# The Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014

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U.K.

Statutory Instruments

# 2014 No. 894

Financial Services And Markets

# The Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014

Made

1st April 2014

Laid before Parliament

3rd April 2014

Coming into force in accordance with regulation 1

The Treasury are designated F1 for the purposes of section 2(2) of the European Communities Act 1972 F2 in relation to financial services.                        

The Treasury, in exercise of the powers conferred by section 2(2) of the European Communities Act 1972, make the following                           Regulations:                        

F1S.I. 2012/1759.

F21972 c.68. Section 2(2) was amended by section 27 of the Legislative and |Regulatory Reform Act 2006 (c.51) and by section 3 of, and the Schedule to, the European Union (Amendment) Act 2008 (c.7). By virtue of the amendment of section 1(2) by section 1 of the European Economic Area Act 1993 (c.51), regulations may be made under s2(2) of the European Communities Act 1972 to implement obligations of the United Kingdom                              created or arising by or under the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 (Cm 2073) and                              the Protocol adjusting the Agreement signed in Brussels on 17th March 1993 (Cm 2183).

## **PART 1**U.K.Introductory provisions

### Citation, commencement and cessationU.K.

1.—(1) These Regulations may be cited as the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014.                  

(2) Regulations 1 to 3, 7 to 13, 15 to 20, and 36 come into force on 1st May 2014.

(3) Regulations 4 to 6, 14, and 21 to 34 come into force on 1st January 2016.

(4) Regulation 35 comes into force on—

(a)1st May 2014 so far as it relates to the institution-specific countercyclical capital buffer; F3...                  

(b)1st January 2016 so far as it relates to the capital conservation buffer and the G-SII buffer [F4; and]                  

[F5(c)1st January 2019 so far as it relates to the systemic risk buffer.]                  

(5) Regulations 13 and 19 cease to have effect on 1st January 2016.

F3Word in reg. 1(4)(a) omitted (31.5.2016) by virtue of The Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 (S.I. 2015/19), regs. 1(4), **2(2)(a)**

F4Word in reg. 1(4)(b) inserted (31.5.2016) by The Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 (S.I. 2015/19), regs. 1(4), **2(2)(b)**

F5Reg. 1(4)(c) inserted (31.5.2016) by The Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 (S.I. 2015/19), regs. 1(4), **2(2)(c)**

### InterpretationU.K.

2.—(1) In these Regulations—                  

“appropriate regulator” means the PRA in relation to a PRA-authorised person and the FCA in relation to any other person;                  

“the Bank” means the Bank of England;                  

“capital conservation buffer” has the meaning given by Article 128(1) of the capital requirements directive;                  

“combined buffer requirement” has the meaning given by Article 128(6) of the capital requirements directive, but with point (c) (reference to O-SII buffer)                     omitted;                  

“common equity tier 1 capital” has the same meaning as in Chapter 2 of Title 1 of Part 2 of the capital requirements regulation;                  

“countercyclical capital buffer” has the same meaning as in Articles 130, and 135 to 140, of the capital requirements directive;                  

“EEA parent financial holding company” means a parent financial holding company in an EEA State which is not a subsidiary of an institution authorised in an EEA                     State, or of another financial holding company or mixed financial holding company set up in an EEA State F6;                  

“EEA parent institution” means a parent institution in an EEA State which is not a subsidiary of another institution authorised in an EEA State,                     or of a financial holding company or mixed financial holding company set up in an EEA State F7;                  

“EEA parent mixed financial holding company” means a parent mixed financial holding company in an EEA State which is not a subsidiary of an institution authorised in                     an EEA State, or of another financial holding company or mixed financial holding company set up in an EEA State F8;                  

“ESRB” means the European Systemic Risk Board established under Regulation (EU) 1092/2010 of 24 November 2010 of the European Parliament                     and of the Council on European Union macro-prudential oversight of the financial system and establishing a European Systemic                     Risk Board F9;                  

“FPC” means the Financial Policy Committee of the Bank of England F10;                  

“FSMA” means the Financial Services and Markets Act 2000 F11;                  

“G-SII” means a global systemically important institution F12;                  

“G-SII buffer” has the meaning given by Article 128(3) of the capital requirements directive;                  

“institution-specific countercyclical capital buffer” has the meaning given by Article 128(2) of the capital requirements directive;                  

“O-SII” means other systemically important institution F13;                  

“O-SII buffer” has the meaning given by Article 128(4) of the capital requirements directive;                  

[F14“systemic risk buffer” has the meaning given by Article 128(5) of the capital requirements directive.]                   

(2) Except as provided by paragraph (1)—

(a)any expression used in these Regulations which is defined in Article 4 (definitions) of the capital requirements regulation                        or Article 3 (definitions) of the capital requirements directive has the meaning which it is given in that Article F15;                  

(b)any other expression used in these Regulations which is defined in section 417 (definitions) of the Financial Services and                        Markets Act 2000 F16 has the meaning given by that section.                  

(3) A reference in these Regulations to an institution maintaining a buffer has the same meaning as in Articles 128 to 142 of                     the capital requirements directive.                  

(4) A reference in these Regulations to small or medium sized investment firms must be construed in accordance with Commission                     Recommendation 2003/361/EC of 6th May 2003 concerning the definition of micro, small and medium-sized enterprises F17.                  

F6The terms “authorisation”, “financial holding company”, “institution”, “mixed financial holding company” and “subsidiary” are defined in Article 4(1) of the capital requirements regulation and apply here by virtue of regulation 2(2)(a).

F7The terms “authorisation”, “financial holding company”, “institution”, “mixed financial holding company” and “subsidiary” are defined in Article 4(1) of the capital requirements regulation and apply here by virtue of regulation 2(2)(a).

F8The terms “authorisation”, “financial holding company”, “institution”, “mixed financial holding company” and “subsidiary” are defined in Article 4(1) of the capital requirements regulation and apply here by virtue of regulation 2(2)(a).

F9OJ no L331, 15/12/2010, p1.

F10The Financial Policy Committee was established by section 9B of the Bank of England Act 1998 (c.11), which was inserted by section 4(1) of the Financial Services Act 2012 (c. 21).

F112000 c. 8.

