Looking ahead
Changes to risk management and regulatory reporting brought about by regulatory change is proceeding at a rapid pace and on an unprecedented scale. Keeping up with the changing regulatory requirements imposes a high degree of complexity and a key challenge for small- and medium-sized banks. Katalysys can be your partner in managing this change. We can assist the bank’s risk management and regulatory reporting functions to stay ahead with these changes.
Basel 3.1
On 12 September 2024, the Prudential Regulation Authority (PRA) published the second part of its near-final rules on the implementation of Basel 3.1 standards through Policy Statement 9/24 (PS9/24). The first part of these near-final rules was issued on 2 December 2023, as part of PS17/23.
This article provides an overview of the near-final rules published by the PRA, as part of the UK's implementation of Basel 3.1 (PS9/24).
The PRA published a Consultation Paper on 18 October 2024, outlining proposals to implement the remaining Basel large exposures standards (LEX standards). A key change for small and medium-sized banks is the proposed removal of CRM eligibility for immovable property, meaning exposures secured by immovable properties would no longer qualify for CRM under Large Exposures.
On 12 September 2024, the PRA published Consultation Paper 7/24 (The Strong and Simple Framework: The simplified capital regime for Small Domestic Deposit Takers (SDDTs)) as part of its Phase 2 of announcements, which sets out the proposed simplified capital regime for SDDTs.
Regulatory updates
On 12 September 2024, the Prudential Regulation Authority (PRA) published the second part of its near-final rules on the implementation of Basel 3.1 standards through Policy Statement 9/24 (PS9/24). The first part of these near-final rules was issued on 2 December 2023, as part of PS17/23.
This article provides an overview of the near-final rules published by the PRA, as part of the UK's implementation of Basel 3.1 (PS9/24).
The PRA published a Consultation Paper on 18 October 2024, outlining proposals to implement the remaining Basel large exposures standards (LEX standards). A key change for small and medium-sized banks is the proposed removal of CRM eligibility for immovable property, meaning exposures secured by immovable properties would no longer qualify for CRM under Large Exposures.
The Prudential Regulation Authority (PRA) published Consultation Paper 8/24 ‘Definition of Capital: restatement of CRR requirements in PRA Rulebook’ (CP8/24) covering various matters relating to own funds including revocation by HM Treasury (HMT) of related rules set out in inter alia Regulation (EU) No 575/2013 (the CRR) and transferring them, with certain modifications, into the PRA Rulebook.
CRR2
A common question we are asked is the basis on which own funds requirement has to be calculated for the various types of exposures on the non-trading and trading book.
The approach to evaluating risk weight for Collective Investment Undertaking (CIU) exposures has changed under the new CRR2 rules. There are three approaches outlined, and banks can select the specific approach based on the amount of information available about the underlying exposures of the CIUs.
Prudently valued software assets no longer needs to be deducted from CET-1 capital, but can be risk weighted.
The large exposure limits are set based on the bank’s Tier-1 Capital Only.
As part of Covid-19 quick fix, the existing IFRS9 transitional arrangement for CET-1 capital adjustment has been extended by 2 years and the additional adjustment for ECL provisions recognised in 2020 and 2021 has also been provided.
SME support factor of 0.7619 for exposures up to €2.5 million and 0.85 for exposures above €2.5 million, for entities with turnover of up to €50 million.
How can we help you?
Katalysys can assist in all aspects of prudential risk management and regulatory reporting requirements caused by the increasing changes to the regulatory environment and the introduction of newer rules. A few of the areas where we have assisted in the past are listed below:-
Identify changes to the bank’s capital and liquidity calculations due to the new rules (e.g. changes to SME support factor introduced in CRR2) and provide guidance as to how the bank can incorporate these in the existing processes and control environment
Advisory and workshops about the new requirement and industry benchmarks
Review of the bank’s existing policies and interpretation in light of the new changes
Analyse the impact on regulatory reporting, and assist in regulatory change management