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Responses are requested by Monday 8 April 2024.
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Capital and Compensation Standards Team
Prudential Regulation Authority
1.1 This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposals to:
- introduce new rules to exclude reserves held on omnibus accounts from the leverage ratio, subject to specific conditions, and to add related material to supervisory statement (SS) 45/15 – The UK leverage ratio framework;
- make minor amendments to SS45/15 to ensure clarity and consistency with PRA rules on other parts of the leverage ratio framework; and
- make minor amendments to the leverage ratio disclosure and reporting instructions to provide clarification of the PRA’s expectations and ensure consistency with PRA rules.
1.2 The proposals in this CP would result in changes to:
- the Glossary, Leverage Ratio (CRR), Disclosure (CRR) and Reporting (CRR) Parts of the PRA Rulebook (Appendix 1);
- SS45/15 (Appendix 2);
- the ‘Instructions for leverage ratio disclosures’ (Appendix 3); and
- the ‘Instructions for leverage ratio reporting’ (Appendix 4).
1.3 Omnibus accounts are an emerging type of account at central banks where the central bank reserves of several participants are co-mingled in a single account. These accounts are expected to bring a range of wholesale settlement benefits.
1.4 The PRA currently excludes from the leverage ratio eligible liability-matched claims on central banks,footnote  including reserves, pursuant to a direction from the Financial Policy Committee (FPC) (the ‘leverage ratio direction’). In October 2022, the FPC stated that it has not identified any material financial stability risks from applying this exclusion to reserves held on omnibus accounts (henceforth ‘omnibus account reserves’).footnote 
1.5 The PRA considers that applying the current exclusion to omnibus account reserves, with the effect that these reserves are excluded in the same way as those held on traditional individual accounts, would implement the FPC’s leverage ratio direction consistently by excluding all asset types which are claims on central banks. The PRA also considers that the proposal would remove a disincentive to the adoption of omnibus accounts and would thereby help facilitate competition in wholesale payment systems, as well as the international competitiveness of the UK financial sector. The PRA therefore proposes to extend the existing exclusion.
1.6 In support of the PRA’s primary safety and soundness objective, the PRA is proposing to introduce furtherfootnote  conditions on the application of the exclusion to omnibus account reserves in its rules. This aims to ensure that, where the exclusion applies, any risks associated with omnibus account reserves, additional to those arising in respect of reserves held on traditional accounts, are mitigated. The PRA intends to set out its expectations in relation to the proposed conditions in SS45/15 (see Appendix 2).
1.7 The PRA also proposes to make minor amendments to SS45/15, and the leverage ratio disclosure and reporting instructions, to provide additional clarifications and ensure consistency with PRA rules.
1.8 The proposals are relevant to Capital Requirements Regulation (CRR) firms and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis. None of the proposals in this CP are relevant to credit unions.
1.9 The PRA has a statutory duty to consult when introducing new rules (FSMA s138J), or new standards instruments (FSMA s138S). When not making rules, the PRA has a public law duty to consult widely where it would be fair to do so.
1.10 In carrying out its policymaking functions, the PRA is required to comply with several legal obligations. The analysis in this CP explains how the proposals have had regard to the most significant matters, including an explanation of the ways in which having regard to these matters has affected the proposals. The PRA has not consulted any of the statutory panels for this CP.
1.11 In relation to the proposals to exclude omnibus account reserves from the leverage ratio, in line with the current exclusion of reserves held on traditional accounts, ‘have regard’ considerations which were significant in the PRA’s analysis included medium- to long-term economic growth, transparency and proportionality:
- The proposals would support competition between existing settlement systems and omnibus accounts, as well as facilitate innovation in payment systems, ultimately supporting the competitiveness of the UK financial sector and thereby contributing to medium- to long-term economic growth.
- The proposals would also facilitate transparency, since, to the extent any ambiguity exists over application of the central bank claims exclusion to omnibus accounts, they would remove it.
- The PRA considers that these proposals are proportionate, as the PRA is proposing constraints on the exclusion (in the form of further conditions) which are tailored to the risks identified.
1.12 In relation to the proposals to make minor amendments to SS45/15 and the leverage ratio disclosure and reporting instructions, ‘have regard’ considerations which were significant in the PRA’s analysis included the principle that the PRA should exercise its functions transparently. The aim of these proposals is to make the PRA’s requirements and expectations as clear as possible.
