PRA Proposes to Update the Policy on Approach to Systemic Risk Buffer

By Regulatory News

November 22, 2018

Systemic Risk

PRA is proposing minor updates to its Statement of Policy on the PRA approach to the systemic risk buffer (SRB), in its consultation paper CP29/18. The consultation is relevant to ring-fenced bodies within the meaning of section 142A of the Financial Services and Markets Act 2000 (FSMA) and large building societies that hold more than GBP 25 billion in deposits (where one or more of the account holders is a small business) and shares (excluding deferred shares)—jointly known as the "SRB institutions." The consultation closes on December 06, 2018.

Along with the SRB framework, the Statement of Policy forms the Bank’s broader framework for SRB. PRA is proposing to make three minor amendments aimed at clarifying the Statement of Policy and bringing it up-to-date with the recent policy developments:

Remove the statement that the PRA approach to reviewing the Statement of Policy every two years is mandated by the SRB regulations
Replace references to CP25/16 with the corresponding PRA Statement of Policy on its methodologies for setting Pillar 2 capital following publication of the final policy
Include references to the supervisory statement SS45/15 titled "The UK leverage ratio framework," which was recently updated with respect to the application of an additional leverage ratio buffer (ALRB) rate to SRB institutions

SRB is intended to increase the capacity of the UK domestic systemically important ring-fenced bodies and building societies to absorb stresses, thus increasing their resilience relative to the system and promoting the safety and soundness of the PRA-regulated firms. In line with the recommendations of the Independent Commission on Banking, the UK legislation implementing the SRB Regulations requires the Financial Policy Committee (FPC) to establish a framework for an SRB that applies to large building societies and ring-fenced bodies. The SRB Regulations require PRA to apply that framework from January 01, 2019. FPC published "The Financial Policy Committee’s framework for the systemic risk buffer" (the SRB framework) in May 2016.

Related Links

Comment Due Date: December 06, 2018

Keywords: Europe, UK, Banking, Systemic Risk Buffer, SRB Regulation, CP29/18, Ring Fencing, PRA

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