Shearman & Sterling LLP | Financial Regulatory Developments Focus | UK Prudential Regulator Finalizes Changes to the Leverage Ratio Rules for Ring-Fenced Banks
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  • UK Prudential Regulator Finalizes Changes to the Leverage Ratio Rules for Ring-Fenced Banks
    11/14/2018
    The U.K. Prudential Regulation Authority has published a Policy Statement on applying the U.K. leverage ratio to systemic Ring-fenced Bodies and reflecting the Systemic Risk Buffer. The SRB is one of the elements of the overall capital framework for U.K. banks and building societies. It will be applied by the PRA to individual institutions and introduced at the same time that ring-fencing comes into force in 2019. RFBs are banks that hold more than £25 billion in core deposits. They must separate their core retail banking business from their investment banking business by January 1, 2019.

    The Policy Statement concerns firms in scope of the U.K. leverage ratio framework that are also SRB institutions or part of a group containing an SRB institution. The Policy Statement states that the PRA received only one response to its consultation on the proposed changes and that it is not making any changes as result of that feedback. From January 1, 2019, the new rules will:
    • apply the U.K. leverage ratio framework on a sub-consolidated basis to RFBs in scope;
    • amend the Additional Leverage Ratio Buffer to reflect the SRB; and
    • where applicable, expect firms to hold capital on a group consolidated basis to address RFB group risk (this is known as the Leverage Ratio Group Add-on).

    The following appendices were published with the Policy Statement:
    • Appendix 1: PRA Rulebook: CRR Firms: Leverage Ratio (Amendment) Instrument 2018;
    • Appendix 2: Update to SS45/15 'The UK leverage ratio framework';
    • Appendix 3: Update to SS46/15 'UK leverage ratio: instructions for completing data items FSA083 and FSA084'; and
    • Appendix 4: Update to FSA083 Leverage Ratio Reporting template, and reporting instructions.

    The PRA reiterates that it may reassess its implementation of the leverage ratio rules once the Financial Policy Committee has published the outcome of its review into the U.K. leverage ratio framework. The FPC will conduct its review once the revisions to the EU Capital Requirements Regulation are finalized, so that it can assess the impact of those new requirements on U.K. banks.

    View the Policy Statement.

    View the appendices to the Policy Statement.

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