PRA Updates the Policy on Approach to Systemic Risk Buffer
PRA published the final Statement of Policy on the PRA approach to the implementation of the systemic risk buffer (SRB), as proposed in the consultation paper CP29/18. As part of this update, PRA also updated the policy statement PS32/18, which is relevant to ring-fenced bodies within the meaning of section 142A of the Financial Services and Markets Act 2000 and large building societies that hold more than GBP 25 billion in deposits (where one or more of the account holders is a small business) and shares (excluding deferred shares)—jointly known as the "SRB institutions." The effective date for these changes is December 13, 2018.
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
Effective Date: December 13, 2018
Keywords: Europe, UK, Banking, Systemic Risk Buffer, SRB Regulation, Ring Fencing, PS32/18, CRR/CRD, PRA
Featured Experts
Dr. Samuel W. Malone
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
Previous Article
BDE Publishes Technical Instructions for Reporting by BanksRelated Articles
MAS Concludes Blockchain Payments Prototype Shows Commercial Potential
MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.
EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
APRA Updates Reporting Validation Rules in July 2020
APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
PRA to Partly Apply EBA Guidelines on Disclosures for COVID Measures
PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.
EBA Updates List of Correlated Currencies Under CRR
EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.
FASB Proposes to Delay Implementation of Insurance Contracts Standard
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB Set Out Recommendations for Benchmark Transition
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS Sets Out Recommendations for Benchmark Transition for Insurers
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA Updates Reporting Manual on European Single Electronic Format
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
