PRA published a discussion paper that explores options for developing a simpler but resilient prudential framework for banks and building societies that are neither systemically important nor internationally active. The comment period on ideas in the discussion paper ends on July 09, 2021, with a feedback statement on comments received expected to be published in Autumn. After analyzing responses, the next step by the regulator will be to publish a consultation paper, setting out the proposed prudential rules for defining whether a firm is in scope of the simpler regime and some of the proposed requirements. Design and implementation of the framework is likely to take a number of years to complete.
The discussion paper sets out the thinking of PRA about how it could deliver a simpler regime for the smallest non-systemic banks and building societies as a first step in building a “strong and simple” framework that could eventually extend simplification to larger, but still non-systemic UK domestic firms. The intention is to develop a strong and simple framework that is fully consistent with the Basel Core Principles for Effective Banking Supervision, but simpler than the Basel standards that apply to large and internationally active banks. The existing regulatory approach in the UK, which is based on the approach adopted in EU, broadly applies the same requirements to all banks and building societies, irrespective of their size and activities. It does simplify certain prudential rules for smaller banks and building societies, but to a lesser extent than in some other jurisdictions. Any future changes designed to simplify prudential regulation for smaller firms will be balanced against the risk of increasing barriers to growth that may discourage smaller banks and building societies from becoming large enough to provide effective competitive challenge to largest banks and building societies.
A fully focused approach to capital requirements could involve a simple standard capital requirement measure that is relatively risk insensitive but conservatively calibrated and setting a single micro-prudential buffer at the same level for all firms. Similarly, a fully focused approach could involve a single liquidity requirement, rather than the existing Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) requirements, again with conservative calibration. There may also be a need for supervisory judgment overlays to compensate for reduced risk-sensitivity of prudential requirements. A fully streamlined approach would take the existing prudential framework as a starting point and modify those elements that appear over-complex for smaller firms. For capital adequacy requirements, this might be achieved by simplifying the current Pillar 1 and Pillar 2A risk-weighted capital requirements. Similarly, for liquidity requirements this could involve simplifying the LCR and NSFR requirements. Some elements of the regime would need to apply equally under both approaches. The paper also discusses whether there may be scope to reduce mandatory prudential disclosures, such as under Pillar 3: PRA is seeking views from users of those disclosures as well as the firms
making them. Once the overall shape of the simpler regime is clearer, PRA will be able to consider the implications for reporting requirements in full.
While speaking at a BoE Webinar, Victoria Saporta, the Executive Director of Prudential Policy, explained the regulatory vision in this area and outlined the following key policy choices on which the comments are being sought:
- First, is it right to start with the smallest banks and then move in time toward bigger ones as we build a graduated strong and simple framework? Is this the right first step?
- Second, are the scope criteria the right ones and, if so, where should we draw the line in terms of size?
- Third, would you prefer a focused approach with few more conservative requirements, or a streamlined approach?
Comment Due Date: July 09, 2021
Keywords: Europe, UK, Banking, Basel, Regulatory Capital, Reporting, Reporting, Disclosures, Proportionality, Prudential Frameworks, Non-Systemic Risk, BoE, PRA
Previous ArticleHKMA Outlines Work Priorities for 2021, Grants License to NH Bank
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.
ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.
ECB published Decision 2021/752 to amend Decision 2019/1311 on the third series of targeted longer-term refinancing operations or TLTRO III.
The Central Bank of Ireland published Version 2.7 of the draft credit data template and rules for monthly AnaCredit reporting by banks.
OSFI proposed revisions to the Basel Capital Adequacy Reporting (BCAR) and leverage requirements returns for the 2023 reporting, with the comment period ending on July 09, 2021.
EBA published a discussion paper on review of the standardized nonperforming loans (NPL) transaction data templates, along with the proposed revised NPL data templates.