On July 29, 2016, the PRA published a consultation paper on its proposed approach to the implementation of the systemic risk buffer. The consultation paper is relevant to ring-fenced bodies under the Financial Services and Markets Act 2000 and large building societies that hold more than £25 billion in deposits (where one or more of the accountholders is a small business) and shares (excluding deferred shares). These are jointly referred to as “SRB institutions.” The UK Independent Commission on Banking recommended that UK systemically important SRB institutions be held to a higher capital standard. In addition to these recommendations, the UK legislation implementing the systemic risk buffer requires that the PRA apply the FPC framework as of January 1, 2019. The PRA’s proposals outline the scope of the framework, the capital implications of the SRB and the PRA’s approach to applying the SRB.
The PRA is proposing that: (i) it will, in the exercise of sound supervisory judgment, only deviate from the SRB rates derived from the FPC framework in exceptional cases; (ii) for building societies in scope of the framework, the applicable basis of the framework will be the group consolidated basis for building societies that are the parents of consolidation groups and the individual basis for all others; (iii) the initial SRB rates will be set and announced by the PRA in early 2019 and will apply three months after being set; and (iv) following the application of the initial SRB rates, rates will be set and announced annually and will apply in the second year following the calendar year in which they were set. Responses to the proposals are due by October 28, 2016.
The consultation paper is available at: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp2716.pdf and the FPC framework and associated consultation paper are available at: http://www.bankofengland.co.uk/financialstability/Pages/fpc/systemicrisk.aspx.