PRA Regulatory Digest - September 2019

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 October 2019

Top news and publications

  • ‘Insurance risk management in a changing world’ – speech by Charlotte Gerken
  • Bank of England and UK Finance publish SIMEX18 report
  • CP19/19 ‘Insurance special purpose vehicles: Updates to authorisation and supervision’

News and speeches

‘Insurance risk management in a changing world’ – speech by Charlotte Gerken

24 September 2019

In her speech, Charlotte Gerken, Director, Cross-Cutting and Insurance Policy, looks at what the PRA expects of firms in the area of risk management.

She outlines some recent PRA policy that relates to the management of investment risk. This includes a Consultation Paper (CP) on the Prudent Person Principle (see below) and a Supervisory Statement (SS) on liquidity risk management (see below).

Cross cutting publications and updates

PS22/19 ‘FCA and PRA changes to mortgage reporting requirements’

30 September 2019

In CP FCA - 18/41 PRA – 30/18 the PRA proposed new reporting requirements which would apply to regulated mortgage lenders and home finance administrators. This policy statement summarises the feedback received and our response to it.

The PRA plan to publish the technical documents (Data Reference Guide) in October 2019 and give firms access to the FCA’s reporting system (GABRIEL) test environment from November 2019. Firms which do not already have access can request it via the FCA contact centre.

PS21/19 ‘Responses to CP13/19 Occasional Consultation Paper’

30 September 2019

This PRA Policy Statement (PS) provides feedback to responses to CP13/19 ‘Occasional Consultation Paper’. It also includes the final rules, updated SS, and relevant templates and LOG files.

The appendices to this PS provide links to the final rules amending parts of the PRA Rulebook, final SSs, and final templates and LOG files.

Bank of England and UK Finance published SIMEX18 report

27 September 2019

SIMEX18 took place on 9 November 2018, and was completed as part of the Bank of England and PRA’s regular exercising strategy. On 27 September 2019 the Bank of England and UK Finance published a report reviewing and summarising the events of the exercise day, including participant feedback, and findings from the post exercise assessment.

Updated Memorandum of Understanding (MoU) between the FSCS and Bank of England (Bank)

19 September 2019

The PRA and the Financial Services Compensation Scheme (FSCS) have published an updated Memorandum of Understanding between the FSCS and Bank of England (exercising its prudential regulation functions).

Waiver by consent: Continuity of Access rules

13 September 2019

The PRA published a new waiver by consent to waive the Continuity of Access requirements contained in the Depositor Protection Part of the PRA Rulebook. More information is available on the Authorisations – Waivers and modifications of rules page.

Further information

Banking publications and updates

CP24/19 ‘Asset encumbrance’

30 September 2019

In this CP, the PRA sets out its proposed expectations of firms when managing the key prudential risks associated with asset encumbrance, specifically in the contexts of managing liquidity and funding risks, recovery planning, and resolution. The PRA’s proposed expectations relate both to firms’ internal monitoring and management of these risks, and to the information that firms are expected to provide to the PRA through their periodic regulatory submissions, eg Internal Liquidity Adequacy Assessment Process (ILAAP) documents and recovery plans.

The CP is relevant to PRA-authorised UK banks and building societies, PRA-designated UK investment firms and their qualifying parent undertakings (QPUs), as well as credit institutions, investment firms and financial institutions that are subsidiaries of these firms, regardless of their location. It is also relevant to counterparties of the above-listed entities to the extent that counterparties have financial contracts with such entities governed by third-country law. It is not relevant to credit unions.

This consultation closes on Friday 17 January 2020.

PS20/19 ‘Strengthening individual accountability: Resolution assessments and reporting amendments’

27 September 2019

This PRA PS provides feedback to responses to CP12/19 ‘Strengthening individual accountability: Resolution assessment and reporting amendments’.

This PS also contains the PRA’s final policy in respect of amendments to:

  • The prescribed responsibility (PR) for recovery plans and resolution packs contained in the Allocation of Responsibilities part of the PRA Rulebook (Appendix 1);
  • SS28/15 ‘Strengthening individual accountability in banking’ (Appendix 2); and
  • The form ‘Senior Managers Regime: Statement of Responsibilities’ (SoR form) (Appendix 3).

CP21/19 ‘Credit risk: Probability of Default and Loss Given Default estimation’

18 September 2019

In this CP, PRA sets out its proposed approach to implementing the European Banking Authority’s (EBA) recent regulatory products relating to Probability of Default estimation, Loss Given Default estimation and the treatment of defaulted exposures in the Internal Ratings Based approach to credit risk. The proposals are relevant to UK banks, building societies and PRA-designated UK investment firms.

This consultation closes on Wednesday 18 December 2019.

Updates to MREL reporting templates

18 September 2019

On 7 June 2019, the European Union published a new Regulation (EU/2019/876) amending Regulation (EU/575/2013) and Regulation (EU/648/2012) (CRR II) in the Official Journal of the European Union. Following this, the PRA published clarifications in respect of the guidance on reporting and definitions to the MREL reporting templates available in Appendix 2 of PS11/18 ‘Resolution planning: MREL reporting’.

Category 5 plus credit unions

16 September 2019

In August 2019, the PRA contacted Category 5 credit unions with the findings of the PRA Annual Assessment of the Credit Union sector for 2019. Credit unions received one of two letters, depending on total assets and/or members. See the two letters on the Credit unions webpage.

