On November 8, 2016, the PRA published its final Supervisory Statement on the relationship between a firm's Minimum Requirement for own funds and Eligible Liabilities (MREL) and capital and leverage buffers as well as the relationship between MREL and the PRA's Threshold Conditions which are a set of minimum requirements that authorized firms must meet in order to continue carrying out their regulated activities. The PRA also provided feedback on the responses to its consultation on its proposed approach. The PRA is maintaining its proposed approach without any substantive changes but has amended the Supervisory Statement to provide clarity to firms. The PRA's approach is to prohibit firms from being able to double-count common equity Tier 1 capital towards MREL and to risk-weighted capital and leverage buffers. Some guidance has been given on enforcement: when a firm is in breach of its MREL requirements, the PRA may investigate whether that firm is failing or likely to fail to meet the Threshold Conditions, although investigation will not be automatic. The PRA's Supervisory Statement should be read in conjunction with the BoE's policy documents on setting MREL. The PRA will apply the MREL buffer and Threshold Conditions policies in line with the interim and end-state MREL dates set by the BoE. A firm that cannot meet its MREL requirement should notify the PRA promptly.
The PRA's Policy Statement on buffers and capital requirements for MREL is available at:
http://www.bankofengland.co.uk/pra/Documents/publications/ps/2016/ps3016.pdf and the PRA's Supervisory Statement on buffers and capital requirements for MREL is available at:
http://www.bankofengland.co.uk/pra/Documents/publications/ss/2016/ss1616.pdf.
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