The Prudential Regulatory Authority (PRA) issued an update with respect to the approach on capital arbitrage transactions and the strengthening accountability regime.
In the statement capital arbitrage transactions, PRA states that in line with the Basel Committee on Banking Standards (BCBS) statement of June 02, 2016, firms should not engage in transactions with the aim of offsetting regulatory adjustments. Such transactions pose a number of risks, including legal risk, and are untested in their ability to fully address the underlying rationale for the regulatory adjustment. Furthermore, such transactions can have the effect of overestimating eligible capital or reducing capital requirements, without commensurately reducing the risk in the financial system, thus undermining the calibration of minimum regulatory capital requirements. PRA emphasized and urged firms to strictly follow its policies and approach to banking supervision. PRA also highlights that it will carefully scrutinize transactions in light of the principles, rules, and expectations, including any transactions that would allow firms to avoid regulatory capital deductions under Article 36(1) of the Capital Requirements Regulation (CRR).
In addition, PRA has updated the inventory of senior manager responsibilities to include references made to senior manager responsibilities in its publications (since December 2021). The updated list does not replace or amend any PRA publication nor remove the need to review relevant PRA publications. Stakeholders should continue to refer to the original publications or the PRA Rulebook and should not regard the inventory as an exhaustive list. The strengthening accountability regimes for banking and insurance help to support a change in culture at all levels in firms through a clear identification and allocation of responsibilities to individuals responsible for running them.
Keywords: Europe, UK, Banking, Basel, Regulatory Capital, BCBS, Capital Arbitrage Transactions, CRR, PRA Rulebook, Accountability Regime, Operational Risk, PRA
Previous ArticleEU Agencies Study Web Accessibility and Progress on Green Bonds Rule
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.