The PRA’s proposal on the treatment of omnibus account reserves under the leverage ratio framework
1.13 The leverage ratio is a simple indicator of a firm’s solvency that relates its capital resources to its exposures (referred to in PRA rules as the ‘total exposure measure’). The lower a firm’s leverage ratio, the more the firm relies on debt to fund its activities. The general principle behind the leverage ratio is that it should capture all exposures of a firm, whether on- or off-balance sheet, on a risk-insensitive basis.
1.14 The FPC has powers of direction to the PRA over the leverage ratio framework.footnote  Since 2016, pursuant to an FPC recommendation and (since 2021) the leverage ratio direction, PRA rules obligate firms to exclude from the leverage ratio any claims on central banks matched by liabilities in the same currency and of identical or longer maturity.
1.15 This is intended to ensure that the leverage ratio framework does not act as a barrier to the effective implementation of any monetary policy measures that lead to an increase in central bank claims, in particular an increase in central bank reserves. This is also intended to ensure the leverage ratio does not act as a disincentive for firms to use central bank liquidity facilities.
1.16 Claims on central banks are a unique asset class because they are the ultimate settlement asset. Where matched by liabilities in the same currency they typically do not represent an exposure to risk.
1.17 The exclusion of reserves from the leverage ratio was designed with the traditional reserves model in mind, where firms hold individual reserves accounts with central banks. However, there is a new model emerging where the reserves of several firms are co-mingled in a single account held at the central bank – known as ‘omnibus’ accounts.
1.18 The Bank of England (the Bank) published its omnibus accounts policy in 2021. This policy requires that omnibus account reserves at the Bank must be held by an operator of a recognisedfootnote  payment system (PSO) on behalf of firms.
1.19 This policy is expected to offer a number of benefits to firms participating in omnibus accounts, including reduced credit risk and improved flexibility to manage intraday liquidity (in part through being able to operate outside current RTGS operating hours).
1.20 The emergence of omnibus accounts (including internationally) raises the question of whether reserves held on them should also be excluded from the leverage ratio, like traditional individually-held reserves.
1.21 In October 2022, the FPC recognised that the PRA may wish to consider excluding omnibus account reserves from the leverage ratio. It did not identify any material financial stability risks that would arise from their exclusion (along with other reserves). To enable the PRA to respond to this issue in a way consistent with its objectives, the FPC modified its leverage ratio direction.footnote  This modification allows the PRA to apply additional conditions to the existing central bank claims exclusion, where consistent with the original purpose of the exclusion.
Structure of the CP
1.22 The proposals in this CP are structured as follows:
- Chapter 2 – sets out the PRA’s proposal to introduce rules to apply the central bank claims exclusion to reserves held on omnibus accounts, subject to specific conditions, and to add related material to SS45/15.
- Chapter 3 – sets out the PRA’s proposal to make further minor amendments to SS45/15 to ensure clarity and consistency with PRA rules on other parts of the leverage ratio framework.
- Chapter 4 – sets out the PRA’s proposal to make minor amendments to Annex XII of the Disclosure (CRR) Part of the PRA Rulebook and Annex XI of the Reporting (CRR) Part of the PRA Rulebook to provide clarification of the PRA’s expectations and ensure consistency with PRA rules.
1.23 The proposed implementation date for the changes resulting from this CP is in 2024 Q2.
Responses and next steps
1.24 This consultation closes on Monday 8 April 2024. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP28_23@bankofengland.co.uk. Please indicate in your response if you believe any of the proposals in this consultation paper are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.
2: The PRA’s proposal on the treatment of omnibus accounts reserves under the leverage ratio framework
2.1 When it considered this issue in October 2022, the FPC did not identify any material financial stability risks that would arise from applying the leverage ratio exclusion to omnibus account reserves. The PRA further considers that expanding the central bank claims exclusion to apply to omnibus account reserves supports its policy objectives for the following reasons:
- The distinctive features of omnibus account reserves – co-mingling and the potential involvement of a PSO – do not change their economic substance, relative to reserves held under traditional arrangements. Applying the exclusion to all assets that are claims on central banks would implement the FPC’s leverage ratio direction consistently.