F12The terms “G-SII” and “global systemically important institution” are used in Article 131 of the capital requirements directive.                              “Systemically important institution” is defined in Article 3(30) of the capital requirements directive and applies here by                              virtue of regulation 2(2)(a).

F13The terms “O-SII” and “other systemically important institution” are used in Article 131 of the capital requirements directive.                              “Systemically important institution” is defined in Article 3(30) of the capital requirements directive and applies here by                              virtue of regulation 2(2)(a).

F14Words in reg. 2(1) inserted (31.5.2016) by The Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 (S.I. 2015/19), regs. 1(4), **2(3)**

F15“authorisation”, “consolidated basis”, “financial holding company”, “institution”, “investment firm”, “mixed financial holding                              company”, “sub-consolidated basis” and “subsidiary” are all defined in these Articles.

F162000 c.8. Section 417 was amended by section 48(1) of the Financial Services Act 2012 (c. 21), **S.I**. 2010/22, S.I. 2012/916 and S.I. 2013/3115. There are other amending enactments, but none is relevant to these Regulations. Section 417 includes definitions of “capital                              requirements directive”, “capital requirements regulation” and “Tribunal”.

F17OJ no L 124, 20.5.2003, p36.

### Conferral of functions or discretion on the FPCU.K.

3.  Where these Regulations confer a function or discretion on the FPC, the FPC must exercise that function or discretion.                  

### Appeals: application of Part 9 of the Financial Services and Markets Act 2000U.K.

4.  Part 9 of FSMA (hearings and appeals) applies to a reference to the Tribunal under these regulations as it applies to a reference                     to the Tribunal under an Act.                  

## **PART 2**U.K.Capital conservation buffer

### Transitional provisions: 1st January 2016 to 31st December 2018U.K.

5.—(1) The appropriate regulator must apply the capital conservation buffer in accordance with the following transitional provisions.                  

(2) In 2016, the capital conservation buffer must consist of common equity tier 1 capital equal to 0.625% of the total of the                     risk-weighted exposure amounts of an institution.                  

(3) In 2017, the capital conservation buffer must consist of common equity tier 1 capital equal to 1.25% of the total of the risk-weighted                     exposure amounts of an institution.                  

(4) In 2018, the capital conservation buffer must consist of common equity tier 1 capital equal to 1.875% of the total of the                     risk-weighted exposure amounts of an institution.                  

(5) The risk weighted exposure amounts of an institution must be calculated in accordance with Article 92(3) of the capital requirements                     regulation.                  

### Exemption for small and medium-sized investment firmsU.K.

6.—(1) The FCA may exempt a small or medium-sized investment firm, or small or medium-sized investment firms of a specified description,                     from the requirement to maintain a capital conservation buffer where the exemption does not threaten the stability of the                     financial system of the United Kingdom.                  

(2) Where the FCA decides to grant such an exemption, its decision must—

(a)contain an exact definition of the small or medium-sized investment firms exempted;                  

(b)be fully reasoned; and                  

(c)explain why the exemption does not threaten the stability of the financial system of the United Kingdom.                  

(3) The FCA must notify a decision to grant an exemption to the European Commission, the ESRB, EBA and the competent authorities                     of the other EEA States which are responsible for the exercise of the duties of a competent authority under the capital requirements                     directive and capital requirements regulation.                  

## **PART 3**U.K.Countercyclical Capital Buffer

### CHAPTER 1U.K.Designated authority and interpretation

#### Designated authorityU.K.

7.  The Bank is the designated authority for the purposes of Article 136(1) of the capital requirements directive.                  

#### Meaning of “UK institution”U.K.

8.  In this Part—                  

“EEA authority” means an authority designated in an EEA State other than the United Kingdom for the purposes of Article 136(1) of the capital                     requirements directive;                  

“UK institution” means an institution with permission to carry on a regulated activity under Part 4A of FSMA.                  

### CHAPTER 2U.K.Exposures located in the United Kingdom

#### The buffer guideU.K.

9.—(1) The FPC must calculate for every quarter a buffer guide as a reference to guide its exercise of judgement in assessing and                     setting the buffer rate in accordance with regulation 10.                  

(2) The buffer guide must—

(a)reflect, in a meaningful way, the credit cycle and the risks due to excess credit growth in the United Kingdom; and                  

(b)duly take into account the specificities of the economy of the United Kingdom.                  

(3) The buffer guide must be based on the deviation of the ratio of credit to gross domestic product from its long term trend,                     taking into account—                  

(a)an indicator of the growth of levels of credit within the United Kingdom and, in particular, an indicator reflecting the changes                        in the ratio of credit granted in the United Kingdom to gross domestic product; and                  

(b)any guidance maintained by the ESRB in accordance with Article 135(1)(b) of the capital requirements directive.                  

#### Countercyclical buffer rateU.K.

10.—(1) The FPC must assess and set a buffer rate for the United Kingdom.                  

(2) The purpose of the buffer rate is to enable institutions with exposures located in the United Kingdom to calculate their institution-specific                     countercyclical capital buffers.                  

(3) The buffer rate must be assessed and set on a quarterly basis, taking into account—

(a)the buffer guide calculated in accordance with regulation 9(1);                  

(b)any current guidance maintained by the ESRB in accordance with Articles 135(1)(a), (c) and (d) of the capital requirements                        directive;                  

(c)any recommendation issued by the ESRB on setting buffer rates for the countercyclical capital buffer; and                  

(d)any other variables that the FPC considers relevant for addressing cyclical systemic risk.                  

(4) The buffer rate must be expressed as a percentage of the total risk exposure of institutions with exposures located in the                     United Kingdom.                  

(5) Total risk exposure must be calculated in accordance with Article 92(3) of the capital requirements regulation.

(6) The buffer rate must be—

(a)set between 0% and 2.5%, except where the matters referred to in paragraph (3) justify a higher rate; and                  

(b)an integer multiple of 0.25%.                  

#### Date from which changes to the buffer rate applyU.K.

11.—(1) Where the FPC—                  

(a)sets the buffer rate above zero for the first time; or                  

(b)increases the buffer rate;                  

it must decide the date from which UK institutions must apply the buffer rate for the purposes of calculating their institution-specific                     countercyclical capital buffers.                  

