Prudential Regulation Authority Rulebook

1.

Level 1 assets shall only include assets falling under one or more of the following categories and meeting in each case the eligibility criteria laid down herein:

1. (a) coins and banknotes;
2. (b) the following exposures to central banks:
1. (i) assets representing claims on or guaranteed by the Bank of England;
2. (ii) assets representing claims on or guaranteed by central banks of third countries, provided that exposures to the central bank or its central government (if applicable) are assigned a credit assessment by a nominated external credit assessment institution (ECAI) which is at least credit quality step 1 in accordance with Article 114(2) of CRR;
3. (iii) reserves held by the credit institution in a central bank referred to in point (i) or (ii) provided that the credit institution is permitted to withdraw such reserves at any time during stress periods and that the conditions for such withdrawal have been specified in an agreement between the competent authority of the credit institution and the central bank in which the reserves are held, or in the applicable rules of the third country.
3. For the purposes of this point, the following shall apply:
1. — where the reserves are held by a subsidiary credit institution, the conditions for the withdrawal shall be specified in an agreement between the United Kingdom or third country competent authority of the subsidiary credit institution and the central bank in which the reserves are held, or in the applicable rules of the third country, as applicable;
2. — where the reserves are held by a branch, the conditions for the withdrawal shall be specified in an agreement between the competent authority of the United Kingdom or third country where the branch is located and the central bank in which the reserves are held, or in the applicable rules of the third country, as applicable;
4. (c) assets representing claims on or guaranteed by the following central or regional governments, local authorities or public sector entities:
1. (i) the central government of the United Kingdom;
2. (ii) the central government of a third country, provided that it is assigned a credit assessment by a nominated ECAI which is at least credit quality step 1 in accordance with Article 114(2) of CRR;
3. (iii) regional governments or local authorities in the United Kingdom, provided that they are treated as exposures to the central government of the United Kingdom in accordance with Article 115(2) of CRR;
4. (iv) regional governments or local authorities in a third country of the type referred to in point (ii), provided that they are treated as exposures to the central government of the third country in accordance with Article 115(4) of CRR;
5. (v) public sector entities provided that they are treated as exposures to the central government of the United Kingdom or to one of the regional governments or local authorities referred to in point (iii) in accordance with paragraph 4 of Article 116 of CRR;
5. (d) the following assets:
1. (i) assets representing claims on or guaranteed by the central government or central bank of a third country which is not assigned a credit assessment of credit quality step 1 by a nominated ECAI in accordance with Article 114(2) of CRR;
2. (ii) reserves held by the credit institution in a central bank referred to in point (i), provided that the credit institution is permitted to withdraw those reserves at any time during stress periods and provided that the conditions for such withdrawal have been specified either in an agreement between the competent authorities of that third country and the central bank in which the reserves are held or in the applicable rules of that third country.
6. For the purposes of point (ii), the following shall apply:
1. — where the reserves are held by a subsidiary credit institution, the conditions for the withdrawal shall be specified either in an agreement between the third country competent authority of the subsidiary credit institution and the central bank in which the reserves are held or in the applicable rules of the third country;
2. — where the reserves are held by a branch, the conditions for the withdrawal shall be specified either in an agreement between the competent authority of the third country where the branch is located and the central bank in which the reserves are held or in the applicable rules of the third country.
7. The aggregate amount of assets falling within points (i) and (ii) of the first subparagraph and denominated in a given currency that the credit institution may recognise as level 1 assets shall not exceed the amount of the credit institution's stressed net liquidity outflows incurred in that same currency.
8. Moreover, where part or all of the assets falling within points (i) and (ii) of the first subparagraph are denominated in a currency which is not the domestic currency of the third country in question, the credit institution may only recognise those assets as level 1 assets up to an amount equal to the amount of the credit institution's stressed net liquidity outflows incurred in that foreign currency that corresponds to the credit institution's operations in the jurisdiction where the liquidity risk is being taken;
9. (e) assets issued by credit institutions which meet at least one of the following two requirements:
1. (i) the issuer is a credit institution incorporated or established by the central government of the United Kingdom or the regional government or local authority in the United Kingdom, the government or local authority is under the legal obligation to protect the economic basis of the credit institution and maintain its financial viability throughout its life-time and any exposure to that regional government or local authority, as applicable, is treated as an exposure to the central government of the United Kingdom in accordance with Article 115(2) of CRR;
2. (ii) the credit institution is a promotional lender which, for the purposes of this Article, shall be understood as any credit institution whose purpose is to advance the public policy objectives of the central or a regional government of, or a local authority in, the United Kingdom predominantly through the provision of promotional loans on a non-competitive, not for profit basis, provided that at least 90% of the loans that it grants are directly or indirectly guaranteed by the central or regional government or local authority and that any exposure to that regional government or local authority, as applicable, is treated as an exposure to the government of the United Kingdom in accordance with Article 115(2) of CRR;
10. (f) exposures in the form of extremely high quality covered bonds, which shall comply with all of the following requirements:
1. (i) they are CRR covered bonds or meet the requirements to be eligible for the treatment set out in Article 129(4) or (5) of CRR;
2. (ii) the exposures to institutions in the cover pool meet the conditions laid down in Article 129(1)(c) of CRR or, where the competent authority has granted the partial waiver referred to in the last subparagraph of Article 129(1) of CRR, the conditions referred to in that subparagraph;
3. (iii) the credit institution investing in the covered bonds and the issuer meet the transparency requirement referred to in Article 129(7) of CRR;
4. (iv) their issue size is at least GBP 440 million (or the equivalent amount in domestic currency);
5. (v) the covered bonds are assigned a credit assessment by a nominated ECAI which is at least credit quality step 1 in accordance with Article 129(4) of CRR, the equivalent credit quality step in the event of a short term credit assessment or, in the absence of a credit assessment, they are assigned a 10% risk weight in accordance with Article 129(5) of CRR;
6. (vi) the cover pool meets at all times an asset coverage requirement of at least 2% in excess of the amount required to meet the claims attaching to the covered bonds;
11. (g) assets representing claims on or guaranteed by the multilateral development banks and the international organisations referred to in Article 117(2) and Article 118, respectively, of CRR.

2.

The market value of extremely high quality covered bonds referred to in point (f) of paragraph 1 shall be subject to a haircut of at least 7%. Except as specified in relation to shares and units in CIUs in points (b) and (c) of Article 15(2), no haircut shall be required on the value of the remaining level 1 assets.

[Note: The rule corresponds to Article 10 of Regulation (EU) No 2015/61 as it applied immediately before revocation by the Treasury]