PRA announced its decision to offer a modification by consent of the Rules 7.1 and 7.5 of the Definition of Capital Part of the PRA Rulebook. This is because of the amendments introduced by the recently published revised Capital Requirements Regulation (CRR II) in the Official Journal of the European Union, which includes certain requirements that enter into force from June 27, 2019. The changes under discussion relate to the classification of common equity tier 1 (CET1) instruments.
Following amendments to CRR Article 26(3), firms may classify as CET1 instruments the subsequent issuances of a form of CET1 instruments for which they have already received the competent authority’s permission, where both of the following conditions are met:
- The provisions governing those subsequent issuances are substantially the same as the provisions governing those issuances for which the firms have already received permission.
- Firms have notified those subsequent issuances to the competent authorities sufficiently in advance of their classification as CET1 instruments.
In light of the change to CRR Article 26(3), PRA recognizes that Rules 7.1 and 7.5 of the Definition of Capital Part of the PRA Rulebook no longer achieve the purpose for which they were made. Therefore, it has been decided to offer a modification by consent. PRA intends to consult in due course on amending Chapter 7 of the Definition of Capital Part of the PRA Rulebook and any expectations it has from firms on the application of CRR Article 26(3). A firm wishing to take up this modification by consent should contact the Authorizations Division with a request for the modification. PRA will confirm in writing whether the request has been granted and will publish the approved modification direction on the Financial Services Register.
Furthermore, CRR II introduces new requirements for UK global systemically important banks (G-SIBs) and UK material subsidiaries of non-EU G-SIBs in respect of own funds and eligible liabilities: some of these requirements will enter into force on June 27, 2019, while other aspects will apply in later years. BoE, in its capacity as the resolution authority, intends to communicate directly with affected firms in due course regarding these new own funds and eligible liabilities requirements. The BoE Statement of Policy on the approach to setting a minimum requirement for own funds and eligible liabilities (MREL) should be read in compliance with the new CRR II requirements for those firms that are affected by the requirements. As previously communicated, BoE is also committed to, before the end of 2020, reviewing the calibration of MREL and the final compliance date, prior to setting end-state MRELs. In doing so, BoE will have regard to any intervening changes in the UK regulatory framework as well as firms’ experience in issuing liabilities to meet their interim MRELs.
- Modification by Consent (PDF)
- Direction (PDF)
- Notice on Resolution
- Statement of Policy on MREL
Keywords: Europe, EU, UK, Banking, CRR 2, CET 1, Definition of Capital, MREL, G-SIB, PRA, BoE
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