(2) The date referred to in paragraph (1) must be 12 months after the date when the buffer rate is published in accordance with                     regulation 12(1), unless an earlier date is justified on the basis of exceptional circumstances.                  

(3) Where the FPC reduces the buffer rate, it must decide on an indicative period during which no increase in that rate is expected.

(4) The indicative period referred to in paragraph (3) is not be binding on the FPC.

#### Announcement of changes to the buffer rateU.K.

12.—(1) The Bank must publish the following information on its website—                  

(a)the buffer rate assessed and set by the FPC in accordance with regulation 10(1);                  

(b)the relevant ratio of credit to gross domestic product and its deviation from the long-term trend;                  

(c)the buffer guide calculated by the FPC in accordance with regulation 9;                  

(d)the reasons for the FPC's decision on the level of the buffer rate.                  

(2) Where the FPC decides to increase the buffer rate, the Bank must publish on its website—

(a)the date from which UK institutions must apply the new buffer rate for the purposes of calculating their institution-specific                        countercyclical capital buffer; and                  

(b)any exceptional circumstances which justify any decision by the FPC to require institutions to apply the new buffer rate less                        than a year after it is published.                  

(3) Where the FPC decides to decrease the buffer rate, the Bank must publish on its website the indicative period referred to                     in regulation 11(3) and the FPC's reasons for choosing that period.                  

(4) The Bank must take all reasonable steps to co-ordinate the timing of the publication of the buffer rate with the publication                     by the EEA authorities of the buffer rates for the countercyclical capital buffer in the EEA.                  

(5) Every quarter, the Bank must notify the ESRB of the information referred to in paragraphs (1) to (3).

### CHAPTER 3U.K.Exposures located outside the United Kingdom

#### Buffer rates for EEA exposures: on or after 1st January 2016U.K.

14.—(1) This regulation F19 applies where—                  

(a)an EEA authority has set a buffer rate (“the EEA buffer rate”) for that EEA State, for the purpose of enabling institutions                        with exposures in that EEA State to calculate their institution-specific countercyclical capital buffer; and                  

(b)the EEA buffer rate exceeds 2.5%.                  

(2) The FPC may recognise the EEA buffer rate, so that UK institutions with exposures located in that EEA State may be required                     by the PRA and FCA to apply the EEA buffer rate in their calculation of their institution-specific countercyclical capital                     buffers.                  

F19This regulation commences on 1st January 2016. See regulation 1(3).

#### Buffer rates for exposures outside the EEAU.K.

15.—(1) This regulation specifies the circumstances in which the FPC may recognise or set a buffer rate for exposures—                  

(a)held by a UK institution; and                  

(b)located in a country outside of the EEA (a “third country”).                  

(2) Where the supervisory authority of the third country has not set and published a buffer rate for a capital buffer serving                     the same purpose as the countercyclical capital buffer, the FPC may set a buffer rate for the third country.                  

(3) Where the supervisory authority of the third country sets a buffer rate of more than 2.5% for a capital buffer serving the                     same purpose as the countercyclical capital buffer, the FPC may recognise that buffer rate.                  

(4) Where the supervisory authority of the third country sets a buffer rate (the “third country buffer rate”) for a capital buffer                     serving the same purpose as the countercyclical capital buffer and the FPC reasonably considers that the third country buffer                     rate is not sufficient to protect UK institutions from the risks of excessive credit growth in the third country, the FPC                     may—                  

(a)set a buffer rate for the third country which is higher than the third country buffer rate; or                  

(b)set a buffer rate for the third country which is lower than the third country buffer rate, provided the buffer rate set by                        the FPC exceeds 2.5%.                  

(5) The purpose for which a buffer rate may be recognised or set under this regulation is so that UK institutions with exposures                     located in the third country may be required by the PRA and FCA to apply that buffer rate in their calculation of their institution-specific                     countercyclical capital buffers.                  

#### Buffer rates: integer multiples of 0.25%U.K.

16.  A buffer rate set by the FPC under regulation 13(2)(b), 15(2) or 15(4) must be an integer multiple of 0.25%.                  

#### Date of application of buffer ratesU.K.

17.—(1) Where FPC—                  

(a)recognises or sets a buffer rate under regulations 13, 14 or 15 in relation to exposures located outside the United Kingdom;                        and                  

(b)the buffer rate is higher than the buffer rate which UK institutions are currently required to apply in relation to those                        exposures when calculating their institution-specific countercyclical capital buffers;                  

then the FPC must decide the date from which UK institutions must apply the buffer rate for the purposes of calculating their                     institution-specific countercyclical capital buffers.                  

(2) The date referred to in paragraph (1)—

(a)may only be earlier than 12 months after the date when the buffer rate is published if such a date is justified on the basis                        of exceptional circumstances; and                  

(b)may not be later than 12 months after the date when the buffer rate is published where the FPC has set the buffer rate under                        regulation 15(2) or 15(4).                  

#### Announcement of changes to buffer ratesU.K.

18.—(1) Where the FPC recognises or sets a buffer rate under regulations 13, 14 or 15, the Bank must publish the FPC's decision on                     its website.                  

(2) The Bank must also publish the following information when a decision is published under paragraph (1)—

(a)the buffer rate;                  

(b)where the FPC has set the buffer rate under regulation 15(2) or 15(4), the justification for the buffer rate;                  

(c)the EEA State or country to which that buffer rate applies;                  

(d)the date from which the buffer rate applies; and                  

(e)any exceptional circumstances justifying a date of application of less than twelve months after the date of publication.                  

### CHAPTER 4U.K.Institution-specific countercyclical capital buffers

#### Exemption for small and medium-sized investment firmsU.K.

20.—(1) The FCA may exempt a small or medium-sized investment firm, or small or medium-sized investment firms of a specified description,                     from the requirement to maintain an institution-specific countercyclical capital buffer where such an exemption does not threaten                     the stability of the financial system of the United Kingdom.                  

(2) Where the FCA decides to grant such an exemption, its decision must—

(a)contain an exact definition of the small and medium-sized investment firms which are exempted;                  

(b)be fully reasoned; and                  

(c)explain why the exemption does not threaten the stability of the financial system of the United Kingdom.                  

