PRA Regulatory Digest - October 2018

The PRA Regulatory Digest is for people working in the UK financial services industry and highlights key regulatory news and publications delivered for the month.
Published on 01 November 2018

Top news and publications

‘Good cop/bad cop’, a speech by Sam Woods, Deputy Governor for Prudential Regulation and CEO of the PRA.

EU withdrawal: The Bank of England published a news release with links to all communications issued on Thursday 25 October.

Climate change: Alongside a news release the PRA published CP23/18 ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’.

News and speeches

Bank of England's approach to financial services legislation under the European Union (Withdrawal) Act - October 2018

25 October 2018

The package of communications published on Thursday 25 October sets out changes to the Bank of England’s rules and binding technical standards arising out of EU Withdrawal.

It also sets out further guidance on the process for authorisation and recognition for incoming EEA firms and non-UK FMIs, including the temporary permissions and recognition regimes. The package does not reflect any policy changes other than those related to EU withdrawal, and builds on previous communications to firms on their preparations around EU withdrawal.

The position remains that in all but certain limited exceptions – as set out in the announcement - UK regulated firms do not need to take action now to implement changes in UK law arising from the UK’s withdrawal by March 2019. See below in cross-cutting for publications of interest to those working with or at PRA-regulated firms.

Good cop/bad cop – speech by Sam Woods

25 October 2018

At the Mansion House City Banquet, Sam Woods, the Deputy Governor for Prudential Regulation and the Chief Executive of the Prudential Regulation Authority (PRA), describes the two different roles the regulator often finds itself playing, good cop and bad cop. See the news release published alongside the speech.

PRA consults on its expectations for the management of financial risks from climate change

15 October 2018

The PRA has published a consultation paper (CP) on a draft supervisory statement (SS) which sets out expectations regarding firms’ approaches to managing the financial risks from climate change. See below in cross-cutting.

Cross-cutting publications and updates

Update to the PRA’s approach to supervision documents

31 October 2018

On Wednesday 31 October the PRA published updated versions of ‘The PRA’s approach to supervision’, for both banking and insurance. ‘The PRA approach’ documents set out how the PRA carries out its role in practice. They are designed to help regulated firms and the market understand how the PRA supervises these institutions, and to aid accountability to the public and Parliament.

25 October 2018

The Bank of England published a news release with links to all communications issued on Thursday 25 October. Of particular interest to those working with or at PRA-regulated firms are:

For further information and materials about the PRA's work on the UK’s withdrawal from the EU, please see the new dedicated EU withdrawal webpage that includes links to information on the authorisation of EEA banks and insurers, and the temporary permissions regime.

CP24/18 ‘Occasional Consultation Paper’

22 October 2018

This CP sets out proposed changes to PRA Rulebook Parts, SSs, statements of policy (SoPs) and forms. The proposed changes and the appendices where the draft policy is set out, are listed on CP24/18 ‘Occasional Consultation Paper’ webpage.

This CP is relevant to all PRA-authorised firms.

The consultation closes on:

  • Thursday 22 November 2018 for Chapter 2; and
  • Tuesday 22 January 2019 for Chapters 3, 4, 5, 6 and 7.

Superseded SS11/14 ‘CRD IV: compliance with the EBA's Guidelines on disclosure of encumbered and unencumbered assets’

22 October 2018

On Wednesday 21 June 2017 the PRA published CP10/17 ‘Compliance with the EBA’s Guidelines on disclosure: Composition of collateral for exposures to counterparty credit risk’ which proposed that SS11/14 would no longer apply to firms after the Regulatory Technical Standard (RTS) for disclosure of encumbered and unencumbered assets (EU) 2017/2295 came into effect. This RTS was published in the Official Journal of the European Union, and came into effect on Tuesday 2 January 2018. SS11/14 therefore ceased to apply to firms from Tuesday 2 January 2018.

CP23/18 ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’

15 October 2018

In this CP, the PRA seeks views on a draft SS on banks’ and insurers’ approaches to managing the financial risks from climate change (see Appendix).

The CP is relevant to all UK insurance and reinsurance firms and groups, ie those within the scope of Solvency II including the Society of Lloyd’s and managing agents (‘Solvency II firms’) and non-Solvency II firms, (collectively referred to as ‘insurers’), banks, building societies, and PRA-designated investment firms (hereinafter ‘banks’). ‘Firms’ will be used to refer to both insurers and banks.

The PRA considers that setting out its proposed expectations around how firms address the financial risks from climate change will enable firms to interpret the PRA’s rules and facilitate these intended outcomes.

This consultation closes on Tuesday 15 January 2019.

CP21/18 ‘Regulatory transactions: Changes to notification and application forms’

1 October 2018

In this CP, the PRA sets out its proposals for changes to various PRA forms relating to applications or notifications for regulatory transactions. The CP is relevant to all PRA-authorised firms as well as firms that have a qualifying holding, or which intend to acquire a qualifying holding in a PRA-authorised firm.

The reasons for the proposed changes are explained in Chapter 1. The proposals have been combined into a single consultation to avoid the PRA publishing multiple separate consultations on the same forms and to help ensure PRA resources are used efficiently.

The proposals would be expected to have effect immediately after the publication of final policy.

This consultation closes on Thursday 1 November 2018.

Banking publications and updates

Ring-fencing: Summary of regulatory reporting requirements

31 October 2018

The PRA published the ‘Ring-fencing: Summary of regulatory reporting requirements’ pack which summarises the new regulatory reporting, and reporting system requirements in relation to ring-fencing. The pack is aimed at UK banking groups in scope of structural reform requirements that will be required to submit ring-fencing regulatory returns from Tuesday 1 January 2019. See the Structural reform webpage.

