Featured Product

    PRA Issues Updates to Pillar 2A Capital Framework in UK

    July 06, 2020

    PRA published the policy statement PS15/20 to reflect additional resilience associated with higher macro-prudential buffers in a standard risk environment with a reduction in Pillar 2A capital requirements. Annex to PS15/20 contains the updated supervisory statement SS31/15 with the final PRA policy on Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP). The changes in PS15/20 become effective from the publication date—that is, July 06, 2020. PRA will apply the Pillar 2A reduction, where applicable, on or before December 16, 2020 and, for efficiency, align the assessment to related processes.

    SS31/15 was updated to reflect the PRA policy to reduce variable Pillar 2A capital requirements to take account of the additional resilience associated with higher macro-prudential buffers in a standard risk environment. An update has been made to paragraph 5.12 to reflect that, when setting Pillar 2A, PRA will consider the level of capital that is necessary to capture risks to which the firm is or might be exposed and the extent to which those risks are mitigated by macro-prudential buffers. SS31/15 was also updated to correct minor typographical errors, simplify formatting and aid readability. In addition to the updated SS31/15, PS15/20 also presents feedback to responses to the consultation paper (CP2/20) on reconciling capital requirements and macro-prudential buffers. The 10 responses received to CP2/20 resulted in no changes to the proposals. The proposed reduction related to the Financial Policy Committee (FPC) decision, of December 16, 2019, to increase the UK countercyclical capital buffer (CCyB) rate that it expects to set in a standard risk environment from in the region of 1% to in the region of 2%. Any changes in the UK CCyB rate occasioned by the FPC’s view of the prevailing risk environment would not be reflected in Pillar 2A.

    The policy presented in PS15/20 follows a review of the structural level and balance of capital requirements for the UK banking system undertaken by BoE, FPC, and the Prudential Regulation Committee (PRC). This includes the increase in the UK CCyB rate that FPC expects to set in a standard risk environment and the clarification of BoE that, in resolution, it expects all debt that is bailed in to be written down or converted to common equity tier 1 (CET1). In response to COVID-19 pandemic, FPC has reduced the UK CCyB rate to 0% of banks’ exposures to UK borrowers, with immediate effect. The rate had been 1% and had been due to reach 2% by December 2020. Active use of CCyB in this way can dampen economic shocks and help to reduce the size of economic downturns, thus allowing banks to maintain lending to households and businesses through the cycle. However, the structural UK CCyB rate set in a standard risk environment has not changed. Therefore, PRA considers that this policy to reduce Pillar 2A to reflect additional resilience associated with higher macro-prudential buffers in a standard risk environment maintains the resilience of banks and the banking system. 

    In light of the COVID-19 pandemic, PRA will temporarily increase the PRA buffer for all firms that receive a Pillar 2A reduction. PRA buffer will increase by 56% of the firm’s total Pillar 2A reduction until the UK CCyB rate begins to increase towards 2%. Use of the PRA buffer does not trigger any automatic distribution restrictions. Thus, the point at which the automatic distribution restrictions apply that are required by the Capital Requirements Directive (CRD) IV will decrease for firms receiving a Pillar 2A reduction. FPC expects to maintain the 0% rate for at least 12 months and any subsequent increase would not be expected to take effect until at least March 2022. In addition, the pace of return to a standard risk environment UK CCyB rate of in the region of 2% will take into account how far firms’ capital has been depleted through this period and thus the task to rebuild capital. PRA intends to review its Pillar 2A methodologies in more detail by 2024, in light of the changes in buffers and improvements in the way risk-weighted assets are measured following the finalization of Basel III.

     

    Related Links

    Effective Date: July 06, 2020

    Keywords: Europe, UK, Banking, CCyB, Pillar 2A, ICAAP, SREP, CET 1, Capital Framework, Macro-Prudential Policy, Resolution Framework, COVID-19, SS 31/15, PS 15/20, FPC, BoE, PRA

    Featured Experts
    Related Articles
    News

    PRA and FPC Finalize Changes to Leverage Ratio Framework in UK

    The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA

    October 08, 2021 WebPage Regulatory News
    News

    CFPB Proposes Rule on Small Business Lending Data Collection

    The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.

    October 08, 2021 WebPage Regulatory News
    News

    PRA Decides to Maintain O-SII Buffers for Another Year

    The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.

    October 08, 2021 WebPage Regulatory News
    News

    FSB Report Assesses Implementation of Recommendations on Stablecoins

    The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.

    October 07, 2021 WebPage Regulatory News
    News

    APRA Updates Loan Serviceability Expectations for Home Lending

    In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.

    October 06, 2021 WebPage Regulatory News
    News

    CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.

    October 06, 2021 WebPage Regulatory News
    News

    EBA and EIOPA Set Out Work Priorities for 2022

    The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.

    October 05, 2021 WebPage Regulatory News
    News

    MFSA Issues Reporting Updates and Guidance for Banks

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.

    October 05, 2021 WebPage Regulatory News
    News

    EC Publishes Decision on List of Equivalent Third Countries Under CRR

    The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).

    October 04, 2021 WebPage Regulatory News
    News

    EC Rule on Contractual Recognition of Write-Down and Conversion Powers

    EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.

    October 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7552