On 6 July 2020, the PRA published Policy Statement 15/20 ‘Pillar 2A: Reconciling capital requirements and macroprudential buffers’ (PS15/20). PS15/20 is relevant to PRA-authorised UK banks, building societies and PRA regulated investment firms. In PS15/20 the PRA provides feedback to responses to Consultation Paper 2/20 ‘Pillar 2A: Reconciling capital requirements and macroprudential buffers’ (CP2/20). It also contains the PRA’s final policy in Supervisory Statement 31/15 ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP).
Following consideration of respondents’ comments to CP2/20, the PRA has decided to implement the reduction to variable Pillar 2A capital requirements as proposed.
Due to the COVID-19 pandemic, the PRA has also decided to temporarily increase the PRA buffer for firms that will receive a Pillar 2A reduction. For firms that will receive a reduction in Pillar 2A, the Common Equity Tier 1 (CET1) component will be temporarily retained in the PRA buffer. As a result, the impact on loss absorbing capacity will not be fully realised, and the CET1 requirements will be unchanged, while the temporary increase is in place.
Upon reviewing CP2/20, firms may have already put the reduction in Pillar 2A into their capital plans. The increase in the PRA buffer was not in the consultation paper and therefore these firms may see an additional cost in capital planning.
The changes set out in PS15/20 took effect on 6 July 2020. The PRA will assess the appropriateness of any reduction to ensure that the remaining Pillar 2A provides sound management and coverage of the risks to which each firm is exposed. The PRA will apply the Pillar 2A reduction, where applicable, on or before 16 December 2020 and for efficiency align the assessment to related processes.