The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA, contains the amendments to the PRA Rulebook (Appendix 1), the supervisory statement SS45/15 on UK leverage ratio framework (Appendix 2), the powers of FPC over leverage ratio tools (Appendix 4), and the SS34/15 on guidelines for completing regulatory reports (Appendix 5) as well as the associated FPC direction and recommendation (Appendix 3). Additionally, S21/21 contains updated reporting and disclosure templates, along with the associated instructions (Appendix 6). Finally, also included in PS21/21 is the FPC and PRA response to the comments received on the leverage ratio framework consultation (CP14/21), post which this policy was finalized.
Respondents to CP14/21 generally welcomed the proposed changes, also setting out a number of observations and requests for clarification. Based on the feedback, FPC finalized its direction and recommendation as proposed, subject to one change to the central bank claims exclusion. FPC has determined that central bank claims can be excluded from the UK leverage ratio measure as long as they are matched by liabilities (rather than deposits) of the same currency and equal or longer maturity. This better reflects the extended scope of the leverage ratio requirement from only covering deposit-takers to also covering investment firms that are restricted in the types of deposit they are allowed to accept.
In light of this change, PRA is making similar amendments to the draft rules presented in CP14/21. PRA is also specifying in Article 429a(A1) of Chapter 3 of the Leverage Ratio (CRR) Part how maturity should be interpreted for non-deposit liabilities that have optionality; this means such instruments can be called or redeemed before contractual maturity and where reputational factors may impact firms’ ability to exercise optionality. PRA also introduced a small number of general clarifications and corrections to the proposals in CP14/21; these include clarifying reporting and disclosure rules, specifying where the Capital Requirements Regulation (CRR) article references relate to provisions of the PRA Rulebook, correcting defined terms in the Capital Requirements and Buffers Part, and other formatting changes. Consequently, the following policies will apply from January 01, 2023:
- Scope of application of the leverage ratio requirement will be extended to firms, ring-fenced bank subgroups, and CRR consolidation entities with non-UK assets equal to or greater than GBP 10 billion (calculated on an individual, sub-consolidated, and consolidated basis, respectively).
- Leverage ratio requirement will apply on an individual basis to any firm that is not a CRR consolidation entity or a ring-fenced bank that is the ultimate parent within a ring-fenced bank sub-group.
- Sub-consolidation will become available as an alternative to individual application where a firm has subsidiaries that can be consolidated (subject to a firm’s application and to that firm meeting certain conditions, as set out in SS45/15).
All other policy material in PS21/21 has been designed to take effect at the same time as the HM Treasury’s anticipated revocation of the leverage parts of the CRR, in accordance with its powers under section 3 of the Financial Services Act 2021, which is expected to take place on January 01, 2022, subject to the Parliamentary approval and the Her Majesty's Treasury sign-off. This includes policy material for updates to the leverage exposure measure, to updated leverage reporting, and disclosure requirements, to the supervisory expectation of PRA, and to consequential amendments to the other reporting and disclosure requirements. PS21/21 is relevant to all CRR firms and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis. In due course, PRA will also make consequential amendments to the leverage ratio model requirements in its rulebook, in time to reflect the changes taking effect on January 01, 2022.
Effective Date: January 01, 2022/January 01, 2023
Keywords: Europe, UK, Banking, Leverage Ratio, CRR, PS21/21, CP14/21, Basel, Reporting, Disclosures, Responses to Consultation, FPC, PRA
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)