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    PRA Updates Approach to Pillar 2A Requirements for Banks

    December 08, 2021

    The Prudential Regulation Authority (PRA) issued a statement to update its approach to Pillar 2A requirements for banks. In response to the economic shock from COVID-19, PRA announced, on May 07, 2020, that it was alleviating unwarranted pressure on firms by setting the Pillar 2A requirement as a nominal amount, instead of a percentage of total risk-weighted assets (RWAs). PRA had set Pillar 2A as a nominal amount in the 2020 and 2021 Supervisory Review and Evaluation Processes (SREPs) and allowed firms without a 2020 SREP to request this on a voluntary basis, subject to supervisory judgment. However, PRA believes that this regulatory measure is no longer necessary; therefore, in 2022, for all firms, Pillar 2A requirement will be set as a variable amount (with the exception of some fixed add-ons, such as pension risk). Supervisors will contact firms that do not have an SREP assessment planned in 2022 to amend the requirements by end-2022. This statement is relevant for UK banks, building societies, and PRA-designated investment firms as well as UK financial holding companies and UK mixed financial holding companies of certain PRA-authorized firms.

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    Keywords: Europe, UK, Banking, Basel, Pillar 2A, Regulatory Capital, RWA, SREP, COVID-19, PRA

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