Published on 10 March 2020
Regulatory capital instruments: update to Pre-Issuance Notification (PIN) requirements – PS5/20
This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 20/19 ‘Regulatory capital instruments: update to Pre Issuance Notification (PIN) requirements’. It also contains the PRA’s final policy, as follows:
- amendments to the Definition of Capital Part of the PRA Rulebook (Appendix 1);
- an updated Supervisory Statement (SS) 7/13 ‘Definition of capital (CRR firms)’ (Appendix 2);
- an updated PIN form (Appendix 3);
- an updated Common Equity Tier 1 (CET1) compliance template (Appendix 4); and
- a summary table showing the PRA’s final clarification of ’sufficiently in advance’ notification and ‘substantially the same’ terms (as defined in updated SS7/13) (Annex)
This PS is relevant to PRA-authorised Capital Requirements Regulation (CRR) firms. For avoidance of doubt, these requirements apply at both the individual and UK consolidated level.
Summary of responses
The PRA received three responses to the CP. Respondents were generally supportive of the proposals, and made a number of observations and requests for clarification. The details of these responses and the PRA’s feedback and final decisions are set out in Chapter 2 of this PS.
In the three responses received, there were two items that were unrelated to the policy proposals. The PRA sets out these items in Chapter 1.
The changes in this PS take effect from Wednesday 1 April 2020.
The policy set out in this PS has been designed in the context of the UK’s withdrawal from the European Union and entry into the transition period, during which time the UK remains subject to European law. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the European Union take effect.
The PRA has assessed that the proposals would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA) at the end of the transition period. Please see PS5/19 ‘The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018’ for further details.
Appendix 1: PRA RULEBOOK: CRR FIRMS: DEFINITION OF CAPITAL AMENDMENT INSTRUMENT
Appendix 2: SS7/13 ‘Definition of capital (CRR firms)’
Appendix 3: Pre / post notification (PIN) form for CRR firms
Appendix 4: CET1 compliance template for CRR firms
Published on 9 September 2019
Regulatory capital instruments: update to Pre-Issuance Notification (PIN) requirements - CP20/19
In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out its proposals for amendments to the Pre-Issuance Notification (PIN) regime applicable to PRA-authorised Capital Requirements Regulation (575/2013) (CRR) firms. Appendix 1 contains the proposed amendments to the PIN regime as set out in the Definition of Capital Part of the PRA Rulebook.
The PRA’s PIN rules are intended to enhance and maintain the quality of firms’ capital resources by providing the PRA with the opportunity to comment on the terms and conditions of proposed capital instruments prior to the issuance of such instruments. The proposals in this CP reflect the adoption of amendments to Part Two of CRR via CRR II and make improvements identified through the PRA’s experience of assessing the quality of capital instruments. The PRA considers that the proposed improvements would make the PIN regime more risk-sensitive and proportionate, and would allow firms greater flexibility in issuing capital instruments.
CRR II amends various aspects of the CRR, including Article 26(3) which now allows a firm to classify subsequent issuances of an approved Common Equity Tier 1 (CET1) instrument as CET1, subject to meeting certain conditions including notification to the PRA (see paragraph 3.12 of this CP). As a result of these amendments, there is an overlap between the PRA’s rules in Chapter 7 of the Definition of Capital Part and Article 26(3) of the CRR as amended. On Monday 10 June 2019, the PRA made available a modification by consent as an interim solution to address this overlap ahead of formally consulting on rule changes. The PRA now proposes to amend the Rulebook to address this overlap.
The PRA also sets out a number of proposals to make the PIN regime for CRR firms more risk-sensitive and proportionate, and to allow firms greater flexibility in issuing capital instruments. For example, the PRA proposes to amend the Rulebook to strengthen the governance of CET1 issuance, align the requirements for subsequent issuances of Additional Tier 1 (AT1) instruments to those for subsequent issuances of CET1 instruments, and remove the requirement to make a pre-issuance notification of Tier 2 (T2) instruments. The proposed restructure of Chapter 7 of the Definition of Capital Part is intended to ease understanding of the rules.
The PRA’s Supervisory Statement (SS) 7/13 ‘CRD IV and capital’ sets out the PRA’s expectations of CRR firms in relation to their quality of capital resources. The PRA proposes to update SS7/13 to emphasise the PRA’s preference for simpler CET1 capital structures and set out its proposed expectations of firms’ senior management in relation to the quality of capital resources. The PRA also proposes to clarify two terms introduced by CRR II, to ensure common understanding of notification requirements in relation to subsequent issuances of CET1 and AT1 capital instruments. Appendix 2 contains the proposed revisions to SS7/13 which is proposed to be renamed ‘Definition of Capital’.
Responses and next steps
This consultation closed on Monday 9 December 2019. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP20_19@bankofengland.co.uk.
The proposals set out in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place. In case of an implementation period, the PRA may need to amend the definition of CRR for the purposes of Chapter 7 of the Definition of Capital Part to explicitly include relevant amendments via CRR II.
The proposed implementation date for the proposals in this CP is Wednesday 1 April 2020.