PRA Consults on Groups Policy and Double Leverage for Banks
The PRA published a consultation paper CP19/17 on groups policy and double leverage for banks. The PRA has reviewed the groups policy framework, to ensure that it remains coherent and fit-for-purpose in light of the post-crisis financial reforms—including Basel III standards, UK ring-fencing legislation, the resolution framework, and other international developments. Following the review, the PRA is considering certain necessary changes to achieve its objective. The consultation closes on January 04, 2018.
This consultation paper makes proposals that require assessment and mitigation of the risks to group resilience due to the use of “double leverage.” Double leverage occurs when one or more parent entities in a group funds some of the capital in its subsidiaries by raising debt or lower forms of capital externally (Chapter 2). The proposals also require assessment and mitigation of the risks highlighted by prudential requirements applied by local regulatory authorities on overseas subsidiaries of UK consolidation groups (Chapter 2), along with improved monitoring of the distribution of financial resources across different group entities (Chapter 3). The PRA is also consulting elsewhere on a number of other policy proposals that refine the PRA’s framework for Groups Policy (summarized in Chapter 4). To implement these proposals, the PRA proposes to update:
- Supervisory Statement SS31/15 “The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)”
- Statement of Policy “The PRA’s methodologies for setting Pillar 2 capital”
- SS24/15 “The PRA’s approach to supervising funding and liquidity risk”
- Internal Capital Adequacy Assessment Part of the PRA Rulebook
CP19/17 is relevant to PRA-authorized UK banks, building societies, PRA-designated UK investment firms, and their qualifying parent undertakings, as well as credit institutions, investment firms, and financial institutions that are subsidiaries of these firms, regardless of their location. Once the proposals are finalized, the policy will be implemented fully from January 01, 2019. Where practical and applicable, firms should aim to incorporate the consultation proposals in their 2018 ICAAP/Individual Liquidity Adequacy Assessment Process (ILAAP) submissions ahead of full implementation. The PRA will keep its proposed approach and policy under review to assess whether any adjustments are required. The PRA will monitor the quality of information provided by firms in their ICAAPs/ILAAPs to ensure it is sufficient to meet the expectations set out in these proposals.
Related Link: CP19/17 on Groups Policy and Double Leverage (PDF)
Comment Due Date: January 04, 2018
Effective Date: January 01, 2019
Keywords: Europe, UK, Banking, Groups Policy, Double Leverage, CP19/17, ICAAP, ILAAP, SREP, PRA
Previous Article
GHOS Finalizes Outstanding Basel III Regulatory ReformsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.