The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them. PRA announced intent to move the implementation date of the final Basel 3.1 policies by six months to July 01, 2025, reducing the the transitional period to 4.5 years to ensure full implementation by January 01, 2030. Additionally, PRA intends to publish the near-final policies on market, credit valuation adjustment, counterparty credit, and operational risks in the fourth quarter of 2023 while it expects to publish the near-final policy on the remaining elements in the second quarter of 2024; the remaining elements are credit risk, output floor, and reporting and disclosure requirements.
Below are the key highlights of the recent consultations from PRA:
- PRA published a consultation paper (CP17/23) on capitalization of foreign-exchange positions for market risk, with the comment period ending on January 31, 2024. The proposals relate to the post-Basel 3.1 PRA-proposed implementation described in CP16/22 and would result in changes to the proposed Article 325 (Approaches for Calculating the Own Funds Requirements for Market Risk) in the proposed Market Risk: General Provisions (CRR) Part of the PRA Rulebook (Appendix 1), the proposed supervisory statement (SS13/13) – Market Risk from CP16/22 (Appendix 2), and the CRR Permission 352(2) supplementary application form (Appendix 3). This consultation also clarifies that items held on the balance sheet at historical exchange rates are not to be included as a risk position for the purposes of calculating Pillar 1 capital requirements.
- PRA is seeking comments, until November 27, 2023, on the rule and policy updates (in CP20/23) with respect to the establishment of third-country branches and subsidiaries within ring-fenced body sub-consolidation groups. HM Treasury is also consulting on legislative changes that, among other things, would allow ring-fenced bodies to establish entities in third countries. This would allow ring-fenced bodies to compete with international and domestic banking groups, advancing the PRA’s secondary objectives of competition and competitiveness and growth. The proposals in CP20/23 would result in changes to the Ring-fenced Bodies Part of the PRA Rulebook (Appendix 1) and supervisory statement (SS8/16) on Ring-fenced bodies (RFBs) (Appendix 2). The resulting changes are expected to be implemented by the first half of 2024.
- PRA and the Financial Conduct Authority (FCA) proposed measures to boost diversity and inclusion in financial services, with the feedback periods on both consultations ending on December 18, 2023 and the final rules final rules planned for publication in 2024. The proposals cover integration of non-financial misconduct into the existing regulatory framework, requirements for reporting of diversity and inclusion data, implementation and governance of D&I strategies, and setting of diversity targets. The PRA proposals are applicable to all CRR and Solvency II firms in the UK, including third country branches (excluding credit unions). PRA proposes that firms would report yearly during a three-month window following a reporting reference date that would be specified on publication of the final policy. Both PRA and FCA have proposed one regulatory reporting template (Appendix 7 of PRA consultation paper), with reporting submission expected via the RegData platform of FCA.
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- Update on Basel 3.1 Implementation Timeline
- Consultation on Foreign Exchange Positions for Market Risk
- Consultation on Ring-Fenced Bodies
- HM Treasury on Ring-Fencing Regime
- Consultation on Diversity and Inclusion
- PRA Proposal on Diversity and Inclusion
- FCA Proposal on Diversity and Inclusion
Keywords: Europe, UK, Banking, Basel, Basel 3.1, Regulatory Capital, Reporting, Diversity and Inclusion, Ring-Fencing, Market Risk, FCA, HM Treasury, PRA
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