Occasional consultation paper: PRA CP25/19

The Prudential Regulation Authority (PRA) has published an occasional consultation paper, CP25/19, proposing minor amendments to its Rulebook, supervisory statements, statements of policy (SoPs) and relevant templates. The consultation covers a number of areas and is, therefore, relevant to all PRA-regulated firms.

The proposals relate to:

  • removing references to the London Interbank Offered Rate (LIBOR);
  • updating references and corrections within the senior managers and certification regime (SMCR);
  • reporting updates for Capital+ and ring-fenced bodies; and
  • retirement interest-only mortgages.

The consultation period for the reporting updates in chapter 4 of the consultation paper closes on 18 November 2019. This would allow the PRA to make the proposed changes to the templates and allow firms time to implement them before they take effect on 1 March 2020 and 1 June 2020. The consultation period for the remaining chapters closes on 9 December 2019.

The PRA's proposed implementation dates for the changes are:

  • on the publication date of the final policy for chapters 2 and 3;
  • on 1 March 2020 and 1 June 2020 for chapter 4;
  • by 31 December 2020 for chapter 5, in order to align with the proposed implementation date of the relevant European Banking Authority (EBA) guidelines, as set out in CP21/19, "Credit risk: Probability of Default and Loss Given Default estimation".

Draft updates of the relevant templates that the PRA proposes to change are:

Settlement of enforcement action: PRA PS23/19

The PRA has published a webpage policy statement, PS23/19, and an updated SoP, "The PRA's approach to enforcement: Statutory statements of policy and procedure". The changes relate to simplifying the PRA's settlement discount scheme.

PS23/19 is relevant to PRA-authorised persons, qualifying parent undertakings, persons who are or have been auditors or actuaries of a PRA-authorised person, senior managers and certified employees at firms, and all individuals involved in providing financial services to PRAauthorised persons.

The PRA did not receive any responses to its preceding consultation, CP10/19, therefore it is making the changes it consulted on. The PRA amends the SoP to:

  • simplify the PRA's settlement discount scheme (by retaining a 30% penalty discount for early settlement and removing the 20% and 10% discounts available for settlement in later stages of an enforcement action); and
  • clarify and make more transparent the PRA's procedures for settlement.

The SoP came into effect on 4 October 2019, except in relation to cases where the PRA has already concluded "Stage 1" settlement discussions with the subject, without reaching a settlement, prior to 4 October 2019. In this exception, the scheme as set out in the March 2019 SoP, "The PRA's approach to enforcement: Statutory statements of policy and procedure", will apply.

Sustainable finance: BoE speech

The Bank of England (BoE) has published a speech, given by Mark Carney, Governor of the Bank of England, at the inaugural Task Force on Climate-related Financial Disclosures (TCFD) summit in Tokyo, on strengthening the foundations of sustainable finance.

Mr Carney highlighted that the demand for TCFD disclosure is now enormous. He discussed some statistics demonstrating support in this respect.

Mr Carney mentioned the steps taken in the UK to embed recommendations by the TCFD in financial decision-making. The BoE has set out its supervisory expectations for institutions relating to:

  • governance – firms are expected to embed fully the consideration of climate risks into governance frameworks, including at board level, and assign responsibility for oversight of these risks to specific senior role holders;
  • risk management – firms must consider climate change in line with their board-approved risk appetite;
  • the regular use of scenario analysis to test strategic resilience; and
  • developing and maintaining an appropriate disclosure of climate risks.

Recognising the need for industry to build capacity and develop best practices, the PRA has also established a Climate Financial Risk Forum, jointly with the Financial Conduct Authority (FCA), to work with firms from across the financial system.

However, Mr Carney says that more is required. Over the next few years, companies, their banks, insurers and investors must:

  • work to increase the quantity and quality of disclosures by sharing best practice;
  • refine the TCFD disclosure recommendations to those that investors consider most useful;
  • spread knowledge on how to measure and use information on strategic resilience to manage risks and realise opportunities; and
  • consider how asset owners could best disclose how well their portfolios are positioned for the transition to net zero.

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