PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5). The consultation proposes to update aspects of UK framework as a result of amendments to the Capital Requirements Regulation (CRR2). The consultation covers the CRD5 measures to enhance supervisory requirements for interest rate risk in the banking book (IRRBB), to revise the framework for applying capital buffers, and to clarify the quality of capital required to meet Pillar 2 requirements. The CRR2 measures covered in this consultation include adjustments to the process through which variable capital requirements may be applied to firms' real estate exposures and the methods that may be used for prudential consolidation. The consultation on the implementation of the provisions of CRD5 and CRR2 in UK closes on November 17, 2020.
CP17/20 includes the following proposals in its various chapters:
- Chapter 3 sets out the proposed implementation of consequential changes required to the PRA Rulebook to apply certain prudential requirements to approved holding companies on a consolidated or sub-consolidated basis. The proposals in this chapter would make amendments to certain Parts of the PRA Rulebook, including General Organizational Requirements; Skills, Knowledge, and Expertise; Risk Control; Remuneration; Individual Capital Adequacy Assessment; Individual Liquidity Adequacy Assessment; Group Risk Systems; and Capital Buffers.
- Chapter 4 sets out the proposed implementation of changes to Pillar 2 provisions related to IRRBB. The proposals in this chapter would amend ICAA Part of the PRA Rulebook. The proposals would also amend SS31/15 on Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP); and SS20/15 on supervising building societies’ treasury and lending activities.
- Chapter 5 explains the proposed implementation of the requirements for the other systemically important institutions (O-SII) buffer and systemic risk buffer. The proposals in this chapter would make amendments to statements of policy on approach of PRA to implementation of systemic risk buffer, methodologies for setting Pillar 2 capital, and approach to identifying O-SIIs. The proposals would also amend SS31/15, SS6/14 on capital buffers, SS45/15 on UK leverage ratio framework, and SS16/16 on minimum requirement for own funds and eligible liabilities (MREL). Based on the proposal the approach of PRA to banking supervision would also be amended.
- Chapter 6 sets out the proposed implementation of requirements of CRD5 relate to Maximum Distributable Amount (MDA) that are applied to certain distributions when a firm uses its combined buffer. It also sets out additional changes to MDA that PRA proposes to make after the end of the transition period. The proposals in this chapter would make amendments to the Capital Buffers Part of the PRA Rulebook and SS6/14.
- Chapter 7 offers further clarifications regarding changes CRD5 makes to Pillar 2. The proposals in this chapter would make amendments to SS31/15.
- Chapter 8 sets out proposals to implement aspects of CRD5 requirements on governance. The proposals in this chapter would make amendments to the General Organizational Requirements Part of the PRA Rulebook; and SS28/15 on strengthening accountability in banking.
- Chapter 9 sets out the proposed implementation of a discretion under CRR2 to set stricter criteria than those specified in CRR, to apply a 50% risk-weight to commercial real estate exposures under the standardized approach to credit risk. The proposals in this chapter would amend the Credit Risk Part of the PRA Rulebook.
- Chapter 10 sets out the proposed approach to the implementation of requirements of CRR2 on methods of consolidation. The proposals in this chapter would require amendments to the Groups Part of the PRA Rulebook and SS15/13 related to groups.
CP17/20 should be read in conjunction with CP12/20, which sets out the proposed approach of PRA to implement certain elements of CRD5, and with the approach of HM Treasury to implement aspects of CRD5 and CRR2 that require legislative changes to implement them in the UK. The approach of HM Treasury is being legislated for through the Financial Holding Companies (Approval etc.) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020. The consultation paper is relevant to banks, building societies, designated investment firms, UK financial holding companies, and UK mixed financial holding companies of certain PRA-authorized firms. Some of the measures in CRR2, and related to the UK transposition of CRD5, come into effect on December 28 and 29, 2020. In accordance with the EU (Withdrawal Agreement) Act 2020, the version of CRR that applies in the UK on December 31, 2020 will become the retained EU law through the EU (Withdrawal) Act 2018.
Comment Due Date: November 17, 2020
Keywords: Europe, UK, Banking, Securities, CRD5, CRR2, PRA Rulebook, Pillar 2, ICAAP, Regulatory Capital, IRRBB, Credit Risk, Basel, Brexit Transition, HM Treasury, PRA
Next ArticleRBNZ Consults on Guidance for Managing Cyber Risks
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 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 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 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 Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
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).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.