UK regulator issues consultation to avoid capital buffer conflict

The Prudential Regulation Authority (PRA) has issued a consultation on proposed expectations with regard to the relationship between MREL and buffer requirements, as well as the consequences of not meeting these. It’s relevant to all PRA-regulated banks, building societies and PRA-designated investment firms.

In November 2016 the PRA set out how the regulator views the relationship between MREL (minimum requirement for own funds and eligible liabilities) and the buffer requirements from the two going-concern regimes:

  • risk-weighted capital buffers: derived CRD IV and from firm-specific capital requirements set by the PRA (PRA buffer);  and
  • leverage buffers: buffers that form part of the UK leverage ratio framework

The current supervisory statement (SS) states that the PRA expects firms not to count Common Equity Tier 1 capital towards both MREL and the buffer requirements. Subsequently, the PRA has been asked about the situation where MREL is calibrated on the basis of one capital regime (eg leverage, in circumstances where the leverage requirement is larger than the risk-weighted requirement), but the largest requirement for buffers derives from the other regime (eg risk-weighted capital).

The consultation paper proposes to update the SS to clarify that the expectations are not intended to create a different buffer requirement from that which is usable in the going-concern regime. The consultation closes on Friday 29 September 2017.

Read the announcement here

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