Statement
On 17 April 2025, the Prudential Regulation Authority (PRA) paused the process for a modification by consent that would allow certain non-UK covered bonds under Article 11(1)(d) of the Liquidity Coverage Ratio (CRR) Part of the PRA Rulebook to be included in Level 2A High Quality Liquid Assets (HQLA). The PRA withdrew the modification to consider technical comments and requests for clarification from firms. The PRA explained it would clarify its approach once that process was complete. In the interim, the PRA confirmed that firms did not need to amend their approach to recognising non-UK covered bonds under the Liquidity Coverage Ratio (CRR) and Liquidity (CRR) Parts of the PRA Rulebook.
Today, His Majesty’s Treasury (HMT) published a policy update, ‘Applying the Financial Services and Markets Act 2000 model of regulation to the UK Capital Requirements Regulation’. The policy update highlights that HMT is considering introducing an Overseas Prudential Requirements Regime (OPRR) that could be used to designate appropriate overseas jurisdictions in relation to the prudential treatment of UK firms’ exposure to non-UK covered bonds and is considering seeking industry feedback on the future approach. HMT has stated in its policy update that it intends to ensure any future designation under the OPRR would not create cliff edges in treatment for overseas covered bonds issued prior to the designation. The PRA will work closely with HMT as it takes this work forward.
Given this, the PRA has decided not to proceed with, or re-launch, the modification by consent process. Pending finalisation of the long-term approach to equivalence of non-UK covered bonds, the PRA does not expect firms to alter their approach to inclusion of non-UK covered bonds, including for new issuances, in Level 2 HQLA under the Liquidity Coverage Ratio (CRR) Part of the PRA Rulebook. The PRA recognises the importance of a smooth transition to any future PRA liquidity treatment of non-UK covered bonds and intends to give sufficient notice to facilitate this.