Strong and Simple - Application to third-country firms

Having an international presence is usually a sign of greater complexity, and for this reason, the Strong and Simple framework is not intended for subsidiaries of non-UK banks. However, the PRA has considered cases where third-country firms are not complex and would benefit from a simpler supervisory regime. In these instances, the simpler-regime criteria can be altered to accommodate third-country firms.

If the provisions in the draft statement of policy are upheld, this is the process third-country firms are likely to follow to be considered simpler-regime firms.

Criteria

Host banks will have to meet certain criteria in order to apply for a modification and be considered a simpler regime firm. The size of the international group they are a part of, and the method used to calculate this size will be the most important factors.

To apply, entities must satisfy one criterion:

• Average total assets must be below £20 billion, calculated over 3 years at the level of the bank; all banks and building societies within the group; and at the level of the international consolidated group.
• The inclusion or exclusion of entities in an international group should be determined using the same principles as those used when establishing the boundaries of a UK consolidation group.

Modification

If a firm satisfies the above criteria, and all other Simpler-regime scope criteria, they can apply for a modification of the simpler-regime criteria. Instead of the expectation that the firm will have a UK parent (if part of a group), the modification to the simpler regime criteria will state that the international group’s total assets do not exceed £20 billion. The PRA will decide to grant this modification on a case-by-case basis.

PRA’s Offer

Once the modification is completed, third-country firms can consent to an offer by the PRA, to be treated as a Transitional Capital Regime firm and Simpler-regime firm, on the same terms as the domestic Simpler-regime firms.

What about Basel 3.1?

International banks that wish to become Simpler regime entities will be able to apply for the Transitional Capital Regime, instead of having to implement Basel 3.1 in January 2025. The proposed Transitional Capital Regime is based on the current CRR rules. It will allow firms to continue applying the current capital framework until the risk-based strong and simple regime is introduced.

This analysis is based on the draft Statement of Policy included in Appendix 2 of CP5/22 and is subject to change.