On 14 March 2023, the PRA published Consultation Paper 6/23 ‘The non-performing exposures capital deduction’ (CP6/23).

In CP6/23 the PRA sets out a proposal to remove the Common Equity Tier 1 (CET1) deduction requirement in the PRA Rulebook, regarding non-performing exposures (NPEs) that are treated as insufficiently covered by firms’ accounting provisions. Among other things the PRA notes that the NPE deduction was originally designed and calibrated to provide a suitable backstop for the EU as a whole. However, the PRA considers that the deduction does not provide an objectively accurate measure of NPE provisioning levels for PRA-regulated firms. While the European Banking Authority’s quantitative impact analysis of EU policy options for an NPE deduction included data from 10 UK firms, the EU NPE deduction requirement was not tailored to, or calibrated specifically for UK firms.

The proposal, if adopted, will result in changes to the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and the Reporting (CRR) Part of the PRA Rulebook.

The PRA proposes that the changes resulting from CP6/23 would come into force the next calendar day after the publication of the final policy – anticipated for Q4 2023.

The deadline for comments on CP6/23 is 14 June 2023.