PRA Consults on Designation of Firms in Certain Consolidation Groups
PRA has proposed, via CP22/20, the approach to designating entities within certain banking UK consolidation groups as responsible for ensuring that consolidated prudential requirements are met during a transitional period. For this, PRA proposed to create a new Part of the PRA Rulebook (the Designation Part). Relevant holding companies will need to apply for approval or exemption in accordance with The Financial Holding Companies (Approval etc.) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020. This consultation closes on December 16, 2020 and the proposed implementation date for this approach is December 28, 2020. PRA had earlier addressed this matter as part of CP17/20 on the implementation of certain elements of Capital Requirements Directive (CRD5).
The proposals apply to the period between December 28, 2020 and the date on which the UK parent holding company’s application for approval or exemption is finally determined. Consolidated supervision ensures, among other things, that groups have sufficient capital for risks anywhere in the group that might adversely affect regulated entities in the group. It reduces the likelihood of the failure of a PRA-authorized firm because of risks taken in another group entity. Consolidated requirements generally apply prudential requirements to authorized firms and, where relevant, their parent(s), financial subsidiaries, and financial sibling companies as though they were one entity. From December 28, 2020, the proposed Designation (Consolidation) Instrument 2020 would apply to a firm controlled by a parent financial holding company in a member state, or a parent mixed financial holding company in a member state, that would be under an obligation to comply with requirements of Capital Requirements Regulation (CRR) on a consolidated basis if Article 11(2) CRR was in force as it had effect in the UK on December 27, 2020.
After December 31, 2020, following the end of the transition period, the proposed Designation (Consolidation) (EU Exit) Instrument 2020 would apply to a firm controlled by a UK parent financial holding company or a UK parent mixed financial holding company that would be under an obligation to comply with CRR requirements on a consolidated basis if Article 11(2) CRR were in force as it had effect in the UK on December 27, 2020. A firm or firms to which the designation rule applies would remain responsible for ensuring compliance with the group’s consolidated prudential requirements under CRR, until the date on which the UK parent holding company’s application for approval or exemption has been finally determined. This designation would ensure the continuity of consolidated supervision, enabling PRA to continue to supervise, monitor, exercise discretions, impose additional requirements, and enforce against breaches of obligations which apply on a consolidated basis.
The requirement for designation would not apply in the case of a UK consolidation group headed by a PRA-authorized firm. In such cases, PRA-authorized firms within the group would continue to be responsible for ensuring that consolidated prudential requirements are met. The proposals have been designed in the context of withdrawal of UK from EU and the application of European law for the duration of the transition period. The proposals would continue to apply after the end of the transition period, with appropriate provision to address any deficiency arising from the withdrawal of UK from EU.
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Comment Due Date: December 16, 2020
Effective Date: December 28, 2020 (proposed)
Keywords: Europe, EU, UK, Banking, PRA Rulebook, Brexit Transition, CRD5, Designation Instrument, Consolidated Supervision, CRR, Regulatory Capital, PRA
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