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April 30, 2018

PRA published the policy statement PS9/18, which provides feedback on responses to the consultation paper CP19/17 on groups policy and double leverage. PS9/18 is relevant to PRA-authorized UK banks, building societies, PRA-designated UK investment firms, and their qualifying parent undertakings, in addition to the credit institutions, investment firms, and financial institutions that are subsidiaries of these firms, regardless of their location.

PS9/18 updates the following:

  • Rule 14.10 of the PRA Rulebook CRR Firms: “Internal capital adequacy assessment (No.2) instrument 2018” (Appendix 1)
  • Supervisory statement (SS31/15) on Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) (Appendix 2). SS31/15 sets out information about expectations of firms undertaking an ICAAP; stress testing, scenario analysis, and capital planning; reverse stress testing; and SREP.
  • Statement of Policy on the PRA methodologies for setting Pillar 2 capital (Appendix 3). The Statement of Policy sets out the methodologies that PRA uses to inform the setting of Pillar 2 capital for firms to which CRD IV applies.
  • SS24/15 on the PRA approach to supervising funding and liquidity risks (Appendix 4). SS24/15 sets out the PRA approach to supervising liquidity and funding risks; it also covers PRA expectations in relation to Internal Liquidity Adequacy Assessment Process (ILAAP), the Liquidity Supervisory Review and Evaluation Process, drawing down Liquid Asset Buffers, collateral placed at BoE, and daily reporting under stress.

PRA received three responses to CP19/17. Respondents supported the overarching principle that consolidated capital requirements should take into account all risks that a group faces and that the financial strength of the holding company is significantly important. In addition, they sought clarity on certain aspects of the proposals. The final rules, updated supervisory statements, and Statement of Policy will come into effect from January 01, 2019. Where practical and applicable, firms should continue to aim to incorporate the policy proposals in their ICAA and ILAA submissions, ahead of full implementation.

 

Related Links

Effective Date: January 01, 2019

Keywords: Europe, UK, Banking, Double Leverage, ICAAP, SREP, Pillar 2, Stress Testing, ILAAP, PS9/18, SS31/15, SS24/15, PRA

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