Strong & Simple Framework

The Prudential Regulation Authority issued its policy statement 15-23, in which it renamed the ‘Strong and Simple’ Framework to ‘Small Domestic Deposit Takers’ (SDDT) Regime. This regime is the alternative to the forthcoming Basel 3.1 regulation.

Firms that meet the criteria to be subject to SDDT and have received a ‘modification by consent’, will have:

• Reduced liquidity reporting from report reference 30^th June 2024
• A smaller amount of disclosure requirements

 

Liquidity

Submission of Net Stable Funding data will only be required when the Retail Deposit Ratio (RDR) is no higher than 50%, averaged over four consecutive quarters.

RDR is to be calculated as ‘Total Retail Deposits / (Retail Deposits + Wholesale Funding)’

Firms that apply SDDT will be able to submit Additional Liquidity Monitoring Metrics (ALMM) template C 68 Concentration of funding by Product Type, only. The other ALMM will not be applicable.

 

Qualification Date

It was previously proposed that a firm’s position as at 1^st January 2024 would be used to measure whether it met the criteria to be a ‘simpler regime firm’. This approach will not be relevant. The assessment for qualification will be based on the institution’s business as at the time when it seeks ‘modification by consent’ i.e. not to be subject to Basel 3.1.

 

Transitional Capital Regime (TCR)

TCR has been renamed as the Interim Capital Regime. This regime (Capital Requirements Regulation prior to Basel 3.1) will apply to capital, until the rules under SDDT, become effective.

 

Capital

A consultation paper on the capital (including buffers) requirements under SDDT is expected in quarter two of 2024. According to Prudential Regulation Authority’s Initiatives Grid of November 2023, capital rules are expected to be implemented from the first half of 2026.

 

Basel 3.1

The Prudential Regulation Authority issued its policy statement 17-23, which refers to Basel 3.1 requirements for market risk, credit valuation adjustment, counterparty credit risk and operational risk. The policy statement is described as ‘near final’. It is understood that the current content will be deemed to be final, once a statutory instrument is in place.

Relative to the consultation paper (16-22), any changes, other than those already communicated, to the proposal are not deemed to be material. The effective date remains as 1^st July 2025, with phase-in time reduced by six months to four and a half years. Full implementation will be by 1^st January 2030.

A further policy statement is expected in quarter two of 2024. That statement will cover the Output Floor, credit risk, reporting and disclosures. Afterwards, a new taxonomy is anticipated.

 

Pillar 2 Capital

The submission format of FSA072 to FSA075 and FSA080 will be changing to XML, with upload required to BEEDS. The expected timing of the change is late quarter one or early quarter two of 2024.

Please refer to the Prudential Regulatory Authority’s Regulatory Digest of November 2023.

 

Cash Ratio Deposits

The Cash Ratio Deposits scheme is being replaced by a levy. It is currently expected (not yet confirmed) that the change will become effective from 1^st March 2024.

 

Regulatory Reporting Changes

In addition to the various new and revised reporting templates resulting from Basel 3.1 and the Small Domestic Deposit Takers regime, there are others worthy of recognition. These are:

• Consumer Credit Product Sales

Reporting is being introduced in 2025 and will cover sales, performance and backbook (starting position).

• Contingent Leverage

The additional forms have been included in the most recent version of WIRES and are applicable to firms subject to the UK Leverage Ratio Framework.

 

Critical Third Party Providers to UK Financial Sector

The Prudential Regulation Authority and the Financial Conduct Authority issued a joint consultation paper in December 2023. This paper (PRA CP 26-23) proposes the introduction of an Oversight Regime that will be valid to entities that supply to the Financial Services sector and are designated as Critical Third Party Providers. It is understood that HM Treasury will designate around 20 such organisations as being within that category. There will be no additional requirements placed on financial services firms.

Critical third party providers will be required to engage with the regulators. Where services, were they to fail, would threaten the stability of and confidence in the financial services sector, additional requirements will apply. These additions will include undertaking scenario testing (with results available to firms), mapping of resources to each service, applying controls to ensure financial viability and being liable to skilled persons reviews.

 

WIRES Releases

Next Expected Release	Content
April 2024	·        Amendments to ALMM C 68 and removal of the Simplified version of Net Stable Funding templates. ·        Enhancements ·        Bug fixes

This regulatory update is Whistlebrook’s understanding of the position as at 17th January 2024.