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
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
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).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.