Top news and publications
- CP16/22 – Implementation of the Basel 3.1 standards
- CP3/23 – Dealing with insurers in financial difficulties
- CP4/23 – The Strong and Simple Framework: Liquidity and disclosure requirements for Simpler-regime Firms
- CP5/23 – Remuneration: Enhancing proportionality for small firms
- Sixth edition of the Regulatory Initiatives Grid
- Bank Overground: Mind the (smaller) gap? Implications of the narrowing gap between modelled and standardised residential mortgage risk weights
News and speeches
Fundamental Spreads − speech by Sam Woods
20 February 2023
In his speech ‘Fundamental Spreads’, Sam Woods talks about the next steps for reforming the Solvency II insurance regulations in the UK.
The regulatory foundations of international competitiveness and growth − speech by Vicky Saporta
27 February 2023
In her speech ‘The regulatory foundations of international competitiveness and growth’, Vicky Saporta talks about what a new secondary competitiveness and growth objective will mean for how the PRA makes rules.
Bank Overground: Mind the (smaller) gap? Implications of the narrowing gap between modelled and standardised residential mortgage risk weights
27 February 2023
The purpose of Bank Overground is to share our internal analysis. Each bite-sized post summarises a piece of analysis that supported a policy or operational decision.
This Bank Overground sets out the proposed revisions to the standardised approach (SA) and internal ratings based approach (IRB) to credit risk are expected to narrow the gap between SA and IRB risk weights in the residential mortgage market. This should facilitate competition between firms, supporting the Prudential Regulation Authority's (PRA's) secondary objective, and inform the PRA’s thinking in designing a simpler risk-based capital framework for small banks and building societies.
This post was prepared with the help of Marco Schneebalg, James McGoay, Ala Marar and Faith Bannier.
This analysis was presented to the Prudential Regulation Committee in January 2023.
Cross cutting publications and updates
Sixth edition of the Regulatory Initiatives Grid
28 February 2023
The Regulatory Initiatives Grid sets out the regulatory pipeline, in order to give firms a clear view of upcoming regulatory initiatives.
Among the initiatives included in the sixth edition of the Grid are those which preserve regulatory protection while including a renewed focus on growth and competitiveness (for example, the Senior Managers and Certification Regime), those which enable a better use of technology and innovation (for example, consultations on rules for the stablecoins regime and the future regulatory regime for cryptoassets), and those that will simplify and reduce regulatory burden (for example, transforming data collection and a strong and simple prudential framework for non-systemic banks and building societies). The delay of this edition of the Grid from November 2022 to now has also allowed the regulators to better consider how the opportunities provided by the Edinburgh Reforms will impact the regulatory pipeline and initiatives over the coming years, as well as any updates to key initiatives affected by the Financial Services and Markets Bill (FSM Bill).
Banking publications and updates
CP16/22 – Implementation of the Basel 3.1 standards
30 November 2022
Published on 30 November 2022, this CP sets out the PRA’s proposed rules and expectations with respect to the implementation of the Basel 3.1 standards. The proposals include revised approaches to credit risk, market risk, operational risk, and credit valuation adjustment risk, and proposes a new, aggregate ‘output floor’ to ensure total risk-weighted assets (RWAs) for firms using internal models and subject to the floor cannot fall below 72.5% of RWAs derived under standardised approaches. The output floor is proposed to be phased in over five years.
The proposed changes are designed to improve the measurement of risk in internal models and standardised approaches and reduce excessive variability in the calculation of risk weights, thereby making firms’ capital ratios more consistent and comparable. In addition, the proposals would facilitate effective competition by narrowing the gap between risk weights calculated under internal models, which are typically used by the larger firms, and the standardised approaches.
The CP is relevant to all PRA-regulated banks, building societies, investment firms and financial holding companies (‘firms’). The CP also includes revised proposed criteria (‘Simpler-regime criteria’) for determining which firms would be in scope of the ‘strong and simple’ regime that the PRA is developing. In CP16/22, the PRA proposes that firms meeting the Simpler-regime criteria would not have to apply the Basel 3.1 standards for the calculation of capital ratios. Instead, such firms can choose to enter into a transitional interim regime, the ‘Transitional Capital Regime’, which is substantively the same as the existing regime under the Capital Requirements Regulation (CRR). If firms make this choice, the interim regime would apply while the PRA is developing the intended permanent capital framework for the simpler regime.
