On 13 March 2019, the PRA published Policy Statement 8/19: Credit risk mitigation: Eligibility of guarantees as unfunded credit protection (PS8/19). PS8/19 is relevant to all firms bound by the Capital Requirements Regulation (CRR).

In PS8/19 the PRA provides feedback on its earlier consultation (Consultation Paper 6/18: Credit risk mitigation: Eligibility of guarantees as unfunded credit protection (CP6/18)). It also contains the PRA’s final policy in updated:

  • Supervisory Statement 17/13: Credit risk mitigation (SS17/13) (Appendix 1); and
  • Supervisory Statement 31/15: The Internal Capital Adequacy Assessment Process and the Supervisory Review and Evaluation Process (SS31/15) (Appendix 2).

In CP6/18 the PRA proposed changes to SS17/13 to clarify expectations regarding the eligibility of guarantees as unfunded credit protection under CRR Part Three, Title II, Chapter 4 (credit risk mitigation).

Following a number of responses to CP6/18, the PRA has made changes to the proposals consulted on, including:

  • the removal of the proposal relating to the meaning of pay out in a timely manner (under CRR article 215(1)(a));
  • the removal of the proposal on the enforceability of independent legal opinion (under CRR article 194(1));
  • a new expectation around risks arising from eligible guarantee arrangements; and
  • a new expectation around recognising any residual risks.

The PRA has also made other minor alterations to the draft policy which are not significant and do not alter its impact assessment on mutuals.

The changes to SS17/13 and SS31/15 will be effective from 13 September 2019.

Whilst the policy within PS8/19 follows the context of the current UK and EU regulatory framework, the PRA has assessed that no additional amendments would need to be made to the changes outlined in PS8/19 in the event that the UK leaves the EU with no implementation period in place on 29 March 2019.