- It would – by removing a disincentive to the adoption of omnibus accounts – support competition in wholesale payment systems, with benefits for firms using them (and potentially their customers), as well as the international competitiveness of the UK financial sector.
2.2 In order to explicitly capture omnibus account reserves under the central bank claims exclusion, the PRA proposes to amend its existing definition of ‘central bank claims’ in the PRA Rulebook and to introduce a new definition of ‘omnibus accounts’.
2.3 The PRA also proposes to introduce some safeguards. Without safeguards, excluding omnibus account reserves from the leverage ratio could adversely impact safety and soundness where excluding reserves on traditional accounts does not – potentially undermining the integrity of the leverage ratio framework. This is because the features which distinguish omnibus accounts from traditional accounts may pose additional risks.
2.4 These additional risks will depend on the exact structure of the omnibus account arrangements at those central banks that host them. Generally, such risks arise because of the potential role of a third party (such as any PSO) in the arrangements, and the co-mingling of funds.
2.5 One example of an additional risk is that of reserves being potentially subject to unexpected losses. These could happen if a participant’s omnibus account reserves are not sufficiently legally protected from the creditors of other participants or any PSO; or if there were a mismatch between the balances held on any payment system and the balance on the omnibus account (as might happen if, for instance due to operational failure, the ledger of the system lost its one-to-one correspondence with the account).footnote 
2.6 Another risk is that participants could have to pay portions of any charges owed to the central bank by others. This could happen in a situation where accounts are debited directly by the central bank to recoup charges and some participants do not have enough on their accounts to pay their shares. In those circumstances, participants could end up paying more than what they have agreed.
2.7 The PRA considers that only omnibus account reserves that pose no greater risk than reserves held under traditional arrangements should qualify for the central bank claim exclusion. The safeguards which the PRA proposes aim to ensure this is the case and take the form of furtherfootnote  conditions for the exclusion of omnibus account reserves, making use of the discretion given by the FPC.
2.8 The PRA’s proposed additional conditions can be found in Appendix 1. A summary follows:
- Firms’ reserves should not be available to other participants or their creditors (or those of the account holder, where this is a third party), including in the event of insolvency. Where the account holder is a third party, the omnibus account reserves must be segregated from other assets it holds.
- Firms would need to be able to have visibility over their respective shares in the omnibus account at all times – this would ensure that firms could continue to meet the liability matching criterion, which is required by the PRA in respect of all central bank claims for the purpose of exclusion from the leverage ratio.
- Any risk of excess payment of charges owed to the central bank (as set out in 2.6), where the central bank may deduct them directly, should be appropriately managed – account arrangements should ensure participants must not pay more than their share of such charges and that the method by which they are apportioned should not be unfair and unreasonable. The details of the method of apportionment of participants’ shares must be accessible to them.
- Any payment system associated with the account, including any operator, would have to be subject to regulatory oversight in accordance with the CPMI/IOSCO’sfootnote  Principles for Financial Market Infrastructures.
- Where an associated payment system is used for settlement, balances would always need to be fully funded with reserves on the omnibus account. This would avoid mismatches, which may lead to losses for firms.
- The omnibus account reserves would have to be (and remain) the property of firms, free of encumbrance, and readily accessible to firms – specifically, they would need to meet the liquidity requirements in Article 7(2) and 8(2) of the Liquidity Coverage Ratio (CRR) Part of the PRA Rulebook. By applying these requirements, the PRA intends to capture any unforeseen issues (whether operational, contractual or otherwise) that could hinder firms’ ability to access, and use, their omnibus account reserves. This will address any residual risk of omnibus accounts.
2.9 The PRA proposes to set out its expectations in relation to these proposed conditions in SS45/15. To enable effective supervision, these include the PRA's expectation that, pursuant to Fundamental Rule 7 of the PRA Rulebook, firms subject to the leverage ratio minimum capital requirement should notify the PRA of any existing or planned participation in an omnibus account. The PRA also expects such firms to tell the PRA whether they meet, or expect to meet, the proposed conditions in respect of reserves held currently or expected to be held on omnibus accounts.
