On 5 December 2023, the Prudential Regulation Authority (PRA) published Consultation Paper CP23/23 – Identification and management of step-in risk, shadow banking entities and groups of connected clients.

In CP23/23, the PRA sets out proposed rules requiring Capital Requirements Regulation (CRR) firms that are not small domestic deposit takers (SDDTs) and CRR consolidation entities that are not SDDT consolidation entities to regularly assess their step-in risk. Step-in risk is the risk that a bank provides financial support to an unconsolidated entity that is facing stress, in the absence of, or in excess of, any contractual obligations to provide such support. The proposals would require firms to develop their own step-in risk policies and procedures and to report their assessment to their supervisor on proposed assessment templates. They build on the work done by the Basel Committee on Banking Supervision in developing its guidelines on the identification and management of step-in risk.

CP23/3 also sets out the PRA’s proposals to transfer the European Banking Authority’s guidelines on ‘limits on exposures to shadow banking entities’ and on ‘connected clients’ to PRA rules and supervisory statements. Through these proposed changes, the PRA aims to improve the accessibility and clarity of its policies by streamlining the relevant policy documents and improving the “currently fragmented policy landscape” as, for example, some of the definitions refer to repealed EU Directives.

The deadline for feedback to this consultation is 5 March 2023.