Capital buffers and Pillar 2A: Modification by Consent and Model Requirements

First published in December 2017

This page is relevant to firms invited to apply for a voluntary requirement (VREQ) under section 55M of the Financial Services and Market Act (2000) in relation to a Pillar 2A requirement, a G-SII buffer or an O-SII buffer.

On 31 March 2025, the PRA amended the PRA Rulebook and simplified the regulatory process and communications used to set Pillar 2A. The new policy and rules in PS2/25 – Streamlining firm-specific capital communications take effect on Monday 31 March 2025. From this date, firms and PRA-approved Holding Companies (‘HoldCos’) will not need to apply for modifications by consent (MBCs) when the PRA sets a P2A requirement or a systemic buffer for them. The existing MBCs and the information below will remain in force for firms and HoldCos until the PRA resets their P2A requirement or systemic buffer in the normal course of business. 

We set out below how the PRA envisages the transition from the current to the new regime. 

Firms are not required to take any specific actions to implement the changes. The PRA will reflect the changes in the firm-specific capital communications at the time of the firm’s next Pillar 2A capital reset following 31 March 2025. At the next capital reset:

• the PRA will replace the existing VREQs and s.192C directions incorporating the Model Requirements and Model Directions with new VREQs and s.192C directions that don’t have references to the Model Requirements and Model Directions; 
• the PRA will cancel the existing MBCs and firms and HoldCos will then become subject to the rules in the Capital Buffers Part that were previously disapplied, including the amendments set out in PS2/25; and
• the rules introduced with PS2/25 reflect that we have set Pillar 2A and the systemic buffers for some firms, and these components are captured in the capital conservation and Maximum Distributable Amount (MDA) rules. 

Background

As part of the VREQ application process, from 1 January 2018 firms have been expected to apply for a modification of 5.1 to 5.3 of the Capital Buffers Part of the PRA Rulebook. The purpose of the modification is to avoid any potential conflict between the individual requirements (of Maximum Distributable Amount trigger points) imposed on a firm and PRA rules.

The modifications below have been given by us under section 138A of the Financial Services and Markets Act 2000 (FSMA). The modifications should be read and used in conjunction with the Voluntary Requirement – Capital Buffers and Pillar 2A Model Requirements as outlined below.

The modifications apply where a Pillar 2A requirement, a G-SII buffer or an O-SII buffer has been imposed on the firm on an individual, sub-consolidated or consolidated basis prior to 31 March 2025.

Versions currently in place

Until the firm’s next Pillar 2A capital reset, the modifications below have been are given by us under section 138A of the Financial Services and Markets Act 2000 (FSMA). The modifications should be read and used in conjunction with the Voluntary Requirement – Capital Buffers and Pillar 2A Model Requirements as outlined below.

The modifications applied where a Pillar 2A requirement, a G-SII buffer or an O-SII buffer has been imposed on the firm on an individual, sub-consolidated or consolidated basis.

Published on 1 January 2022. Effective from 1 January 2022.

• MBC in conjunction with Voluntary Requirements (PDF)

This modification avoids any potential conflict, between the individual Pillar 2 requirements and buffers imposed on a firm, and PRA rules, and should be read and used in conjunction with the following:

Published on 9 December 2020. Effective from 11.00pm on 31 December 2020.

• Voluntary Requirement – Capital Buffers and Pillar 2A Model Requirements (PDF) Opens in a new window

The P2A model requirement allow a firm to make a distribution that would cause its CET1 level to fall within the combined buffer, subject to advance notice to the PRA; and adopt a more flexible definition of MDA, which includes certain profits already recognised as CET1 (removing a disadvantage to firms that recognise profit as CET1 capital more frequently).

Published on 14 October 2021 – MBC in conjunction with PRA Holding Companies

• Direction for modification of 5.3 of the Capital Buffers Part of the PRA Rulebook (pdf)

To ensure the capital stack operates as intended, we have made available a Modification to the Capital Buffer rules Parent financial holding companies and parent mixed financial holding companies will be asked to consent to the rule modification by email. 

Published November 2021 - Qualifying Parent Undertakings Capital Buffers and Pillar 2A

• Model Direction (PDF) 

Past versions