(3) The FCA must notify a decision to grant an exemption to the European Commission, the ESRB, EBA and the competent authorities                     of other EEA States which are responsible for the exercise of the duties of a competent authority under the capital requirements                     directive and capital requirements regulation.                  

## **PART 4**U.K.G-SII Buffer

### Designated authorityU.K.

21.  The PRA is the authority responsible for identifying G-SIIs and requiring G-SIIs to maintain a G-SII buffer.                  

### G-SIIs: location and natureU.K.

22.—(1) A G-SII must be—                  

(a)a person with permission to carry on a regulated activity for the purposes of Part 4A of FSMA; or                  

(b)a person established in the United Kingdom.                  

(2) A G-SII must also be—

(a)an EEA parent institution;                  

(b)an EEA parent financial holding company;                  

(c)an EEA parent mixed financial holding company; or                  

(d)an institution authorised in the EEA which is not a subsidiary of a body mentioned in subparagraphs (a) to (c).                  

### Identification methodologyU.K.

23.—(1) In order to identify whether a particular body (“the relevant body”) is a G-SII, the PRA must apply an identification methodology                     to the relevant body on a consolidated basis.                  

(2) Where the relevant body is an EEA parent institution, an EEA parent financial holding company or an EEA parent mixed financial                     holding company, the identification methodology must be applied in accordance with any directly applicable regulation made                     under Article 131(18) of the capital requirements directive.                  

(3) The identification methodology must be based on the following criteria—

(a)the size of the group to which the relevant body belongs;                  

(b)the interconnectness of the group within the financial system;                  

(c)the extent to which an entity or entities outside the group could provide the services or financial infrastructure which the                        group provides;                  

(d)the complexity of the group;                  

(e)the extent of the group's cross-border activity, including cross-border activity between EEA States and between an EEA State                        and a country outside the EEA.                  

(4) Each criteria in the identification methodology must consist of quantifiable indicators and be given an equal weighting.

(5) The identification methodology must result in an overall score for the relevant body which allows the PRA to—

(a)determine whether the relevant body is a G-SII; and                  

(b)if the relevant body is a G-SII, allocate the relevant body to an appropriate sub-category of G-SII;                  

in accordance with the sub-categories of G-SII defined by the PRA in accordance with regulation 24.

### Sub-catgories of G-SII and corresponding buffer ratesU.K.

24.—(1) The PRA must define the sub-categories of G-SII in accordance with this regulation and any directly applicable regulation                     made under Article 131(18) of the capital requirements directive.                  

(2) There must be five or six sub-categories of G-SII.

(3) The lowest boundary and the boundaries between each sub-category must be determined by the scores under the identification                     methodology.                  

(4) The cut-off scores between adjacent sub-categories must—

(a)be defined clearly; and                  

(b)ensure that there is a linear relationship between the systemic significance represented by the sub-categories and the G-SII                        buffer rates assigned to those sub-categories.                  

(5) Where there are five sub-categories, the cut-off score between the highest sub-category and the sub-category immediately below                     it need not comply with paragraph (4)(b).                  

(6) The following G-SII buffer rates must be assigned to the sub-categories—

(a)1% for the lowest sub-category;                  

(b)3.5% for the highest sub-category;                  

(c)for all other sub-categories, the rate must be 0.5% higher than the rate assigned to the sub-category immediately below it.                  

### Re-allocation in exercise of sound supervisory judgementU.K.

25.  The PRA may, in the exercise of sound supervisory judgement—                  

(a)determine that a body is a G-SII, notwithstanding the fact that the body is not recognised as a G-SII in accordance with the                        PRA's identification methodology and the sub-categories which the PRA has defined;                  

(b)allocate a G-SII to a higher sub-category to that indicated by its score under the identification methodology and the sub-categories                        which the PRA has defined.                  

### Notification, publication and reviewU.K.

26.—(1) The PRA must provide the names of the G-SIIs it has identified, together with the sub-category to which each has been allocated,                     to the Commission, the ESRB and EBA.                  

(2) The PRA must notify EBA when it allocates a G-SII to a higher sub-category than its score under the identification methodology                     would indicate, in accordance with regulation 25(b).                  

(3) The PRA's notification under paragraph (2) must include its reasons for exercising its discretion under regulation 25(b).

(4) The PRA must publish an up-to-date list of the names of the G-SIIs it has identified and the sub-category to which each has                     been allocated.                  

(5) The PRA must review its identification of G-SIIs and their allocation to sub-categories annually and report the results of                     its review to the bodies concerned, the Commission, the ESRB and EBA.                  

### AppealsU.K.

27.—(1) Where a person is aggrieved at the PRA's decision—                  

(a)that the person is, or is not, a G-SII; or                  

(b)to allocate that person to a particular sub-category of G-SII;                  

then the person may refer the matter to the Tribunal.

(2) The scope of an appeal under paragraph (1) is limited to the application of the PRA's identification methodology and sub-categories                     of G-SII to the aggrieved person.                  

### Transitional provision: 1st January 2016 to 31st December 2019U.K.

28.  In the period beginning with 1st January 2016 and ending on 31st December 2019, the PRA must apply the G-SII buffer in accordance                     with the transitional provisions at Article 162(5) of the capital requirements directive.                  

## **PART 5**U.K.O-SIIs

### Designated authorityU.K.

29.  The PRA is the authority responsible for identifying O-SIIs.                  

### O-SIIs: location and natureU.K.

30.—(1) An O-SII must be—                  

(a)a person with permission to carry on a regulated activity for the purposes of Part 4A of FSMA; or                  

(b)a person established in the United Kingdom.                  

(2) An O-SII must also be—

(a)an EEA parent institution;                  

(b)an EEA parent financial holding company;                  

(c)an EEA parent mixed financial holding company; or                  

(d)an institution.                  

### Identification of O-SIIsU.K.

31.—(1) In order to assess whether a particular body (“the relevant body”) is an O-SII, the PRA must base its assessment on the systemic                     importance of the relevant body on an individual, sub-consolidated or consolidated basis.                  

