UK Prudential Regulator Consults on Reporting and Prudential Requirements for Ring-Fenced Banks

The UK Prudential Regulation Authority published a consultation paper on aspects of its policy to implement the ring-fencing requirements for banks. The consultation covers reporting, prudential and recovery and resolution requirements. The proposals are relevant to all firms that are required to ring-fence their core banking activities before the implementation date of January 1, 2019 (which are firms, broadly speaking, with at least £25 billion of core deposits) and to growing firms that expect to meet this threshold by 2019. UK banking groups that have more than £25 billion of core deposits will need to ring-fence the entity/ies that accept deposits - called ring-fenced bodies, by transferring other business lines to different legal vehicles or undertaking other business separations.

The PRA proposes to establish reporting requirements on a sub-consolidated basis when an RFB sub-group is formed, by extending all non-Capital Requirements Regulation reporting requirements that currently apply on a consolidated basis to banking groups affected by ring-fencing to an RFB sub-group and requiring RFBs to submit certain non-CRR reporting returns on a sub-consolidated basis, requiring RFBs to report on a sub-group’s intragroup exposures, related collateral and funding transactions.  

The PRA is also proposing that RFBs 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, as well as submitting 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). 

The PRA proposes that a bank 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. Additionally, this 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. 

The proposals include rules that would prohibit a UK parent of a ring-fenced body from using double leverage to fund its investment in a RFB or other entities in an RFB sub-group. The PRA is also proposing new rules that will ensure that it complies with certain recommendations of the FPC. These recommendations are that the PRA should, where systemic buffers apply at different levels of consolidation, ensure that there is sufficient capital within the consolidated group, and distributed appropriately across it, to address both global systemic risk and domestic systemic risks. Other proposals include requiring an RFB sub-group to include an assessment of the impact of the failure of group entities that are not part of the sub-group in its reverse stress testing, requiring groups with an RFB to include recovery options for the RFB sub-group in its recovery plan and extending the PRA’s policy on the continuity of services and facilities to include access to Financial Market Infrastructures. Responses to the consultation are due by October 7, 2016.

View the consultation paper.