CP4/26 – UK Solvency II Own Funds: Updates and fixes to rules and expectations
Executive Summary
CP4/26 proposes targeted amendments to UK Solvency II own funds rules in the PRA Rulebook, addressing inconsistencies, clarifying requirements, and restating EU guidelines for better accessibility. These updates matter as they reduce regulatory burden, enhance clarity, and align rules with market practices, supporting PRA objectives of firm safety, policyholder protection, and competitiveness without introducing new risks. #
What Changed
- - Amendments to prior permission requirements for repaying or redeeming Tier 1 and Tier 3 own funds instruments, clarifying application to items classified under own funds permissions.
- Clarification that Tier 2 basic own funds items can cover 20% of the Minimum Capital Requirement (MCR), while Tier 2 Ancillary Own Funds cannot.
- Requirement that both minimum maturity date and first contractual opportunity to redeem must be met for Tier 1 and Tier 2 basic own funds classification.
- Correction to reconciliation reserve calculation to avoid canceling eligible own funds increases from classification permissions for balance sheet liabilities.
- Updates to guidelines on capital instrument redemption, including early calls for unforeseen regulatory/tax changes and treatment of tender offers.
- Changes to PRA Rulebook parts: Own Funds, Reporting, Group Supervision, Glossary, and Solvency Capital Requirement – Standard Formula.
Suggested Considerations
- Review and respond to consultation by 24 April 2026 via email to CP4_26@bankofengland.co.uk or post, indicating confidentiality and publication consent preferences.
- Assess current own funds instruments against proposed clarifications (e.g., redemption permissions, MCR eligibility, maturity requirements) and update internal classifications or applications if needed.
- Evaluate reconciliation reserve calculations for potential adjustments post-permission grants.
- Engage PRA on concurrent transactions (e.g., redemptions) for streamlined processes under clarified expectations.
- Prepare for Rulebook updates by mapping impacts to Own Funds, Reporting, Group Supervision, Glossary, and SCR Standard Formula parts.
Key Dates
Compliance Impact
Urgency: Medium – Proposals are refinements and clarifications rather than new burdens, with modest impacts focused on error corrections and alignment with practices; however, they affect core own funds calculations critical for solvency, requiring review before H2 2026 implementation to avoid misclassifications or PRA engagement delays.
Who is Affected
References
AI-generated analysis. May contain errors or omissions — verify with the original PRA source before acting. Full disclaimer.
Summary
Consultation paper 4/26