UK Prudential Regulation Authority Consults on Streamlining Pillar 2A Capital Framework and Capital Communications Process

The U.K. Prudential Regulation Authority has published a consultation on streamlining the Pillar 2A capital framework and capital communications process. In addition to PRA-regulated banks, building societies, designated investment firms and PRA-approved or PRA-designated holding companies, the revised rules will also be relevant to Small Domestic Deposit Takers, firms who meet the SDDT criteria and are considering becoming a SDDT and firms that anticipate being subject to the Interim Capital Regime. The deadline for comments is December 12, 2024.

The consultation discusses three areas:

• plans to retire the 'refined methodology' to Pillar 2A when firms implement the Basel 3.1 standards (January 1, 2026). For Interim Capital Regime firms and ICR consolidation entities, the proposed retirement date would be January 1, 2027 when the SDDT capital regime is set to take effect;
• streamlining firm-specific capital communications. The proposals do not impact firm-specific capital requirements but simplify the regulatory framework when Pillar 2A and systemic buffers are applied. The changes to the PRA Rulebook would come into force on March 31, 2025. The resulting simpler communications would apply when firms' Pillar 2 capital is reset, meaning for many firms the first time they are subject to the Basel 3.1 Pillar 2 off-cycle review ahead of the Basel 3.1 implementation on January 1, 2026. For ICR firms, the simpler communications would also apply for firms' next Pillar 2 resetting after March 31, 2025 and in any case would be introduced ahead of the proposed revocation of the ICR and implementation of the simplified capital regime for SDDTs, on 1 January 2027; and
• minor clarifications to the interest rate risk in the banking book and pension obligation risk Pillar 2A approaches. The PRA proposes to implement these changes on January 1, 2026.

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