PRA writes to CFOs on significant risk transfer financing

The PRA has written to CFOs of banks highlighting some concerns over whether firms are applying the right regulatory capital approach to the substance of financing transactions. It has become particularly concerned about significant risk transfer financing activities but wants firms to consider its feedback in relation to all relevant financing portfolios.

The main regulatory concerns are around lack of proper assessment of collateral eligibility, which results in potential undercapitalisation of risks. It notes that upcoming changes resulting from PS9/24 will introduce three additional collateral eligibility requirements.

The PRA wants firms not just to consider, but also for relevant firms to respond to it. Those asked for a response by their supervisor will need to provide it by 11 June.