PRA

PRA Issues Policy Statement on Approach to Identifying O-SIIs

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The UK’s Prudential Regulation Authority (“PRA“) has issued a policy statement on its approach to identifying other systemically important institutions (“O-SIIs“). The statement is relevant to all credit institutions, investment firms, EEA parent institutions, EEA parent financial holding companies and EEA parent mixed financial holdings companies within the domestic financial sector at their highest level of consolidation in the United Kingdom. The proposals contained in the consultation and the policy statement do not apply to branches operating in the UK.

The statement provides feedback to responses to a PRA consultation paper as to which firms can be identified as O-SIIs; application of discretion afforded within the European Banking Authority’s mandatory scoring methodology for O-SII identification; application of a supervisory overlay to  capture adequately systemic risk in the UK banking sector; proposals to use the methodology of the PRA’s existing potential impact framework to inform this assessment; and the timetable for O-SII identification and publications related to O-SII identification. The PRA has made no material changes to its policy as a result of the consultation.

The PRA Publishes Guidance on Financial Conglomerate Waivers

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On January 4, the Prudential Regulation Authority (“PRA”) published guidance on the application and supplementary forms that should be submitted by firms requesting a Financial Groups Directive waiver.

The Financial Groups Directive supplements existing sectoral rules with additional requirements for groups with substantial banking/investment and insurance business. Groups are identified as financial conglomerates according to the threshold tests found in the Financial Conglomerates section of the rulebook.

The PRA document is designed to assist firms applying for a financial conglomerate waiver and firms notifying the PRA that a consolidation group is or has ceased to be a financial conglomerate. Document.

Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 Published

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On January 13, 2015, the Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 were published.

The Regulations amend the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 to introduce a systemic risk buffer (SRB) that will apply to ring-fenced banks (RFBs) and certain large building societies. This measure implements Articles 133 and 134 of the Capital Requirements Directive IV (CRD IV).

The Financial Policy Committee (FPC) will be responsible for setting out the framework for determining which institutions should hold the buffer and, if so, how large the buffer should be. It will need to publish this methodology by May 31, 2016. The Prudential Regulation Authority (PRA) will be responsible for applying the framework and will have ultimate discretion over which firms must hold the buffer and its size.

The Regulations were made on January 12, 2015 and come into force, unless otherwise stated, on May 31, 2016. The systemic risk buffer is applicable from January 1, 2019.  Regulations.

UK PRA and FCA Publish Final Policy on Implementing the FPC’s LTI Ratios

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On October 1, the Prudential Regulation Authority (PRA) issued PS9/14 and the FCA published FG14/8 setting out their final policies on implementing the Financial Policy Committee’s (FPC) recommendation on loan to income (LTI) ratios in mortgage lending.

The policies were published after the FPC noted that acting against the excessive indebtedness caused by a high number of mortgages with high LTI ratios will make the financial system more stable.

The FPC made its recommendation on LTI ratios in June. The FPC recommended that the PRA and the FCA should ensure that mortgage lenders limit the proportion of mortgages at LTI multiples of 4.5 and above to no more than 15% of their new residential mortgages. The final policies of the PRA and FCA include permitting the application of the LTI limit to be at a group level rather than at the level of each regulated entity.  PRA Policy Statement.  FCA Finalized Guidance.

PRA and FCA Issue Consultation on Data Collection on Remuneration Practices under CRD

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On September 22, the UK Prudential Regulation Authority (PRA) issued a joint consultation paper with the Financial Conduct Authority (FCA) on data collection on remuneration practices under the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation.

The consultation sets out the PRA and FCA’s proposals to amend their current approach to data collection of remuneration practices and the reporting requirements for banks, building societies, PRA-designated investment firms, IFPRU investment firms and other types of firms to the extent they are to be included in the scope of consolidation of an institution for which data is to be collected in accordance with CRD IV. The proposals concern the remuneration benchmarking information report and the high earners’ report. Consultation Paper.

 

PRA and FCA Issue Consultation on Data Collection on Remuneration Practices under CRD

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On September 22, the UK Prudential Regulation Authority (PRA) issued a joint consultation paper with the Financial Conduct Authority (FCA) on data collection on remuneration practices under the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation.

The consultation sets out the PRA and FCA’s proposals to amend their current approach to data collection of remuneration practices and the reporting requirements for banks, building societies, PRA-designated investment firms, IFPRU investment firms and other types of firms to the extent they are to be included in the scope of consolidation of an institution for which data is to be collected in accordance with CRD IV. The proposals concern the remuneration benchmarking information report and the high earners’ report.  Consultation Paper.

PRA Issues Clarification on Implementation of the Solvency II Directive

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On August 29, the UK PRA issued an update on the implementation of the Solvency II Directive (2009/138/EC), which is planned for January 1, 2016. The current PRA Update focuses on:

  • the relationship between the risk margin and the calibration of non-hedgeable risks; and
  • the assessment of the credit risk for matching adjustment portfolios.  PRA Update.

PRA Issues Policy Statement on Bonus Clawback

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On July 30, the Prudential Regulation Authority (PRA) issued a policy statement in respect of responses received to its consultation on proposals to extend the Remuneration Code to require all PRA-authorized firms to ensure that vested bonus awards can be clawed back from individuals where necessary.  Appendix 1 of the policy statement contains the final rules on bonus clawback, which will enter into force on January 1, 2015.  Policy Statement.

PRA Issues Consultation Paper on PRA Rulebook

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On January 21, the PRA issued a consultation paper on the proposed redrafting of certain areas of the PRA Rulebook, including the Supervision Manual, the Financial Stability and Market Confidence Sourcebook and the Principles for Business.

The new PRA Rulebook will eventually replace the current PRA Handbook, and the consultation paper sets out the approach to existing parts of the PRA Handbook and their potential destinations in the new rules. In particular, the consultation states that statements of policy required under FSMA will be published as separate documents. The PRA also intends to update its website with guidance on process issues currently contained in the PRA Handbook.

Responses to the consultation must be sent by March 14, 2013, with the final version of the new rules due later in the year.  Consultation Paper.

Co-Op Bank Subject to Enforcement Investigation by the UK PRA and FCA

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On January 6, The UK Regulator, the Prudential Regulation Authority (PRA) published a press release confirming its intention to undertake an enforcement investigation into the Co-Op Bank.  The UK’s other regulator, the Financial Conduct Authority (FCA), has confirmed in a press release that it will also be investigating the bank and events up to June 2013.  The PRA will be considering the role of senior managers at the bank.  Press Release.  FCA Press Release.