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Brief
'The Bank of England's Prudential Regulation Authority (PRA) is proposing to simplify the prudential framework for small, domestic-focused banks and building societies. The proposal aims to create a significantly simpler capital regime for Small Domestic Deposit Takers (SDDTs) while maintaining their resilience. The PRA has developed its proposals in two phases, with Phase 1 focusing on non-capital related prudential regulation, specifically liquidity and disclosure requirements. This consultation paper sets out proposals for Phase 2, the proposed simplified capital regime and additional liquidity simplifications for SDDTs.
The PRA is proposing to simplify all elements of the capital stack, including Pillar 1, Pillar 2A, buffers, and the calculation of regulatory capital. The proposal includes a new Single Capital Buffer (SCB) framework to replace the current buffers framework, and the removal of automatic capital conservation measures under the maximum distributable amount (MDA) framework.
The PRA considers that the proposed simplifications would reduce SDDTs' costs because they would make the capital regime simpler to understand and implement for these firms. The proposal also includes changes to the way the SDDT regime will operate in light of the proposed changes to the capital regime for SDDTs.
The consultation paper proposes to revoke the Interim Capital Regime (ICR), which is a temporary and optional regime that provides SDDT-eligible firms with the option to remain subject to existing Capital Requirements Regulation (CRR) capital provisions until the capital regime set out in this CP is implemented. The proposed implementation date for the changes resulting from this consultation paper would be 1 January 2027.
The PRA considers that the proposals would advance its primary and secondary objectives, including safety and soundness, effective competition, and competitiveness and growth of the UK economy. The proposal also aims to maintain SDDTs' resilience, reduce their costs, and increase or maintain the risk sensitivity of prudential regulation of SDDTs.
The consultation paper proposes changes to the PRA Rulebook and existing policy materials, including new draft supervisory statements and a statement of policy. The proposal would result in changes to several parts of the PRA Rulebook and existing policy materials, including those related to capital buffers, counterparty credit risk, credit risk, market risk, operational risk, and reporting requirements.
The consultation paper has been published on Thursday 12 September 2024, alongside four other publications that provide stakeholders with information about the PRA's intentions for the proposed overall capital framework for SDDTs.'
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