UK Prudential Regulation Authority Consults on Simplified Capital Regime for Small Domestic Deposit Takers

The U.K. Prudential Regulation Authority has published a consultation on its proposed simplified capital regime and additional liquidity simplifications for small domestic deposit takers. This consultation forms the second phase of the PRA's simplified prudential regulation for SDDTs, the PRA having already finalised its requirements in relation to non-capital related prudential regulation, along with the criteria that must be met to be a SDDT. Together with the Phase 1 simplifications, the proposals would create a simpler, more certain and less costly capital regime for SDDTs.

The PRA's key proposals include: (i) a simplified Pillar 1 framework for SDDTs based on the Basel 3.1 standardized approaches to credit risk and operational risk; (ii) simplifications to the Pillar 2A methodologies for credit risk, credit concentration risk, and operational risk; (iii) a new Single Capital Buffer framework to replace the current buffers framework (consisting of the Capital Conservation Buffer and Countercyclical Capital Buffer, which together make up the combined buffer, and the PRA buffer), and the removal of automatic capital conservation measures under the maximum distributable amount framework; and (iv) revocation of the Interim Capital Regime, which is a temporary and optional regime that provides SDDT-eligible firms and consolidation entities with the option to remain subject to existing U.K. Capital Requirements Regulation capital provisions until the capital regime set out in this consultation is implemented. The deadline for comments is September 12, 2024.

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