Shearman & Sterling LLP | FinReg | UK Prudential Regulator Consults on Banking Consolidation Group Prudential Compliance During Brexit Transition Period
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  • UK Prudential Regulator Consults on Banking Consolidation Group Prudential Compliance During Brexit Transition Period
    12/09/2020
    The U.K. Prudential Regulation Authority has launched a consultation on which bank entities should be responsible for ensuring compliance with consolidated prudential requirements for U.K. banking consolidation groups for a transitional period between December 28, 2020 and the date on which the relevant group's parent holding company is approved or declared exempt from the requirements under the PRA's approval regime.

    Under the revised EU Capital Requirements Regulation, prudential requirements are applied to authorized firms, their parents, financial subsidiaries and financial siblings on a consolidated basis. Where a relevant "consolidation group" has an "approved" parent holding company, CRR II requires that parent holding company to take responsibility for ensuring consolidated prudential requirements are met from December 28, 2020. The PRA has set out its requirements for approval of financial holding companies for these purposes under the Financial Holding Companies (Approval etc.) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020. However, where no parent holding company has yet been approved, CRR II does not specify which entity should be responsible for compliance. Further, the U.K. will leave the EU on December 31, 2020, meaning only U.K., instead of EU Member State, parent financial holding companies will be designated from that date onwards.

    The PRA has proposed a new Part of the PRA Rulebook to determine which  group entity will be designated as being responsible for compliance during the period between December 28, 2020 (when the CRR II requirements enter into force), Brexit (on December 31, 2020) and the date of the parent financial holding company's approval by the PRA:
     
    • From December 28, 2020, the proposed rule would apply to a PRA-regulated firm controlled by an EU Member State holding company that would be required to comply with CRR II consolidated prudential requirements as they had effect on December 27, 2020; the designated firm would remain responsible for compliance until the U.K. parent holding company has been approved or declared exempt by the PRA;
    • After December 31, 2020, the proposed rule would apply to a PRA-regulated firm controlled by a U.K. holding company that would be required to comply with CRR II consolidated prudential requirements as they had effect on December 27, 2020; the designated firm would remain responsible for compliance until the U.K. parent holding company had been approved or declared exempt by the PRA.

    The consultation expands on the PRA's consideration of the treatment of holding companies in its previous consultation on the implementation of CRD V, published in October 2020. The PRA separately consulted on the implementation of other aspects of CRD V in July 2020. Responses to the consultation should be submitted by December 16, 2020.

    View details of the PRA's consultation.

    View details of the PRA's October 2020 consultation.

    View details of the PRA's July 2020 consultation.

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