UK PRA consultation on recognised exchange policy and transfer of main indices

The Prudential Regulation Authority (PRA) has launched a consultation on the proposed conditions an investment exchange must meet to be a 'recognised exchange' for the purposes of Article 4(1)(72)(c) of the UK's Capital Requirements Regulation (CRR). The PRA proposes to introduce a new Recognised Exchanges (RE) Part to specify the conditions which focus on two areas: (i) exchange and market structure risk; and (ii) asset liquidity risk.

The PRA proposes that firms should undertake the exchange and asset liquidity risk assessment themselves but to mitigate the risk that firms adopt inconsistent approaches, the PRA proposes to evaluate the implemented approaches through post implementation thematic reviews. Consequential amendments are proposed to the definition of higher risk equity exposure in the PRA's near-final rules implementing Basel 3.1, tying into the criteria for equity risk weight exposures the exchange and market structure risk but not the asset liquidity risk conditions. The PRA also proposes to restate the list of 'main indices' (those securities that are traded on a stock exchange, which are treated as eligible for recognition as Credit Risk Mitigation) in the Glossary Part of the PRA Rulebook without any policy changes. The list is currently in Commission Implementing Regulation 2016/1646. The deadline for comments on the consultation is 18 June.

The PRA proposes that the implementation date for the rules specifying conditions under CRR Article 4(1)(72)(c) would be 1 July 2026. The changes to the definition of higher risk equity exposures in the near-final rules implementing the Basel 3.1 standards would be introduced alongside the broader implementation of those standards (currently proposed for 1 January 2027). HM Treasury has confirmed that it will implement the necessary legislative changes to support the PRA's proposals outlined in the consultation.

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