UK Prudential Regulation Authority Finalizes Reporting and Prudential Requirements for Ring-Fenced Banks

The UK Prudential Regulation Authority published a Policy Statement, final rules and updates on several Supervisory Statements on the reporting, prudential and recovery and resolution requirements to implement the ring-fencing requirements for banks. The PRA's policy and final rules are relevant to all firms that are required to ring-fence their core banking activities before the implementation date of January 1, 2019.  These firms are, broadly speaking, those with at least £25 billion of “core” deposits (defined as deposits from individuals and small businesses) and those that expect to exceed the threshold by January 1, 2019. UK banking groups that have more than £25 billion of core deposits will need to ring-fence the entity or entities that accept core deposits - called ring-fenced bodies - by transferring other business lines to different legal vehicles or undertaking other business separations.

The PRA consulted on the changes in the last half of 2016. Having assessed the feedback received, the PRA has not made significant changes to its original proposals. However, the PRA has provided clarification on certain issues, which are mostly set out in the updated Supervisory Statements. The final rules and policy will, amongst other things, require an RFB to meet Pillar 3 disclosure requirements on a sub-consolidated basis. The PRA clarifies that the reporting requirements will mean that where a significant subsidiary satisfies the Pillar 3 disclosure requirements on a sub-consolidated basis due to being part of an RFB sub-group, the subsidiary will not have to meet the requirements on an individual basis as well.
 
In addition, RFBs will need to report on their use of the exceptions available which will allow them to undertake certain activities that are otherwise excluded and prohibited under the ring-fencing laws and will need to submit data to show how they have complied with the ring-fencing rules (to the extent that that data is not already reported under other rules). 

Furthermore, a bank will be required, if not in a group, to notify the PRA within 30 days of it becoming aware, or having information which reasonably suggests, that its total core deposits have increased to over £25 billion or have decreased to less than or equal to £25 billion. The same will apply if the bank is in a group where the sum of core deposits of all relevant group members have increased to over £25 billion or has decreased to less than or equal to £25 billion. 

A group that includes an RFB will need to include recovery options for the RFB sub-group in its recovery plan. The PRA clarifies that the indicator framework, design of scenarios and governance arrangements in the group recovery plan should take into account recovery planning for the RFB as well as the group as a whole. 

View the Policy Statement.

View the final rules. 

View the Supervisory Statement: Ring-fenced Bodies. 

View the Statement of Policy: The PRA’s methodologies for setting Pillar 2 capital.

View the Supervisory Statement: Guidelines on completing regulatory reports.

View the Supervisory Statement: The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP).

View the Supervisory Statement: Pillar 2 reporting, including instructions for completing data items FSA071 to FSA082.