In November 2016, we blogged that the PRA had published Supervisory Statement 16/16: The minimum requirement for own funds and eligible liabilities – buffers and Threshold Conditions (SS16/16). In SS16/16 the PRA set out its expectations on the relationship between the minimum requirement for own funds (MREL) and both the capital and leverage ratio buffers, as well as the implications that a breach of MREL would have for the regulator’s consideration of whether a firm is failing, or likely to fail, to satisfy the Threshold Conditions.
The PRA has now published Consultation Paper 15/17: The minimum requirements for own funds and eligible liabilities – buffers (CP15/17). In CP15/17 the PRA sets out proposed expectations with regard to the relationship between MREL and buffer requirements, as well as the consequences of not meeting these. The PRA also proposes to update SS16/16.
Since the publication of SS16/16 the PRA has been asked about the situation where MREL is calibrated on the basis of one capital regime (e.g. leverage, in circumstances where the leverage requirement is larger than the risk-weighted requirement), but the largest requirement for buffers derives from the other regime (e.g. risk-weighted capital). The PRA believes this situation applies to a very small number of firms but never-the-less the PRA proposes in CP15/17 to update SS16/16 to clarify that the expectations set out in the supervisory statement are not intended to create a different buffer requirement from that which is usable in the going-concern regime.
The deadline for comments on CP15/17 is 29 September 2017. The PRA aims to publish the updated supervisory statement before the end of 2017.
View PRA consults on updated supervisory statement on MREL and buffers, 27 July 2017