The Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014

[F1 PART 5ZA U.K. O-SII Buffers

Textual Amendments

F1 Pt. 5ZA substituted for reg. 34 (29.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1401), regs. 1(2A), 59 (as amended by S.I. 2020/1406, regs. 1(2), 10, 18)

CHAPTER 1 U.K. Interpretation and power to impose O-SII buffer

Interpretation U.K.

34.— (1) For the purposes of this Part, a relevant O-SII is an O-SII, or part of an O-SII, which is—

(a) a ring-fenced body within the meaning of section 142A of FSMA;

(b) a large building society; or

(c) a financial holding company or a mixed financial holding company which—

(i) has a ring-fenced body or a large building society as a subsidiary; and

(ii) is required, whether by the PRA by a direction under section 192C of FSMA or otherwise, to comply with the requirements of the capital requirements regulation [F2 , CRR rules] and Directive 2013/36/EU UK law on a sub-consolidated basis.

(2) In paragraph (1)(b) “large building society” means a building society where the sum total of the following two values exceeds £25 billion—

(a) the value of shares issued by the building society that are not deferred shares; and

(b) the value of deposits held in accounts with the building society where one or more of the account holders is a small business.

(3) In paragraph (1)(c), “Directive 2013/36/EU UK law”, “financial holding company” and “mixed financial holding company” have the meanings given in section 192O of FSMA [F3 and “CRR rules” has the meaning given in section 144A of that Act].

(4) In paragraph (2)—

(a) “building society”, “deferred shares”, “deposit” and “share” have the meaning given by section 119 (interpretation) of the Building Societies Act 1986;

(b) a person is a small business only if the person is a small business for the purposes of section 7(10) (the funding limit) of the Building Societies Act 1986.

(5) For the purposes of this Part—

“buffer rate” has the meaning given in regulation 34ZA(2);

“FPC framework” has the meaning given in regulation 34ZB(1);

“O-SII buffer” has the meaning given in regulation 34ZA(1).

Textual Amendments

F2 Words in reg. 34(1)(c)(ii) inserted (1.1.2022) by The Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021 (S.I. 2021/1376), regs. 1(3), 17(7)(a)

F3 Words in reg. 34(3) inserted (1.1.2022) by The Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021 (S.I. 2021/1376), regs. 1(3), 17(7)(b)

Power for the PRA to require an O-SII buffer to be maintained U.K.

34ZA.— (1) The PRA may require a relevant O-SII to maintain Common Equity Tier 1 capital, to be known as an “O-SII buffer”.

(2) The amount of capital which the PRA may require a relevant O-SII to hold (“the buffer rate”) must be expressed as a percentage of the relevant O-SII’s total risk exposure amount calculated in accordance with Article 92(3) of the capital requirements regulation.

CHAPTER 2 U.K. United Kingdom buffer rates for O-SIIs

O-SII buffer rates: The FPC framework U.K.

34ZB.— (1) The FPC must have a framework for O-SII buffer rates in the United Kingdom established in accordance with this regulation (“the FPC framework”).

(2) The FPC framework must contain the following elements—

(a) a set of criteria for assessing the extent to which the failure or distress of a relevant O-SII might pose a risk to the financial system;

(b) a methodology for measuring the criteria and giving a relevant O-SII a single score in relation to the criteria; and

(c) in relation to each score that an O-SII may receive, a buffer rate that corresponds to the score.

(3) In paragraph (2)(a), a relevant O-SII is in distress only if it experiences a significant deterioration in its financial situation.

(4) In paragraph (2)(a) the criteria to be specified must each be—

(a) measurable; and

(b) capable of being applied to a relevant O-SII on an individual basis, a sub-consolidated basis and a consolidated basis.

(5) In paragraph (2)(c) the only buffer rates that the FPC may specify are 0%, 1%, 1.5%, 2%, 2.5% and 3%.

(6) The way in which buffer rates correspond to scores in the FPC framework—

(a) must be clear, precise and unambiguous;

(b) must ensure that a score corresponds to one buffer rate only;

(c) may not be expressed in terms of a discretion conferred on a person or body (including the FPC); and

may be expressed by way of a formula, an algorithm, a graph or a table.

(7) The Bank must publish each element of the FPC framework, together with the FPC’s justification for each element.

Determination by PRA of buffer rates for individual relevant O-SIIs U.K.

34ZC.— (1) The PRA may, in relation to each relevant O-SII, determine—

(a) whether or not to set a buffer rate for the O-SII; and

(b) where it does set a buffer rate, subject to paragraph (3), the level of the rate;

by applying the steps set out in paragraph (2).

(2) The steps set out in this paragraph are—

Step 1—determining level of consolidation

The PRA must choose one of the following bases on which to apply the criteria specified in the FPC framework to the relevant O-SII—

(a) an individual basis;

(b) a sub-consolidated basis; or

(c) a consolidated basis.

Step 2—deriving a framework buffer rate from the FPC framework

The PRA must derive a buffer rate from the FPC framework for the relevant O-SII (“a framework buffer rate”) by—

(a) applying the methodology of the FPC framework to obtain a score for the relevant O-SII; and

(b) ascertaining to what buffer rate the score corresponds under the FPC framework.

