On 9 September 2019, the PRA issued Consultation Paper 20/19: Regulatory capital instruments – update to pre-issuance notification requirements (CP20/19).
In CP20/19 the PRA sets out proposals to amend the Pre-Issuance Notification (PIN) regime applicable to PRA-authorised Capital Requirements Regulation (CRR) firms. Appendix 1 of CP20/19 contains proposed amendments to the PIN regime as set out in the Definition of Capital Part of the PRA Rulebook.
The proposals reflect the adoption of amendments to Part Two of the CRR via the revised Capital Requirements Regulation (CRR II) and make improvements identified through the PRA’s experience of assessing the quality of capital instruments.
The PRA also sets out proposals to make the PIN regime for CRR firms more risk-sensitive and proportionate, and to allow firms greater flexibility in issuing capital instruments. For instance, the PRA proposes to amend its Rulebook to strengthen the governance of common equity tier 1 (CET1) issuance, align the requirements for subsequent issuances of Additional Tier 1 (AT1) instruments to those for subsequent issuances of CET1 instruments, and remove the requirement to make a pre-issuance notification of Tier 2 instruments.
The PRA also proposes to update Supervisory Statement 7/13 CRD IV and capital (SS7/13) to emphasise the PRA’s preference for simpler CET1 capital structures and set out its proposed expectations of firms’ senior management in relation to the quality of capital resources. The PRA also proposes to clarify two terms introduced by CRR II, to ensure common understanding of notification requirements in relation to subsequent issuances of CET1 and AT1 capital instruments. Appendix 2 of CP20/19 contains the proposed revisions to SS7/13 which is proposed to be renamed ‘Definition of Capital’.
The proposals in CP20/19 have been designed by the PRA in the context of the current UK and EU regulatory framework. The PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place. If the EU and UK agree an implementation period, the PRA may need to amend the definition of CRR for the purposes of Chapter 7 of the Definition of Capital Part to explicitly include relevant amendments via CRR II.
The deadline for comments on CP20/19 is 9 December 2019. The proposed implementation date for the proposals is 1 April 2020.