The Prudential Regulatory Authority (PRA) sets out, in the consultation paper CP2/22, the proposed approach to transferring the UK Technical Standards for own funds requirements for institutions (UKTS) into PRA rules, with amendments to reflect revisions to the Capital Requirements Regulation (CRR), which applied from June 27, 2019. These changes to CRR were not reflected in the relevant European Union Regulatory Technical Standard before the end of the European Union withdrawal transition period and are, therefore, not currently included in the UKTS on own funds. PRA also proposes updates its Supervisory Statement SS7/13 titled "Definition of capital (CRR firms)" to clarify the expectations of CRR firms regarding capital issuances and reductions. The comment period for the proposals in CP2/22 ends on May 02, 2022 while the proposed implementation date for the changes resulting from this consultation would be in September 2022.
In addition, the proposals would amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook (Appendix 1) and SS7/13 (Appendix 3). CP2/22. The purpose of the proposals in CP2/22 is to revoke the UKTS and replicate it in the PRA Rulebook with proposed amendments to align with updates to the CRR, in particular the rules relating to the prior permission regime to reduce own funds instruments. The proposed updates to SS7/13 aim to enhance the quality of capital instruments issued by firms, simplify procedures where appropriate, and clarify PRA expectations in relation to permissions to reduce own funds instruments. Following are some of the additional key highlights of the policy proposals in CP2/22, which is relevant to banks, building societies, PRA-designated investment firms and PRA-approved, or PRA-designated, financial or mixed financial holding companies:
- In addition to replicating the UKTS requirements in the PRA Rulebook, PRA proposes to update the relevant provisions in the Own Funds and Eligible Liabilities (CRR) Part to align with the changes introduced to the CRR in 2019. This includes updates to the requirements on firms regarding information that must be provided when seeking PRA permission to reduce capital instrument, the new general prior permission process, and the process for reductions in share premium accounts.
- PRA also proposes to update SS7/13 to clarify its expectations of CRR firms regarding the quality of capital instruments, in light of recent supervisory experience. The proposals set out PRA expectations on liability-accounted Additional Tier 1 instruments, update existing references on subordinated swaps, and introduce an expectation for firms to seek PRA views prior to issuing any new Tier 2 instruments which include new or complex features. PRA also clarifies its expectation that firms seek PRA permission for any forms of reduction of own funds instruments and that firms should inform supervisory contacts when there is sufficient certainty regarding capital reduction transactions in order to facilitate publication of the related PRA permission.
Keywords: Europe, UK, Banking, Basel, Regulatory Capital, Own Funds Requirements, CRR, Regulatory Technical Standards, CP2 22, Headline, PRA
Previous ArticleESAs Recommend Actions on Digital Finance Legislative Framework
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.