PS17/19 ‘Supervising international banks: Revision of the Branch Return’

12 September 2019

This PRA Policy Statement (PS) provides feedback to responses to CP8/19 ‘Supervising international banks: Revision of the Branch Return’, as follows:

This PS is relevant to all existing and prospective PRA-supervised branches of deposit takers and PRA-designated investment firms which are not UK headquartered firms (‘international banks’).

The changes to the Return and the reporting guidance will take effect for the reporting of the H1 2020 Return, ie for the six-month period ending Tuesday 30 June 2020 and firms will need to submit their first revised Return by no later than Tuesday 11 August 2020.

CP20/19 ‘Regulatory capital instruments: update to Pre-Issuance Notification (PIN) requirements’

09 September 2019

In this CP, the PRA sets out its proposals for amendments to the Pre-Issuance Notification (PIN) regime applicable to PRA-authorised Capital Requirements Regulation (575/2013) (CRR) firms. Appendix 1 contains the proposed amendments to the PIN regime as set out in the Definition of Capital Part of the PRA Rulebook.

The PRA also sets out a number of proposals to make the PIN regime for CRR firms more risk-sensitive and proportionate, and to allow firms greater flexibility in issuing capital instruments.

This consultation closes on Monday 9 December 2019.

Letter from Vicky Saporta ‘Money Laundering/Terrorist Financing risks in prudential supervision’

05 September 2019

Letter to Chief Executive Officers of PRA-regulated firms subject to the CRR from Vicky Saporta, Executive Director, Prudential Policy, on the recently published EBA Opinion on Money Laundering/Terrorist Financing risks in prudential supervision.

Further information

For information on banking regulatory returns and how to report them, visit the Regulatory reporting – banking sector page.

For details of forms used to collect data through the online statistical data application (OSCA), visit the Forms, definitions, and validation page.

Insurance publications and updates

CP23/19 ‘Solvency II: Income producing real estate loans and internal credit assessments for illiquid, unrated assets’

27 September 2019

This CP set outs the PRA’s proposed expectations of firms in respect of their modelling of income producing real estate (IPRE) loans within their Solvency II internal models. It also proposes amendments to its expectations in respect of the use of internal credit assessments for assigning fundamental spreads for illiquid, unrated assets.

The proposals in this CP would result in changes to SS3/17, ‘Solvency II: Matching adjustment - illiquid unrated assets and equity release mortgages’

This consultation closes on Monday 27 December 2019.

PS19/19 ‘Solvency II: Equity release mortgages - Part 2’

27 September 2019

This PRA PS provides feedback to responses to CP7/19 ‘Solvency II: Equity release mortgages – Part 2’. It also contains the PRA’s final SS3/17 ‘Solvency II: Matching adjustment – illiquid unrated assets and equity release mortgages’.

This PS is relevant to insurance and reinsurance companies holding equity release mortgages (ERMs).

Alongside the PS, the PRA also published a new webpage with information on the Effective Value Test.

PS18/19 ‘Liquidity risk management for insurers’

24 September 2019

This PRA PS provides feedback to responses to CP4/19 ‘Liquidity risk management for insurers’. It also contains the PRA’s SS18/19 ‘Liquidity risk management for insurers’.

This PS is relevant to all UK Solvency II firms, including in respect of the Solvency II groups provisions, the Society of Lloyd’s and its managing agents, and non-directive insurers.

CP22/19 ‘Solvency II: Prudent Person Principle’

18 September 2019

In this CP, the PRA sets out its proposed expectations for investment by firms in accordance with the Prudent Person Principle as set out in Chapters 2 to 5 of the Investments Part of the PRA Rulebook (which transpose Article 132 of the Solvency II Directive (2009/138/EC)).

The proposals are relevant to all UK Solvency II firms (including in the context of provisions relating to Solvency II groups), mutuals, third-country branches, the Society of Lloyd’s and its managing agents.

This consultation closes on Wednesday 18 December 2019.

Biennial transitional measure on technical provisions recalculation

16 September 2019

In line with SS6/16 ‘Maintenance of the ‘transitional measure on technical provisions’ under Solvency II’, The PRA have been monitoring market conditions since the previous biennial transitional measure on technical provisions (TMTP) recalculation (as at 31 December 2017), and also have been considering whether changes in market conditions since the end of June can reasonably be considered to have been sustained. More information can be found on the Solvency II webpage.

CP19/19 ‘Insurance special purpose vehicles: Updates to authorisation and supervision’

03 September 2019

In this CP, the PRA sets out some proposed updates to its approach and expectations in relation to the authorisation and supervision of insurance special purpose vehicles (ISPVs). The proposals would make amendments to the ISPVs Part of the PRA Rulebook (Appendix 1), including SS8/17 ‘Authorisation and supervision of insurance special purpose vehicles’ (Appendix 2) and the Multi-arrangement insurance special purpose vehicle New Risk Assumption Notification Form (Appendix 3).

The CP is relevant to parties who wish to apply for, or have obtained authorisation as, an ISPV. It is also relevant to insurers or reinsurers seeking to enter into arrangements with UK ISPVs as a form of risk mitigation.

This consultation closes on Tuesday 3 December 2019.

Further information

For information on insurance regulatory returns and how to report them, visit the Regulatory reporting – insurance sector page.

Your inputs and views on open PRA consultations and other requests closing – October 2019

Closing date: 21 October

Also in the month

24 September

23 September

4 September

2 September

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European and international developments

Readers are also referred to the following websites:

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