PRA is proposing (CP15/19) to apply a tighter limit for large exposures to certain French non-financial corporations (NFCs), to reciprocate the measure imposed by France. The proposal would be effected through amendments to the Large Exposures Part of the PRA Rulebook (Appendix 1). PRA proposes to tighten the large exposures limit to 5% of eligible capital in respect of the exposures of UK global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) to French NFCs. The proposed measure applies under the Capital Requirements Directive, or CRD, as implemented in the Capital Requirements (Capital Buffers and Macro-prudential measures) Regulations 2014. The planned implementation date for the proposal in CP15/19 is January 01, 2020. The consultation closes on September 06, 2019.
ESRB has recommended a European Economic Area (EEA) wide reciprocation of a macro-prudential measure imposed by Haut Conseil de stabilité financière (HCSF) in France in July 2018, under the Capital Requirements Regulation, or CRR Article 458 (the HCSF measure). PRA proposes to tighten the large exposures limit to 5% of eligible capital in respect of the exposures of UK G-SIIs and O-SIIs to French NFCs meeting the definition of "highly indebted," as set out in the HCSF measure. The limit will apply on a consolidated basis to exposures with an original value (prior to the application of any credit risk mitigation techniques and exemptions under the Large Exposures Part of the CRR) of greater than EUR 300 million, treating exposures to a group of connected French NFCs as a single exposure.
The proposed rule incorporates the materiality threshold in the ESRB Recommendation. The threshold exempts firms that have an aggregate exposure to the French NFC sector (on a consolidated basis) of less than EUR 2 billion (prior to the application of any credit risk mitigation techniques and exemptions under the Large Exposures part of the CRR). The materiality threshold also exempts firms that do not have relevant exposures greater than both EUR 300 million and 5% of eligible capital to a single French NFC, or a "connected group" of French NFCs.
The proposals set out in CP15/19 have been designed in the context of the current UK and EU regulatory framework. PRA has assessed that the proposal will be affected in the event that UK leaves EU with no implementation period in place. A second version of the proposed amendments to PRA Rulebook rules, which includes the relevant changes related to the withdrawal of UK from EU, is set out in Appendix 2.
Comment Due Date: September 06, 2019
Effective Date: January 01, 2020 (Planned)
Keywords: Europe, UK, France, Banking, Large Exposures, CRR, CRD, PRA rulebook, HCSF Measure, G-SII, O-SII, CP 15/19, Concentration Risk, PRA
Previous ArticleIMF Publishes Report on 2019 Article IV Consultation with Vietnam
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.