BCBS finds UK largely compliant with Basel leverage ratio framework

The Basel Committee on Banking Supervision (BCBS) has published an assessment report on the UK's implementation of its leverage ratio framework, as part of its Regulatory Consistency Assessment Programme (RCAP). The BCBS also published reports on Australia, Canada, Japan, Korea and Switzerland. All jurisdictions were assessed as compliant except Canada and the UK, which were assessed as "largely compliant", one notch below the highest overall grade.

For the UK, two of the four components of the Basel leverage ratio standard were assessed as compliant, namely: (i) definitions and application, and calculation; and (ii) disclosure requirements.

The exposure measurement component was assessed as "partially non-compliant", which the report states was driven by one material finding: the Basel standards permit the temporary exemption of central bank reserves from the leverage ratio exposure measure, whereas the UK's exemption extends to certain other non-reserve claims on central banks. Other deviations relating to the exposure measure were assessed as not material.

For the buffer requirements and transitional arrangements for the global systemically important banks (G-SIBs) component, this was assessed as "largely compliant", which the report states reflects two potentially material findings: (i) the UK leverage buffer design can be less conservative than the Basel G-SIB leverage buffer in certain situations; and (ii) the absence of automatic capital distribution restrictions when the leverage ratio buffer is not met, with the UK framework relying instead on supervisory intervention. The BCBS Assessment Team also noted that, in several areas, the UK rules go beyond the minimum Basel requirements (as set out in Annex 5 to the report). In accordance with the RCAP Handbook, these stricter rules were not considered as mitigants in the overall or component-level assessments of compliance.

The report also includes the UK Prudential Regulation Authority's response to the assessment, including its justification for those components of the UK framework as highlighted by the BCBS.

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