2.10 The PRA considers that the Bank’s omnibus account policy would facilitate omnibus account reserves held at the Bank meeting the proposed conditions. For example, the Bank’s requirement for the PSO to hold the omnibus account reserves on trust would deliver protection for the reserves, including in the event of insolvency of the operator. It would also give firms adequate property rights over the omnibus account reserves. Similarly, under the Bank’s policy for omnibus accounts, the PSO has a responsibility to ensure balances on its platform are fully funded with reserves on the account at all times. Nonetheless, firms would have to assess, and monitor, whether the proposed conditions are met on a case-by-case basis.
2.11 Separately, the PRA also considers that the expectations set out in SS2/21 – Outsourcing and third party risk management around robust governance and controls of third parties would apply in respect of third parties associated with omnibus account arrangements (such as any PSO).
2.12 When setting further conditions in relation to the central bank claims exclusion, the PRA is required to have regard to the purpose of the exclusion – to not impede the transmission of monetary policy or firms’ access to central bank liquidity facilities. The PRA considers that its proposed conditions would be consistent with this - eligible omnibus account reserves would be treated in the same way as other claims on central banks under the leverage ratio, avoiding unintended impediments to monetary policy transmission or access to liquidity.
2.13 Consistent with the FPC’s intentions and direction, the proposed conditions also do not differentiate between omnibus account reserves held in the UK and those in other jurisdictions. The PRA considers that the proposals do not change the existing leverage ratio treatment of claims on central banks, in particular of traditional individually-held reserves which the FPC had in mind at the time of introducing the exclusion. The PRA considers that omnibus account reserves would not represent an exposure to risk that is any greater than reserves held under traditional arrangements, so long as the conditions outlined in paragraph 2.8 are met.
2.14 The PRA intends to keep its proposed conditions under review to respond to market and regulatory changes in the UK and overseas, as omnibus account arrangements develop. As part of this consultation process, the PRA invites respondents to provide details of UK and non-UK omnibus account arrangements that they may participate (or consider participating) in, where relevant. Where responses are of relevance to the Bank’s regulation of omnibus accounts or associated PSOs, the PRA would share this detail with other relevant areas of the Bank.
PRA objectives analysis
2.15 The PRA considers that the proposals for further conditions ensure that omnibus account reserves are only excluded from the leverage ratio where, like claims on central banks held under more traditional arrangements, they are typically not an exposure to risk. This would support the PRA’s primary objective of firms’ safety and soundness.
2.16 The PRA considers that its proposals could facilitate the adoption of the omnibus account innovation, because the PRA is proposing conditions which are proportionate. Omnibus account reserves being treated consistently with traditional individually-held reserves under the leverage ratio removes a potential impediment to the use of omnibus accounts and so may facilitate their adoption. This could lead to effective competition among wholesale payment systems, with downstream benefits for firms that use those services (and potentially their customers). It could also support the international competitiveness of the UK financial sector, since it facilitates firms’ access to the benefits omnibus accounts are expected to deliver, among which are reduced credit risk and improved flexibility to manage intraday liquidity. In this way, it would advance both of the PRA’s secondary objectives.
Cost benefit analysis (CBA)
2.17 The PRA’s proposals aim to implement the FPC’s leverage ratio direction consistently and in a way that removes an impediment to the adoption of omnibus accounts. Where the proposed (and existing) conditions for the exclusion are met, firms would not need to hold capital against their omnibus account reserves under the leverage ratio framework. This would provide a variety of benefits, in exchange for limited cost incurred by evaluating whether the conditions are met as well as by supervisory engagement in relation to them.
2.18 The PRA views that the proposals would provide capital relief in respect of omnibus account reserves when the proposed further conditions are met, freeing up firms’ capital for other purposes. This would reduce costs to the economy from constraining lending capacity. The PRA views that the proposed further conditions for the exclusion would address the risk of losses more efficiently by preventing them entirely, rather than by pre-emptively supporting them with capital.
2.19 Given uncertainties over the future number of omnibus accounts and their uptake, the magnitude of the capital benefit is subject to material uncertainty. By projecting the steady state usage of a representative omnibus account and making various assumptions (including about the number of firms participating in such an account), the PRA estimates an aggregate saving of up to £45 million in cost of capital annually (representing up to 1 basis point of leverage ratio headroom for firms, on average) in relation to one omnibus account.
