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Financial Regulatory Developments Focus
  • UK Prudential Regulation Authority Issues Updates to its Pillar 2A Capital Framework

    The UK Prudential Regulation Authority has published a policy statement setting out final amendments to its supervisory statements on "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" and its Statement of Policy "The PRA's methodologies for setting Pillar 2 capital". These changes were proposed in a consultation by the PRA in July 2017, which closed in October 2017. Following feedback to the consultation, the PRA will proceed with the amendments it proposed in July, subject to some minor changes.

    Under the amended framework, Pillar 2A capital will be set as a Requirement on firms under the Financial Services and Markets Act 2000 rather than as guidance, and the term "Total Capital Requirement", or TCR, will be introduced, which will comprise Pillar 1 plus Pillar 2A. The Supervisory Statement has also been revised to provide further clarity on when and how the Pillar 2A capital requirement may be set by the PRA at an individual (i.e. solo) level.

    The Statement of Policy has been amended to set a general expectation that firms should disclose the TCR which applies to them at the highest level of consolidation in the UK. The PRA's disclosure expectations will therefore differ according to whether the firm concerned is part of a UK consolidation group or not and whether the PRA is home or host regulator.

    The disclosure requirements will apply from January 1, 2018. The PRA will individually apply Pillar 2A capital requirements to firms in line with scheduled capital reviews. Firms are expected to apply Individual Capital Guidance issued to them by the PRA until such time as the PRA applies the new Pillar 2A requirements to them.

    View the PRA policy statement (PS 30/17).