PRA Proposes Changes to Consolidated Prudential Rules Under CRD5/CRR2
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.
Related Links
- Notification
- 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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler
Previous Article
BOT Issues Updates on Debt Restructuring and Dividend Payment PolicyRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
