PRA and FPC Finalize Changes to Leverage Ratio Framework in UK
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
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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS Paper Studies Impact of Fintech Lending on Small Businesses in US
The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.
UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks
The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).
EBA Launches EU-Wide Transparency Exercise in 2022
The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.
SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks
The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."
EC Rule Lists Advanced Economies for Market Risk Capital Calculations
The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
