HSBC 2014 Annual Report Download - page 92

HSBC BANK PLC
Report of the Directors: Capital Management (continued)
90
Regulatory Capital Developments
Regulatory capital buffers
Capital requirements framework
CRD IV establishes a number of capital buffers, to be met
with CET1 capital, which is broadly aligned with the Basel
III framework. CRD IV contemplates that these will be
phased in from 1 January 2016, subject to national
discretion.
Automatic restrictions on capital distributions apply if
the bank’s CET1 capital falls below the level of its CRD IV
combined buffer. This is defined as the total of the
Capital Conservation Buffer (‘CCB’), the Countercyclical
Capital Buffer (‘CCyB’), Global or Other Systemically
Important Institutions Buffer (‘G-SII’ or ‘O-SII’), and the
Systemic Risk Buffer (‘SRB’) as these become applicable.
The PRA have proposed that the use of the PRA buffer
will not result in any automatic restrictions on capital
distributions.
In April 2014, HM Treasury published the statutory
instrument ‘Capital Requirements (Capital Buffers and
Macro-Prudential Measures) Regulations 2014’
transposing into UK legislation the main provisions in
CRD IV related to capital buffers, with the exception of
the SRB. In January 2015, HM Treasury published
amendments to this statutory instrument in order to
transpose the SRB.
The PRA is the designated authority for the G-SIIs and O-
SII buffers and the CCB. In April 2014, the PRA published
rules and supervisory statements implementing the main
CRD IV provisions in relation to these buffers. The Bank
of England is the designated authority for the CCyB and
other macro prudential measures, whilst the PRA and
the FCA are the designated authorities for applying and
determining the SRB and the FPC is responsible for
creating the SRB framework for calibration.
The PRA will be responsible for identifying the O-SIIs
from 1 January 2016. However, institutions identified as
O-SIIs are currently not subject to an O-SII buffer.
Capital conservation buffer
The CCB was designed to ensure banks build up capital
outside periods of stress that can be drawn down when
losses are incurred and is set at 2.5 per cent of RWAs.
The PRA will phase-in this buffer from 1 January 2016 to
1 January 2019.
Countercyclical and other macro-prudential buffers
The CCyB is a macro-prudential tool at the disposal of
national authorities that can be deployed when the
Financial Policy Committee (‘FPC’) judges that threats to
financial stability have arisen in the UK increasing
system-wide risk, and to protect the banking sector from
future potential losses. Should a CCyB be required, it is
expected to be set in the range of 0-2.5 per cent of
relevant credit exposures RWAs, although it is uncapped.
In June 2014, the FPC set the CCyB rate for UK exposures
at 0 per cent. At its September 2014 meeting, the FPC
left the CCyB rate for UK exposures unchanged at 0 per
cent and recognised the 1 per cent CCyB rates
introduced by Norway and Sweden to become effective
from 3 October 2015. The FPC also stated its intention to
reciprocate any CCyB rates set by other EEA countries
before 2016 and to reciprocate foreign CCyB rates, with
decisions made on an individual basis. Additionally, FPC
indicated its intention to reciprocate foreign
macroprudential capital actions, other than the CCyB.
The institution-specific CCyB rate for the group will be
based on the weighted average of the CCyB rates that
apply in the jurisdictions where relevant credit exposures
are located.
The sectoral capital requirements (‘SCR’) tool is not
currently deployed in the UK.
Systemic Risk Buffer
In addition to the measures above, CRD IV sets out a SRB
for the financial sector as a whole, or one or more sub-
sectors, to be deployed as necessary by each EU member
state with a view to mitigate structural macro-prudential
risk.
In January 2015, the legislative changes necessary to
transpose the SRB into UK legislation were implemented.
The SRB is to be applied to ring fenced banks and
building societies (over a certain threshold), which are
together defined as ‘SRB institutions’. The SRB can be
applied on an individual, sub consolidated or
consolidated basis and is applicable from 1 January 2019.
By 31 May 2016, the FPC is required to create a
framework for identifying the extent to which the failure
or distress of SRB institutions will pose certain long term
non-cyclical systemic or macro-prudential risks. The PRA
will apply this framework to determine whether specific
SRB institutions would be subject to a SRB rate, the level
at which the buffer is applied and is able to exercise
supervisory judgment to determine what the rate should
be. Where applicable, the buffer rate must be set in the
range of 1 per cent to 3 per cent. This would apply to all
the SRB institution’s exposures unless the PRA has
recognised a buffer rate set in another EEA state.