ below.

Date of publication  Statement of Policy  Update detail  Effective from 
Current version 
December 2017  PDF The PRA’s methodologies for setting Pillar 2 capital - December 2017 This SoP was updated following publication of PS30/17 ‘Pillar 2A capital requirements and disclosure’.   1 January 2018
The parts relevant for ring-fenced banks apply from 1 January 2019 
Past versions 
 July 2015

PDFThe PRA's methodologies for setting Pillar 2 capital - July 2015

 Initial publication following PS17/15 - 'Assessing capital adequacy under Pillar 2' No longer effective (superseded by December 2017 version). 
October 2017  PDF The PRA’s methodologies for setting Pillar 2 capital - October 2017 This SoP was updated following publication of PS22/17 ‘Refining the PRA’s Pillar 2A capital framework’ No longer effective (superseded by December 2017 version). 
February 2017  PDF The PRA’s methodologies for setting Pillar 2 capital - February 2017 This statement of policy (SoP) was updated following publication of PS3/17 ‘The implementation of ring-fencing: reporting and residual matters – response to CP25/16 and Chapter 5 of CP36/16’ No longer effective (superseded by October 2017 version). 
July 2015  PDF The PRA’s methodologies for setting Pillar 2 capital - July 2015 Updated following publication of Policy Statement 20/16 ‘The implementation of ring-fencing: prudential requirements, intragroup arrangements and use of financial market infrastructures’ which included final ring-fencing rules and Supervisory Statement 8/16 ‘Ring-fenced bodies (RFBs)’.  No longer effective 

 

 

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