(2) The assessment of systemic importance must include a consideration of one or more of the following criteria—

(a)the size of the relevant body;                  

(b)the importance of the relevant body to economy of the United Kingdom or the European Union;                  

(c)the significance of the relevant body's cross-border activities; and                  

(d)the interconnectedness of the relevant body, or the group to which it belongs, with the financial system.                  

### Notification, publication and reviewU.K.

32.—(1) The PRA must provide the names of the O-SIIs it has identified to the Commission, the ESRB and EBA.                  

(2) The PRA must publish an up-to-date list of the names of the O-SIIs it has identified.

(3) The PRA must review its identification of O-SIIs annually and report the results of its review to the bodies concerned, the                     Commission, the ESRB and EBA.                  

### AppealsU.K.

33.  Where a person is aggrieved at the PRA's decision that the person is, or is not, an O-SII, then the person may refer the matter                     to the Tribunal.                  

### No requirement to maintain an O-SII bufferU.K.

34.  No O-SII may be required to maintain an O-SII buffer.                  

## [F21PART5AU.K.Systemic Risk Buffer

F21Pt. 5A inserted (31.5.2016 for specified purposes) by The Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 (S.I. 2015/19), **reg. 2(4)**

### CHAPTER1U.K.Introduction

#### Meaning of “EEA buffer rate”U.K.

34A.In this Part, an “EEA buffer rate” means a buffer rate set by an authority in an EEA State other than the United Kingdom pursuant to Article 133 (requirement to maintain a systemic risk buffer) of the capital                        requirements directive.                  

#### Meaning of “individual basis”U.K.

34B.In this Part, “individual basis” has the same meaning as in Article 133(3) of the capital requirements directive.                  

#### Meaning of “mapping”U.K.

34C.In this Part, a “mapping” means the correspondence between scores and buffer rates specified by the FPC in accordance with                        regulation 34F(5).                  

#### Meaning of “SRB institution”U.K.

34D.—(1)In this Part, an “SRB institution” means—                  

(a)a ring-fenced body within the meaning of section 142A of FSMA; or                  

(b)a body satisfying conditions A and B in paragraphs (2) and (3) below.                  

(2)Condition A is that the body is a building society within the meaning given by section 119 (interpretation) of the Building                        Societies Act 1986.                  

(3)Condition B is that the sum total of the following two values exceeds £25 billion—                  

(a)the value of shares issued by the body which are not deferred shares; and                  

(b)the value of deposits held in accounts with the body where one or more of the account holders is a small business.                  

(4)In paragraph (3)—                  

(a)“deferred shares”, “deposit” and “share” have the meaning given by section 119 of the Building Societies Act 1986; and                  

(b)a person is a small business if and only if the person is a small business for the purposes of section 7(10) (the funding                           limit) of the Building Societies Act 1986.                  

#### Designated authoritiesU.K.

34E.For the purposes of Article 133(2) of the capital requirements directive, the PRA and FCA are the designated authorities for                        each of the functions allocated to them by this Part.                  

### CHAPTER2U.K.United Kingdom rates

#### FPC: criteria, methodology and mappingU.K.

34F.—(1)The FPC must specify a set of criteria for assessing the extent to which the failure or distress of an SRB institution might                        pose a long term non-cyclical systemic or macro-prudential risk not covered by the capital requirements regulation.                  

(2)For the purposes of paragraph (1)—                  

(a)an SRB institution is in distress if and only if it experiences a significant deterioration in its financial situation; and                  

(b)a long term non-cyclical systemic or macro-prudential risk means a risk of disruption to the financial system with the potential                           to have serious negative consequences for the financial system and the real economy in the United Kingdom.                  

(3)Each criterion must—                  

(a)be measurable; and                  

(b)be capable of being applied to SRB institutions on an individual basis, sub-consolidated basis and consolidated basis.                  

(4)The FPC must create a methodology for measuring the criteria and giving an SRB institution a single score in relation to the                        criteria.                  

(5)For each score which SRB institutions may receive under the methodology, the FPC must specify a corresponding buffer rate                        for the systemic risk buffer.                  

(6)The only buffer rates which the FPC may specify are 0%, 1%, 1.5%, 2%, 2.5% and 3%.                  

(7)The mapping—                  

(a)must be clear, precise and unambiguous;                  

(b)must ensure a score is mapped to only one buffer rate;                  

(c)may not be expressed in terms of a discretion conferred on a person or body (including the FPC itself); and                  

(d)may be expressed by way of a formula, an algorithm, a graph or a table.                  

#### PRA: applying the systemic risk bufferU.K.

34G.—(1)The PRA must apply the process set out in this regulation to each SRB institution.                  

(2)The PRA must choose one of the following bases on which to apply the criteria specified by the FPC in accordance with regulation                        34F(1) to an SRB institution—                  

(a)an individual basis;                  

(b)a sub-consolidated basis;                  

(c)a consolidated basis.                  

(3)The PRA must then—                  

(a)apply the methodology created by the FPC in accordance with regulation 34F(4) to the SRB institution in order to obtain a                           score for the SRB institution; and                  

(b)derive the corresponding buffer rate for the SRB institution by applying the mapping.                  

(4)Except where paragraph (5) applies—                  

(a)where the PRA derives a buffer rate of 0% for an SRB institution, the PRA may not set a buffer rate for that SRB institution’s                           systemic risk buffer;                  

(b)where the PRA derives a buffer rate of other than 0% for an SRB institution, the PRA must set that rate as the buffer rate                           for the SRB institution’s systemic risk buffer.                  

(5)The PRA may, in exercise of sound supervisory judgement—                  

(a)set a buffer rate for an SRB institution’s systemic risk buffer, notwithstanding the fact that the PRA has derived a buffer                           rate of 0% for that SRB institution;                  

(b)set a buffer rate for an SRB institution which is different to a buffer rate derived under paragraph (3)(b); or                  

(c)waive the requirement in paragraph (4)(b) to set a buffer rate for an SRB institution, and set no buffer rate for the SRB                           institution.                  

(6)Where the PRA sets a buffer rate for an SRB institution under paragraph (5)(a) or (b), the buffer rate must be 1%, 1.5%, 2%,                        2.5% or 3%.                  

