On 7 February 2022, the PRA published Consultation Paper 2/22 ‘Definition of capital: updates to PRA rules and supervisory expectations’ (CP2/22).

In CP2/22 the PRA sets out its proposed approach to transferring the UK Technical Standards (UKTS) for own funds requirements for institutions into PRA rules, with amendments to reflect revisions to the revised Capital Requirements Regulation (CRR) which applied from 27 June 2019. These revisions were not reflected in the relevant EU Regulatory Technical Standards before the end of the transition period and are therefore not included in the UKTS on own funds.  The PRA also proposes to update Supervisory Statement 7/13 ‘Definition of capital’ to clarify the PRA’s expectations of CRR firms regarding capital issuances and reductions.

The PRA considers that these proposals would not result in any significant cost implications for firms. Most of the proposed rules replicate the UKTS requirements without changes. However, as a result of the proposed changes, the PRA will require additional information from firms to enable it to assess applications for permission to reduce own funds instruments against the relevant requirements.  This would include information on, among other things, the current and forward-looking position on the leverage ratio, eligible liabilities requirements, and how the conditions under CRR Article 78(4(d) are met. Notwithstanding this, the PRA states that firms are already expected to have this information readily available in order to comply with other regulatory requirements, or for general capital management purposes.

Many firms have already been providing similar information to the PRA as part of their applications for permissions to reduce own funds instruments. The proposals to strengthen supervisory expectations under the Supervisory Statement would similarly add clarity without imposing an additional burden on firms.

The deadline for comments on CP2/22 is 2 May 2022.

The PRA proposes that the implementation date for the changes resulting from CP2/22 is September 2022.