2.20 There are also wider benefits. The PRA considers that allowing the exclusion to apply where prudentially appropriate would remove an impediment to the adoption of omnibus accounts, facilitating the unique benefits they are expected to bring, as set out in paragraph 2.16. The conditions will also benefit firms directly by protecting them from unexpected losses. Furthermore, in giving greater clarity about the type of safeguards firms may look for when considering joining an omnibus account scheme, they would help PSOs or other providers enhance their offering to firms.
2.21 The PRA recognises that the proposed conditions could impose some operational costs on firms participating (or considering participating) in an omnibus account arrangement, since they would have to evaluate whether these arrangements meet the conditions. The PRA considers that the extent of these costs would be limited in practice, as there will be significant overlap with requirements set by the financial infrastructure regulator;footnote  and we expect firms participating in an omnibus account to, in any case:
- review the contractual and operational arrangements offered by PSOs or other providers to assure themselves that their funds would be appropriately protected, as well as apply governance and controls to all third party dependencies that can impact the PRA’s statutory objectives under SS2/21;
- request real-time visibility over their funds for liquidity and payment management purposes – the PRA considers the proposed visibility condition would reinforce the importance of this feature; and
- assess the omnibus account funds against Articles 7(2) and 8(2) of the Liquidity Coverage Ratio (LCR) Part of the Rulebook, to determine whether these funds can form part of their liquidity buffers.
2.22 The PRA considers that the conditions are consistent with the existing Bank omnibus accounts policy. Because of this, provision of these accounts should not be reduced or otherwise adversely affected by the conditions - as could happen if it were technically difficult to provide an omnibus account on which reserves could be excluded. They would therefore not affect the potential cost of UK omnibus accounts.
2.23 There are potential compliance costs associated with firms notifying the PRA of existing participation, or planned participation, in omnibus accounts, outlining whether the conditions are met and aiding supervisory assessment where appropriate (per the expectation that the PRA proposes to set out in SS45/15).footnote  There are conversely similar costs involved for the PRA, as supervisors would have to review firms’ notifications. The PRA expects the firm and supervisory time involved to be limited.
2.24 There may be capital costs arising as a result of this policy, but these are subject to uncertainty. Reserves on joint accounts (a type of omnibus account which exists abroad, where reserves held by participants directly and jointly without an intervening third party) may currently be viewed as being captured by the exclusion of claims on central banks under existing PRA rules. Where, however, firms already exclude reserves on such joint accounts, they would need to re-assess the appropriateness of that exclusion in light of the proposed new requirements. The PRA has limited information on existing joint accounts and the reserves held on them by firms, so cannot estimate costs if the exclusion were no longer to apply. However, as noted in paragraph 2.14, the PRA invites firms to provide details of any non-UK omnibus accounts – including joint accounts – in which they may participate (or are considering participation). This should include the scale of the current (or planned) participation.
‘Have regards’ analysis
2.25 In developing these proposals, the PRA has had regard to the FSMA regulatory principles, and the aspects of the Government’s economic policy set out in the HM Treasury (HMT) recommendation letter from December 2022. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of its proposals:
- Innovation, Competitiveness, Sustainable growth (HMT recommendation letter): The PRA considers that applying the central bank claims exclusion to omnibus account reserves, where prudentially appropriate, would support the development of omnibus accounts, and so promote innovation in payment services. This could, in turn, improve the competitiveness of firms, given the benefits omnibus accounts are expected to deliver – including reduced credit risk and improved flexibility to manage intraday liquidity. The PRA considers that its proposals avoid conflicts with the Bank’s approach to omnibus accounts that might hinder the uptake of this innovation in the UK. Further, the PRA’s proposal to also exclude omnibus accounts held at non-UK central banks, where they meet the conditions, could help facilitate the development of innovative cross-border payment services and thereby increase the attractiveness of the UK as a financial centre. To the extent that the PRA’s proposals contribute to innovation and competitiveness, they would also facilitate sustainable growth.
- Transparency (FSMA regulatory principle): Depending on the specific arrangements, omnibus account reserves may not be captured by existing PRA rules on the leverage ratio exclusion. The PRA considers the proposals could provide clarity on the conditions under which omnibus account reserves would qualify for the exclusion.
- Proportionality (FSMA regulatory principle): The PRA is proposing constraints on the exclusion (in the form of further conditions) which are tailored to the risks identified - as detailed in paragraphs 2.3 to 2.10 above.
