CP14/24 – Large Exposures Framework

PRA Proposals for Enhancing Large Exposures Framework

The Prudential Regulation Authority (PRA) is proposing changes to its Large Exposures framework to enhance the safety and soundness of firms, simplify regulatory requirements, and promote competition and growth. The proposals aim to improve the transparency of regulatory activities, reduce prudential risks, and align with international standards.

Mandatory Substitution Approach

The PRA proposes a mandatory substitution approach for eligible credit risk mitigation techniques (CRMs) to address indirect exposures to collateral issuers and protection providers. This approach will be applied to all exposures reduced by CRM, regardless of the method used. The PRA expects this proposal to reduce concentration risks and enhance the safety and soundness of firms.

Exemptions and Exclusions

The PRA proposes to remove exemptions for immovable property as eligible CRM techniques and exposures secured by immovable property. It also proposes to delete the exemption for exposures to the UK Deposit Guarantee Scheme (DGS). These changes aim to reduce prudential risks and promote prudent risk management practices.

Cost-Benefit Analysis

The PRA has conducted a cost-benefit analysis, which shows that the benefits of these proposals exceed the costs involved. The proposed changes are expected to be proportionate to the benefits and will not have a significant impact on firms' liquidity or competitiveness.

Impact on Mutuals and Equality and Diversity

The PRA considers that the impact of these policy proposals on mutuals is expected to be similar to that on other firms, as they are subject to the same Large Exposures framework. The proposals do not raise equality and diversity concerns.

Transitioning to Post-exit Rules and Standards

The PRA is currently consulting on targeted updates to reflect developments since the publication of SS5/21 and to provide detail or clarification on certain aspects of its approach.