The PRA has published a consultation on the prudential framework for large exposures, which – alongside risk-weighted capital requirements – aims to protect firms from large losses resulting from the sudden default of a counterparty or multiple connected counterparties.
The paper sets out how the PRA proposes to implement remaining Basel large exposures standards. Suggested amendments include:
- removing the possibility for firms to use internal model methods to calculate exposure values to securities financing transactions;
- introducing a mandatory substitution approach to calculate the effect of the use of credit risk mitigation techniques;
- removing the option for firms to exceed large exposures limits for trading book exposures to third parties;
- allowing firms to exceed large exposures limits for trading book exposures to intragroup entities, and simplifying the calculation of the additional capital requirements;
- allowing firms to apply for higher large exposures limits in relation to intragroup entities, and amend the conditions firms need to meet to mitigate the higher concentration risk;
- removing the exemption from large exposures limits to firms’ exposures to the UK deposit guarantee scheme;
- removing the option for firms to use immovable property as credit risk mitigation;
- removing the stricter requirements on exposures to certain French counterparties; and
- merging the Large Exposures (CRR) and Large Exposures parts of the PRA Rulebook to improve accessibility.
The consultation closes on 17 January 2025.