Featured Product

    PRA and FPC Finalize Changes to Leverage Ratio Framework in UK

    October 08, 2021

    The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA, contains the amendments to the PRA Rulebook (Appendix 1), the supervisory statement SS45/15 on UK leverage ratio framework (Appendix 2), the powers of FPC over leverage ratio tools (Appendix 4), and the SS34/15 on guidelines for completing regulatory reports (Appendix 5) as well as the associated FPC direction and recommendation (Appendix 3). Additionally, S21/21 contains updated reporting and disclosure templates, along with the associated instructions (Appendix 6). Finally, also included in PS21/21 is the FPC and PRA response to the comments received on the leverage ratio framework consultation (CP14/21), post which this policy was finalized.

    Respondents to CP14/21 generally welcomed the proposed changes, also setting out a number of observations and requests for clarification. Based on the feedback, FPC finalized its direction and recommendation as proposed, subject to one change to the central bank claims exclusion. FPC has determined that central bank claims can be excluded from the UK leverage ratio measure as long as they are matched by liabilities (rather than deposits) of the same currency and equal or longer maturity. This better reflects the extended scope of the leverage ratio requirement from only covering deposit-takers to also covering investment firms that are restricted in the types of deposit they are allowed to accept.

    In light of this change, PRA is making similar amendments to the draft rules presented in CP14/21. PRA is also specifying in Article 429a(A1) of Chapter 3 of the Leverage Ratio (CRR) Part how maturity should be interpreted for non-deposit liabilities that have optionality; this means such instruments can be called or redeemed before contractual maturity and where reputational factors may impact firms’ ability to exercise optionality. PRA also introduced a small number of general clarifications and corrections to the proposals in CP14/21; these include clarifying reporting and disclosure rules, specifying where the Capital Requirements Regulation (CRR) article references relate to provisions of the PRA Rulebook, correcting defined terms in the Capital Requirements and Buffers Part, and other formatting changes. Consequently, the following policies will apply from January 01, 2023:

    • Scope of application of the leverage ratio requirement will be extended to firms, ring-fenced bank subgroups, and CRR consolidation entities with non-UK assets equal to or greater than GBP 10 billion (calculated on an individual, sub-consolidated, and consolidated basis, respectively).
    • Leverage ratio requirement will apply on an individual basis to any firm that is not a CRR consolidation entity or a ring-fenced bank that is the ultimate parent within a ring-fenced bank sub-group.
    • Sub-consolidation will become available as an alternative to individual application where a firm has subsidiaries that can be consolidated (subject to a firm’s application and to that firm meeting certain conditions, as set out in SS45/15).

    All other policy material in PS21/21 has been designed to take effect at the same time as the HM Treasury’s anticipated revocation of the leverage parts of the CRR, in accordance with its powers under section 3 of the Financial Services Act 2021, which is expected to take place on January 01, 2022, subject to the Parliamentary approval and the Her Majesty's Treasury sign-off. This includes policy material for updates to the leverage exposure measure, to updated leverage reporting, and disclosure requirements, to the supervisory expectation of PRA, and to consequential amendments to the other reporting and disclosure requirements. PS21/21 is relevant to all CRR firms and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis. In due course, PRA will also make consequential amendments to the leverage ratio model requirements in its rulebook, in time to reflect the changes taking effect on January 01, 2022. 

     

    Related Links

    Effective Date: January 01, 2022/January 01, 2023

    Keywords: Europe, UK, Banking, Leverage Ratio, CRR, PS21/21, CP14/21, Basel, Reporting, Disclosures, Responses to Consultation, FPC, PRA

    Featured Experts
    Related Articles
    News

    EBA Launches Stress Tests for Banks, Issues Other Updates

    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.

    January 31, 2023 WebPage Regulatory News
    News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    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.

    January 31, 2023 WebPage Regulatory News
    News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    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.

    January 17, 2023 WebPage Regulatory News
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    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.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    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.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    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.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    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.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    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.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8700