#### Pre-notification to EEA and third country authoritiesU.K.

34H.—(1)Before the PRA sets a buffer rate for an SRB institution, the PRA must notify—                  

(a)the European Commission;                  

(b)the ESRB;                  

(c)the EBA;                  

(d)the competent authorities of the EEA States concerned which are responsible for exercising the duties of a competent authority under the capital requirements                           directive and capital requirements regulation;                  

(e)the authorities in the EEA States concerned which are designated for the purposes of Article 133(2) of the capital requirements directive; and                  

(f)the supervisory authorities of every country outside the EEA.                  

(2)The notification must describe in detail—                  

(a)the systemic or macro-prudential risk in the United Kingdom;                  

(b)the reasons why the scale of the systemic or macro-prudential risk which threatens the stability of the financial system at                           a national level justifies the proposed buffer rate;                  

(c)the justification for considering why the systemic risk buffer is likely to be an effective and proportionate way to mitigate                           those risks;                  

(d)an assessment of the likely positive or negative impact of the systemic risk buffer on the internal market, within the meaning                           of Article 26(2) of the Treaty on the Functioning of the European Union, based on information available to the United Kingdom;                  

(e)the justification for considering why none of the existing measures set out in the capital requirements regulation or the                           capital requirements directive, excluding Articles 458 and 459 of the capital requirements regulation, taken either alone                           or in combination and taking into account their relative efficacy, would be sufficient to address the macro-prudential or                           systemic risk which has been identified; and                  

(f)the proposed buffer rate and the SRB institution to which it will apply.                  

#### AppealsU.K.

34I.—(1)Where a person is aggrieved at a decision made by the PRA under regulation 34G, then the person may refer the matter to the                        Tribunal.                  

(2)The scope of such an appeal is limited to—                  

(a)the application of the methodology in accordance with regulation 34G(3)(a);                  

(b)the derivation of the buffer rate in accordance with regulation 34G(3)(b); and                  

(c)the exercise of the PRA’s discretion in accordance with regulation 34G(5).                  

### CHAPTER3U.K.EEA rates

#### Recognition of EEA buffer ratesU.K.

34J.—(1)This regulation applies where an EEA State other than the United Kingdom sets an EEA buffer rate.                  

(2)The PRA may recognise the EEA buffer rate for the purposes of requiring institutions or a class of institutions which—                  

(a)are authorised in the United Kingdom under Part 4A of FSMA; and                  

(b)have exposures located in that EEA State;                  

to apply the EEA buffer rate in the calculation of their systemic risk buffers.                  

(3)When deciding whether to recognise an EEA buffer rate, the PRA must take into account the information set out in the notification submitted in relation to the EEA buffer rate under Article 133(11), (12) or (13) of the capital requirements directive.                  

(4)Where the PRA recognises an EEA buffer rate—                  

(a)the PRA must notify the FCA; and                  

(b)the PRA and FCA must decide, in respect of PRA-authorised persons and persons who are not PRA-authorised persons respectively,                           which institutions must apply the EEA buffer rate in the calculation of their systemic risk buffers.                  

(5)But the PRA may not require an SRB institution to apply the EEA buffer rate if—                  

(a)the PRA has set a buffer rate for that SRB institution under regulation 34G; and                  

(b)the buffer rate set by the PRA is greater than the EEA buffer rate.                  

#### NotificationU.K.

34K.Where the PRA recognises an EEA buffer rate, the PRA must notify—                  

(a)the European Commission;                  

(b)the ESRB;                  

(c)the EBA;                  

(d)the competent authorities of the EEA States concerned which are responsible for exercising the duties of a competent authority under the capital requirements                           directive and capital requirements regulation; and                  

(e)the authorities in the EEA States concerned which are designated for the purposes of Article 133(2) of the capital requirements directive.                  

### CHAPTER4U.K.Maintenance and calculation of systemic risk buffer

#### Maintenance of systemic risk bufferU.K.

34L.—(1)The authority specified in the second column of Table 1 must require the institutions specified in the first column of Table                        1 to maintain a systemic risk buffer in the circumstances specified in the third column of Table 1.                  

(2)Where an institution is required to maintain a systemic risk buffer, the authority must require the institution to—                  

(a)calculate the systemic risk buffer in the manner set out in the fourth column of Table 1; and                  

(b)determine the value of its exposures for the purposes of that calculation by applying the level of consolidation specified                           in the fifth column of Table 1.                  

(3)Table 1 specifies the only circumstances in which an institution may be required to maintain a systemic risk buffer.                  

##### Table 1

### CHAPTER 5U.K.Miscellaneous

#### Date of applicationU.K.

34M.—(1)Where the PRA sets a buffer rate for an SRB institution under regulation 34G, the PRA must decide the date from which the                        SRB institution must apply the buffer rate in the calculation of its systemic risk buffer.                  

(2)Where the PRA decides that an SRB institution is no longer required to maintain a systemic risk buffer, the PRA must decide                        the date from which the SRB institution may cease to maintain the systemic risk buffer.                  

(3)Where the PRA or FCA decide that an institution must apply an EEA buffer rate under regulation 34J, the PRA or FCA (as the case may be) must decide the date from which the institution must                        apply the buffer rate in the calculation of its systemic risk buffer.                  

#### PublicationU.K.

34N.—(1)The Bank must publish—                  

(a)the set of criteria specified by the FPC in accordance with regulation 34F(1);                  

(b)the methodology created by the FPC in accordance with regulation 34F(4);                  

(c)the mapping.                  

(2)When the Bank publishes a set of criteria, a methodology or a mapping, the Bank must also publish the FPC’s justification                        for the set of criteria, methodology or mapping (as the case may be).                  

(3)Where the PRA sets a buffer rate for an SRB institution under regulation 34G, the PRA must publish—                  

(a)the buffer rate;                  

(b)the SRB institution to which the buffer rate applies;                  

(c)the justification for the systemic risk buffer;                  

(d)the date from which the SRB institution must apply the buffer rate;                  

(e)the level of consolidation which applies pursuant to regulation 34L; and                  

(f)the fact that the systemic risk buffer applies to exposures located anywhere in the world (subject to the application of EEA buffer rates recognised under regulation 34J).                  

