On December 11, 2015, the PRA published its proposed approach setting regulatory buffers in light of a firm’s MREL requirement as well as the relationship between MREL and the PRA’s Threshold Conditions which are a set of minimum requirements that authorized firms must meet in order to continue carrying out their regulated activities. MREL is the equivalent of the US TLAC rule. The proposals are relevant to PRA-regulated banks, building societies and PRA-designated investment firms. The PRA’s proposed approach is to prohibit firms from being able to double-count common equity Tier 1 capital towards MREL and to risk-weighted capital and leverage buffers. Some guidance has been given on enforcement: when a firm is in breach of its MREL requirements, the PRA may investigate whether that firm is failing or likely to fail to meet the Threshold Conditions, although investigation will not be automatic. The PRA’s approach is in line with the FSB’s TLAC standards. The proposals should be read in conjunction with the BoE’s consultation on setting MREL. Responses to the PRA’s consultation are due by March 11, 2016.

The PRA’s consultation paper is available at:

http://www.bankofengland.co.uk/pra/Documents/publications/cp/2015/cp4415.pdf.

The BoE’s consultation paper is available at:

http://www.bankofengland.co.uk/financialstability/Documents/resolution/mrelconsultation2015.pdf.

The FSB’s TLAC term sheet is available at: http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Principles-and-Term-Sheet-for-publication-final.pdf.