On 12 September 2024, PRA published CP8/24 – Definition of Capital: restatement of CRR requirements in PRA Rulebook
Overview:
HM Treasury (HMT) has recently announced that it plans to remove certain requirements related to the definition of own funds in the Capital Requirements Regulation (CRR). In response, the PRA (Prudential Regulation Authority) has released a consultation paper (CP) outlining its proposed rules to restate and potentially make changes to these requirements in the PRA Rulebook. The PRA’s proposed general approach under Proposal 1 would largely restate in PRA rules the current CRR requirements in this area with minor modifications to ensure their operability in the PRA Rulebook, and to omit some provisions that are not necessary or relevant for UK firms. In addition PRA made following seven proposals.
Proposed changes:
- Proposal 1 – General approach, restate CRR, change as required for UK
- Proposal 2 – proportionality in the Pre/Post-Issuance Notification (PIN) regime;
- Proposal 3 – inclusion of interim profits in Common Equity Tier 1 (CET1) capital resources;
- Proposal 4 – reduction of Additional Tier 1 (AT1) and Tier 2 instruments;
- Proposal 5 – clarify the regulatory capital treatment of non-CET1 shares;
- Proposal 6 – require PRA permission for additional forms of capital reduction; and
- Proposal 7 – permit the terms governing CET1 instruments to reflect the possibility of (but not commit to) a future capital reduction
For the SDDT firms, the adjustments relating to the definition of the own funds is explained in the CP7/24.
Implementation and next steps:
Consultation closes: Thursday 12 December 2024
Implementation date: The PRA intends to consult on the implementation date for these proposals when it consults on restating other CRR provisions in due course.
