On 30 April 2018, the PRA published Policy Statement 9/18: Groups policy and double leverage (PS9/18).

PS9/18 is relevant to PRA authorised banks, building societies, PRA designated UK investment firms and their qualifying parent undertakings as well as credit institutions, investment firms and financial institutions that are subsidiaries of these firms, regardless of their location.

In PS9/18 the PRA sets out final rules and feedback to Consultation Paper 19/17: Groups policy and double leverage (CP19/17). The PRA reports that it received three responses to CP19/17. Respondents supported the overarching principle that consolidated capital requirements should take into account all risks that a group faces and that the financial strength of the holding company is of  great importance. Respondents sought to clarify certain aspects of the PRA’s proposals which are discussed in chapter 2 of PS9/18.

Following feedback the PRA has made changes to its proposals concerning Supervisory Statement 31/15: The Internal Capital Adequacy Assessment Process and the Supervisory Review and Evaluation Process (SS31/15) in the following areas:

  • a change to the definition of double leverage so that it is accounting-based (with a few regulatory adjustments) to reflect the reporting practices of stand-alone holding companies in paragraph 3.29 and 3.29A; and
  • a clarification in paragraph 3.30 on the level of application of the double leverage formula.

The PRA has also amended the formula for double leverage, referred to in paragraph 8A.2A of Statement of Policy: The PRA’s methodologies for setting Pillar 2 capital (SoP) to align it with the revised wording in SS31/15.

In addition to containing updated versions of SS31/15 and the SoP, PS9/18 also contains updates to:

  • Rule 14.10 of the PRA Rulebook CCR Firms: Internal capital adequacy assessment (No. 2) instrument 2018 (Appendix 1); and
  • Supervisory Statement 24/15: The PRA’s approach to supervising funding and liquidity risks (Appendix 4).

The final rules in PS9/18, the updated Supervisory Statements and the SoP come into effect from 1 January 2019. The PRA states that where practical and applicable, firms should to aim to incorporate the policy proposals in their internal capital adequacy assessment and individual liquidity adequacy assessment submissions ahead of full implementation.