Prudential Regulation Authority Rulebook

4.1

The PRA will apply the FPC’s framework for the O-SII buffer to each firm that is subject to the O-SII buffer. As a result of this assessment, some firms that are subject to the O-SII buffer O-SIIs may receive a positive O-SII buffer rate while others may receive a zero rate. When applying the framework, the PRA will assign to each firm that is subject to the O-SII buffer a systemic score equal to its total assets at the end of the previous calendar year, calculated on the applicable basis of regulatory consolidation.

4.2

As outlined in SS8/16,¹⁰ the applicable basis of consolidation for ring-fenced entities will be the sub-consolidated basis where an RFB sub-group is in place. In cases where an RFB is not a member of an RFB sub-group (ie where the PRA has determined that an RFB should not be required to meet prudential requirements on a sub-consolidated basis), the PRA will consider on a case-by-case basis at which level to apply the FPC framework and set the O-SII buffer.

4.3

For building societies in scope of the framework, the applicable basis of calculation will be the consolidated basis for building societies that are the parents of consolidated groups and the individual basis for all others.

4.4

For each firm that is subject to the O-SII buffer, the PRA will derive an O-SII buffer rate corresponding to its systemic score. This will be in accordance with the mapping outlined in the FPC framework. Before setting each institution’s O-SII buffer rate, the PRA may, in the exercise of sound supervisory judgement, deviate from the rate derived from the FPC framework, or waive the requirement and set no buffer rate for the firm that is subject to the O-SII buffer.

4.5

The PRA expects that it will exercise supervisory judgement to deviate from the O-SII buffer rates derived from the FPC framework or waive the requirement only in exceptional cases. The PRA expects that these will primarily be cases where the outcome of the methodology is not in adherence with the spirit of the FPC framework. An example of such a case could be actions by a firm to manipulate its systemic score deliberately, so that the rate derived from the framework underestimates its systemic importance. Other circumstances could include where a firm’s total assets have changed materially between the year-end and the point at which rates are set or are projected to grow by the time that the rates would take effect.

4.6

When making such decisions, the PRA will have regard to applicable statutory obligations and regulatory principles.

4.7

The PRA confirmed in December 2020 that SRB rates would be maintained at the rates set in December 2019 until the PRA reassesses rates in line with this SoP and the FPC framework in December 2022, to take effect from January 2024. This decision also confirmed that the O-SII buffer will be set at the same rate as firms’ current SRB.¹¹