However, the Basel 3.1 proposals should still be of interest to firms meeting the proposed Simpler-regime criteria since, as part of the PRA’s considerations of how to develop a strong and simple prudential framework for such firms, the PRA is considering whether the proposed revised approaches for credit risk, as set out in CP16/22, would be the appropriate starting point. The PRA therefore invites responses from firms meeting the Simpler-regime criteria on the proposals set out in CP16/22, including how aspects could be adjusted for future application to them.
The consultation closes on 31 March 2023 and the PRA is keen to receive feedback from as wide a range of impacted firms and other stakeholders as possible, including on the interaction with the developing ‘strong and simple’ framework.
PS1/23 – Remuneration: Unvested pay, Material Risk Takers and public appointments
10 February 2023
This PS provides feedback to responses to CP8/22 – ‘Remuneration: Unvested pay, Material Risk Takers and public appointments’. It also contains the PRA’s final policy, as follows:
- updated Supervisory Statement (SS) 2/17 – ‘Remuneration’ (Appendix 1).
CP4/23 – The Strong and Simple Framework: Liquidity and disclosure requirements for Simpler-regime Firms
27 February 2023
This CP sets out the first phase of proposed simplifications that would apply to Simpler-regime Firms. These proposals consist of the following:
- new liquidity requirements for the application of the net stable funding ratio (NSFR);
- revisions to the application of Pillar 2 liquidity add-ons;
- a new, streamlined Internal Liquidity Adequacy Assessment Process (ILAAP) template;
- the removal of certain liquidity reporting templates;
- new Pillar 3 disclosure requirements for Simpler-regime Firms; and
- simplifications to certain proportionality approaches currently applicable in the PRA Rulebook.
CP5/23 – Remuneration: Enhancing proportionality for small firms
27 February 2023
This CP sets out the PRA’s proposed changes to the current rules and expectations to enhance the proportionality of the remuneration requirements which apply to small CRR firms and small third-country CRR firms (‘small firms’). The proposals in this CP would result in:
- changes to the Remuneration Part of the PRA Rulebook (Appendix 1); and
- updates to Supervisory Statement (SS) 2/17 – ‘Remuneration’ (Appendix 2).
The policy proposals included in this CP would:
- define small firms in line with the proposed Simpler-regime size threshold, and with reference to selected other Simpler-regime criteria under the ‘Strong and Simple’ framework (set out in CP5/22 – ‘The Strong and Simple Framework: a definition of a Simpler-regime Firm’ and chapter 2: Scope and levels of applications of CP16/22 – ‘Implementation of the Basel 3.1 standards’);
- remove the requirement for small firms, as defined in this CP, to apply rules on malus, clawback, and buyouts; and
- provide clarity on how disclosure requirements apply for all proportionality levels.
This CP should be read in conjunction with the PRA and the FCA’s joint CP on the removal of the bonus cap (CP15/22 – ‘Remuneration: Ratio between fixed and variable components of total remuneration (‘bonus cap’)’, which proposes to remove the current requirements concerning the ratio between the fixed and variable components of total remuneration (‘bonus cap’) for all firms currently in scope of the cap, including small firms. It should also be read in conjunction with the PRA’s consultations on the Strong and Simple framework (CP5/22 and CP16/22).
Insurance publications and updates
CP3/23 – Dealing with insurers in financial difficulties
8 February 2023
This CP sets out the PRA’s proposed rules and policy in respect of the changes introduced by the Financial Service and Markets Bill 2022-23 (FSM Bill) to the Financial Service and Markets Act 2000 (FSMA) concerning insurers in financial difficulties.
The proposals in this CP would result in changes to the Policyholder Protection Part of the PRA Rulebook (PPP) (Appendix 1), the Policyholder protection Statement of Policy (FSCS SoP) (Appendix 2), the introduction of new PRA rules (Appendix 3), and a new SoP (PRA SoP) (Appendix 4).
The proposals in this CP introduce:
- new PPP Rules concerning how the Financial Services Compensation Scheme (FSCS) should operate in connection with a write-down and consequential amendments to the FSCS SoP;
- new rules concerning the notification of affected persons; and
- a new SoP setting out the PRA’s approach and expectations in relation to write-down applications and the appointment of write down managers.
Bank Underground – 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.
Bank Overground – the purpose of Bank Overground is to share our internal analysis. Each bite-size post summarises a piece of analysis that support a policy or operational decision.
European and International developments – readers are referred to the following websites: