The PRA has issued Consultation Paper 27/16: The PRA’s implementation of the systemic risk buffer (CP27/16). In CP 27/16, the PRA proposes a draft statement of policy setting out its approach to the implementation of the risk buffer (SRB).
The Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 require the PRA to apply the framework set out by the Financial Policy Committee (FPC) on the SRB from 1 January 2019. The FPC set out The Financial Policy Committee’s framework for the systemic risk buffer in May 2016. Alongside the FPC framework, the PRA’s Statement of Policy, when finalised, will form the Bank of England’s broader framework for the SRB.
CP27/16 is relevant to ring-fenced bodies within the meaning of section 142A of the Financial Services and Markets Act 2000 and large building societies that hold more than £25 billion in deposits (where one or more of the accountholders is a small business) and shares (excluding deferred shares).
The four policy proposals included in CP27/16 are:
- the PRA expects that it will, in the exercise of sound supervisory judgement, deviate from the SRB rates derived from the Financial Policy Committee framework only in exceptional cases;
- for building societies in scope of the framework, the applicable basis of the framework will be the group consolidated basis for building societies that are the parents of consolidation groups and the individual basis for all others (the applicable basis of the framework for ring-fenced bodies is outlined in Policy Statement 20/16: The implementation of ring-fencing: prudential requirements, intragroup arrangements and use of financial market infrastructures);
- the initial SRB rates will be set and announced by the PRA in early 2019 and will apply three months after being set; and
- following the application of the initial SRB rates, rates will be set and announced annually and will apply the second year following the calendar year of the year they were set.
The deadline for comments on CP27/16 is 28 October 2016.
View PRA consults on implementation of systemic risk buffer, 29 July 2016