Featured Product

    PRA Finalizes A Policy Related to Own Funds Calculation in Solvency II

    March 16, 2020

    PRA published the policy statement PS7/20 that sets out the final policy on the PRA expectation that insurers would deduct, from their own funds, the maximum tax charge before the set-off of any prior-year losses generated on conversion of a restricted Tier 1 (rT1) capital. PS7/20 contains the updated supervisory statement SS3/15 (Appendix 2) on the quality of capital instruments. PS7/20 also provides feedback to responses to the consultation paper CP26/19 on adjusting for the reduction of loss absorbency where own fund instruments are taxed on conversion. PS7/20 takes effect on March 16, 2020.

    The final policy presented in PS7/20 takes into account responses received to the consultation of proposals in CP26/19. PRA had received six responses to CP26/19. Respondents made requests for clarification on the tax opinion process, made technical observations on how the maximum tax impact was to be calculated, and suggested alternative means for PRA to achieve its policy objective. After considering the responses, PRA made minor changes to its proposals. PS7/20 also updates SS3/15, which covers the prohibition on redemption of instruments within five years of the date of issue; liability management and capital reduction; principal loss-absorbency mechanism for tier 1 instruments subject to limitation; and additional considerations for instruments intended to contribute to group own funds.

    PS7/20 is relevant to the UK insurance firms within the scope of Solvency II, the Society of Lloyd’s, and the firms that are part of a Solvency II group that will determine and classify capital instruments under the Solvency II own funds regime, along with their advisers. The expectations introduced by PS7/20 only relate to firms that have ordinary share capital. That being the case, PRA is of the opinion that no mutuals will be impacted by this policy statement. The impact of the policy statement is the same for all firms that have ordinary shares, regardless of the form of their ultimate holding company.

    The policy set out in PS7/20 has been designed in the context of the withdrawal of UK from EU and entry into the transition period, during which time the UK remains subject to 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 the European Union take effect. PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 or EUWA.

     

    Related Links

    Effective Date: March 16, 2020

    Keywords: Europe, UK, Insurance, Solvency II, Own Funds, SS3/15, PS7/20, CP26/19, Restricted Tier 1, Regulatory Capital, PRA

    Featured Experts
    Related Articles
    News

    EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation

    The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).

    May 23, 2022 WebPage Regulatory News
    News

    EBA Publishes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.

    May 23, 2022 WebPage Regulatory News
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8201