Over the course of this year, the PRA will review and progress banks’ ring-fencing plans to ensure that both the ring-fenced and non-ring-fenced entities have viable and sustainable business models, and banks’ plans are consistent with the objectives of ring-fencing. The new senior management regime is another important component of the PRA’s work and it expects to finalise and publish rules over the course of this year ahead of the new regime coming into force in March 2016. The implementation of the Bank Recovery and Resolution Directive into the PRA’s continuous supervisory programme is another important step for the PRA. This year the PRA intends to review and progress banks’ recovery plans to ensure that these are feasible.
In addition, earlier this year the Financial Policy Committee (FPC) was granted direction powers over the leverage ratio. The FPC has stated that it intends to implement the minimum leverage ratio requirements for the major UK banks and building societies as soon as practicable. Following direction by the FPC, the PRA expects to implement the transitional UK leverage ratio framework that the FPC set in its recent leverage review. In that review, the FPC proposed a minimum leverage ratio requirement of 3% on major domestic UK banks and building societies along with supplementary and countercyclical leverage ratio buffers. The PRA is working towards implementing the leverage ratio requirements by the end of this year.
This year will also see the introduction of the CRD IV’s liquidity coverage ratio (LCR). The LCR will apply from October 2015, at which point the PRA’s restated approach to regulating liquidity (see consultation paper 27/14) and associated draft supervisory statement will apply. Once the LCR has been introduced the PRA will begin to revise, in 2016, its overall approach to assessing liquidity risk around the new standard.
From 2016, the Bank of England, as the UK’s resolution authority, in consultation with the PRA will need to set a ‘Minimum Requirement for own funds’ (MREL) for each UK bank, building society and investment firm. MREL will be set for each firm, with MREL for UK global-systemically important banks being set in a way that will be consistent with the Financial Stability Board’s standard on “total loss absorbing capacity” which is due to be finalised later this year.