Change to supervising remuneration compliance for Level One firms

18 October 2018

The PRA published a letter sent to the Chairs of the Remuneration Committees of Level One firms on ‘Change to supervising remuneration compliance for Level One firms’.

 

CP22/18 ‘Liquidity reporting: FSA047 and FSA048’

12 October 2018

In this CP, the PRA proposes to delay terminating the existing ‘daily flows’ and ‘enhanced mismatch’ liquidity reports (FSA047 and FSA048) for a limited period. The purpose of the proposed change is to mitigate risks to the supervision of liquidity in the initial period following the introduction of the new PRA110 report (‘the PRA110’) on Monday 1 July 2019.

This CP is relevant to banks, building societies, and PRA-designated investment firms.

The PRA does not propose changing the implementation date of the PRA110.

These proposals would be delivered by amendments to the Reporting Part of the PRA Rulebook (Appendices 1 and 2) and an update to SS34/15 ‘Guidelines for completing regulatory reports’ (Appendix 3).

This consultation therefore closes on Monday 12 November 2018.

Statement of Policy ‘Pillar 2 liquidity’

12 October 2018

The PRA confirms that it is using its new individual risk methodologies as set out in Statement of Policy ‘Pillar 2 liquidity’ in liquidity reviews. They are being applied at the current glide path factor.

The PRA has previously stated its intention to set out proposals on the overall calibration of the liquidity framework in 2018. However, the PRA has taken the decision to postpone finalisation of its proposals in order to conduct further analysis on the appropriate level of liquidity guidance. This includes the potential for some recognition in the Pillar 2 liquidity framework of the ability to draw on Bank of England liquidity facilities, where firms have access arrangements and appropriate collateral in place.

Following PS8/18 ‘Pillar 2: Updates to reporting requirements’

1 October 2018

Following PS8/18 ‘Pillar 2: Updates to reporting requirements’ updated versions of SoP ‘The PRA’s methodologies for setting Pillar 2 capital’ and SS32/15 ‘Pillar 2, including instructions for completing data items FSA071 to FSA082, and PRA 111’ have come into effect. The Pillar 2 reporting schedule has also been updated, and is available on the Regulatory Reporting – banking sector page.

Insurance publications and updates

CP27/18 ‘Solvency II: Adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down’

31 October 2018

In this CP, the PRA sets out its proposals to amend SS3/15 ‘Solvency II: the quality of capital instruments’. It proposes an expectation that insurers will deduct the maximum tax charge generated on write-down, when including items listed in Articles 69(a)(iii) and (b) of the Solvency II Regulation (the ‘Solvency II Regulation’) or certain items approved under Article 79 of the Solvency II Regulation to be recognised as restricted Tier 1 own funds (rT1) in their own funds.

This is in the light of the proposed tax changes introduced by HMRC in the Budget on Monday 29 October 2018 pertaining to hybrid instruments. The CP specifically addresses the implications of those proposed tax changes on rT1.

The CP is relevant to UK insurance firms within the scope of Solvency II, the Society of Lloyd’s, and firms that are part of a Solvency II group that will determine and classify capital instruments under the Solvency II own funds regime, together with their advisors.

This consultation closes on Wednesday 2 January 2019

Solvency II: Equity release mortgages update

25 October 2018

The consultation period for PRA CP13/18 ‘Solvency II Equity Release Mortgages’ closed on Sunday 30 September 2018. The proposed implementation date for the proposals in the CP was Monday 31 December 2018. Based on feedback to the consultation, the PRA has decided that the implementation date will not be before Tuesday 31 December 2019.  The PRA is making this announcement now in order to clarify the position for insurers planning their year-end 2018 processes. The PRA is currently giving careful consideration to the consultation responses and the impact, if any, of the updated implementation date to the proposed phase-in period. The PRA will publish final policy and supervisory statements in due course.

PS26/18 ‘Strengthening accountability: implementing the extension of the SM&CR to insurers’

18 October 2018

Ahead of the extension of the Senior Managers and Certification Regime (SM&CR) to insurers on Monday 10 December 2018, The PRA published PS26/18 ‘Strengthening accountability: Implementing the extension of the SM&CR to insurers’. Firms are also encouraged to see the note the PRA published on ‘Redesignation of Senior Insurance Management Functions to Senior Management Functions, and the change-over to ‘Statements of responsibilities’ by insurers’.

The PRA publishes final policy on four areas relevant to Solvency II

17 October 2018

The PRA published the following final policy relevant to Solvency II insurers:

V1.0.0 of the Bank of England insurance XBRL taxonomy

17 October 2018

The PRA published v1.0.0 of the Bank of England insurance XBRL taxonomy, see the Solvency II page. This version of the taxonomy, data point model (DPM) dictionary, annotated templates and validation rules covers the requirements for reporting of internal model output (IMO), market risk sensitivities (MRS), National Specific Templates (NSTs) and standard formula reporting for firms with an approved internal model (SF.01). See the Regulatory reporting – insurance sector page for more information.

Also in the month

23 October 2018

19 October 2018

These items are selected from Latest Bank of England news. Readers may also find it useful to refer to the Statistics and Research sections of the Bank’s website.

Bank Underground

Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England or its policy committees.

View Bank Underground blog posts.

KnowledgeBank

This month, KnowledgeBank includes a guide on: ‘What is the Prudential Regulation Authority (PRA)?’

From interest rates and inflation through to bank failures and financial crises, KnowledgeBank uses everyday examples and engaging visuals to bring economics to life.

 

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