Strong and Simple Framework (simplest level)

The Prudential Regulation Authority (PRA) issued a consultation paper 4-23 on the regulatory framework being developed for small firms.

Phase 1 (Liquidity and disclosure) requirements are detailed and expected to be effective during H2 2024. Worthy of note for firms that are to be subject to this regulation, are the reduced reporting and disclosures.

Additional Liquidity Monitoring Metrics Reporting

Only template C 68 will require to be populated. Reference to the 1% threshold associated with that template, will be removed.

Net Stable Funding Ratio (NSFR) Reporting

The simplified NSFR introduced on 1^st January 2022 will be withdrawn under this framework.

NSFR will be required from ‘small regime’ firms, only where the Retail Deposit Ratio (RDR) does not exceed 50% averaged over the previous four consecutive quarters.

RDR is to be defined as Total Retail Deposits divided by the sum of the aforementioned and Wholesale funding.

Disclosure Requirements

Only a ‘simpler regime’ firm that has listed equity and / or debt instruments in issue, will be subject to disclosure requirements.

Transition from Strong and Simple to Basel 3.1

The PRA is to consult on how a transition to Basel 3.1 would occur, should it be appropriate for a firm to make that move.

Phase 2 of the framework will be capital related. It is expected that consultation on the proposed regulation will be in the first half of 2024.

PRA Regulatory Initiatives Grid

The Prudential Regulation Authority published a grid in February 2023, that lists all the ongoing regulatory activities (reviews, expected consultations and changes). This grid provides an insight into how and when firms may be impacted by planned regulation. Of note in the pipeline, are the following.

NPE Loss Coverage Deduction

Insufficient coverage for the potential losses linked to non-performing exposures are currently deducted from Common Equity Tier 1 capital. A consultation paper is expected shortly, on the removal of that deduction in the calculation of Own Funds.

Liquidity Coverage and Net Stable Funding Requirement

Minor amendments will be made to these reporting requirements. A consultation is expected in quarter 3 of 2023.

PRA110 Cash Flow Mismatch Reporting

Potential amendments to parts of PRA110 may be consulted upon, later in 2023.

Basel 3.1

Responses to the PRA’s consultation paper 16-22 are required by 31^st March. This regulation will introduce changes for firms currently subject to the Capital Requirements Regulation (CRR) and not satisfying the criteria to be a Simpler Regime entity. Reporting, disclosures and how exposures are to be measured, will in some cases, be very different to the methods introduced by CRR.

UK Digital Pound

HM Treasury issued a consultation paper on the possibility of developing a digital UK pound. It is not expected that a decision on the introduction of the digital currency, will be made before the mid-2020s.

Countercyclical Capital Buffer

Firms will be aware that for exposures to UK counterparties, the buffer is to be increased from 1% to 2% with effect from 5^th July 2023.

Planned Releases of WIRES

The planned timings of and reasons for WIRES releases as at the date of this newsletter, are shown below. These timings are subject to alteration and will be influenced by changes communicated by regulators.

 

Time	Reason
June 2023	Addition of FIN073 Enhancements and any fixes
October 2023	Addition of new Leverage Ratio templates for ‘LREQ’ firms. Bank of England taxonomy 1.3.0. Enhancements and any fixes

This regulatory update is Whistlebrook’s understanding of the position as at 8th March 2023.