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July 12, 2017

The PRA published a consultation paper (CP12/17) that sets out proposed adjustments to its Pillar 2 capital framework. CP12/17 proposes to change supervisory statement (SS31/15) titled “The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)” and Statement of Policy, titled, “The PRA’s methodologies for setting Pillar 2 capital.”

The PRA proposed to set Pillar 2A capital as a firm-specific capital requirement under section 55M of the Financial Services and Markets Act 2000, rather than as individual guidance. Under this proposal, to meet the overall financial adequacy rule and to be consistent with the PRA’s current policy, the requirement would be set at the level and quality of capital that the PRA considers a firm should maintain, in addition to Pillar 1. In implementing these proposals, the PRA intends to update some of the existing capital terminology such as “Total Capital Requirements or TCR.” This term is introduced to refer to the amount and quality of capital a firm must maintain to comply with the Capital Requirements Regulation (575/2013) (CRR) (Pillar 1) and the Pillar 2A capital requirement. The term “Individual Capital Guidance” will be discontinued.

 

The PRA also proposed a revised disclosure policy expecting firms to disclose their TCR or, where a Pillar 2A capital requirement has not yet been set, total Pillar 1 and Pillar 2A guidance. PRA proposed to provide clarity on when and how individual Pillar 2 capital requirements may be set. CP12/17 is relevant to all banks, building societies, and PRA-designated investment firms. The proposals aim to bring greater clarity, consistency, and transparency to the PRA’s capital-setting approach.


Related Link: CP12/17 (PDF) 

Comment Due Date: October 12, 2017

Keywords: Europe, United Kingdom, PRA, Pillar 2A, Banking, CRR, Capital Requirements, Diclosures

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