08 Mar Bank of England Published CP5/21 Implementation of Basel Standards
February 12, 2021 -The Bank of England (BoE) published Consultation Paper CP5/21 on Prudential Regulation Authority’s (PRA’s) proposed rules of the implementation of international Basel standards through a new PRA Capital Requirements Regulation (CRR) rule instrument.
This CP applies to banks, building societies, PRA-designated investment firms, and PRA-approved or -designated financial or mixed financial holding companies (firms).
This consultation closes on 3 May 2021.
The Basel Committee on Banking Supervision (BCBS) approved Basel III reforms in response to the financial crisis of 2007-08. Some of the Basel III standards were implemented into EU law and subsequently transferred into UK law through the CRR and CRR 2 Regulations. However, some Basel III standards were not implemented in the EU before the end of the transition period and so remain to be implemented in the UK.
The HM Government’s Financial Services Bill (the FS Bill) proposed to give power to the PRA to make rules that restate elements of the CRR and CRR 2 Regulations revoked by HM Treasury and also to make new rules and adapted versions related to the outstanding Basel III standards. Therefore, the proposed new rules broadly correspond with EU CRR II which adopts the same set of outstanding Basel III standards.
The PRA will allow firms to implement these Basel III standards from Saturday 1 January 2022.
The changes proposed in CP 5/21 would require the submission of new data and may render the existing reporting obsolete. Therefore, the PRA proposes to update the UK version of COREP and FINREP, by including new reports and amendments to existing reporting. The PRA also proposes to integrate the UK version of COREP and FINREP requirements into PRA rules and to create a single source of reporting requirements for firms. These updates will be aligned with the European Banking Authority’s (EBA’s) Taxonomy v3.00. The PRA also proposes to introduce new rules on disclosure that would reflect phases 1 and 2 of the Basel disclosure standards and also, to incorporate all Pillar 3 requirements to create a single source of disclosure requirements.
The PRA proposes to introduce new reporting templates and make minor changes to existing reporting.
IRB Credit Risk
The PRA will amend the existing templates C08.01, C08.02, C09.01 and C09.02 and add new templates C08.03, C08.04, C08.05.
Counterparty Credit Risk
PRA proposes to include the following new EBA templates: C34.01, C34.02 to C34.05 and C34.07, C34.08 to C34.10, C34.06.
Net stable funding ratio (NSFR)
The PRA proposes to delete the C60 and C61 templates and replace these with new templates aligned to the Basel III standards – C80, C81, C84.
The PRA considers removing the C66 requirement, in order to relieve the burden on firms. Firms currently submit several liquidity reports to the PRA, including the PRA’s template on the maturity ladder, PRA110, which is aligned to the PRA’s own methodology. The PRA proposes to maintain all liquidity reporting templates apart from the C66 maturity ladder template.
Total Loss Absorbing Capital
The PRA already collects supervisory reporting from firms on Minimum Requirements for Own Funds and Eligible Liabilities (‘MREL’) and Total Loss Absorbing Capital (TLAC), as laid out in SS19/13. 13.21.
The PRA proposes to introduce a requirement for Globally Systemic Important Institutions (GSIIs) to report information relating to their TLAC. PRA does not propose to introduce any additional reporting templates regarding TLAC further than those which firms already report to the PRA.
The PRA intends to include new international standards for market risk so that supervisors have access to data that quantifies market risk according to the new standards, showing the effect of the FRTB framework prior to its application in capital requirements.
COREP and FINREP changes on existing UK-specific reporting
The PRA plans to update the UK-specific templates to capture the changes to UK COREP and FINREP reporting. The PRA has identified some areas where such updates are necessary to ensure that firms are reporting current methodologies and to minimise the operational burden for firms.
The PRA will amend Capital + template, PRA101 to PRA103, to align with the row structure and labelling of the revised COREP templates on which these templates are based and to ensure that capital forecasts contain data items relevant to the new prudential methodologies the PRA proposes to adopt.
Changes proposed for both FINREP and COREP are relevant to the design of the ring-fence bank (RFB) templates.
Internal ratings based (IRB) portfolio risk
PRA plans to discontinue FSA045 from the date that C08.03 reporting comes into effect to eliminate any potential future duplication in reporting as proposed in CP12/20 ‘Capital Requirements Directive V (CRD V)’.
PRA intends to update the UK Pillar 3 disclosure requirements aiming to align the Pillar 3 disclosures of UK firms to the new Basel Pillar 3 disclosure requirements (the Basel disclosure framework), as well as enhance the market transparency in additional areas, including remuneration policy.
For more information please visit: BoE website
Jurisdiction: United Kingdom
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