On 13 November 2023, the Prudential Regulation Authority (PRA) published Policy Statement PS14/23: The non-performing exposures (NPEs) capital deduction (PS14/23).
In PS14/23, the PRA provides feedback to responses to its earlier consultation on the topic, CP6/23. It also contains the PRA’s final policy, in the form of amendments to the Own Funds and Eligible Liabilities (CRR) Part, Disclosure (CRR) Part, Regulatory Reporting Part and Reporting (CRR) Part of the PRA Rulebook.
In CP6/23, which was published in March 2023, the PRA proposed to remove the Common Equity Tier 1 (CET1) deduction requirement for NPEs that are treated as insufficiently covered by firms’ accounting provisions and related reporting requirements for CRR firms. As such the rules revoke Article 36(1)(m) in the Own Funds and Eligibilities (CRR) Part of the PRA Rulebook, which requires firms to deduct from CET1 capital the applicable amount of insufficient coverage for NPEs. References to that deduction requirement in the Disclosure (CRR) Part, Regulatory Reporting Part, and Reporting (CRR) Part of the PRA Rulebook are also removed.
Respondents to CP6/23 welcomed the proposals but suggested other changes to PRA rules and the UK CRR. The PRA has made three additional changes to the associated reporting and disclosure instructions to remove references to the deleted NPE deduction article. The PRA considers that the changes to the templates and instructions are not significant and that the cost benefit analysis presented in CP6/23 remains valid for the final rules.
The rule change to remove the NPE deduction requirement will come into effect on 14 November 2023. The necessary modifications to reporting requirements will also be effective from that date.
Once the amended rules become effective, firms will no longer be required to complete the associated reporting templates. The PRA intends to make any required changes to existing templates and taxonomy at a later date.