These Regulations implement in part the provisions relating to systemic risk buffers at Articles 133 and 134 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (OJ no L176, 27/6/2013, p. 338; for corrigenda see OJ no L208, 2/8/2013, p.73). This directive (“the capital requirements directive”) is part of a package of EU legislation commonly known as “CRD4”.
The systemic risk buffer is one of a number of capital buffers set out at Articles 128 to 142, and 160 and 162, of the capital requirements directive. The capital conservation buffer, countercyclical capital buffer and G-SII buffer were implemented in part by the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 (the “capital buffers regulations”). These Regulations amend the capital buffers regulations by inserting provisions relating to the systemic risk buffer. These provisions are concerned with what the Financial Policy Committee, the Prudential Regulation Authority and Financial Conduct Authority are required to do. The remainder of the systemic risk buffer will be implemented by rules made, and individual requirements imposed, by the Prudential Regulation Authority and Financial Conduct Authority under powers conferred by the Financial Services and Markets Act 2000. These rules and individual requirements will set out the requirements binding on individual institutions.
New regulation 34D of the capital buffers regulations defines “SRB institutions”. SRB institutions are banks which are ring-fenced bodies within the meaning of section 142A of the Financial Services and Markets Act 2000 (c.8) or building societies above a specified size threshold.
New regulation 34F of the capital buffers regulations requires the Financial Policy Committee of the Bank of England to create a framework for identifying the extent to which the failure or distress of SRB institutions will pose certain long term non-cyclical systemic or macro-prudential risks. New regulation 34G requires the Prudential Regulation Authority to apply the framework to SRB institutions in order to determine whether they should hold a systemic risk buffer and, if so, decide the buffer rate.
Where another EEA State imposes a systemic risk buffer on its domestic banks or investment firms, the Prudential Regulation Authority may recognise that buffer rate under new regulation 34J, and the Prudential Regulation Authority and Financial Conduct Authority must decide which institutions in the United Kingdom should apply that buffer rate in the calculation of their systemic risk buffers. Where such a buffer rate applies, it applies only to exposures located in the EEA State concerned.
A Transposition Table setting out how the relevant provisions of the capital requirements directive are transposed into UK law is available from Her Majesty’s Treasury, 1 Horse Guards Road, London SW1A 2HQ.
An impact assessment on the effect of the proposals from the Independent Commission on Banking, including the systemic risk buffer, can be found at: