PS16/26 – PRA rule changes to accommodate HM Treasury’s Overseas Prudential Requirements Regime
Executive Summary
PRA Policy Statement PS16/26 finalises rule changes across multiple CRR-related parts of the PRA Rulebook and Pillar 2 materials to align UK prudential rules with HM Treasury’s new Overseas Prudential Requirements Regime (OPRR), effective 1 January 2027. The changes are primarily technical and clarificatory but have direct implications for how UK banks and PRA-designated investment firms treat and report overseas exposures, including institutions, public sector entities, covered bonds, and large exposures, once CRR equivalence provisions are replaced by the OPRR.
What Changed
- - The PRA Rulebook is amended across core CRR Parts (including Glossary, Credit Risk – General Provisions, Standardised Approach, IRB, Credit Risk Mitigation, Securitisation, Counterparty Credit Risk, Large Exposures, Market Risk – Advanced and Simpl
- Definitions of key exposure classes (such as “institution”, “credit institution”, “designated investment firm”, “central government”, “central bank”, “regional government”, “local authority”, “public sector entity”, and certain Gibraltarian entities)
- Under the Standardised Approach to credit risk, the treatment of exposures to overseas credit institutions and designated investment firms is aligned to OPRR designations so that favourable “exposures to institutions” risk weights apply only where th
- The PRA restates and preserves the 100% risk-weight requirement for exposures to overseas public sector entities (PSEs) in non-designated (non‑equivalent) jurisdictions, maintaining alignment with the risk‑neutral treatment of unrated corporates and
- Large Exposures rules are amended so that exposures to overseas credit institutions and investment firms qualify as “institution” exposures only where HM Treasury has determined the jurisdiction’s prudential and supervisory requirements to be at leas
- The regime for eligible covered bonds is expanded and re‑tooled so that future HM Treasury designations under the OPRR can recognise overseas eligible covered bonds; PRA capital rules (including the Article 129 framework and associated preferential t
Suggested Considerations
- Review and update internal capital models and Standardised Approach calculations for credit risk to ensure the classification and risk‑weighting of overseas exposures reflect the new OPRR‑linked definitions (e.g. treatment as “institutions” versus “corporates”) from 01 January 2027.
- Update ICAAP methodologies, risk appetite statements, and SREP documentation (including for SDDTs) to reflect the continued 100% risk weight for overseas public sector entities in non‑designated jurisdictions and any changes to the treatment of overseas covered bonds, institutions, and exchanges.
- Amend Pillar 2 reporting processes and templates, including FSA076 Pillar 2 Credit Risk Standardised Approach returns, to align data capture and reporting with the revised definitions, risk weights, and categorisation of overseas exposures under the PRA’s updated Rulebook and Statements of Policy.
Key Dates
Compliance Impact
Non-compliance could result in mis-stated risk-weighted assets, incorrect large exposure reporting, and flawed ICAAP submissions, exposing firms to supervisory findings, remediation requirements, and potential capital add-ons. Given the changes apply at the core of credit risk, large exposures, and Pillar 2 frameworks, failure to implement them properly may materially affect firms’ regulatory capi
Who is Affected
References
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Summary
Policy statement 16/26