- Competition (HMT recommendation letter): The PRA considers that excluding omnibus account reserves, where prudentially appropriate, would facilitate effective competition among wholesale payment systems, with downstream benefits for firms that use those services (and potentially their customers).
- Differences in businesses (FSMA regulatory principle): In developing its proposals, the PRA has considered how the omnibus account model may differ across jurisdictions. The PRA considers its proposals cover a range of potential omnibus account structures and would target the specific risks that these structures pose to firms.
2.26 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for this proposal, it is because the PRA considers that ‘have regard’ to not be a significant factor for this proposal.
Impact on mutuals
2.27 The PRA considers that the impact of the proposed rule changes on mutuals would be no different from the impact on other firms. Like other firms, mutuals would exclude central bank claims from the leverage ratio, and the Bank’s criteria for omnibus accounts would not prevent mutuals from participating in those accounts (to the extent that they meet the eligibility criteria applying to all participant firms). The PRA therefore considers that mutuals would also be subject to the proposed further conditions for the exclusion of omnibus account reserves, to mitigate against the potential risks from the omnibus account model set out in this CP.
Equality and diversity
2.28 The PRA has assessed whether these proposals give rise to equality and diversity implications, and considers that, given the nature of the changes proposed, there is no impact.
3: The PRA’s proposal on amendments to SS45/15
3.1 This chapter sets out the proposals to make minor amendments to SS45/15, in addition to the changes proposed to SS45/15 in Chapter 2. These are all reflected in Appendix 2.
3.2 The PRA proposes deleting paragraph 1.A.1. This paragraph is no longer relevant as it has lapsed – it describes the scope of application of the Leverage Ratio – Capital Requirements and Buffers Part as it stood until 31 December 2022.
3.3 The PRA also proposes to make a clarification regarding the ‘Leverage Ratio Group Add-on’. Paragraph 2.3A describes the Add-on - the PRA’s expectation that ring-fenced body (RFB) group risk should be taken into account by firms, through holding additional capital on a consolidated basis. In response to queries raised by firms regarding the calculation of the Leverage Ratio Group Add-on, the PRA proposes to clarify the paragraph by setting out the formula.
3.4 There is a typographical error in paragraph 4.2. The text ‘including a sub-consolidated CCyB’ in sub-paragraph (ii) should be followed by the word ‘rate’. Without the word ‘rate’, the text in that sub-paragraph could be misunderstood. The PRA proposes to correct this error.
3.5 Table 3 in chapter 6 is not fully aligned with the disclosure requirements in the PRA Rulebook. Table 3 specifies certain quarterly disclosures (to be made in the LRCom template). It also states that specific types of institution are expected to make certain disclosures, in the Key Metrics template, on a quarterly basis if they are subject to a leverage ratio requirement. This is not consistent with the PRA Rulebook position. Table 3 also does not provide frequencies for all types of institution and so is not as comprehensive as it could be. The PRA proposes to amend SS45/15 to address these points.
PRA objectives analysis
3.6 The PRA considers that ensuring the consistency and accuracy of its policy material helps firms understand and comply with PRA rules, which contributes to the PRA’s statutory objective to promote the safety and soundness of PRA authorised firms.
3.7 The PRA does not expect this proposal would have any impact on its secondary objectives, as it does not change existing policy.
Cost benefit analysis
3.8 The PRA considers that there will be no additional costs from the correction of these errors. In relation to the proposed corrections to Table 3 of SS45/15, the costs of disclosure were evaluated when the relevant rules were originally made. The proposed correction to sub-paragraph 4.2 will not have any impact on firms. The proposed clarification to paragraph 2.3A will create benefits for firms and the PRA, as it will reduce ambiguity and avoid the supervisory engagement which has previously been necessary in relation to this paragraph.
‘Have regards’ analysis
3.9 In developing these proposals, the PRA has had regard to the FSMA regulatory principles and the aspects of the Government’s economic policy set out in the HMT recommendation letter. The following factor, to which the PRA is required to have regard, was significant in the PRA’s analysis of the proposals outlined in this chapter:
- Regulators should exercise their functions as transparently as possible: The aim of this proposal is to ensure the correctness and/or completeness of the PRA’s policy material, and therefore to make the PRA’s requirements and expectations as transparent and clear as possible
Impact on mutuals
3.10 The PRA does not expect this proposal to have a different impact on mutuals compared to other firms because the proposal does not change existing policy.
