PRA proposed rules (in CP12/21) for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies that have been approved or designated in accordance with Part 12B of the Financial Services and Markets Act 2000 (FSMA). The proposed rules are aimed to give effect to the changes in the Capital Requirements Directive V (CRD V), as transposed, and the Capital Requirements Regulation 2 (CRR2), as onshored, which impose direct responsibility for compliance with the consolidated prudential requirements on approved or designated holding companies. The proposals would result in changes to several parts of the PRA Rulebook, in a new Statement of Policy (SoP) on supervisory measures and penalties, and in amendments to the SoP on the approach to enforcement with respect to the statutory statements of policy and procedure. The consultation closes on July 22, 2021 and the proposed implementation date for the changes resulting from this consultation is September 15, 2021.
In CP5/21 on implementation of Basel standards, PRA had proposed to introduce new rules in each of the proposed Large Exposures, Liquidity, Liquidity Coverage Ratio, Reporting and Disclosure Parts of the PRA Rulebook, which would require parent firms and approved holding companies to meet those requirements on a consolidated basis. Those proposals seek to mirror the approach of CRR by applying the requirements on a consolidated basis to the "CRR consolidation entity," a new definition that PRA proposes to introduce into the Glossary Part of the PRA Rulebook. PRA will finalize this definition as part of the feedback to CP5/21. In the event that the proposals set out in this consultation (CP12/21) are made before the rules proposed in CP5/21, the draft PRA Rules instrument will include the definition of "CRR consolidation entities." PRA, therefore, proposes to amend the scope of the certain PRA Rulebook parts to apply the relevant consolidated requirement at the level of the "CRR consolidation entity"; these parts include Capital Buffers, Counterparty Credit Risk, Credit Risk, Definition of Capital, Groups, Interpretation Large Exposures, Liquidity Coverage Requirement—UK Designated Investment Firms, Market Risk, Notifications, Permissions, Record Keeping, Related Party Transaction Risk, Reporting Pillar 2, and Use of Skilled Persons.
PRA is also proposing certain ancillary amendments to the Definition of Capital, Groups, and Notifications Parts of the PRA Rulebook. These proposed amendments would ensure that, where the application of a consolidated prudential requirement also carries a secondary obligation, that obligation would rest at the appropriate level of application. PRA will also consider in due course the desirability of further consequential amendments to the relevant PRA Rulebook parts and Supervisory Statements to align consolidated prudential requirements directly to approved and designated holding companies. Additionally, under the proposed new SoP with respect to the supervisory measures and penalties for holding companies under Part 12B FSMA, PRA proposed that it would aim to intervene at an early stage to ensure that holding companies take the necessary action to address any breaches; however, it would not hesitate to use formal powers, wherever necessary, to achieve the desired supervisory outcomes. When considering whether and how to use formal powers, the facts and circumstances would be assessed on a case-by-case basis. PRA is also proposing to amend the SoP on its approach to enforcement to reflect that the SoP will apply to holding companies.
The proposed changes to the PRA Rulebook do not create any new prudential requirements. Instead, these changes are necessary to ensure that, where a Part of the PRA Rulebook applies on a consolidated basis, it is applied at the correct level within the banking group. The proposed rules set out the consequential amendments to the PRA Rulebook that are necessary to apply the existing consolidated prudential requirements to approved and designated holding companies. This consultation is relevant to financial holding companies, mixed financial holding companies, and banks and PRA-designated investment firms that are part of a UK consolidation group controlled by a UK parent financial holding company or UK parent mixed financial holding company.
- CP12/21 (PDF)
- Draft PRA Instrument 2021 (PDF)
- Draft SoP on Supervisory Measures and Penalties (PDF)
Comment Due Date: July 22, 2021
Effective Date: September 15, 2021
Keywords: Europe, UK, Banking, Basel, CRR2, CRD5, PRA Rulebook, CP12/21, Market Risk, FSMA, Holding Companies, Regulatory Capital, Prudential Requirements, PRA
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.