Prudential Regulation Authority ends modification-by-consent route for non-UK covered bonds in Liquidity Coverage Ratio HQLA treatment

The Prudential Regulation Authority (PRA) has decided not to proceed with, or re-launch, the modification by consent process that would have allowed certain non-UK covered bonds to be included as Level 2A high quality liquid assets under the Liquidity Coverage Ratio (CRR) Part of the PRA Rulebook. Pending a long-term approach to the equivalence treatment of non-UK covered bonds, the PRA does not expect firms to change their current approach to including non-UK covered bonds, including for new issuances, in Level 2 HQLA. The modification process was paused on 17 April 2025 and the modification was withdrawn to consider technical comments and requests for clarification from firms, while confirming that no immediate amendments were needed to firms’ recognition of non-UK covered bonds under the Liquidity Coverage Ratio (CRR) and Liquidity (CRR) Parts of the PRA Rulebook. The PRA’s decision follows a policy update from His Majesty’s Treasury indicating it is considering introducing an Overseas Prudential Requirements Regime to designate appropriate overseas jurisdictions for the prudential treatment of UK firms’ exposures to non-UK covered bonds, potentially seeking industry feedback, and aiming to avoid cliff-edge treatment changes for covered bonds issued before any designation. The PRA will work closely with HMT and intends to give sufficient notice to facilitate a smooth transition to any future liquidity treatment.