This Consultation Paper (CP) sets out proposed changes to the Prudential Regulation Authority’s (PRA’s) proposed rules, supervisory statements (SS) and statements of policy (SoP) in order to implement elements of the Capital Requirements Directive (CRD V).
The financial crisis highlighted problems in banks’ risk management, and in the regulatory framework. In 2013, CRD IV and CRR – the EU legislation that implemented Basel III – sought to address many of these problems, such as the quantity and quality of banks’ capital and liquidity resources. CRD V introduces further measures, implementing Basel III’s enhanced Pillar 2 approach to the management and control of interest rate risk in the banking book (IRRBB). It also introduces a number of EU-specific measures designed to further harmonise micro- and macro-prudential supervision and to introduce greater proportionality in prudential requirements.
CRD V seeks to achieve these objectives by:
- clarifying the application of supervisory requirements and guidance under Pillar 2;
- adjusting requirements applied to remuneration policies;
- requiring the establishment of intermediate parent undertakings; and
- updating the governance requirements applied to firms.
It also introduces the following measures that will be addressed in the PRA’s autumn 2020 consultation:
- a new requirement for approval and supervision of holding companies;
- clarification of the capital stack;
- a revised definition of the maximum distributable amount;
- revisions to the capital buffers that may be applied; and
- the introduction of supervisory requirements to measure, monitor and control interest rate risk in the banking book (IRRBB).
This CP is relevant to banks, building societies and PRA-designated investment firms.
There are a number of different considerations with respect to implementation of the changes being consulted on in this CP. Please see Chapter 1 of the CP for full details.
Responses and next steps
This consultation closes on Wednesday 30 September 2020. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP12_20@bankofengland.co.uk.
The proposals set out in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policies under review to assess whether any further changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the EU take effect.