PRA policy statement on UK leverage ratio framework

The Bank of England has published the Prudential Regulation Authority (PRA) policy statement PS21/21, which contains feedback from the Financial Policy Committee (FPC) and the PRA on responses to the Consultation Paper (CP14/21) “Consultations by the FPC and PRA on changes to the UK leverage ratio framework“, as well as the FPC’s and PRA’s final policy, as follows:

• amendments to the PRA Rulebook (Appendix 1);
• amendments to SS45/15 “The UK leverage ratio framework” (Appendix 2);
• FPC direction and recommendation (Appendix 3);
• amendments to “The FPC’s powers over leverage ratio tools”(Appendix 4);
• amendments to SS34/15 ‘Guidelines for completing regulatory reports’ (Appendix 5); and
• updated reporting and disclosure templates and instructions (Appendix 6).

PS21/21 is relevant to all Capital Requirements Regulation (CRR) firms and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis.

Respondents to CP14/21 supported:

• the creation of a single leverage exposure measure;
• the extension of the CBR exemption; and
• the application of a PRA supervisory expectation for smaller deposit takers, rather than a requirement.

Respondents also made a number of observations and requests for clarification including:

• the qualifying central bank reserves exemption;
• the level of application of the requirement in ring-fenced banking groups; and
• the definition and level of the PRA’s proposed £10 billion foreign assets threshold to capture firms with “significant non-UK assets”.

The policy material in PS21/21 that will apply from 1 January 2023 include:

• extending the scope of application of the leverage ratio requirement to firms, RFB sub-groups and CRR consolidation entities with non-UK assets equal to or greater than £10 billion;
• applying the leverage ratio requirement on an individual basis to any firm that is not a CRR consolidation entity or a ring-fenced body (RFB) that is the ultimate parent within an RFB sub-group; and
• making sub-consolidation available as an alternative to individual application where a firm has subsidiaries that can be consolidated.

All other policy material in PS21/21 expected to apply from 1 January 2022, subject to Parliamentary approval and HM Treasury sign-off, includes:

• policy material relating to updates to the leverage exposure measure;
• updated leverage reporting and disclosure requirements;
• the PRA’s supervisory expectation; and
• consequential amendments to the other reporting and disclosure requirements.