On 20 September 2024, the Prudential Regulation Authority (PRA) published a speech by David Bailey (Executive Director, Prudential Policy) entitled Strong and Simple – completing the picture.

In his speech Mr Bailey discusses the recent PRA consultation paper that was published which sets out the proposed capital regime for the Strong and Simple framework.

In particular, he makes three key points about the proposals which are that they:

• Will significantly simplify the capital regime for small domestic deposit takers (SDDTs) whilst maintaining SDDTs’ overall resilience.
• Provide a comprehensive offering that simplifies all aspects of the capital stack including Pillar 1, Pillar 2A, buffers, and the calculation of regulatory capital.
• Advance both the PRA’s primary and secondary objectives, including the secondary competitiveness and growth objective that became effective in 2023.

In the annex to the speech the PRA has set out a table which lists implemented and proposed SDDT simplifications.

Mr Bailey also reminds firms that the recent second near-final Basel 3.1 Policy Statement includes further details about the Interim Capital Regime (ICR), a key initiative that will allow firms eligible to be SDDTs to choose to remain on the current Pillar 1 framework until the SDDT capital regime is implemented. Without joining the ICR, small firms that intend to join Strong and Simple would end up implementing the Basel 3.1 package, only for a more tailored set of capital rules for them to be introduced later. Mr Bailey strongly encourages SDDT-eligible firms that wish to take advantage of the new regime to refer to the ICR chapter in the second near-final Basel 3.1 Policy Statement for details on the joining process. The PRA will provide more details when it finalises the Basel 3.1 rules.