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  • UK Prudential Regulator Consults on Changes to Pillar 2 Capital Requirements

    The U.K. Prudential Regulation Authority has opened a consultation proposing changes to the Pillar 2 capital requirements for banks and large investment firms.

    Responses to the consultation may be submitted until June 13, 2019. The PRA is proposing to implement the changes from October 1, 2019.

    The Pillar 2 capital for firms comprises Pillar 2A and Pillar 2B. Pillar 2A is a firm's capital requirement for certain risks, including credit risk, market risk, operational risk, counterparty credit risk, credit concentration risk and interest rate risk in the non-trading book. Pillar 2B is the PRA's buffer for each firm, in addition to the buffers required under the Capital Requirements Directive. The PRA's proposals relate to changes needed to its approach to setting the Pillar 2B buffer as a result of the Bank of England's changes to the stress testing framework. The proposals also aim to: (i) clarify the PRA's approach to assessing weaknesses in risk management and governance under Pillar 2B; and (ii) explain the process for updating the benchmarks used to calculate the Pillar 2A requirement for credit risk.

    The changes would be implemented by updates to:
    • Statement of Policy, "The PRA's methodologies for setting Pillar 2 capital";
    • Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" (SS31/15); and
    • Supervisory Statement, "Implementing CRD IV: Capital buffers" (SS6/14).

    View the consultation paper.

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