UK Prudential Regulation Authority Consults on Changes to its Large Exposures Framework

The Prudential Regulation Authority has published a consultation on proposed changes and clarifications to requirements relating to intragroup transactions in the Large Exposures (LE) Part of the PRA Rulebook. The PRA is making the proposals following its review of its framework for the prudential treatment of financial groups.

The LE framework complements the capital framework by aiming to protect firms from large losses resulting from the sudden default of a single counterparty or a group of connected counterparties. The consultation proposals aim to simplify the overall intragroup LE framework, improve the consistency of the process of granting intragroup permissions and facilitate the orderly resolution of banking groups. 

Under the LE framework, firms can apply to the PRA for intragroup permissions, under which exposures to certain group members (entities within a firm's core UK group (CUG)) are exempt from the LE limit and are also excluded from a firm's leverage ratio. The LE framework also permits a firm to apply to the PRA to increase its total exposures to certain cross-border group entities (known as non-core LE group (NCLEG) entities) from 25% to 100% of its own eligible capital.

The consultation paper sets out proposals for: enhanced guidance on the application of criteria for CUG and NCLEG permissions; changing the NCLEG calibration basis for firms that have both a CUG and a NCLEG permission; and changing how the NCLEG permission applies at the UK consolidated group level. The PRA also proposes to allow firms to apply to exempt from the LE limit exposures that are identified and reported as internal MREL (minimum requirement for own funds and eligible liabilities).

Comments on the proposals are invited by January 4, 2018. The changes to the rules and proposed guidance will take effect after the completion of the consultation period and following publication of the final policy.

View PRA Consultation: Changes to the PRA's large exposures framework (CP 20/17).