Prudential Regulation Authority Rulebook

3.A

All firms are required to report and disclose their leverage ratios as per the Reporting (CRR) and Disclosure (CRR) Parts of the PRA Rulebook (see Chapter 6 below). The guidance in this section relates to the additional requirements for reporting and disclosure of averaged leverage metrics that apply only to firms in scope of the leverage ratio minimum requirement.

3.1

The PRA expects firms not to engage in short-term balance sheet management activities with a view to boosting their leverage ratio temporarily at any point in time.

3.2

For the purpose of calculating an averaged leverage ratio over a quarter, the PRA rules^[12] require firms to calculate the exposure measure based on:

• daily on-balance sheet assets and securities financing transactions (SFT) exposures averaged over the quarter; and
• end-of-month exposures averaged over the quarter for the remaining off-balance sheet items.

The capital measure and relevant deductions and adjustments should be calculated based on end-of-month averages.

3.3

During the transitional period for daily averaging of SFT exposures up to Sunday 1 January 2023, the PRA permits firms to calculate the exposure measure based on:^[13]

• daily on-balance sheet assets averaged over the quarter; and
• end-of-month off-balance sheet exposures, including off-balance sheet SFT exposures, averaged over a quarter.

The capital measure and relevant deductions and adjustments should be calculated based on end-of-month averages. The same methodology should apply to the computation of the averaged leverage ratio disclosed during the transitional period for disclosures.

3.4

The PRA recognises that there might be difficulties in valuing certain accounting assets at the end of each day and therefore intends to adopt a pragmatic approach to the implementation of the averaging requirement. The PRA considers that ‘best estimates’ are acceptable so long as they are measured consistently and prudently. For the purpose of daily valuation of on-balance sheet assets and SFT exposures, firms should apply methodologies and a valuation basis that are consistent with those used for quarter-end reporting. The PRA expects firms to have appropriate governance and procedures to ensure the accuracy and representativeness of the averaged leverage ratio and its components which are reported and disclosed. Firms should provide an explanation of the assumptions used in their calculations.