PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5). The proposed changes are related to Pillar 2, remuneration, intermediate parent undertakings, governance, and third-country branch reporting requirements. Among other changes, PRA proposes to update the branch reporting rules in the Regulatory Reporting Part of the PRA Rulebook. The consultation closes on September 30, 2020. PRA shall consult in Autumn 2020 on the draft rules to implement the remaining elements of CRD5 that are not covered in this consultation paper—in particular those requiring legislative change—and amendments to the Capital Requirements Regulation (CRR2) that apply from December 28, 2020.
The proposals in CP12/20 are included in the following chapters:
- In Chapter 2, PRA sets out the proposed implementation of changes to Pillar 2 provisions related to firms’ internal capital assessments, supervisory review of those assessments, and the additional capital requirements and guidance that may be applied. The proposals in this chapter would amend Statement of Policy on methodologies for setting Pillar 2 capital (Appendix 3, Chapter 1) and SS31/15 on Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) (Appendix 3, Chapter 2).
- In Chapter 3, PRA sets out the proposed implementation of changes related to remuneration. The provisions of CRD5 on remuneration are intended to enhance the risk management of firms and the risk-taking behavior of individuals and to introduce greater consistency in the approaches applied across firms. The proposals in this chapter would amend the Remuneration Part of the PRA Rulebook (Appendix 1, Chapter 7 and Appendix 2, Chapter 2), along with SS2/17 on remuneration (Appendix 3, Chapter 3).
- In Chapter 4, PRA sets out the proposed implementation of intermediate parent undertaking requirements of CRD5. These requirements are intended to simplify and strengthen the resolution process of non-EU groups with significant activities in EU. The proposals in this chapter would make amendments to the Groups Part of the PRA Rulebook (Appendix 1, Chapters 2 and 3) and to SS15/13 on groups (Appendix 3, Chapters 5 and 6).
- Chapter 5 sets out proposals to implement CRD5 requirements on governance. The CRD5 provisions on governance are intended to help ensure that firms and their management organize and control their affairs responsibly and effectively. The proposals in this chapter would make amendments to the General Organizational Requirements Part of the PRA Rulebook (Appendix 1, Chapter 1), the Internal Capital Adequacy Assessment Part of the PRA Rulebook (Appendix 1, Chapter 4), the Related Party Transactions Risk Part of the PRA Rulebook (Appendix 1, Chapter 6), and SS28/15 on strengthening individual accountability in banking (Appendix 3, Chapter 4).
- Chapter 6 sets out proposals for implementing the CRD5 third-country branch reporting requirements. CRD5 introduces new, annual reporting requirements for third-country branches of credit institutions. These changes formalize the requirement for third-country branches to report data, some of which PRA already collects. The proposals in this chapter would make amendments to the Regulatory Reporting Part of the PRA Rulebook (Appendix 1, Chapter 5 and Appendix 2, Chapter 1), SS34/15 on guidelines for completing regulatory reports (Appendix 3, Chapter 7), SS4/16 on internal governance of third country branches (Appendix 3, Chapter 8), and SS1/17 on liquidity reporting (Appendix 3, Chapter 9). PRA also proposes to update the branch reporting rules in the Regulatory Reporting Part of the PRA Rulebook.
CRD5 is required to be transposed by December 28, 2020. Most of its requirements apply from December 29, 2020. Certain aspects require legislative changes to implement them in UK. HM Treasury is consulting on its proposed approach to transposing these aspects of CRD5. PRA proposes not to implement the requirements of CRD5 that do not need to be complied with by firms until after the end of the transition period, in particular some of the EU Intermediate Parent Undertaking and Pillar 2 requirements for the leverage ratio. CRD5 also introduces the following measures that will be addressed in the Autumn 2020 consultation of PRA:
- A new requirement for approval and supervision of holding companies
- Clarification of the capital stack
- A revised definition of the maximum distributable amount
- Revisions to the capital buffers that may be applied
- The introduction of supervisory requirements to measure, monitor, and control interest rate risk in the banking book (IRRBB)
The proposals set out in CP12/20 have been designed in the context of the current UK and EU regulatory framework. PRA will keep the policies under review to assess whether any further changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the EU take effect. Except where otherwise stated, the proposals set out in CP12/20 would continue to apply after the end of the transition period. PRA has assessed that the proposals would need to be amended under the EU (Withdrawal) Act 2018 (EUWA 2018). A second version of the proposed rules, which include the relevant amendments under EUWA 2018, has been set out in Appendix 2 of CP12/20.
Comment Due Date: September 30, 2020
Keywords: Europe, UK, Banking, Securities, CRD5, PRA Rulebook, Pillar 2, Governance, Reporting, Remuneration, ICAAP, SREP, Regulatory Capital, Proportionality, Transition Period, IRRBB, CRR2, Credit Risk, Basel, HM Treasury, PRA
Previous ArticleFSI on Use of Accounting Standards for Insurer Solvency Assessment
Next ArticleRBNZ Outlines Regulatory Priorities for 2020-2023
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
The Hong Kong Monetary Authority (HKMA) is consulting on the draft Financial Institutions (Resolution) Ordinance (Cap. 628), or FIRO, Code of Practice chapter on liquidity and funding in resolution, until March 14, 2022.
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).