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Overview

This consultation paper (CP) sets out proposed adjustments to the Prudential Regulation Authority’s (PRA) Pillar 2A capital framework which came into force on 1 January 2016.  It is relevant to banks, building societies and PRA-designated investment firms.

The PRA is proposing to refine its Pillar 2A approach for firms using the standardised approach (SA) for credit risk. In particular, the PRA may exercise its supervisory judgement to adjust a firm’s Pillar 2A add-ons, as assessed by applying the PRA’s methodologies, to ensure that the total amount of capital required to be held does not exceed the amount necessary to ensure a sound management and coverage of its risks.

International Financial Reporting Standard (IFRS) 9 will apply for accounting periods beginning on or after 1 January 2018. The PRA is also proposing to consider, as part of the supervisory review and evaluation process (SREP), the extent to which expected credit losses (ECL) in IFRS 9 may already be covered by the SA Pillar 1 capital charge.

Finally, the PRA is consulting on an update to its credit risk benchmark (the ‘IRB benchmark’) which is part of the Pillar 2A credit risk methodology, and on amendments to the Pillar 2 reporting rules.

Responses

This consultation closes on Wednesday 31 May 2017. The PRA invites feedback on the proposals. Please address any comments or enquiries to CP3_17@bankofengland.co.uk.

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