Shearman & Sterling LLP | FinReg | UK Prudential Regulator Takes Further Steps in Response to COVID-19
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  • UK Prudential Regulator Takes Further Steps in Response to COVID-19
    The U.K. Prudential Regulation Authority has announced two further measures in response to the coronavirus outbreak. The first is the PRA's decision to maintain the systemic risk buffer rates at the rate set in December 2019. The rates determine the amount of additional regulatory capital that must be held by "systemic risk buffer institutions" (i.e. U.K. financial institutions deemed to be systemically important). In scope firms are the so-called "ring-fenced bodies" within the meaning in the Financial Services and Markets Act 2000 and include banks and large building societies holding more than £25bn in deposits. The buffer applicable to each institution is intended to reflect the relative costs to the U.K. economy if the institution in question were to fall into distress. In December 2019, the PRA maintained the rates that had first been set in May 2019. The SRB rates will be re-assessed in December 2021 and the decision taken then will take effect in January 2023.

    The second measure adopted by the PRA is a modification by consent of the calculation of the total exposure measure of the Leverage Ratio. The modification is available for banks subject to the U.K. Leverage Ratio. Firms that apply for and obtain the modification will be required to calculate their exposure value of regular way purchases and sales awaiting settlement according to the incoming provisions of the Capital Requirements Regulation. CRR was amended in June 2019 and, subject to certain exceptions, the changes brought in by CRR2 are effective from June 28, 2021. The PRA is allowing firms to adopt these specific changes in advance of the application date.

    View the PRA's statement on maintaining the SRB rates.

    View details of the PRA SRB rates set in May 2019.

    View the PRA's modification of consent and related Direction.

    View details of CRD5 and CRR2.

    Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.

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