(4)Where the PRA decides that an SRB institution is no longer required to maintain a systemic risk buffer under regulation 34G,                        the PRA must publish—                  

(a)the fact that the SRB is no longer required to maintain the systemic risk buffer;                  

(b)the justification for ceasing to apply the systemic risk buffer; and                  

(c)the date from which the SRB institution may cease to apply the buffer rate.                  

(5)The reference to the justification in paragraphs (3)(c) and 4(b) includes the PRA’s reasons for doing any of the matters referred                        to in sub-paragraphs (a) to (c) of regulation 34G(5).                  

(6)Where the PRA recognises an EEA buffer rate under regulation 34J—                  

(a)the PRA must publish—                  

(i)the EEA buffer rate;                  

(ii)its decision under regulation 34J(4)(b) as to which institutions must apply the EEA buffer rate in the calculation of their systemic risk buffers;                  

(iii)the date from which those institutions must apply the EEA buffer rate;                  

(iv)the location of the exposures to which the EEA buffer rate applies;                  

(v)the level of consolidation which applies pursuant to regulation 34L; and                  

(vi)the justification for recognising the EEA buffer rate and for its decision under regulation 34J(4)(b);                  

(b)the FCA must publish—                  

(i)its decision under regulation 34J(4)(b) as to which institutions must apply the EEA buffer rate in the calculation of their systemic risk buffers;                  

(ii)the date from which those institutions must apply the EEA buffer rate;                  

(iii)the level of consolidation which applies pursuant to regulation 34L; and                  

(iv)the justification for its decision under regulation 34J(4)(b).                  

(7)The PRA and FCA must not publish any information pursuant to paragraph (3)(c), (4)(b), (6)(a)(vi) or (6)(b)(iv) if publication                        might jeopardise the stability of the financial system.                  

(8)The date on which the PRA publishes the buffer rate under paragraph (3) must be at least one month after the date on which                        the PRA gives notification under regulation 34H.                  

#### ReviewU.K.

34O.The authority specified in the first column of Table 2 must review the matters set out in second column of Table 2 at least                        every second year.                  

##### Table 2

#### Prohibition on affecting the internal marketU.K.

34P.The PRA and FCA must, in the exercise of their respective functions and discretions under this Part, ensure that a systemic                        risk buffer does not have a disproportionate adverse effect on the whole or any part of the financial system of other EEA States or the Union as a whole, such that the adverse effect forms or creates an obstacle to the functioning of the internal                        market within the meaning of Article 26(2) of the Treaty on the Functioning of the European Union.]                  

## **PART 6**U.K.Combined buffer requirement

### Combined buffer requirementU.K.

35.  The appropriate regulator is responsible for requiring institutions to comply with the combined buffer requirement.                  

Commencement Information

I1S. 35 partly in force at 1.5.2014 for specified purposes, s. 35 in force at 1.1.2016 for other specified purposes

## **PART 7**U.K.Macro-prudential measures: procedure

### Amendments to the Bank of England Act 1998U.K.

36.—(1) The Bank of England Act 1998 F22 is amended as follows.                  

(2) In section 2AA F23 (macro-prudential measures: Article 458 of the capital requirements regulation), after subsection (2) insert—                  

“(3)The Bank must undertake (in relation to a measure falling within subsection (1)) the notification process required by Article                        458 of the capital requirements regulation (“the Article 458 notification process”) in any case where it is requested to do                        so by the Financial Policy Committee in connection with—                  

(a)a direction that the Committee has given or proposes to give under section 9H, or                  

(b)recommendations that the Committee has made or proposes to make under section 9Q.                  

(4)The Treasury must undertake (in relation to a measure falling within subsection (2)) the Article 458 notification process                        in any case where they are requested to do so by the Financial Policy Committee in connection with recommendations that the                        Committee has made or proposes to make under section 9Q.                  

(5)Subsections (3) and (4) do not require the Bank or the Treasury to undertake the Article 458 notification process if—                  

(a)the Financial Policy Committee revokes the request, or                  

(b)the Bank considers (in a case within subsection (3)), or the Treasury consider (in a case within subsection (4)), that the                           measure is incompatible with EU law.                  

(6)Neither the Bank nor the Treasury may undertake the Article 458 notification process except in accordance with subsection                        (3) or (4).                  

(7)Where the Bank undertakes the Article 458 notification process, it must consult the Treasury about the assessment required                        by Article 458(2)(f) of the capital requirements regulation.                  

(8)Where the Financial Policy Committee requests the Treasury to undertake the Article 458 notification process, it must include                        in the request any information that would in its opinion be relevant to any notification by the Treasury.”.                  

(3) In section 9H F24(directions to FCA or PRA requiring macro-prudential measures), after subsection (10) insert—                  

“(11)Before giving a direction under this section, the Financial Policy Committee—                  

(a)must consider whether the measure is one to which Article 458 of the capital requirements regulation applies, and                  

(b)if the Committee is of the opinion that it is, may request the Bank to complete the notification process required by that                           Article.”.                  

(4) In section 9I F25(compliance with directions under section 9H)—                  

(a)after subsection (1) insert—                  

“(1A)But where a direction under section 9H concerns the implementation of a measure to which Article 458 of the capital requirements                        regulation applies, the regulator—                  

(a)is not required to comply with the direction unless it has been notified by the Financial Policy Committee that the measure                           is authorised in accordance with that Article, and                  

(b)must then comply with the direction as soon as reasonably practicable.”; and                  

(b)after subsection (4) insert—                  

“(4A)For the purposes of subsection (1A), a measure is authorised in accordance with Article 458 of the capital requirements regulation                        if the notification process required by that Article has been completed and any of the following applies—                  

(a)the period during which the European Commission may issue a proposal for an implementing act to reject the draft measure has                           expired and no such proposal has been issued,                  

(b)where the European Commission has issued a proposal for an implementing act to reject the draft measure, the period during                           which the Council of the European Union may adopt a decision in the form of an implementing act to reject the draft measure                           has expired without any such decision being adopted, or                  

(c)the measure falls within Article 458(10).”.                  

