PRA proposed (CP5/21) an approach for the implementation of Basel standards that still remain to be implemented in UK, enabling their implementation from January 01, 2022. CP5/21 sets out the proposed new PRA Capital Requirements Regulation (CRR) rules in full, including parts of the onshored CRR that are not changing but rather are being transferred into PRA rules; however, where these do not change, they do not form part of this consultation. The appendices to this consultation paper cover the associated amendments to the PRA Rulebook, supervisory statements, statements of policy, and drafts of updated reporting templates and instructions. The comment period on the consultation ends on May 03, 2021.
The PRA proposals seek to address some of the remaining weaknesses in banks’ risk management systems and the regulatory framework by implementing certain remaining Basel III standards, including by implementing the adapted versions of the standards and restating without material modification those aspects of CRR which HM Treasury proposes to revoke and PRA proposes to restate in the PRA Rulebook. The proposals cover the following:
- Specification of the level and scope of application of the requirements for UK firms
- Revision to the definition of capital, particularly for the treatment of common equity tier 1 deductions for software assets and certain collective investment undertakings
- Revised Basel standards for prudent valuation of market risk and amendments to market risk management requirements
- Revised Basel standards for calculating risk-weighted exposures to collective investment undertakings under the standardized approach and a more prudent treatment of exposures to certain collective investment undertakings located and managed in third countries
- A new Basel standardized approach to counterparty credit risk (SA-CCR) and the revised Basel framework for exposures to central counterparties
- Clarification of the treatment of operating leases under the basic indicator approach for operational risk
- Implementation of the Basel III standards on revised large exposures framework, liquidity coverage ratio, and net stable funding ratio
- An update to supervisory reporting, including and update to the UK version of COREP and FINREP, through a combination of new returns and amendments to the existing reporting requirements.
- Revisions to the Basel disclosure standards
- Interaction between the temporary transitional power and CRR rules
- Enhanced proportionality for smaller firms in the form of revised counterparty credit risk requirements (including a simpler SA-CCR approach and amendments to the original exposures method), a simpler NSFR, updates to the simplified capital requirements calculation for credit valuation adjustment risk, more proportionate market risk capital requirements as well as exemptions from new market risk reporting requirements, and tailored disclosure requirements.
The consultation paper does not propose any new rules on leverage to replace the proposed HM Treasury deletions from CRR. As referenced in the September 2020 Regulatory Initiatives Grid, the Financial Policy Committee (FPC) and Prudential Regulation Committee (PRC) have announced that they will conduct a review of the UK leverage ratio framework. This review is now expected to be completed in Summer of 2021 and will enable BoE to take the FPC and PRC’s decisions relating to the leverage ratio requirements into full consideration when reviewing minimum requirement for own funds and eligible liabilities policy for mid-tier banks. This consultation paper is relevant for banks, building societies, PRA-designated investment firms, and PRA-approved or -designated financial or mixed financial holding companies. The proposed approach is expected to provide sufficient time for firms to embed the related supervisory reporting and build on the progress firms have already made toward implementation.
Comment Due Date: May 03, 2021
Effective Date: January 01, 2022
Keywords: Europe, UK, Banking, Basel, PRA Rulebook, Reporting, Regulatory Capital, SA-CCR, Operational Risk, Market Risk, Credit Risk, Liquidity Risk, Large Exposures, Disclosures, IRRBB, CRR Rules Instrument, PRA
Previous ArticleOCC Publishes Scenarios and Templates for 2021 Stress Tests
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.