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PRA Consults on O-SII Identification

On 19 October 2015, the Prudential Regulation Authority (PRA) published a consultation paper detailing the criteria and scoring methodology it proposes to use to identify “other systemically important institutions” (O-SIIs)[1] – firms whose distress or failure would have a systemic impact on the UK or the EU economy or financial system.  The consultation period remains open until 18 January 2016, following which a policy statement will be published in the first quarter of 2016.

Institutions designated as O-SIIs will be subject to enhanced supervision by the PRA, including recovery and resolution planning.  The consultation is relevant to credit institutions, investment firms and EEA parent (mixed) financial holding companies incorporated in the UK, but not to EEA and third-country branches operating in the UK.

In developing its approach, the PRA has taken into consideration European Banking Authority  Guidelines[2] for O-SII identification, which consist of two stages:

  • A minimum mandatory framework: which the PRA will use to identify O-SIIs and which consists of a prescribed set of:
    • “Categories” (Size, Importance, Complexity and Interconnectedness);
    • “Indicators” within each category; and
    • “Weights” assigned to each “Indicator”; and
  • A discretionary overlay: designed to reflect the specificities of national banking sectors and based on the quantitative methodology which forms part of the PRA’s existing potential impact framework.

Broadly, all credit institutions and investment firms currently classified as ‘Category 1’ (i.e. the most significant deposit-takers and designated investment firms whose failure could cause very significant disruption to the UK financial system) under the potential impact framework will be designated as O-SIIs.  The PRA expects to designate as O-SIIs all firms which score 350 or more under the mandatory framework as well as all firms whose supervisory overlay score exceeds 100.

The initial list of O-SIIs will be published in the first quarter of 2016. Thereafter, the PRA proposes to conduct O-SII identification annually and publish the list of firms designated as O-SIIs by 1 December each year.

[1] The equivalent of “Domestic Systemically Import Banks” (D-SIBs) under EU legislation

[2] European Banking Authority Guidelines on the ‘criteria to determine the conditions of application of Article 131(3) of Directive 2013/36/EU (CRD) in relation to the assessment of other systemically important institutions (O-SIIs)’

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