PS15/23 – The Strong and Simple Framework: Scope Criteria, Liquidity and Disclosure Requirements

The Prudential Regulation Authority (PRA) has issued a new Policy Statement (PS15/23) to finally implement a new prudential supervisory regime for smaller, less relevant institutions, including banks, building societies, and consolidated CRR firms with consolidated assets of £20 billion or less. In this context, the PRA provides responses to its consultation CP16/22 (EventID 18774), which consulted – among others – on the criteria that must be met to qualify as „small, less relevant“ for purposes of meeting or being excluded from the Basel III standards, and to consultation CP4/23 (EventID 19928) on simplifications to the liquidity and disclosure requirements of firms meeting the beforementioned criteria.
#### Background
In CP16/22, the PRA proposed – among other things – a list of criteria for institutions to qualify as less important and thus to qualify for a proposed new, so-called Transitional Capital Regime. Such criteria included, among others, a total asset size threshold of £20 billion, a £44 million trading activity threshold, or an 85% minimum exposure threshold for UK credit activities (credit exposures to UK obligors). In CP 4/23, the PRA suggested to exempt small firms meeting these criteria from having to fulfill the net stable funding ratio (NSFR) requirements, reduce the liquidity assessment procedures for smaller firms, and reduce the reporting requirements of smaller firms by no longer requiring them to file certain reports, including the report on the concentration of funding by counterparty or the report on roll-over funding, to name the most significant ones.
#### Final policy
The PRA received a large number of responses (>100) to its consultations which were generally VERY supportive of a proposed new prudential regime for smaller firms, as the regime would provide for simplification and a more proportionate approach in fulfilling capital adequacy standards. Therefore, the PRA will implement nearly all provisions as proposed with some targeted adjustments primarily for clarification purposes. These include the following:
– The PRA has renamed the upcoming new regime from the „Simpler-regime“ to the „Small Domestic Deposit Taker (SDDT) regime“ and accordingly renamed firms operating under the regime to be called SDDT and SDDT consolidation entity.
– For entities belonging to a group, the PRA has shifted the responsibility for certifying compliance with the SDDT criteria to the group’s CRR consolidation entity instead of the individual firms belonging to the group.
– Likewise, the consolidation entity will be responsible for notifying the PRA, if the conditions for the application of the SDDT regime are no longer met (both at consolidated or individual firm level).
– The PRA has brought the implementation date forward to January 1, 2024 to speed up the implementation so as to reduce burdens on affected firms in a prompt manner.