PRA consults on leverage ratio framework: PRA is consulting on how it will meet the Financial Policy Committee (FPC) direction of 1 July to implement a UK leverage ratio framework. PRA proposes that firms in scope (that is, PRA-regulated banks and building societies with consolidated retail deposits equal to or greater than £50 billion) must meet a minimum leverage ratio requirement. They will also need to consider whether they hold an amount of Common Equity Tier 1 that is greater than or equal to their countercyclical leverage ratio buffer (CCLB), and, if the firm is a Global Systemically Important Institution (G-SII), their G-SII additional leverage ratio buffer (ALRB). Firms will have to report and disclose an averaged leverage ratio by applying daily averaging to on-balance sheet exposures and monthly averaging to the capital measure and off-balance-sheet exposures. PRA proposes the framework should take effect from 1 January 2016 but there will be a transitional period of 12 months for firms to comply with the averaging requirement. The consultation includes:

  • proposed rules on (i) the UK minimum leverage ratio and buffers, (ii) UK leverage ratio reporting and (iii) UK leverage ratio disclosures;
  • draft supervisory statements setting out (i) PRA’s expectations in relation to the application of the UK leverage ratio framework and (ii) the basis on which firms would be expected to report leverage ratio information required under the UK leverage ratio framework; and
  • proposed reporting and transitional reporting templates.  

PRA asks for comments by 12 October 2015, particularly on the reporting and disclosure requirements and providing an analysis of firms’ incremental compliance costs as a result of complying with the averaging requirements. (Source: PRA Consults on Leverage Ratio Framework)

PRA speaks on Solvency 2: Sam Woods, speaking to the Association of British Insurers, focused on:

  • "busting the myth" that there is some kind of plan to use Solvency 2 to increase required capital across the insurance sector;
  • similarly, allaying industry suspicion that the current ICAS regime for capital adequacy will remain after January 2016; and
  • making clear firms who wish to make use of transitional measures will be given the freedom to do so.

(Source: PRA Speaks on Solvency 2)

PRA issues LTV and DTI statement: PRA is consulting on how it intends to implement directions of the Financial Policy Committee (FPC) on loan to value (LTV) and debt to income (DTI) ratio limits for owner-occupied mortgages. When FPC makes use of its powers, PRA expects to base its approach as far as possible on the framework established to implement FPC’s 2014 recommendation on loan to income ratios in mortgage lending. PRA plans to consult when implementing an FPC Direction and will then explain the exact implementation approach in more detail. PRA invites any comments by 12 October. (Source: PRA’s Intended Implementation Approach to FPC Directions on LTV and DTI Ratio Limits)

PRA updates on Solvency 2: PRA has updated on Solvency 2 implementation, outlining recent publications from both itself and EIOPA. (Source: PRA Updates on Solvency 2)