The PRA has published a direction for modification by consent of 5.1 to 5.5 of the Capital Buffers Part of the PRA Rulebook. The direction is given by the PRA under section 138A of the Financial Services and Markets Act 2000 (FSMA). The direction should be read and used in conjunction with the Voluntary Requirement – Capital Buffers and Pillar 2A Model Requirements.
As stated in Supervisory Statement 31/15: The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) (and as amended with effect from 1 January 2018 pursuant to Policy Statement 30/17: Pillar 2A capital requirements and disclosure), firms to which the Capital Requirements Regulation applies will be invited to apply for a voluntary requirement (VREQ) under section 55M of the FSMA preventing them from meeting their CRD IV combined buffer with any Common Equity Tier 1 capital maintained to meet their Total Capital Requirement.
The PRA will write to firms setting out its view of the amount and quality of Pillar 2A capital they should hold based on the ICAAP and the SREP, and include a VREQ application form. If firms agree, the PRA expects that they will apply for the imposition of the requirements set out in a Voluntary Requirement – Capital Buffers and Pillar 2A Model Requirements by signing and returning the VREQ application form.
As part of the VREQ application process, from 1 January 2018 firms are expected to also apply for a minor modification of 5.1 to 5.5 of the Capital Buffers Part of the PRA Rulebook. This is to avoid any confusion, given that Pillar 2A is a formal requirement, in the application of Maximum Distributable Amount trigger points under the rules (which do not include a Pillar 2A component) and as set by the VREQ (which do).
View Voluntary Requirement – Capital buffers and Pillar 2A Model Requirements, 31 January 2018