In July 2015 the Financial Policy Committee (FPC) directed the PRA to implement a UK leverage ratio framework, and specifically measures to:
- require each major UK bank and building society to hold sufficient tier 1 capital to satisfy a minimum leverage ratio of 3%;
- ensure that those institutions ordinarily hold sufficient tier 1 capital to satisfy a countercyclical leverage ratio buffer rate of 35% of its institution-specific countercyclical capital buffer rate, with the countercyclical leverage ratio buffer rate percentage rounded to the nearest 10 basis points; and
- ensure that, if it is a global systemically important institution (G-SII), it ordinarily holds sufficient tier 1 capital to satisfy a G-SII additional leverage ratio buffer rate of 35% of its G-SII buffer rate.
Following the FPC’s direction, the PRA subsequent published Consultation Paper 24/15: Implementing a UK leverage ratio framework (CP24/15), which among other things proposed that:
- firms in scope should include all PRA-regulated banks and building societies with retail deposits equal to or greater than £50 billion, whether on an individual or a consolidated basis, at a firm’s financial year end date; and
- firms in scope will be subject to leverage ratio reporting and disclosure requirements.
The PRA has now published Policy Statement 27/15: Implementing a UK leverage ratio framework (PS27/15). In PS27/15, the PRA sets its feedback to the responses it received to CP24/15 and publishes the final rules and supervisory statements.
PS27/15 broadly follows the same chapter structure as CP24/15 and where relevant each section includes:
- the approach taken on the most significant issues raised by respondents, in particular noting those areas where the PRA is making changes to the proposals contained in the CP24/15; and
- clarification where the PRA considers it appropriate to use PS27/15 to clarify issues of uncertainty raised in responses to the CP24/15.
The PRA notes that in light of the responses received, it has chosen to extend its proposed transition period for daily averaging disclosure requirements by 12 months. Also, in the final version of the framework some drafting changes have been made to the wording of the provisions on the scope of application. These are intended to clarify that for cross-border groups the framework will apply at the highest level of consolidation in the UK. These edits do not represent any change in the PRA’s intention.
View Implementing a UK leverage ratio framework – PS27/15, 7 December 2015