On 29 July 2024, the Prudential Regulation Authority (PRA) published a Policy Statement, PS14/24, on the leverage ratio treatment of omnibus account reserves and minor amendments to the leverage ratio framework. PS14/24 includes feedback to responses the PRA received to its Consultation Paper, CP28/23, and sets out its final policy.

Background

Under PRA rules, firms must exclude from the leverage ratio any claims on central banks matched by liabilities in the same currency and of identical or longer maturity. The exclusion is a measure to respond to extraordinary circumstances that have led to a significant increase in central bank claims in the financial system.

A new model of reserves holding has emerged where the reserves of several firms are co-mingled in a single account held at the central bank, known as an ‘omnibus’ account. This has raised the question of whether the reserves held on such accounts (omnibus account reserves) should be excluded from the leverage ratio as traditional individually-held reserves currently are.

To address this, the PRA proposed in CP28/23 to:

  • Introduce new rules to apply the exclusion consistently across omnibus accounts reserves as well as traditionally-held reserves, with the exclusion of the former subject to specific additional conditions, and to add related material to Supervisory Statement 45/15 – The UK leverage ratio framework (SS45/15).
  • Make minor amendments to SS45/15 and the leverage ratio disclosure and reporting instructions, to provide clarification about the PRA’s expectations and ensure consistency with PRA rules.

The final rules

The PRA has made only minor changes to the proposals it consulted on in CP28/23. The final policy set out in PS14/24 includes:

  • Amendments to the Glossary, Leverage Ratio (CRR), Disclosure (CRR) and Reporting (CRR) Parts of the PRA Rulebook.
  • Updates to SS45/15.
  • Amendments to the ‘Instructions for leverage ratio disclosures’.
  • Amendments to the ‘Instructions for leverage ratio reporting’.

Next steps

All the proposed changes in PS14/24 will take effect on 5 August 2024.

The PRA reminds firms that, as noted in the updated version of SS45/15, the PRA expects firms in scope of the leverage ratio minimum requirement to notify the PRA of existing or planned participation in an omnibus account. Firms should also tell the PRA whether, in respect of reserves held on the account, they meet or expect to meet the conditions in Article 429a(A2).