Transfer of roles and responsibilities to the Bank

Introduction

This page provides information on the legal responsibilities that have transferred to the UK regulators, following the end of the transition period as agreed as part of the Withdrawal Agreement between the UK and EU.

The transition period lasted until 11pm on Thursday 31 December 2020. Since the transition period has ended, EU law will no longer apply to the UK under the terms set out in the Withdrawal Agreement. 

The communication sets out how the PRA plans to fulfil these responsibilities after the end of the transition period, and will be of interest to regulated firms and other key stakeholders.

Where the transfer of responsibilities to the PRA will not result in any change from the perspective of the regulated firms, no further information is provided in this update.

1. Solvency II technical information

One of the responsibilities that have transferred is the publication of technical information required under Regulation 4B of the Solvency 2 Regulations 2015/575 and Article 3(5) of the Solvency II Delegated Act 2015/35. On Friday 31 January 2020, we updated the statement we issued on Thursday 28 February 2019 on ‘The transfer of the function to produce Solvency II technical information to the PRA’ Opens in a new window, relevant to insurance firms and other insurance industry participants to reflect that the UK's entry into the transition period. The purpose of the statement was to provide firms and other interested parties with information on how the PRA intends to fulfil this responsibility after the end of the transition period. On Tuesday 30 June 2020, we published the consultation paper CP5/20 ‘Solvency II technical information: The PRA’s proposed approach to the publication at the end of the transition period’ and on Wednesday 2 December 2020 we published the final Policy Statement (PS) 24/20. The PS provided responses to the industry feedback issued in relation to CP5/20. The approach which we are following for the publication of technical information from Thursday 31 December 2020 is set out in the Statement of Policy.

2. Correlation Matrices - Solvency II

Under Solvency II, capital requirements under the standard formula are calculated using a complex modular approach. Correlation matrices are used in determining the capital requirements and in aggregating together the sub-modules in order to provide the overall risk to which a firm is exposed.

Responsibility for the correlation matrices in Delegated Regulation (EU) 2015/35 (and listed in Schedule 3 to the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019) is transferring to the PRA. Those matrices will be deemed to be rules made by the PRA.

For the period immediately following the end of the transition period, firms should plan to continue to use the correlation coefficients given in the onshored Delegated Regulation (EU) 2015/35.

3. List of Common Equity Tier 1 (CET1) eligible capital instruments under the Capital Requirements Regulation (CRR)

Pursuant to Regulation 82 of the Capital Requirements (Amendment) (EU Exit) Regulations 2018, the PRA will establish, maintain and publish a list of the forms of capital instruments that qualify as CET1 instruments by the PRA regulated firms.

List of Common Equity Tier 1 (CET 1) eligible capital instruments as of 31 December 2020 (xlsx)

4. List of regional governments and local authorities that may be treated as central governments for the calculation of capital requirements under Solvency II

Under Delegated Regulation (EU) 2015/2011 exposures to certain regional governments and local authorities are to be treated as exposures to the central government.

HM Treasury has delegated responsibility for fixing deficiencies in certain onshored technical standards to the PRA. The PRA published its amendments to the onshored Delegated Regulation (EU) 2015/2011 on 18 April 2019.

These cover the deletion of those regional governments and local authorities other than the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly.

5. List of identified financial conglomerates

The PRA, or Financial Conduct Authority (FCA), will supervise financial conglomerates in line with The Financial Conglomerates and Other Financial Groups Regulations 2004, as amended by The Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019 Opens in a new window Opens in a new window, and Annex U of the PRA Rulebook (EU Exit) Instrument 2019 Opens in a new window Opens in a new window.

The PRA will publish and keep up-to-date on its website the list of financial conglomerates.

• List of Financial Conglomerates as of 31 December 2020 (pdf)

6. Mappings of External Credit Assessment Institutions (ECAIs) credit assessments under the CRR, Solvency II and for securitisation positions

Further to regulation 224 of the Capital Requirements (Amendment) (EU Exit) Regulations 2018 Opens in a new window and regulation 11 (4) of the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019 Opens in a new window, one of the responsibilities that has transferred to the PRA and FCA is the development of technical standards on External Credit Assessment Institutions (ECAI) mapping. Subject to relevant transitional regimes, following the end of the transition period, firms will only be able to use new ratings issued by credit rating agencies (CRAs) that have registered or certified with the FCA or have applied for registration and entered the temporary registration regime as set out in The Credit Rating Agencies (Amendment, etc.) (EU Exit) Regulations 2019 Opens in a new window (CRAR SI). A link to the existing ratings can be found below:

• Mapping of ECAI credit assessments under CRR Opens in a new window
• Mapping of ECAI credit assessments under Solvency II Opens in a new window

Mapping of ECAIs structured finance credit assessments to Credit Quality Steps (CQS)

The mandate under Article 270e of the CRR to produce technical standards mapping the credit assessments of ECAIs to the CQS specified in the CRR for the purposes of calculating risk-weighted exposure amounts under the SEC-ERBA method has been transferred to the PRA and the FCA. The PRA expects PRA-authorised firms to use the illustrative Basel securitisation ERBA mapping for long-term ratings, as set out in Table 1 in SS10/18 ‘Securitisation: The new EU framework and Significant Risk Transfer’  for long-term ratings. For short-term ratings, the PRA expects firms to use the existing short-term mapping in Delegated Regulation (EU) 2016/1801 Opens in a new window. These tables will be superseded once the relevant implementing technical standards (ITS) has been updated by the regulators.

7. Technical equivalence decisions related to the PRA

Some EU financial services legislation, including the CRR, Solvency II and European Market Infrastructure Regulation (EMIR), contain provisions which allow the European Commission to determine that a non-EU country (“or third country”) has a regulatory and supervisory regime that is equivalent to the EU’s corresponding regulatory framework. These equivalence provisions have been retained in UK law by virtue of the European Union (Withdrawal) Act 2018, and HM Treasury has been transferred this European Commission power to make certain equivalence decisions on behalf of the UK.

The majority of existing equivalence determinations made by the European Commission, have also been retained in UK law. This means that these equivalence determinations will continue to apply in the UK after the end of the transition period, ensuring continuity. On Monday 9 November 2020, HM Treasury announced a package of equivalence decisions in respect of the EEA. These equivalence decisions will come into force at the end of the transition period. The full list of equivalence decisions made in respect of the EEA is available on HM Treasury’s website.

HM Treasury has published a list of equivalence determinations which are in force in the UK as at the end of the transition period. 

Further information about the UK’s equivalence, including the respective roles of HM Treasury and the UK regulatory authorities, is contained in HM Treasury's Guidance Document for the UK's Equivalence Framework for Financial Services. On Thursday 17 October 2019, HM Treasury, the Bank of England, and the FCA also published a Memorandum of Understanding (MoU) setting out how the parties expect to coordinate their respective functions in relation to equivalence and exemption determinations.

This framework does not apply to the PRA’s existing approach to authorising and supervising international bank branches as described in Supervisory Statement (SS)1/18, and insurance branches, as described in SS2/18.