(5) In section 9Q F26 (recommendations to FCA and PRA), after subsection (4), insert—                  

“(4A)Before making recommendations under this section, the Financial Policy Committee—                  

(a)must consider whether acting in accordance with the recommendations would involve a measure to which Article 458 of the capital                           requirements regulation applies, and                  

(b)if the Committee is of the opinion that it would, may—                  

(i)where the measure falls within section 2AA(1), request the Bank to complete the notification process required by that Article,                           or                  

(ii)where the measure falls within section 2AA(2), request the Treasury to complete that process.                  

(4B)If the body to which recommendations under this section are made is of the opinion that the implementation of the recommendations                        would involve a measure to which Article 458 of the capital requirements regulation applies, that body must—                  

(a)state that opinion to the Financial Policy Committee, and                  

(b)indicate to the Financial Policy Committee whether it intends to act in accordance with the recommendations if the measure                           is authorised in accordance with Article 458.                  

(4C)Subsection (4B)(b) is to be read in accordance with section 9I(4A).”.                  

(6) In section 9U F27 (publication of record of meetings)—                  

(a)in subsection (3), after paragraph (b) insert—                  

“(c)to make or revoke a request under section 2AA(3) or (4);                  

(d)made under the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014.”; and                  

(b)in subsection (8), after paragraph (e) insert—                  

“(f)information about a decision to make a request under section 2AA(3) or (4) which has been revoked before the record of the                           meeting at which it was given is published;                  

(g)information about the decision to revoke a request under section 2AA(3) or (4) where information about the request is withheld                           under paragraph (f).”.                  

F221998 c. 11.

F23Section 2AA was inserted by S.I. 2013/3115.

F24Section 9H was inserted by section 4(1) of the Financial Services Act 2012.

F25Section 9I was inserted by section 4(1) of the Financial Services Act 2012.

F26Section 9Q was inserted by section 4(1) of the Financial Services Act 2012.

F27Section 9U was inserted by section 4(1) of the Financial Services Act 2012.

Anne Milton

Mark Lancaster

 Two of the Lords Commissioners of Her Majesty's Treasury

## Explanatory Note

(This note is not part of the Regulations)

These Regulations implement in part the provisions relating to capital buffers in Directive 2013/36/EU of the European Parliament                        and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit                        institutions and investment firms (OJ no L176, 27/6/2013, p. 338; for corrigenda see OJ no L208, 2/8/2013, p.73). This directive                        (“the capital requirements directive”) is part of a package of EU legislation commonly known as “CRD4”. Articles 128 to 142,                        160 and 162 of the capital requirements directive are concerned with capital buffers. Further implementation of the capital                        buffers provisions will be achieved through rules, or other binding requirements, imposed by the Prudential Regulation Authority                        (“PRA”) and Financial Conduct Authority (“FCA”).                     

The Regulations also make provision in relation to the notification procedure under Article 458 of Regulation 575/2013/EU                        of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment                        firms (OJ no L176, 27/6/2013, p.1, for corrigenda see OJ no L208, 27/6/2013, p.68 and OJ no L321, 30/11/2013, p.6) (“the capital requirements regulation”).                     

Part 1 contains provisions relating to commencement, cessation and interpretation. The countercyclical capital buffer commences                        on 1st May 2014 and the other capital buffers commence on 1st January 2016.                     

Part 2 is concerned with the capital conservation buffer (Articles 129 and 160 of the capital requirements directive). The                        buffer rate is set at 2.5% under Article 129(1), subject to the transitional provisions at Article 160 which are implemented                        by regulation 5. The FCA is given the power to exempt small or medium-sized investment firms in appropriate circumstances.                     

Part 3 is concerned with the countercyclical capital buffer (Articles 130, and 135 to 140, of the capital requirements directive).                        Under the capital requirements directive, institutions must calculate an institution-specific countercyclical capital buffer                        rate by taking a weighted average of the countercyclical buffer rates set by macro-prudential regulatory authorities in the                        countries in which its exposures are located. By virtue of regulation 10, the Financial Policy Committee (a statutory sub-committee                        of the Court of the Bank of England) will set the buffer rate for the United Kingdom. Regulations 13, 14 and 15 specify the                        circumstances in which the Financial Policy Committee may recognise or set a buffer rate for a country other than the United                        Kingdom.                     

Part 4 is concerned with the “G-SII” buffer (Articles 131 and 162(5) of the capital requirements directive). G-SII is a term                        used in the capital requirements directive as an abbreviation for “global systemically significant institution”. Under Part                        4, the PRA must identify G-SIIs using an identification methodology and various sub-categories, with the buffer rates for                        each sub-category specified by regulation 24(6). The transitional provisions at Article 162(5) of the capital requirements                        directive are applied by regulation 28.                     

Part 5 is concerned with “O-SII”s (Article 131 of the capital requirements directive). O-SII is a term used in the capital                        requirements directive to describe “other systemically significant institutions”. Under Part 5, the PRA must identify O-SIIs.                        However, the the provisions of the capital requirements directive requiring O-SIIs to maintain a specific O-SII buffer are                        not mandatory and the United Kingdom is not implementing them.                     

Part 6 provides that the PRA and FCA are responsible for requiring institutions to comply with the combined buffer requirement.                        The combined buffer required is the total amount of Common Equity Tier 1 capital required to meet all the buffers which apply                        to an institution.                     

Part 7 amends the Bank of England Act 1998 to make provision for the notification procedure under Article 458 of the capital                        requirements regulation.                     

A Transposition Table setting out how the relevant provisions of the capital requirements directive are transposed into UK                        law is available from Her Majesty's Treasury, 1 Horse Guards Road, London SW1A 2HQ.                     

Impact assessments of the effect that these Regulations will have on the costs of business and the voluntary sector are available                        from Her Majesty's Treasury, 1 Horse Guards Road, London SW1A 2HQ and from—                     

http://www.legislation.gov.uk/ukia/2013/1156/pdfs/ukia_20131156_en.pdf ) in relation to the macro-prudential measures; and

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/223566/PU1488_Banking_reform_consultation_-_online-1.pdf                                 in relation to the other measures.