On 7 May 2020, the PRA issued a statement in which it is alleviating pressure on firms by setting all Pillar 2A requirements as a nominal amount, instead of a percentage of total Risk Weighted Assets (RWAs). As well as avoiding an absolute increase in Pillar 2A capital requirements in the current stress, this reduces Pillar 2A, as well as the threshold at which firms are subject to maximum distributable amount (MDA) restrictions, as a share of a firm’s RWAs in the capital stack if RWAs increase.
The PRA will set Pillar 2A as a nominal amount in the 2020 and 2021 Supervisory Review and Evaluation Processes (SREPs). Firms with a SREP in 2020 don’t need to apply for a variation to their Pillar 2A requirements.
The PRA invites all firms who do not have a SREP assessment due in 2020 to apply for a conversion of their current Pillar 2A requirement into a nominal amount using RWAs as of end-December 2019. This change is voluntary, subject to supervisory agreement, and would apply until the firm’s next regularly-scheduled SREP. Where the PRA judges that RWAs are a more accurate reflection of a firm’s risks between assessments, it may reject the application.
The PRA requests that those firms that wish to apply for this variation use the Voluntary Requirement application form attached as Annex 1 to the statement.