Published on 8 October 2021
The UK leverage ratio framework - PS21/21
Overview
This document contains feedback from the Financial Policy Committee (FPC) and the Prudential Regulation Authority (PRA) on responses to Consultation Paper (CP) 14/21 ‘Consultations by the FPC and PRA on changes to the UK leverage ratio framework’ (page 2 of 2). It also contains the FPC’s and PRA’s final policy, as follows:
- Amendments to the PRA Rulebook (Appendix 1);
- Amendments to SS45/15 ‘The UK leverage ratio framework’ (Appendix 2);
- FPC direction and recommendation (Appendix 3);
- Amendments to ‘The FPC’s powers over leverage ratio tools’ (Appendix 4);
- Amendments to SS34/15 ‘Guidelines for completing regulatory reports’ (Appendix 5); and
- Updated reporting and disclosure templates and instructions (Appendix 6).
This PS is relevant to all Capital Requirements Regulation (CRR) firms and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis. For the purposes of the application of the requirements on a consolidated basis, references to ‘firms’ include CRR consolidation entities.
Summary of responses
The FPC and PRA received 9 written responses to CP14/21, in addition to comments received in meetings with interested stakeholders. Respondents generally welcomed the FPC’s and PRA’s proposals to make changes to the UK leverage ratio framework. Respondents particularly supported creating a single leverage exposure measure, the extension of the CBR exemption, and the application of a PRA supervisory expectation for smaller deposit takers, rather than a requirement.
However, respondents made a number of observations and requests for clarification, which are set out in the remainder of this PS. Recurrent themes included the qualifying central bank reserves exemption, the level of application of the requirement in ring-fenced banking groups, and the definition and level of the PRA’s proposed £10 billion foreign assets threshold to capture firms with ‘significant non-UK assets’.
Implementation
The policy material in this PS which relates to: (i) extending the scope of application of the leverage ratio requirement to firms, RFB sub-groups and CRR consolidation entities with non-UK assets equal to or greater than £10 billion (calculated on an individual, sub-consolidated and consolidated basis respectively), (ii) applying the leverage ratio requirement on an individual basis to any firm that is not a CRR consolidation entity or a ring-fenced body (RFB) that is the ultimate parent within an RFB sub-group, and (iii) making sub-consolidation available as an alternative to individual application where a firm has subsidiaries that can be consolidated (subject to a firm’s application and to that firm meeting certain conditions, as set out in SS45/15), will apply from Sunday 1 January 2023.
All other policy material in this PS is designed to take effect at the same time as HM Treasury’s anticipated revocation of the leverage parts of the CRR, in accordance with its powers under section 3 of the Financial Services Act 2021, which is expected to take place on Saturday 1 January 2022, subject to Parliamentary approval and HMT sign-off. This includes policy material relating to updates to the leverage exposure measure, to updated leverage reporting and disclosure requirements, to the PRA’s supervisory expectation, and to consequential amendments to the other reporting and disclosure requirements. The PRA will also make consequential amendments to the leverage ratio model requirements in due course, and in time to reflect changes taking effect on Saturday 1 January 2022.
Policy Statement 21/21Appendix
- Appendix 1: PRA RULEBOOK: CRR FIRMS: LEVERAGE INSTRUMENT 2021 (pdf)
- Appendix 2: SS45/15 ‘The UK leverage ratio framework’
- Appendix 3: FPC direction and recommendation (pdf)
- Appendix 4: Policy Statement ‘The Financial Policy Committee’s powers over leverage ratio tools’
- Appendix 5: SS34/15 ‘Guidelines for completing regulatory reports’
Appendix 6: Reporting and disclosure templates and instructions – see list below:
PRA data items
PRA101: Capital+ actuals and forecasts instructions (pdf)
PRA102: Capital+ forecast semi annual instructions (pdf)
PRA103: Capital+ forecast annual instructions (pdf)
- UK reporting data items
- Annex X: Reporting on leverage (xlsx)
- Annex XI: Instructions for reporting on leverage (pdf)
- UK Pillar 3 disclosure data items
Annex I: Disclosure of key metric and overview of risk weighted exposure amounts (xlsx)
Annex II: Instructions for disclosure of key metric and overview of risk weighted exposure amounts (pdf)
Annex XI: Disclosure of the leverage ratio (xlsx)
Annex XII: Instructions for disclosure of the leverage ratio (pdf)
Appendix 7: Summary of the purpose of the rules (pdf)
Appendix 8: Restatement provisions (pdf)
Appendix 9: Corresponding provisions (pdf)
Published on 29 June 2021
Consultations by the FPC and PRA on changes to the UK leverage ratio framework - CP14/21
3 August 2021 update: It has come to the PRA’s attention that due to a technical issue, past responses to this consultation’s mailbox have not been received. The PRA would request that responses sent before 30 July 2021 are re-sent to the following mailbox: CP14_21@bankofengland.co.uk.
Overview
The Financial Policy Committee (FPC) conducted a comprehensive review of the UK leverage ratio framework in light of revised international standards, and its ongoing commitment to review its policy approach. This document outlines the changes that the FPC proposes to make to the framework, and the Prudential Regulation Authority’s (PRA) proposed approach to implementing these changes. The PRA has reviewed the leverage ratio framework concurrently, including to reflect international developments, and has coordinated closely with the FPC in relation to its review. The PRA considers that the FPC’s proposals would advance the PRA’s objectives.
The document below contains two consultation papers (CPs): one from the FPC and one from the PRA.
This consultation is relevant to all Capital Requirements Regulation (CRR) firms and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis.
Implementation
Should the FPC make its proposed changes to the UK leverage ratio framework, the PRA proposes that the implementation date for the changes to the definition of Leverage Exposure Measure and reporting and disclosure resulting from this CP would be Saturday 1 January 2022. The changes to scope and level of application of the minimum requirement, buffers, and related additional reporting and disclosure requirements for firms that would be newly brought into scope of the leverage ratio minimum requirement would become effective on Sunday 1 January 2023.
The PRA’s proposals in this consultation are subject to HM Treasury’s proposed revocation of the relevant parts of the CRR, which itself is subject to Parliamentary approval. This is currently anticipated to take effect on Saturday 1 January 2022.
Responses and next steps
This consultation closes on Tuesday 24 August 2021. The FPC and PRA invite feedback on the proposals set out in this consultation.
Comments on the proposed FPC Direction set out in Chapter 3; and on how the PRA would implement the Direction set out in Part 2 may be included in a single response. All responses should be emailed to CP14_21@bankofengland.co.uk by Tuesday 24 August 2021.
The proposals set out in this CP have been designed in the context of the UK having left the European Union and the transition period having come to an end. Unless otherwise stated, any references to EU or EU derived legislation refer to the version of that legislation which forms part of retained EU law.
Appendices
- Appendix 1: Draft amendments to PRA rules (pdf)
- Appendix 2: Draft amendments to SS45/15 ‘The UK leverage ratio framework’ (pdf)
- Appendices 3 – 5 and 7: Please see CP14/21, page 65.
- Appendix 6: Draft updates to reporting and disclosure templates and instructions, as listed below:
-
UK reporting data items
- Annex X: Reporting on leverage (xlsx)
- Annex XI: Instructions for reporting on leverage (pdf)
- UK Pillar 3 disclosure data items
Annex I: Disclosure of key metric and overview of risk weighted exposure amounts (xlsx)
Annex II: Instructions for disclosure of key metric and overview of risk weighted exposure amounts (pdf)
Annex XI: Disclosure of the leverage ratio (xlsx)
Annex XII: Instructions for disclosure of the leverage ratio (pdf)