The UK Prudential Regulation Authority (PRA) has announced that banks clearing gold trades in London may apply for an exemption from tighter capital rules due to take effect from January 2022.
The upcoming rules, known as the Net Stable Funding Ratio (NSFR), are part of Basel III regulations.
The following statement was made by the PRA regarding precious metals holdings related to deposit-taking and clearing activities: “The PRA has considered the responses and decided to amend its approach to precious metal holdings related to deposit-taking and clearing activities. The PRA has introduced an interdependent precious metals permission for which firms may apply in respect of their own unencumbered physical precious metal stock and customer precious metal deposit accounts. When the permission is granted, firms would apply a 0% RSF factor to their unencumbered physical stock of precious metals, to the extent that it balances against customer deposits.”
The application process will require firms to submit the general application form for a Capital Requirements Regulation (CRR) permission. Part of this process requires firms to explain why they are applying for the permission and demonstrate how they satisfy the criteria set out in the rules. They must explain the assets and liabilities they are seeking permission to apply 0% ASF and RSF factors to, and how they meet the conditions set out in Article 428f of the CRR.
As indicated in the application form, firms may attach any supporting documents they wish to when they submit their application.
Find out more about the NSFR
In May 2021 LBMA responded to the UK Prudential Regulation Authority (PRA) consultation on Basel III. The response highlighted that the current proposals regarding the Net Stable Funding Ratio (NSFR) fail to take into account the damaging effect that the rules will have on the precious metals clearing and settlement system, potentially undermining the system completely, and on the increased costs of financing of precious metals production.