UK leverage ratio: Applying the framework to systemic ring-fenced bodies and reflecting the systemic risk buffer

Policy Statement 28/18 | Consultation Paper 14/18

Published on 14 November 2018

UK leverage ratio: Applying the framework to systemic ring-fenced bodies and reflecting the systemic risk buffer - PS28/18

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 14/18 ‘UK leverage ratio: Applying the framework to systemic ring-fenced bodies and reflecting the systemic risk buffer’. It also contains the PRA’s final policy to update:

  • The Leverage Ratio, Public Disclosure, Reporting Leverage Ratio, and Ring-fenced Bodies Parts of the PRA Rulebook (Appendix 1);
  • Supervisory Statement (SS) 45/15 ‘The UK leverage ratio framework’ (Appendix 2);
  • SS46/15 ‘UK leverage ratio: instructions for completing data items FSA083’ (Appendix 3); and
  • FSA083 Leverage Ratio Reporting template, and reporting instructions (Appendix 4).

This PS is relevant to those firms in scope of the UK leverage ratio framework that are also systemic risk buffer (SRB) institutions, or part of a group containing an SRB institution.

The PRA received one response to the CP asking for clarification on the scope and timing of the proposals. The PRA’s feedback to this response is set out in Chapter 2. 

The PRA has made no changes to the proposals in CP14/18.

Implementation

The changes to the rules and expectations, and new versions of the FSA083 template and accompanying instructions, will take effect from Tuesday 1 January 2019.


Appendices

 


Published on 03 July 2018

UK leverage ratio: Applying the framework to systemic ring-fenced bodies and reflecting the systemic risk buffer - CP14/18

Overview

In this consultation paper (CP) the Prudential Regulation Authority (PRA) proposes to apply the systemic risk buffer (SRB) framework in the UK leverage ratio framework.

This includes a proposal to apply leverage ratio requirements on a sub-consolidated basis to those ring-fenced bodies (RFBs) whose groups are already required to meet leverage ratio requirements on a consolidated basis – hereafter ‘RFBs in scope’.

The FPC’s powers over leverage ratio tools published in 2015 (‘the FPC leverage ratio policy statement’), stated that domestic systemically important banks would be subject to a leverage ratio buffer that mirrors their risk-weighted capital requirements from 2019. In 2016 the FPC finalised a framework to apply an SRB to RFBs and large building societies, where the FPC further set out that it ‘anticipates that the leverage ratio will be applied to UK G-SIBs and other major UK banks and building societies at the level of the RFB subgroup from 2019 (where applicable), as well as on a consolidated basis’. The FPC intended that larger firms within the population of RFBs and large building societies be subject to higher systemic buffers, reflecting the greater economic cost of their stress or failure.

In line with these statements, and to support the implementation of the SRB framework from 2019, the PRA proposes to amend the UK leverage ratio framework to reflect the SRB framework.

This CP is relevant to those firms in scope of the UK leverage ratio framework that are also SRB institutions, or part of a group containing an SRB institution.

Summary of proposals

The PRA proposes to apply the SRB framework into the UK leverage ratio by:

(i) applying the UK leverage ratio framework on a sub-consolidated basis to RFBs in scope;
(ii) amending the additional leverage ratio buffer (ALRB) to reflect the SRB; and
(iii) where applicable, expecting firms to hold capital on a group consolidated basis to address RFB group risk (the ‘Leverage Ratio Group Add-on’).

In order to implement the changes, the PRA proposes to update:

  • The Leverage Ratio, Public Disclosure, Reporting Leverage Ratio, and Ring-fenced Bodies Parts of the PRA Rulebook (Appendix 1);
  • Supervisory Statement (SS) 45/15 ‘The UK leverage ratio framework’ (Appendix 2);
  • SS46/15 ‘UK leverage ratio: instructions for completing data items FSA083 and FSA084’ (Appendix 3); and
  • FSA083 Leverage Ratio Reporting template (Appendix 4) and instructions (Appendix 5).

     

  • Responses and next steps

    This consultation closed on Tuesday 25 September 2018. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP14_18@bankofengland.co.uk. The PRA proposes to implement the proposals in this CP on Tuesday 1 January 2019.

    PDFConsultation Paper 14/18

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