PS20/21 | CP12/21 - Financial holding companies: Further implementation (2024)

Published on 15 September 2021

Financial holding companies: Further implementation - PS20/21

Introduction

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides the PRA’s final rules (see Appendix 1) following Consultation Paper (CP) 12/21 ‘Financial holding companies: Further implementation’ (see page 2 of 2). It also contains:

• the PRA’s new Statement of Policy (SoP) ‘Supervisory measures and penalties in relation to financial holding companies’(Appendix 2); and
• an updated SoP ‘The Prudential Regulation Authority’s approach to enforcement: statutory statements of policy and procedure’ (Appendix 3).

The PRA received no responses to the consultation.

This PS is relevant to financial holding companies, mixed financial holding companies, PRA-authorised banks, and PRA-designated investment firms (hereafter ‘firms’) that are part of a UK consolidation group, controlled by a UK parent financial holding company, or UK parent mixed financial holding company.

Background

In CP12/21, the PRA proposed rules in respect of the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies (‘holding companies’) that have been approved or designated in accordance with Part 12B of the Financial Services and Markets Act 2000 (FSMA) (as amended by The Financial Holding Companies (Approval etc.) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020).

In CP5/21 ‘Implementation of Basel standards’, the PRA proposed to introduce a new term, ‘CRR consolidation entity’, into the Glossary Part of the PRA Rulebook. The near-final PRA Rulebook instrument that accompanied the publication of PS17/21 ‘Implementation of Basel standards’, introduced a very minor amendment to the definition of ‘CRR consolidation entity’ that was proposed in CP5/21. The updated definition makes clear that, where there is no approved or designated holding company in a group, the UK parent institution is the ‘CRR consolidation entity’. The new amended definition is included in Annex A of the Rules instrument (Appendix 1), and comes into force on Wednesday 15 September 2021.

CP12/21 also proposed ancillary amendments to the Definition of Capital, Groups, and Notifications Parts of the PRA Rulebook to ensure that, where the application of a consolidated prudential requirement also carries a secondary obligation, that obligation would rest at the appropriate level of application. The amendment to the Groups Part is made as part of the Rules at Annex F of the Rules instrument, and will come into force on Saturday 1 January 2022, along with the other PRA Rules which implement Basel III.

In addition, the CP proposed a new SoP ‘Supervisory measures and penalties in relation to financial holding companies’. The CP proposed guidance with respect to directions and penalties over holding companies under Part 12B FSMA, covering the taking of measures, including directions (pursuant to s192T FSMA), the imposition of penalties (s192Y FSMA), and the amount of penalties (s192Y FSMA).

The PRA has made no changes to the draft policy.

When making rules applying to holding companies, the PRA must consider and publish an explanation of the ways in which it has had regard to the additional matters, and how the additional have regards have affected the proposed rules (FSMA s144C(1)(2) and 144D(1)). In CP12/21, the PRA set out this explanation in Chapter 4. Given the PRA has not received any responses to its consultation, the analysis as presented in the CP remains unchanged.

The PRA must also publish a summary of the purpose of the proposed rules (FSMA 144D (2)). As outlined in CP12/21, the purpose of the rules covered by this PS is to give effect to the changes in the Capital Requirements Directive V (CRD V), as transposed, and Capital Requirements Regulation II (CRR II), as onshored, which impose direct responsibility for compliance with consolidated prudential requirements on approved or designated holding companies. The changes to the PRA Rulebook do not create any new prudential requirements. Instead, these changes are necessary to ensure that, where a Part of the PRA Rulebook applies on a consolidated basis, it is applied at the correct level within the banking group.

The SoP covered by this PS discharges the PRA’s relevant duties under FSMA.

Implementation

The policy presented in this PS will take effect on Wednesday 15 September 2021.

References related to the UK’s membership of the EU in the policy in this PS have been updated as part of these proposals, to reflect the UK’s withdrawal from the EU. Unless otherwise stated, any references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law. For further information please see Transitioning to post-exit rules and standards.

Appendices

• Appendix 1: PRA RULEBOOK: PRA (RULES APPLYING TO HOLDING COMPANIES) INSTRUMENT 2021 (pdf)
• Appendix 2: Statement of Policy ‘Supervisory measures and penalties in relation to financial holding companies’
• Appendix 3: Statement of Policy ‘The Prudential Regulation Authority’s approach to enforcement: statutory statements of policy and procedure’

Published on 21 June 2021

Financial holding companies: Further implementation - CP12/21

Overview

This CP is relevant to financial holding companies, mixed financial holding companies, and banks and PRA-designated investment firms (firms) that are part of a UK consolidation group controlled by a UK parent financial holding company or UK parent mixed financial holding company.

The purpose of these proposals is to give effect to the changes in the Capital Requirements Directive V (CRD V), as transposed, and Capital Requirements Regulation II (CRR II), as onshored, which impose direct responsibility for compliance with consolidated prudential requirements on approved or designated holding companies. The proposed new SoP would discharge the PRA’s statutory duty under Part 12B FSMA.

Implementation

The PRA proposes that the implementation date for the changes resulting from this CP would be Wednesday 15 September 2021.

Responses and next steps

This consultation closes on Thursday 22 July 2021. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP12_21@bankofengland.co.uk.

The proposals in this CP have been designed in the context of the UK having now left the EU and the transition period having come to an end. Unless otherwise stated, any references to EU or EU derived legislation refer to the version of that legislation which forms part of retained EU law.

Consultation Paper 12/21

Appendices

• Appendix 1: Draft PRA (Rules applying to holding companies) Instrument 2021(pdf)
• Appendix 2: Draft Statement of Policy ‘Supervisory measures and penalties in relation to financial holding companies'(pdf)
• Appendices 3 and 4: Please see CP12/21(pdf)