PRA Consults on Implementation of Remaining Basel Standards in UK
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.
Related Links
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
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
OCC Publishes Scenarios and Templates for 2021 Stress TestsRelated 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.