Equality and diversity
3.11 The PRA considers that this proposal does not give rise to equality and diversity implications because it does not change existing policy.
4: The PRA’s proposal on amendments to the leverage ratio disclosure and reporting instructions
4.1 This chapter sets out the proposals to make minor amendments to the ‘Instructions for leverage ratio disclosures’ and the ‘Instructions for leverage ratio reporting’. They are reflected in Appendix 3 and Appendix 4 respectively.
4.2 There are areas where the PRA’s disclosure instructions are not fully aligned with the requirements set out in the PRA Rulebook. The PRA does not expect that inconsistencies in firms’ disclosures have resulted, but it wishes to ensure the consistency of its policy material.
4.3 Additionally, paragraph 4.c is no longer relevant as it has lapsed – it provides an instruction for firms subject to the leverage ratio minimum capital requirement that applied until 1 January 2023.
4.3 The PRA proposes to change the disclosure instructions so that they match the position in the PRA Rulebook, as well as to remove paragraph 4.c.
4.4 The PRA also proposes to make a minor amendment to provide a clarification in the leverage ratio reporting instructions in respect of template LV50, which was published as part of policy statement 5/23 – Risks from contingent leverage. This is to clarify that firms should report the gross value of repurchase transactions where the contracts are recognised as an asset on the balance sheet.
PRA objectives analysis
4.5 The PRA considers that ensuring the consistency, accuracy and clarity of its policy material helps firms understand and comply with PRA rules, which contributes to the PRA’s primary objective to promote the safety and soundness of PRA authorised firms.
4.6 The PRA does not expect this proposal would have any impact on its secondary objectives, as it does not change existing policy. It ensures that PRA rules are interpreted consistently between firms.
Cost benefit analysis
4.7 The PRA considers that there will be no additional costs from aligning the disclosure instructions with the PRA Rulebook, nor from adding the clarification to the reporting instructions:
- The costs of disclosure were evaluated when the rules were originally made.
- The proposed clarification to the reporting instructions does not change the substance of what firms are required to report. It may benefit firms and the PRA by preventing the need to ask supervisors for clarification.
‘Have regards’ analysis
4.8 In developing these proposals, the PRA has had regard to the FSMA regulatory principles and the aspects of the Government’s economic policy set out in the HMT recommendation letter. The following factor, to which the PRA is required to have regard, was significant in the PRA’s analysis of the proposals outlined in this chapter:
- Regulators should exercise their functions as transparently as possible: The aim of this proposal is to ensure the correctness and/or completeness of the PRA’s policy material, and therefore to make the PRA’s requirements and expectations as transparent and clear as possible.
Impact on mutuals
4.9 The PRA does not expect this proposal to have a different impact on mutuals compared to other firms because the proposal does not change existing policy.
Equality and diversity
4.10 The PRA considers that this proposal does not give rise to equality and diversity implications because it does not change existing policy.
Central bank claims for these purposes include reserves held by a firm at the central bank, banknotes and coins constituting legal currency in the jurisdiction of the central bank, and assets representing debt claims on the central bank with a maturity of no longer than three months, provided they are denominated in the national currency of such central bank.
In addition to the existing conditions for the exclusion of central bank claims outlined in Article 429a(A1) of the Leverage Ratio (CRR) Part of the PRA Rulebook.
This means that the FPC can direct the PRA to implement aspects of the UK leverage ratio framework to further the FPC’s objectives. The FPC must, in so far as it is possible, seek to avoid exercising these direction powers in a way that would prejudice the advancement by the PRA of any of its objectives.
The payment system must be recognised by HM Treasury under the Banking Act 2009.
It is envisaged (including in the Bank’s omnibus accounts policy) that payment systems using omnibus accounts will operate via platforms run outside of the central bank, across which payments are made. Some such payment systems may use distributed ledger technology.
In addition to the existing conditions for the exclusion of central bank claims outlined in Article 429a(A1) of the Leverage Ratio (CRR) Part of the PRA Rulebook.
Committee on Payments and Market Infrastructures/International Organization of Securities Commissions.
Typically, requirements placed on any associated payment system as well as its operator.
See paragraph 2.9 above.