PRA updates on Solvency 2: PRA will make final decisions on all formal Matching Adjustment (MA) applications it received before 1 July in late October, and tell all firms their decision at the same time. PRA thinks this is important in the interests of fair markets, and also brings the process into line with its internal model approval process. PRA has also published a supervisory statement supplementing its general approach to insurance supervision in relation to the treatment of sovereign debt in internal models, and an amendment to its supervisory statement on applying EIOPA's set 1 guidelines to PRA-authorised firms. The amendment is to clarify that the statement, where relevant, applies to Lloyd's, including Lloyd's managing agents, rather than just the Society of Lloyd's. (Source: PRA Updates on Solvency 2)

PRA publishes Pillar 2 reporting instrument: PRA has published the PRA Rulebook CRR Firms: Reporting Pillar 2 Instrument 2015, which takes effect on 1 January 2016. The rules set out the reporting and submission requirements and link to relevant data forms for firms covered by the rules. In principle, this is every firm that is a Capital Requirements Regulation (CRR) firm. (Source: PRA Publishes Pillar 2 Reporting Instrument)

PRA outlines new Pillar 2 approach: PRA has announced its new approach to setting Pillar 2 capital requirements for banks. The changes are based on proposals set out in PRA's January consultation paper and take into account the responses to that paper. The changes include:

  • refining the methodology used by PRA to inform the setting of firms’ Pillar 2A capital so as to be more transparent and risk sensitive;
  • replacing the capital planning buffer with a "PRA buffer" which will harmonise PRA's approach with that of CRD4. The PRA buffer will be held by firms to absorb losses that may arise under a severe, but plausible stress, in line with the CRD4 rules;
  • where PRA assesses a firm’s risk management and governance to be significantly weak it may also set the PRA buffer to cover the risk posed by those weaknesses until they are addressed; and
  • under the new Pillar 2 framework, firms will need to submit the data necessary for PRA to run the new Pillar 2 methodologies with their Internal Capital Adequacy Assessment Process (ICAAP) submissions.

PRA has published its feedback statement, supervisory statements and statement of policy alongside the reporting instrument. (Source: New Approach to Setting Pillar 2 Capital Requirements for the Banking Sector)