Step 3—setting a buffer rate for a relevant O-SII based on supervisory judgment

The PRA may, if it makes a sound supervisory judgment that it is appropriate to do so—

(a) set a buffer rate for a relevant O-SII, even if it has derived a framework buffer rate for the institution of 0% under Step 2;

(b) set a buffer rate for a relevant O-SII which is different to the framework buffer rate derived for the institution under Step 2; or

(c) set no buffer rate for a relevant O-SII, even if it has derived a framework buffer rate for the institution of other than 0% under Step 2.

Where the PRA sets a buffer rate under sub-paragraph (a) or (b) of this Step the rate must be 1%, 1.5%, 2%, 2.5% or 3%.

Step 4—setting a buffer rate for relevant O-SIIs based on framework buffer rate

Unless the PRA exercises the discretion in Step 3—

(a) where the PRA derives a framework buffer rate under Step 2 of 0% for the relevant O-SII, the PRA may not set a buffer rate for the institution; and

(b) where the PRA derives a framework buffer rate under Step 2 other than 0% for the relevant O-SII, the PRA must set the rate so derived as the buffer rate for the institution.

(3) Where paragraph (4) applies, the PRA may not apply an O-SII buffer rate to a relevant O-SII which exceeds the lower of—

(a) the sum of—

(i) the higher of the G-SII or the O-SII buffer rate applicable to the group at consolidated level, and

(ii) 1% of the total risk exposure amount calculated in accordance with Article 92(3) of the capital requirements regulation; and

(b) 3% of the total risk exposure amount calculated in accordance with Article 92(3) of the capital requirements regulation.

(4) This paragraph applies where the relevant O-SII is a subsidiary of—

(a) a G-SII; or

(b) an O-SII, which is subject to an O-SII buffer on a consolidated basis.

(5) Where a group is subject on a consolidated basis to both a G-SII buffer and an O-SII buffer, only the higher buffer is to apply.

CHAPTER 3 U.K. Date of application and calculation of O-SII buffer

Date of application U.K.

34ZD.— (1) Where the PRA sets a buffer rate for a relevant O-SII under regulation 34ZC, the PRA must decide the date from which the O-SII must apply that rate in the calculation of its O-SII buffer.

(2) Where the PRA has set a buffer rate for a relevant O-SII under regulation 34ZC and determines that a buffer rate is no longer to be set for the O-SII under that regulation, the PRA must decide the date from which this takes effect.

Calculation of buffer U.K.

34ZE.— (1) The PRA must require a relevant O-SII to calculate its O-SII buffer by applying the buffer rate set for it under regulation 34ZC to all its exposures.

(2) The PRA must require the relevant O-SII, for the purposes of the calculation required under paragraph (1), to—

(a) determine the value of its exposures by applying the level of consolidation selected by the PRA under Step 1 of regulation 34ZC(2); and

(b) apply the buffer rate equally to all exposures, regardless of where they are located.

CHAPTER 4 U.K. Publication, Review and Appeals

Publication: United Kingdom buffer rates U.K.

34ZF.— (1) Where the PRA sets a buffer rate for a relevant O-SII under regulation 34ZC, the PRA must publish the following information—

(a) the relevant O-SII to which the buffer rate applies;

(b) the buffer rate;

(c) the justification for setting the buffer rate;

(d) the date from which the relevant O-SII must apply the buffer rate;

(e) the level of consolidation to be used in the calculation of the O-SII buffer (as determined under Step 1 of regulation 34ZC(2)); and

(f) the fact that the O-SII buffer applies to exposures located anywhere in the world.

(2) Where the PRA determines that a buffer rate is no longer to be set for a relevant O-SII under regulation 34ZC, the PRA must publish the following information—

(a) the fact that the buffer rate is no longer set;

(b) the fact that the relevant O-SII is no longer required to maintain an O-SII buffer;

(c) the justification for ceasing to set the buffer rate; and

(d) the date from which the relevant O-SII may cease to apply the buffer rate.

(3) A reference to the PRA’s justification in paragraphs (1)(c) and (2)(c) includes the PRA’s justification for doing anything under Step 3 of regulation 34ZC(2).

(4) The PRA must not publish information under paragraph (1)(c) or (2)(c) if publication might jeopardise the stability of the financial system.

Review U.K.

34ZG.— (1) The FPC must review the elements of the FPC framework at least every second year.

(2) The PRA must review the following matters at least once every year—

(a) a buffer rate set under regulation 34ZC;

(b) a decision not to set a buffer rate under regulation 34ZC.

Appeals U.K.

34ZH.— (1) A person who is aggrieved by a decision of the PRA under regulation 34ZC may refer the matter to the Tribunal.

(2) The scope of such an appeal is limited to—

(a) the application of Step 2 of regulation 34ZC(2); and

(b) the exercise of the PRA’s discretion in Step 3 of regulation 34ZC(2).]