The PRA's methodologies for setting Pillar 2 capital

Statement of Policy

Update 30 April 2018

This Statement of Policy (SoP) was updated following PS8/18 ‘Pillar 2: Update to reporting requirements’. This policy takes effect from Monday 1 October 2018.

This SoP was also updated following PS9/18 ‘Groups policy and double leverage’. This policy takes effect from Tuesday 1 January 2019.

Update 1 February 2018

This Statement of Policy was updated to correct Figure 1 on page 20, so that the lower bound in concentration risk bucket 3 shows 25.8%.

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.

Current version

Published: 30 April 2018

Past versions

Published: 30 April 2018


Published
: 12 December 2017

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