Strong and Simple

What is Strong and Simple?

In 2021, the PRA published ‘A strong and simple prudential framework for non-systemic banks and building societies’ that set out a vision to simplify prudential requirements for smaller, domestic-focused banks and building societies, while maintaining those firms’ resilience. 

To build the Strong and Simple framework, we have introduced simpler but equally resilient prudential requirements for Small Domestic Deposit Takers (SDDTs).

Eligible firms

PRA-regulated banks and building societies must meet a set of criteria to be eligible to become SDDTs. A high-level summary of these criteria is shown below. For a complete description of the SDDT criteria and the SDDT consolidation criteria, please refer to SDDT Regime – General Application in the PRA Rulebook.

Criteria	Description	PRA rule reference
Size	Total assets on average over the past three years of no more than £20 billion.	SDDT Regime – General Application 2.1(1), 2.3
Domestic activity	The share of credit exposures located in the UK is at least 75% at all times and at least 85% on average over the past three years.	SDDT Regime – General Application 2.1(2), 2.4
Limited trading activity	Trading book business was equal to or less than both £44 million and 5% of total assets in recent months. The criterion is not met if a firm has been above one or both of these thresholds in each of the preceding three months or in more than half of months in the past year.	SDDT Regime – General Application 2.1(3), 2.7
	Overall net foreign exchange position was equal to or less than 2% of own funds in recent months. The criterion is not met if a firm has been above the threshold in each of the preceding three months or in more than half of months in the past year. Overall net foreign exchange position must not exceed a ceiling of 3.5% of own funds.	SDDT Regime – General Application 2.1(4), 2.7, 2.8
	No positions in commodities or commodity derivatives.	SDDT Regime – General Application 2.1(5)
No Internal Ratings Based (IRB) approach	Does not use an IRB model for credit risk to calculate risk weighted assets.	SDDT Regime – General Application 2.1(6)
Clearing, settlement, and custody services, and payment systems	Does not provide clearing, transaction settlement, custody or correspondent banking services to other banks and building societies unless they are members of the firm’s immediate group. Does not operate a payment system.	SDDT Regime – General Application 2.1(7)-(8)
UK bank or building society with no non-UK parent	Does not have a non-UK parent.	SDDT Regime – General Application 2.1(9)

SDDT policies

The PRA has introduced simplifications to liquidity and disclosure requirements for SDDTs. The implementation date for the simplifications was 1 January 2024 for the disclosure simplifications and 1 July 2024 for the liquidity simplifications. See PS15/23 for details. 

The PRA published a Consultation Paper (CP) 7/24 on 12 September 2024 setting out its proposed simplified capital regime for SDDTs, with a closing date for responses to the CP of Thursday 12 December 2024. The CP proposes that the simplified capital regime for SDDTs would come into effect on 1 January 2027. Following the publication of the CP, the PRA hosted a webinar covering key content on the CP proposals and next steps for the PRA and firms. The presentation slides and recording of the webinar are available on the Strong and Simple webinar event page. 

On 20 September 2024, David Bailey (Executive Director, Prudential Policy) gave a speech on the CP7/24 publication at the Building Society Association. The speech outlines the benefits of the Strong and Simple package, which includes targeted and proportionate changes to simplify the capital regime, and explains why this will be good for competition, competitiveness and growth. 

See the Regulatory Initiatives Grid for more information about Strong and Simple initiatives and timings.

How to become an SDDT

Eligible banks and building societies become SDDTs by taking up the PRA’s offer of a modification by consent (similarly for CRR consolidation entities). Eligible firms have been able to do so any time from 1 January 2024 onwards. See waivers and modifications page. The PRA requests that consents to modifications be submitted by email only to PRA-Waivers@bankofengland.co.uk, and not sent by post. You may also send any queries on the modifications through to this mailbox.

A firm that has a non-UK parent which wishes to become an SDDT would need to apply for a modification to the scope criteria (and similarly for a CRR consolidation entity in a group with a non-UK parent). See the Statement of Policy ‘Operating the Small Domestic Deposit Takers (SDDTs) regime’ for details. An application for a modification of the scope criteria should be made using the waiver/modification application form. A supplementary form in support of an application of a modification of the criteria in the circumstances set out in paragraph 3.3 of the Statement of Policy is available at the waivers and modification webpage.

The PRA encourages firms that are considering becoming an SDDT to engage with their supervisor. 

How to become an ICR firm

The Interim Capital Regime (ICR) is a temporary regime that will allow firms that meet the SDDT criteria (and consolidation entities meeting the SDDT consolidation entity criteria) to remain subject to existing CRR provisions from the implementation date of the Basel 3.1 standards (1 January 2026) until the implementation date of the capital regime for SDDTs. See Chapter 8 of PS17/23, Chapter 9 of PS9/24, and PS19/24 for further details. 

Eligible banks and building societies can become an ICR firm by taking up the PRA’s offer of a modification by consent (similarly for CRR consolidation entities). Eligible firms have been able to do so from 29 November 2024. Please note that the PRA will assume any firm that has not consented to the ICR MbC, or at least contacted the PRA to indicate it wishes to do so, will implement Basel 3.1 on 1 January 2026.  See waivers and modifications page. The PRA requests that consents to modifications be submitted by email only to PRA-Waivers@bankofengland.co.uk, and not sent by post. You may also send any queries on the modifications through to this mailbox.

A firm that has a non-UK parent which wishes to become an ICR firm would need to first apply for a modification to the SDDT criteria. See the Statement of Policy ‘Operating the Interim Capital Regime (ICR) regime’ for details. An application for a modification of the SDDT criteria should be made using the waiver/modification application form. A supplementary form in support of an application of a modification of the criteria in the circumstances set out in paragraph 3.3 of the Statement of Policy is available at the waivers and modification webpage.

The PRA encourages firms that are considering becoming an ICR firm to engage with their supervisor.