PRA Consults on Supervisory Approach for Non-Systemic Banks in UK
PRA published the consultation paper CP9/20 that proposes an approach to supervising the new and growing non-systemic UK banks. The proposals in this consultation constitute clarifications about the current supervisory approach of PRA, with the exception of proposed changes to the calculation of PRA buffer for new banks, and set out expectations for solvent wind-down plans. The comment period on CP9/20 closes on October 14, 2020, with PRA proposing that the expectations set out in this consultation take effect in the first half of 2021.
The proposals in CP9/20 are intended to help banks understand how and why PRA expectations increase as they grow and communicate the aim of PRA for banks to have positive regulatory relationships through open, constructive, and forward-looking communication. The proposals also clarify the expectations of a new and growing bank as it matures and that in a competitive environment it is normal to see both the entry and exit of banks. The proposals in CP9/20 would:
- Create a new supervisory statement on the approach of PRA to supervising new and growing non-systemic banks (Appendix 1)
- Provide reference to the new supervisory statement in paragraph 5.25 of Pillar 2 capital policy in SS31/15 on Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) (Appendix 2)
- Provide reference to the new supervisory statement in paragraph 9.45 of the Statement of Policy on methodologies of PRA for setting Pillar 2 capital (Appendix 3)
The PRA capital buffer is currently based on a wind-down cost calculation. In the experience of PRA, a number of banks have interpreted this inconsistently and taken different approaches to this calculation. In response, PRA is clarifying the purpose of the buffer and outlining a simpler approach to its calculation. PRA is proposing that the buffer for new banks will be calibrated to allow such banks time to find alternative sources of capital or make business model adjustments, in the event of a loss of investor support. In CP9/29, PRA is proposing that the new banks calculate their PRA capital buffer as six months of operating expenses. In CP9/20 and the draft supervisory statement, PRA explains why it is important for banks to have credible and comprehensive recovery and solvent wind-down plans, and to prepare for resolution. A series of conditions must be met before a bank is placed into resolution and these are detailed in chapter 5 of the draft supervisory statement (Appendix 1).
The proposals set out in CP9/20 have been designed in the context of withdrawal of UK from EU and entry into the transition period, during which time UK remains subject to the European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with EU take effect. PRA has assessed that the proposals would not need to be amended under the EU (Withdrawal) Act 2018.
Related Links
Comment Due Date: October 14, 2020
Effective Date: First Half of 2021 (Proposed)
Keywords: Europe, UK, Banking, Non-Systemic Banks, SREP, ICAAP, Regulatory Capital, Capital Buffer, CP9/20, Resolution Framework, Resolution Planning, Basel, 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.

Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Previous Article
PRA Amends Policy on Significant Risk Transfer for SecuritizationsRelated Articles
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.