PRA Regulatory Digest – October 2023

The Prudential Regulation Authority (PRA) has published the latest version of its monthly regulatory digest (October 2023). The digest outlines the Authority’s ongoing regulatory activities ranging from the launch of consultations, to the issuance of policy statements, to the implementation of regulatory changes and provides links to corresponding (legal) documents. The regulatory digest presents a viable source of information to stay up-to-date on regulatory issues and to ensure preparedness for upcoming changes as it furnishes a briefly summarized overview of all relevant ongoing issues. This latest version presents the following highlights, among others:
(1) The launch of consultation (CP22/23) as regards miscellaneous, non-material changes to the PRA Rulebook. In it, the PRA suggests amending the Depositor Protection rule DPP 9.2 to require the Financial Services Compensation Scheme (FSCS) to „make available the compensation“ rather than „pay compensation“ within ten, later seven working days following the failure of an institution. Furthermore, the PRA seeks to make modifications to two forms in the Senior Managers and Certification Regime (SM&CR) to allow reporting of violations of rules under the new Consumer Duty. The consultation will run through November 13, 2023 (please see EventID #23322 in this context for more information).
(2) The issuance of joint feedback statement (FS2/23) as regards the application of Artificial Intelligence (AI) and machine learning (ML) in financial services. In this statement, the Financial Conduct Authority (FCA) and the PRA outline the responses they have received as to regulatory issues, operational challenges, and risks and benefits of machine learning and AI usage in the financial services sectors. Details are described in EventID 23549.
(3) The launch of consultation (CP21/23) as regards proposed modifications to various supervisory statements and the issuance of a new Statement of Policy (SoP) to provide more transparency and clarity in assessing risks related to third-country insurance branches in the UK. In it, the PRA suggests to replace the existing Supervisory Statement SS2/18 with a new SoP titled „Prudential Regulation Authority’s approach to insurance branch authorisation and supervision.“ While the core principles for authorization and supervision would remain unchanged, the new SoP would offer much more details on the factors the PRA takes into account when assessing third-country branch risks. The PRA also intends to make changes to two other supervisory statements to provide more clarity as to the notification requirements of third-country insurance branches, the „Own Risk and Solvency Assessment“ process of third-country branches, or the applicable rules as far as outsourcing arrangements are concerned (to name a few). The consultation will run through January 12, 2024 (please see EventID #23314 in this context for more information).
(4) The issuance of discussion paper (DP3/23) as regards future capital requirements for securitization exposures. This paper is intended to set the stage for an official consultation on new rules, replacing those in the UK CRR in view of the government’s intention to substitute all retained EU regulations with own legislation. The key issues covered in the discussion paper include output floors and associated capital requirements, the hierarchy of methods for determining capital requirements in securitization positions, the scope of the framework for STS securitizations, and the use of credit risk mitigation in synthetic SRT securitizations. The consultation will run through January 31, 2024 (please see EventID #23676 in this context for more information).
(5) The issuance of policy statement (PS9/23), a joint policy statement by the FCA and the PRA, regarding the removal of the bonus cap for material risk takers in banks, building societies, and PRA-designated investment firms. This cap, which limited the maximum incentive that could be paid, is thereby being removed to avoid an excessive shift towards fixed compensation, which hinders firms‘ ability to adapt to changing market conditions. The removal came into force on October 31, 2023. Please see EventID 23576 in this context for more information.
(6) The issuance of policy statement (PS13/23) as regards an update of the UK technical standards for identifying „Global Systemically Important Institutions“. This policy statement aligns the UK’s approach for identifying G-SIIs with changes made by the Basel Committee for Banking Supervision in 2022. The adjustments include introducing a new indicator called „Trading Volume“ in the „substitutability / financial institution infrastructure“ category, revising indicator weights accordingly, considering the activities of insurance subsidiaries in the assessment, and removing outdated transitional provisions from the framework established in 2015. The policy statement came into force on October 31, 2023 and may be found in EventID 23542.
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For more complete, detailed information, please refer to the enclosed Digest.