Prudential Regulation Authority Rulebook

2.A

The PRA expects firms to meet both MREL and maintain an amount of CET1 that reflects their risk-weighted capital and leverage buffers. The PRA expects firms not to double count CET1 towards both MREL and the amount reflecting the risk-weighted capital and leverage buffers. While firms can meet MREL with CET1, they do not have to meet it with CET1. See ‘The Bank of England’s approach to setting MREL’⁵ for details.

2.B

The amount that reflects risk-weighted capital and leverage buffers should be calculated to be the amount of CET1 that a firm is required to maintain (in sterling terms) in addition to the largest minimum of either the risk-weighted capital or leverage regimes.⁶ Where the firm is not subject to the leverage regime, the amount will be equal to the applicable risk- weighted capital buffers and paragraphs 2.6, 2.6A, 2.7 and 2.7A will not be relevant.

2.1

The PRA’s capital buffer framework comprises the Capital Requirements Directive (EU Directive 2019/878 amending Directive 2013/36/EU) and Capital Requirements Regulation (Regulation (EU) 2019/876 amending Regulation (EU) 575/2013) (jointly ‘CRD V’) combined buffer (which includes the capital conservation buffer, the countercyclical capital buffer, the Global Systemically Important Institutions buffer (G-SII buffer), and the other systemically important institutions buffer (O-SII buffer) – if applicable to a firm), and the PRA buffer.⁷

2.2

[Deleted]

2.2A

The buffers are maintained in addition to minimum risk-weighted capital requirements.

2.3

If a firm does not have, or expects that it will not have, sufficient CET1, in addition to any own funds and liabilities counted towards its MREL, to meet the amount of CET1 calculated in paragraph 2.B, the firm will be considered to have used, or be about to use, the buffers of the regime where the total amount of capital required to meet minimum requirements plus buffers (risk-weighted capital or leverage) is largest.

2.4

Where that regime is the CRD IV regime, the firm should notify the PRA as soon as practicable, consistent with Fundamental Rule 7,⁸ explaining why this has happened or is expected to happen. The firm can expect enhanced supervisory action and should prepare a capital restoration plan. If the PRA is not satisfied with the capital restoration plan, or with the firm’s reasons for the shortfall, it will consider using its firm-specific powers under section 55M of the Financial Services and Markets Act 2000 (FSMA) to require a firm to take steps to strengthen its capital position. Such steps could include restricting or prohibiting distributions where that is appropriate and proportionate. Distributions restrictions will not apply automatically.

2.5

Where a firm does not have sufficient CET1 to meet its minimum risk-weighted capital requirements and the CRD IV combined buffer, automatic restrictions on distributions will apply under the Capital Buffers Part and firm-specific requirements.⁹

2.6

The PRA’s leverage ratio framework includes two leverage ratio buffers: a countercyclical leverage ratio buffer (CCLB) and a G-SII additional leverage ratio buffer (G-SII ALRB).¹⁰

2.6A

The buffers are maintained in addition to minimum leverage requirements.

2.7

The PRA expects firms not to meet the amount of CET1 calculated in paragraph 2.B with any CET1 capital counted towards their MREL. If a firm is subject to, or becomes subject to, a CCLB or G-SII ALRB, the PRA will invite the firm to apply for a requirement under section 55M of FSMA preventing the firm from counting CET1 used to meet its MREL towards the amount of CET1 calculated in paragraph 2.B. If a firm does not apply for such a requirement, the PRA will consider using its powers under section 55M(3) of FSMA to impose the requirements.

2.7A

If a firm does not, or expects that it will not, have sufficient CET1, in addition to any own funds and liabilities counted towards MREL, to meet the amount of CET1 calculated in paragraph 2.B, the firm will be considered to have used, or be about to use, the buffers of the regime under which the total amount of capital required to meet minimum requirements plus buffers (risk-weighted capital or leverage) is largest.