PS21 / 21 | CP14 / 21- The UK leverage ratio framework

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Posted on October 8, 2021

The leverage ratio framework in the UK – PS21 / 21

Overview

This document contains the comments of the Financial Policy Committee (FPC) and the Prudential Regulation Authority (PRA) on the responses to Consultation Paper (CP) 14/21 “FPC and PRA Consultations on Changes to the UK Framework for leverage ratio ”(page 2 of 2). It also contains the final policy of the FPC and PRA, as follows:

  • Amendments to the PRA Rulebook (Annex 1);

  • Amendments to SS45 / 15 “The UK lever ratio framework” (Annex 2);

  • Guidance and recommendation of the CPE (Annex 3);

  • Amendments to “Powers of the FPC over leverage ratio tools” (Annex 4);

  • Amendments to SS34 / 15 “Guidelines for drafting regulatory reports” (Annex 5); and

  • Updated reporting and disclosure templates and instructions (Annex 6).

This NP applies to all companies and consolidation entities of the CRR (Capital Requirements Regulation) on an individual, consolidated and, where applicable, sub-consolidated basis. For the purpose of applying the requirements on a consolidated basis, references to “enterprises” include CRR consolidation entities.

Summary of responses

PCF and PRA received 9 written responses to PC14 / 21, in addition to comments received during meetings with interested stakeholders. Respondents generally welcomed the proposals by the FPC and PRA to make changes to the UK leverage ratio framework. Respondents particularly supported the creation of a single leverage exposure measure, the extension of the CBR exemption and the application of a PRA prudential expectation for small deposit-taking institutions, rather than ‘a requirement.

However, respondents made a number of observations and requests for clarification, which are presented in the remainder of this PF. Recurring themes included the exemption of central bank qualifying reserves, the level of application of the requirement in ring-fenced banking groups, and the definition and level of the £ 10 billion foreign asset threshold proposed by the PRA to capture companies with ‘significant non-UK assets’. .

Implementation

The policy elements of this NP which concern: (i) the extension of the scope of the leverage ratio requirement to companies, RFB sub-groups and CRR consolidation entities whose non-UK assets are equal or greater than £ 10 billion (calculated on an individual, sub-consolidated and consolidated basis respectively), (ii) apply the leverage ratio requirement on an individual basis to any business that is not a corporate entity. CRR consolidation or a ring-fenced body (RFB) which is the ultimate parent company within an RFB sub-group, and (iii) make sub-consolidation available as an alternative to individual application when a company has subsidiaries that may be consolidated (subject to the request of a company and that company fulfilling certain conditions, as indicated in SS45 / 15), will apply from Sunday January 1, 2023.

All other policy elements contained in this SP are designed to take effect concurrently with the UK Treasury’s early revocation of the leveraged parts of the CRR, in accordance with its powers under Section 3 of the Financial Services Act 2021, which is expected to take place on Saturday January 1, 2022, subject to parliamentary approval and HMT approval. This includes policy documents relating to updates to the leverage exposure measure, updated leverage reporting and disclosure requirements, prudential expectations of the PRA. and consequential changes to other reporting and disclosure requirements. The PRA will also make consequential changes to the leverage ratio model requirements in a timely manner and in time to reflect the changes taking effect on Saturday, January 1, 2022.

Policy Statement 21/21

Annex

Annex 6: Reporting and Disclosure Templates and Instructions – see list below:

PRA data elements
PRA101: Instructions on Capital + actuals and forecasts (pdf)
PRA102: Half-yearly capital + forecast instructions (pdf)
PRA103: Capital + annual forecast instructions (pdf)

Annex 7: Summary of the purpose of the regulation (pdf)
Annex 8: Reprocessing provisions (pdf)
Annex 9: Corresponding provisions (pdf)

Posted on June 29, 2021

FPC and PRA Consultations on Changes to UK Leverage Ratio Framework – CP14 / 21

Update August 3, 2021: It has been brought to the attention of the PRA that due to a technical problem, previous responses to the mailbox for this consultation have not been received. The PRA would request that responses sent before July 30, 2021 be returned to the following mailbox: [email protected]

Overview

The Financial Policy Committee (FPC) has undertaken a comprehensive review of the UK leverage ratio framework in light of revised international standards and its continued commitment to review its policy approach. This document describes the changes that the FPC proposes to make to the framework, and the approach proposed by the Prudential Regulation Authority (PRA) to implement these changes. The PRA reviewed the leverage ratio framework at the same time, especially to take into account international developments, and coordinated closely with the FPC regarding its review. The PRA considers that the FPC’s proposals would advance the objectives of the PRA.

The document below contains two consultation documents (PCs): one from the FPC and one from the PRA.

This consultation applies to all capital requirements regulators (CRRs) and CRR consolidation entities on an individual, consolidated and, where applicable, sub-consolidated basis.

Implementation

While the FPC makes the changes it proposes to the UK leverage ratio framework, the PRA proposes that the implementation date of the changes to the definition of the leverage exposure measure and the declaration and disclosure resulting from this CP is on Saturday January 1, 2022. Changes in the scope and level of application of the minimum requirement, cushions and additional reporting and related information requirements for companies that would be newly included in the scope of the minimum leverage ratio requirement would come into effect on Sunday, January 1, 2023.

The PRA’s proposals in this consultation are subject to the proposed revocation by the HM Treasury of the relevant parts of the CRR, which itself is subject to parliamentary approval. This is currently expected to take effect on Saturday January 1, 2022.

Answers and next steps

This consultation closes on Tuesday, August 24, 2021. The FPC and PRA invite comments on the proposals set out in this consultation.

Comments on the CPE orientation proposal presented in Chapter 3; and on how the ARP would implement the instructions set out in Part 2 can be included in a single response. All responses should be emailed to [email protected] by Tuesday 24 August 2021.

The proposals set out in this CP were conceived in the context of the UK’s exit from the European Union and the end of the transition period. Unless otherwise indicated, any reference to EU or derived EU law refers to the version of that law that is part of retained EU law.

Consultation document 14/21

Appendices


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