This Consultation Paper (CP) sets out proposed changes to the Prudential Regulation Authority’s (PRA) rules, supervisory statements (SS) and statements of policy (SoP) to implement elements of the Capital Requirements Directive V (CRD V). It also proposes to update aspects of the UK framework as a result of amendments to the Capital Requirements Regulation (CRR, as amended in CRR II), which apply during the EU Exit Transition Period. This CP is relevant to banks, building societies, PRA-designated investment firms, UK financial holding companies, and UK mixed financial holding companies of certain PRA-authorised firms.
This CP should be read in conjunction with CP12/20 ‘Capital Requirements Directive (CRD) V’, which sets out the PRA’s proposed approach to implementing other elements of CRD V, and HM Treasury’s (HMT) approach to implementing aspects of CRD V and CRR II that require legislative changes in order to implement them in the UK. HMT’s approach is being legislated for through the Financial Holding Companies (Approval etc.) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020.
The CRD V measures covered by this CP include:
- a new requirement for the approval and supervision of certain holding companies;
- measures to enhance supervisory requirements to measure, monitor, and control interest rate risk in the banking book;
- measures revising the framework for applying capital buffers;
- amendments to the definition of the maximum distributable amount that constrains a firm’s distributions when it uses its capital buffers;
- clarifying the quality of capital required to meet Pillar 2 requirements.
The CRR measures covered comprise adjustments to:
- the process through which variable capital requirements may be applied to firms' real estate exposures (and the public authority responsible for applying it); and
- the methods that may be used for the purposes of prudential consolidation.
|CP chapter||Policy material||CP Appendix|
|3. Application of prudential requirements to approved holding companies||The General Organisational Requirements Part of the PRA Rulebook||1|
|The Skills, Knowledge and Expertise Part of the PRA Rulebook||1|
|The Risk Control Part of the PRA Rulebook||1|
|The Remuneration Part of the PRA Rulebook||1,2|
|The Individual Capital Adequacy Assessment (ICAA) Part of the PRA Rulebook||1,2|
|The Individual Liquidity Adequacy Assessment (ILAA) Part of the PRA Rulebook||1,2|
|The Group Risk Systems Part of the PRA Rulebook||1,2|
|The Capital Buffers Part of the PRA Rulebook||1, 2|
|4. IRRBB||The ICAA Part of the PRA Rulebook||2|
|SS31/15 ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)||3|
|SS20/15 ‘Supervising building societies’ treasury and lending activities’||3|
|5. Capital buffers||SoP ‘The PRA’s approach to the implementation of the systemic risk buffer’||3|
|SoP ‘The PRA’s methodologies for setting Pillar 2 capital’||3|
|SoP ‘The PRA’s approach to identifying other systemically important institutions (O-SIIs)’||3|
|SS31/15 ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’||3|
|SS6/14 ‘Implementing CRD IV: Capital buffers’||3|
|SS45/15 ‘The UK leverage ratio framework’||3|
|SS16/16 ‘The minimum requirement for own funds and eligible liabilities (MREL) – buffers and Threshold Conditions'||3|
|The PRA’s approach to banking supervision||3|
|6. MDA||The Capital Buffers Part of the PRA Rulebook||1,2|
|SS6/14 ‘Implementing CRD IV: Capital buffers’||3|
|7. Pillar 2||SS31/15 ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’||3|
|8. Governance||The General Organisational Requirements Part of the PRA Rulebook||1|
|SS28/15 ‘Strengthening accountability in banking’||3|
|9. Variable risk weights for real estate exposures||The Credit Risk Part of the PRA Rulebook||1|
|10. Methods of consolidation||The Groups Part of the PRA Rulebook||1,2|
Some of the measures in CRR II, and the UK transposition of CRD V, come into effect on Monday 28 or Tuesday 29 December 2020. In accordance with the EU (Withdrawal Agreement) Act 2020, the version of the CRR which applies in the UK at 11pm on Thursday 31 December 2020 will become ‘retained EU law’ through the operation of the EU (Withdrawal) Act 2018.
Responses and next steps
This consultation closes on Tuesday 17 November 2020. Please note that this is a shortened consultation period, which is necessary to meet the transposition date for CRD V (Monday 28 December 2020).
The PRA invites feedback on the proposals set out in this consultation, and also on the specific questions included in Chapters 4 and 6. The PRA would also welcome firms’ views on whether additional and material costs not identified in Chapter 11, including for holding companies, may arise as a result of the proposals. Please address any comments or enquiries to CP17_20@bankofengland.co.uk.