The Prudential Regulation Authority (PRA) is required under the Financial Services and Markets Act 2000 (the Act), as amended by the Financial Services (Banking Reform) Act 2013 (the Banking Reform Act) to make policy to implement the ring-fencing of core UK financial services and activities.
This consultation paper (CP) consists of two parts. Part one of this CP focuses on reporting requirements for ring-fenced bodies (RFBs). Part two focuses on additional matters relating to ring-fencing on which the PRA has decided to consult.
This CP is relevant to those banking groups that will be required by the Act to ring-fence their core activities. This includes 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 1 January 2019. This CP will also be relevant to banking groups which may approach this threshold over time and to financial and other institutions, and customers who have dealings with these banking groups.
This CP is one of two publications issued by the PRA on 7 July 2016 relating to ring-fencing. The other ring-fencing publication, Policy Statement (PS) 20/16 ‘The implementation of ring-fencing: prudential requirements, intragroup arrangements and use of financial market infrastructures’, sets out the PRA’s feedback to responses received to its proposals in CP37/15 and final policy to implement the proposals consulted on in CP37/15, and the near-final rules and supervisory statements set out in PS10/15.
The PRA has also published PS21/16 ‘Ensuring operational continuity in resolution’ which may be relevant to banking groups required to implement ring-fencing.
For more information see ‘Structural reform and operational continuity policy published 7 July 2016’.
Summary of CP proposals
Part one of the CP sets out the PRA’s proposals for the data it intends to collect in connection with ring-fencing, in addition to the data already required under the broader regulatory regime or as a consequence of the PRA’s ring-fencing policy. The proposals in part one build on the preliminary discussion of reporting requirements that was included in CP37/15. Specifically, part one consults on reporting requirements related to the following areas:
i. supervision of prudential requirements at RFB sub-group level;
ii. intragroup transactions;
iii. use of exceptions to excluded activities and prohibitions; and
iv. ring-fencing rules and supervisory statements.
Part two of this CP sets out the PRA’s proposals in respect of additional matters relating to ring-fencing on which the PRA has decided to consult. These include proposals to implement the expectation in CP37/15 that a UK parent of a ring-fenced body (RFB) should not make use of double leverage to fund its investment in an RFB or other entities in an RFB sub-group, and to comply with the Financial Policy Committee’s (FPC) recommendation of 13 May 2016 in relation to the systemic risk buffer (SRB) framework. Specifically, part two consults on the following areas:
i. double leverage;
ii. reverse stress testing;
iii. recovery planning; and
iv. operational continuity and financial market infrastructures.
Proposed amendments to PRA rules, supervisory statements and other PRA publications (including to the final rules and supervisory statements included in the appendices to PS20/16) are set out in the appendices to this CP.
The policy contained in the underlying rules and supervisory statements has been designed in the context of the current UK and EU regulatory framework. It will come into effect on 1 January 2019. The PRA will keep the policy under review to assess what changes would be required due to intervening changes in the UK regulatory framework, including as a result of the referendum on 23 June 2016.
This consultation closed on Friday 7 October 2016.
The PRA also invites firms to include in their responses their own assessment of the impact of the proposals set out in this CP.
Firms’ preparations for ring-fencing
The proposals in this CP, together with the final rules and statements in the appendices to PS20/16 and the final policy in PS21/16, provide banking groups that will be required to implement ring-fencing with the information they need to finalise their plans.
Firms required to implement ring-fencing, ie those which have core deposits in excess of the threshold of £25 billion, should continue to discuss their overall implementation of ring-fencing with their supervisors. Firms should also highlight any changes to their plans made as a result of this CP to their supervisors. Firms with growth plans which indicate they are likely to meet this threshold should discuss with their supervisors.
Appendix 3: New templates (PRA110 - PRA116) and instructions
|PRA109||Intragroup exposures||Download data item||Download PDF|
|PRA110||Intragroup funding||Download data item||Download PDF|
|PRA111||Intragroup financial reporting (core)||Download data item||Download PDF|
|PRA112||Intragroup financial reporting (detailed breakdown)||Download data item|
|PRA113||Joint and several liability arising from taxes||Download data item||Download PDF|
|PRA114||Excluded activity entities||Download data item||Download PDF|
|PRA115||Use of financial market infrastructures||Download data item||Download PDF|
|PRA116||Excluded activities and prohibitions||Download data item||Download PDF|