PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2
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.
Related Links
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Next Article
RBNZ Consults on Guidance for Managing Cyber RisksRelated Articles
PRA and FPC Finalize Changes to Leverage Ratio Framework in UK
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
CFPB Proposes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
PRA Decides to Maintain O-SII Buffers for Another Year
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
FSB Report Assesses Implementation of Recommendations on Stablecoins
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
APRA Updates Loan Serviceability Expectations for Home Lending
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
EBA and EIOPA Set Out Work Priorities for 2022
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
MFSA Issues Reporting Updates and Guidance for Banks
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
EC Publishes Decision on List of Equivalent Third Countries Under CRR
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC Rule on Contractual Recognition of Write-Down and Conversion Powers
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.
