The leverage ratio is an indicator of a firm’s solvency that relates its capital resources to its exposures. Rule 1.1 of the Leverage Ratio – Capital Requirements and Buffers Part requires firms with more than £50bn retail deposits or £10bn non-UK assets (the leverage ratio requirement thresholds) to meet a minimum leverage ratio of 3.25% plus buffers at all times.
In policy statement PS 21/21 – The UK leverage ratio framework, the PRA said it would keep the leverage ratio requirement thresholds under review to ensure they remain consistent with the Bank of England’s concurrent stress testing framework. The Financial Policy Committee announced in 2023 that this framework, including the coverage of banks subject to concurrent stress testing, is currently being reviewed.
In light of this development, and mindful of the commitment made in PS21/21, the PRA is reviewing the leverage ratio requirement thresholds. Until this review is complete the PRA is offering a modification by consent to disapply the Leverage Ratio – Capital Requirements and Buffers Part of the PRA Rulebook. The modification by consent is available to a firm if it:
- did not meet the criteria set out in 1.1 of the Leverage Ratio – Leverage Ratio – Capital Requirements and Buffers Part before 10 September 2024; and
- expects to meet the criteria after the next accounting reference date or any accounting reference date before 31 December 2025.
This modification will cease to have effect at the end of 30 June 2026; the PRA may revoke the modification earlier, at an appropriate time following the completion of the review.
Firms that fulfil these criteria and wish to take advantage of this modification should consider the terms of the direction. If they want the modification to apply to themselves, they should send a short email to PRA-Waivers@bankofengland.co.uk, copying their usual supervision contact, confirming they are requesting this modification. The email should include the Firm name and Firm Reference Number. No additional supporting information is needed.
The PRA will confirm in writing whether the request has been granted and, if granted, it will publish the approved modification direction in respect of each firm on the Financial Services Register.