Introduction

6.1 This chapter provides feedback to responses to chapter 10 of consultation paper (CP) 16/22 - Implementation of the Basel 3.1 standards, which described the implications of the proposed changes to the Pillar 1 risk-weighting framework for the Prudential Regulation Authority's (PRA) Pillar 2 framework. [The PRA's methodologies for setting Pillar 2 capital requirements are set out in full in SoP - The PRA's methodologies for setting Pillar 2 capital.] This chapter sits alongside chapter 6 of PS17/23 - Implementation of the Basel 3.1 standards near-final part 1 and focuses on the responses relating to the Pillar 2A credit risk methodology and the interaction between Pillar 2 and the output floor.

Pillar 2 review

6.2 CP16/22 did not contain any policy proposals for Pillar 2, but it set out the topics the PRA is considering so that Pillar 2 requirements are updated as necessary for the implementation of the Basel 3.1 standards. In particular, it outlined the PRA's principle that it would not double count capital requirements for the same risks in both Pillar 1 and Pillar 2A.

6.3 Taking responses to CP16/22 into account, in PS17/23 the PRA stated its intention to sequence its Pillar 2 review work by first addressing the consequential impacts of Basel 3.1 Pillar 1 changes on Pillar 2 within the existing methodologies in an off-cycle review of firm-specific requirements, and then reviewing the Pillar 2A methodologies after the PRA's rules to implement the Basel 3.1 standards are finalised.