Tuesday’s Draft Capital Requirements (Amendment) (EU Exit) Regulations 2018 is one of the many SIs we have been expecting as the UK Government prepares for the onshoring of financial services regulation. These ones deal with the prudential regulation for financial institutions under the CRR and CRD IV. At present exposures to EU and equivalent entities have preferential treatment under CRR e.g. exposures to EU sovereign debt have a 0% risk weight. In a hard Brexit, UK exposures would no longer be treated preferentially by the EU27, and these draft regulations correspondingly provide that UK institutions’ exposures to EU27 exposures would not be either. Making cross-border holding of bonds more expensive makes no great sense, and is likely to hit the EU harder than the UK, so this may just help promote a sober agreement (away from the political spotlight) not to do this. The FCA and the PRA will be updating their rulebooks etc. to reflect the draft SI, and to address any “deficiencies due to the UK leaving the EU”. Details of the FCA’s approach can be found here, and the PRA’s here. They will consult on these changes in the autumn.