Today, the Prudential Regulation Authority (PRA) has published revised proposed criteria (‘Simpler-regime criteria’) for determining which firms would be in scope of the ‘strong and simple’ prudential framework that the PRA is developing.
The proposals have been published as part of the consultation paper (CP16/22), which sets out how the PRA intends to implement the Basel 3.1 standards. The revised criteria reflect feedback from the strong and simple CP that was published in April 2022, which set out a proposed definition of a ‘Simpler-regime Firm’.
The PRA is seeking to simplify the prudential regulations faced by small, non-systemic domestic UK firms while maintaining their resilience through the development of a strong and simple framework.
In CP16/22 issued today, the PRA proposes that firms meeting the Simpler-regime criteria would not have to apply the Basel 3.1 standards for the calculation of capital ratios. Instead, such firms can choose to enter into a transitional interim regime, the ‘Transitional Capital Regime’, which is substantively the same as the existing regime under the Capital Requirements Regulation (CRR). If firms make this choice, the interim regime would apply while the PRA is developing the intended permanent capital framework for the simpler regime.
However, the Basel 3.1 proposals should still be of interest to firms meeting the proposed Simpler-regime criteria since, as part of the PRA’s considerations of how to develop a strong and simple prudential framework for such firms, the PRA is considering whether the proposed revised approaches for credit risk, as set out in CP16/22, would be the appropriate starting point. The PRA therefore invites responses from firms meeting the Simpler-regime criteria on the proposals set out in CP16/22, including how aspects could be adjusted for future application to them.
The PRA is also considering how rules can be streamlined and made more effective and proportionate. In early 2023, the PRA intends to consult on the first batch of measures that will apply to Simpler-regime firms. At that time, the PRA also intends to consult separately on simplifying remuneration requirements for Material Risk Takers at small firms that were introduced as part of the Capital Requirements Directive V and which apply additional remuneration rules to Material Risk Takers at these firms than under the previous UK regime.
The PRA is keen to receive feedback on the proposals set out in CP16/22, including on the interaction with the developing ‘strong and simple’ regulatory framework. This consultation closes on Friday 31 March 2023.