UK Finance has responded to HM Treasury's on its consultation and PRA's consultation on CRR 2 (CP 5/21), by highlighting areas that could have adverse strategic consequences for UK financial services.

Key messages 

The Financial Services Bill has set out the UK's competitiveness and to be world leading in prudential standards as principles underpinning the UK's approach to financial services sector regulation. In line with these principles and in the new post Brexit and pandemic environment, it is paramount that the UK implements global prudential standards in a way that is appropriate to the structure of the UK banking market, taking the opportunity to mitigate a number of headwinds stemming from internationally or EU agreed prudential standards. To this effect, we noticed that:

1. inconsistent and unduly restrictive EU requirements such as those relating to Eligible Liabilities have been excluded from the scope of this consultation and hence not been revoked.
2. the investment industry may be constrained by the approach on collective investment undertakings (CIUs).
3. the unduly accelerated implementation of Fundamental Review of Trading Book (FRTB) may put UK at a disadvantage compared with the EU and other jurisdictions.
4. the proposed PRA treatment of software assets creates an uneven playing field relative to other major jurisdictions and is inconsistent with government's economic policy considerations outlined in the Chancellor of the Exchequer's remit letter to the PRC and impede the development of innovative financial technology.
5. the proposed implementation of the standardised approach to counterparty credit risk (SA-CCR) without the alpha factor adjustment could have significant negative implications for end users and for the attractiveness of the UK for global derivatives activity. In considering the UK's approach to Basel implementation of all capital standards affecting derivatives, we would encourage UK authorities to consider how to ensure a level playing field for all firms operating derivatives businesses in the UK, given the UK's role as a global financial centre for both OTC and exchange-traded derivatives.
6. the proposed large exposures (LE) framework, whilst international in principle, is untested and lacks an impact analysis, and if implemented as proposed, would potentially hamper UK's wholesale markets which are facing some headwinds post Brexit.
7. the net stable funding proposals with higher funding requirements could lead to less competitive clearing, equity facilitation and trade finance markets and consequently higher costs for banks? clients.
8. certain reporting and disclosure requirements could benefit from a more proportionate and pragmatic approach without jeopardising timely and relevant information requirements of both supervisors and the market.

Therefore, while we strongly encourage the UK authorities? leadership in and commitment to international standards, the UK should consider more adaptations where appropriate, to continue ensure the UK financial markets remain both financially resilient and competitive.