PRA, through the consultation paper CP29/19, is proposing changes to the capital requirements applicable to credit unions. The proposals would result in amendments to the Credit Union Part of the PRA Rulebook and to the supervisory statement SS2/16 on prudential regulation of credit unions. This consultation closes on January 24, 2020. The proposed changes would take effect on publication of the final policy. PRA also published a speech by Sam Woods, the Deputy Governor for Prudential Regulation and the Chief Executive Officer of PRA. During his speech, Mr. Woods launched the consultation and emphasized that these changes are intended to improve the financial resilience of smaller credit unions, which are more likely to fail.
PRA considers that there are improvements that could be made to the current regime, especially with respect to the barriers to expansion for the credit unions approaching the GBP 10 million asset or 15,000-member thresholds. There is also a concern that the link between capital and credit union membership size or activities creates a degree of complexity in the regime, where the risks posed by these factors could be addressed by other means. Another concern is that an earlier supervisory engagement with credit unions with capital ratios below 5% is more likely to facilitate a non-failure solution. The consultation aims to address these concerns and proposes the following changes:
- Provide a greater degree of flexibility and remove barriers to growth by replacing the current regime with a graduated rate approach and removing the 2% capital buffer, for credit unions with more than GBP 10 million of total assets:
- Reduce complexity in the capital regime by removing the association between credit union activities/membership size and capital requirements and to address the risks posed by these factors by other means.
- Introduce changes to SS2/16 with respect to smaller credit unions. PRA is proposing to set new expectations in relation to credit unions with a capital to assets ratio in the 3% to 5% range, in which a credit union with a capital to assets ratio below 5% should be prepared to engage more fully with the PRA.
- Make additional, non-substantive changes to update the language and references in SS2/16. These changes would not change policy expectations and have not been marked up in the draft supervisory statement.
Comment Due Date: January 24, 2020
Effective Date: Date of Final Policy
Keywords: Europe, UK, Banking, PRA Rulebook, Credit Unions, SS 2/16, CP 29/19, Regulatory Capital, Proportionality, PRA
Previous ArticleBoE Paper Examines Linguistic Complexity in Banking Regulations
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.