PRA Proposes to Amend Own Funds Rules Under CRR
The Prudential Regulatory Authority (PRA) sets out, in the consultation paper CP2/22, the proposed approach to transferring the UK Technical Standards for own funds requirements for institutions (UKTS) into PRA rules, with amendments to reflect revisions to the Capital Requirements Regulation (CRR), which applied from June 27, 2019. These changes to CRR were not reflected in the relevant European Union Regulatory Technical Standard before the end of the European Union withdrawal transition period and are, therefore, not currently included in the UKTS on own funds. PRA also proposes updates its Supervisory Statement SS7/13 titled "Definition of capital (CRR firms)" to clarify the expectations of CRR firms regarding capital issuances and reductions. The comment period for the proposals in CP2/22 ends on May 02, 2022 while the proposed implementation date for the changes resulting from this consultation would be in September 2022.
In addition, the proposals would amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook (Appendix 1) and SS7/13 (Appendix 3). CP2/22. The purpose of the proposals in CP2/22 is to revoke the UKTS and replicate it in the PRA Rulebook with proposed amendments to align with updates to the CRR, in particular the rules relating to the prior permission regime to reduce own funds instruments. The proposed updates to SS7/13 aim to enhance the quality of capital instruments issued by firms, simplify procedures where appropriate, and clarify PRA expectations in relation to permissions to reduce own funds instruments. Following are some of the additional key highlights of the policy proposals in CP2/22, which is relevant to banks, building societies, PRA-designated investment firms and PRA-approved, or PRA-designated, financial or mixed financial holding companies:
- In addition to replicating the UKTS requirements in the PRA Rulebook, PRA proposes to update the relevant provisions in the Own Funds and Eligible Liabilities (CRR) Part to align with the changes introduced to the CRR in 2019. This includes updates to the requirements on firms regarding information that must be provided when seeking PRA permission to reduce capital instrument, the new general prior permission process, and the process for reductions in share premium accounts.
- PRA also proposes to update SS7/13 to clarify its expectations of CRR firms regarding the quality of capital instruments, in light of recent supervisory experience. The proposals set out PRA expectations on liability-accounted Additional Tier 1 instruments, update existing references on subordinated swaps, and introduce an expectation for firms to seek PRA views prior to issuing any new Tier 2 instruments which include new or complex features. PRA also clarifies its expectation that firms seek PRA permission for any forms of reduction of own funds instruments and that firms should inform supervisory contacts when there is sufficient certainty regarding capital reduction transactions in order to facilitate publication of the related PRA permission.
Related Links
- News Release
- Consultation Paper (PDF)
- Appendix 1: PRA Rulebook (PDF)
- Appendix 2: Proposed Standards (PDF)
- Appendix 3: Proposal to Amend SS7/13 (PDF)
Keywords: Europe, UK, Banking, Basel, Regulatory Capital, Own Funds Requirements, CRR, Regulatory Technical Standards, CP2 22, Headline, PRA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
SBV Discusses Credit Risk Measures, Cyber Risk, and Digital StrategyRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
