On 8 October 2021, the PRA published Policy Statement 21/21: The UK leverage ratio framework (PS21/21).
PS21/21 is relevant to all firms subject to the Capital Requirements Regulation (CRR) and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis.
In PS21/21 the PRA and Financial Policy Committee (FPC) provide their responses to the feedback received to Consultation Paper 14/21: Consultations by the FPC and PRA on changes to the UK leverage ratio framework (CP14/21). Part 1 of PS21/21 covers the FPC’s feedback to responses relating to its direction and/or recommendations, and its final decisions. Part 2 covers the PRA’s feedback to responses relating exclusively to its separate proposals in CP14/21, which go beyond the scope of the FPC’s direction and/or recommendations, or which provide for the PRA’s implementation where scope was left for the PRA to determine the details of that implementation.
PS21/21 also contains the FPC’s and PRA’s final policy which are set out in:
- Amendments to the PRA Rulebook (Appendix 1).
- An updated Supervisory Statement (SS) 45/15 ‘The UK leverage ratio framework’ (Appendix 2).
- The FPC direction and recommendation (Appendix 3).
- An updated FPC Policy Statement ‘The FPC’s powers over leverage ratio tools’ (Appendix 4).
- An updated SS34/15 ‘Guidelines for completing regulatory reports’ (Appendix 5).
- An updated reporting and disclosure templates and instructions (Appendix 6).
The FPC reports in PS21/21 that it has made one change to its direction and recommendation. This concerns central bank claims exclusion. Specifically, the FPC has determined that central bank claims can be excluded from the UK leverage ratio measure, as long as they are matched by liabilities (rather than deposits) of the same currency and equal or longer maturity. In light of this change, the PRA is making similar amendments to the draft rules presented in CP14/21. The PRA is also specifying in Article 429a(A1) of Chapter 3 of the Leverage Ratio (CRR) Part how maturity should be interpreted for non-deposit liabilities that have optionality that means they can be called or redeemed before contractual maturity, and where reputational factors may impact firms’ ability to exercise optionality.
The PRA is not making any other changes to the draft rules presented in CP14/21, apart from a small number of general clarifications and corrections. These include: clarifying reporting and disclosure rules; specifying where CRR article references relate to provisions of the PRA Rulebook; correcting defined terms in the Capital Requirements and Buffers Part; and other formatting changes.
From 1 January 2023, the following policy will apply:
- The scope of application of the leverage ratio requirement will be extended to firms, ring-fenced bank (RFB) subgroups, and CRR consolidation entities with non-UK assets equal to or greater than £10 billion (calculated on an individual, sub-consolidated, and consolidated basis, respectively).
- The leverage ratio requirement will apply on an individual basis to any firm that is not a CRR consolidation entity or an RFB that is the ultimate parent within an RFB sub-group.
- Sub-consolidation will become available as an alternative to individual application where a firm has subsidiaries that can be consolidated (subject to a firm’s application and to that firm meeting certain conditions, as set out in SS45/15).
All other policy in PS21/21 is designed to take effect at the same time as HM Treasury’s anticipated revocation of the leverage parts of the CRR, in accordance with its powers under section 3 of the Financial Services Act 2021. Those revocations will take place on 1 January 2022, subject to Parliamentary approval and HM Treasury sign-off of the Statutory Instrument that makes those revocations and other consequential amendments and is due to be laid before Parliament shortly. In due course the PRA will also make consequential amendments to the leverage ratio model requirements in its Rulebook, in time to reflect the changes taking effect on 1 January 2022.