PRA to Amend Pre-Issuance Notification Regime for Capital Instruments
PRA proposed, via CP20/19, amendments to the Pre-Issuance Notification, or PIN, regime applicable to the PRA-authorized Capital Requirements Regulation (CRR) firms. CP20/19 also proposed to amend the supervisory statement SS7/13 that sets out expectations of PRA on the quality of regulatory capital resources that firms are required to hold under Capital Requirements Directive (CRD IV) and CRR. The proposals in CP20/19 reflect the adoption of certain amendments in CRR II and make improvements identified through the PRA experience of assessing the quality of capital instruments. The consultation closes on December 09, 2019, with the proposed implementation date for the proposals being April 01, 2020.
The Pre-Issuance Notification rules are intended to enhance and maintain the quality of firms’ capital resources by providing PRA with the opportunity to comment on the terms and conditions of proposed capital instruments prior to the issuance of such instruments. PRA considers that the proposed improvements would make the Pre-Issuance Notification regime more risk-sensitive and proportionate, in addition to allowing firms greater flexibility in issuing capital instruments. Appendix 1 to CP20/19 contains the proposed amendments to the Pre-Issuance Notification regime, as set out in the Definition of Capital Part of the PRA Rulebook. The proposed revisions to SS7/13 have been set out in Appendix 2, which is proposed to be renamed "Definition of Capital."
CRR II amends various aspects of CRR including Article 26(3), which now allows a firm to classify subsequent issuances of an approved Common Equity Tier 1 (CET1) instrument as CET1, subject to meeting certain conditions, including notification to PRA. As a result of these amendments, there is an overlap between the PRA rules in Chapter 7 of the Definition of Capital Part and Article 26(3) of the CRR, as amended. On June 10, 2019, PRA made available a modification by consent as an interim solution to address this overlap ahead of formally consulting on rule changes. PRA proposes to amend the Rulebook to strengthen the governance of CET1 issuance, align the requirements for subsequent issuances of Additional Tier 1 instruments to those for subsequent issuances of CET1 instruments, and remove the requirement to make a pre-issuance notification of Tier 2 instruments. The proposed restructure of Chapter 7 of the Definition of Capital Part is intended to ease understanding of the rules.
PRA proposes to update SS7/13 to emphasize its preference for simpler CET1 capital structures and to set out its proposed expectations of firms’ senior management in relation to the quality of capital resources. PRA also proposes to clarify two terms introduced by CRR II (that is "substantially the same" and "sufficiently in advance"), to ensure common understanding of notification requirements in relation to subsequent issuances of CET1 and Additional Tier 1 capital instruments. The proposals set out in this consultation paper have been designed in the context of the current UK and EU regulatory framework. PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place. In case of an implementation period, PRA may need to amend the definition of CRR for the purposes of Chapter 7 of the Definition of Capital Part to explicitly include relevant amendments via CRR II.
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Comment Due Date: December 09, 2019
Effective Date: April 01, 2020 (Proposed)
Keywords: Europe, UK, Banking, CRR, CRD IV, CRR 2, CET 1, Regulatory Capital, PIN Regime, PRA Rulebook, CP 20/19, SS 7/13, Additional Tier 1, Basel III, Brexit, PRA
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