PRA Updates the Policy on Approach to Systemic Risk Buffer

In CP29/18, PRA had proposed to do the following:

• Remove the statement that PRA’s approach to reviewing the Statement of Policy every two years is mandated by the SRB regulations
• Replace references to CP25/16 with the corresponding PRA Statement of Policy on its methodologies for setting Pillar 2 capital, following publication of the final policy
• Include references to Supervisory Statement 45/15 titled ‘The UK leverage ratio framework," which was recently updated with respect to the application of an additional leverage ratio buffer (ALRB) rate to SRB institutions

PRA had received no responses to the consultation. Therefore, PRA has made no changes to the draft policy consulted on in the consultation paper. However, PRA changed footnote 11 in the Statement of Policy to update references to the Delegated Regulation (EU) No 1222/2014. The Statement of Policy was also updated to simplify the formatting and aid readability, including sequential numbering of footnotes, the updating of hyperlinks to reflect the location of materials on the BoE website, and to make hyperlinks more easily identifiable. SRB is intended to increase the capacity of the UK domestic systemically important ring-fenced bodies and building societies to absorb stresses, thus increasing their resilience relative to the system and promoting the safety and soundness of the PRA-regulated firms. SRB is a firm-specific buffer that is based on a firm’s worldwide risk-weighted exposures and each firm will be required to ensure that it is met solely with the common equity tier 1 capital.

In line with the recommendations of the Independent Commission on Banking, the UK legislation implementing the SRB Regulations requires the Financial Policy Committee (FPC) to establish a framework for an SRB that applies to large building societies and ring-fenced bodies. The SRB Regulations require PRA to apply that framework from January 01, 2019. FPC published "The Financial Policy Committee’s framework for the systemic risk buffer" (the SRB framework) in May 2016. Alongside the FPC framework, this Statement of Policy will form BoE's broader framework for SRB. PRA will review this Statement of Policy at least every two years.

Related Links

• Statement of Policy
• PS32/18
  

Effective Date: December 13, 2018

Keywords: Europe, UK, Banking, Systemic Risk Buffer, SRB Regulation, Ring Fencing, PS32/18, CRR/CRD, PRA