Introduction

5.1 This chapter provides feedback to responses to chapter 9 of consultation paper (CP) 16/22 - Implementation of the Basel 3.1 standards, which set out proposals to implement the Basel 3.1 standards for the output floor with respect to firms' calculation of own fund requirements. This chapter also sets out the Prudential Regulation Authority's (PRA) near-final policy on the output floor following the consultation.

5.2 In CP16/22, the PRA proposed:

- to introduce a floor on risk-weighted assets (RWAs) that would require firms in scope of the output floor, with internal model (IM) permissions, to calculate RWAs as the higher of: (i) the total RWAs calculated using all approaches that they have supervisory approval to use (including IM approaches); and (ii) 72.5% of RWAs calculated using only standardised approaches (SAs) (where the latter is called 'the output floor' or 'floored RWAs');

- to apply the requirement to UK firms that are not part of a group headquartered overseas. For those firms, the output floor would be applied on a consolidated basis at the level of the UK consolidation group where such a group exists, or on an individual basis where the firm is not part of a group. In addition, where a firm is a ring-fenced body (RFB), the output floor would be applied on a consolidated basis at the level of the ring-fenced sub-group, or on an individual basis where the RFB is not part of a ring-fenced sub-group;

- to require those firms to apply floored RWAs in the calculation of all own funds requirements and buffers when bound by the output floor;