Banking and finance regulatory news, 22 February 2021

FIG Bulletin

Recent UK and EU regulatory developments focussing on banking and finance. Reports on the UK PRA consultation on implementing Basel standards, various publications on the EU CRR and more. See also our Financial institutions general regulatory news and other sector news in the Related Materials links.

Contents

BoE banking solvency stress test 2021 scenario

The Bank of England (BoE) has updated its stress testing webpage and published the solvency stress test 2021 scenario for banks and building societies that are not part of concurrent stress testing. It states that this scenario is available for firms to use as a template and severity benchmark to support their own ICAAP stress testing scenario design processes and reminds firms that ICAAPs should be updated and stress testing undertaken at least annually.

IFRS 9 expected credit losses: PRA Dear CFO letter on disclosures

The UK Prudential Regulation Authority (PRA) has published a Dear CFO letter on market disclosure about International Financial Reporting Standard 9 (IFRS 9) expected credit loss accounting. The PRA is requesting an update on progress towards adopting the recommendations of the Taskforce on Disclosures about Expected Credit Losses which were published in November 2018.

In particular, the PRA asks firms to provide information on:

  • how far the firm has progressed in adopting each of the Taskforce's recommendations. Firms should provide an assessment against each recommendation;
  • the firm's plans for adopting the recommendations that it has not yet adopted in full; and
  • how the firm has, to date, responded to the Taskforce's second report (published in December 2019), and what its plans are for responding to it in the future.

Responses are requested within six weeks of firms finalising their 2020 (or 2020/21) year-end annual report.

Basel standards implementation: PRA CP5/21

The PRA has published a consultation paper, CP5/21, setting out its approach to implementing in the UK the standards of the Basel Committee on Banking Supervision through a new PRA Capital Requirements Regulation (CRR) rule instrument.

The PRA explains that the purpose of the rules is to implement part of the Basel standards that remain to be implemented in the UK. This consultation also sets out the proposed new PRA CRR rules in full, including parts of the onshored CRR that are not changing but are being transferred into PRA rules (although, where these do not change, they do not form part of this consultation).

The PRA's proposed approach would enable the Basel III standards to be implemented by firms from 1 January 2022.

The consultation closes on 3 May 2021.

SME disputes with banks: Business Banking Resolution Service launches service

The Business Banking Resolution Service (BBRS) has launched its free and independent service to help SMEs resolve disputes with their banks. The BBRS will use alternative dispute resolution techniques to settle unresolved complaints from larger SMEs with seven participating banks which make up most of the business banking market. It is hoped that more banks will join in the future.

The service has already registered around 450 cases, 48 of which were taken into its 2020 live pilot. These cases have been through the initial stages of the BBRS process and will be contacted with further information within the early weeks of the BBRS' operation.

LIBOR discontinuation: UK Finance guide for banks and lenders

UK Finance has published a guide to LIBOR for banks and lenders. The guide aims to provide an overview of LIBOR transition and ongoing developments.

In addition, UK Finance has published a related blog post about how banks and lenders should be preparing for LIBOR transition.

EU CRR: Commission Implementing Regulation amending ITS on closely correlated currencies

Commission Implementing Regulation (EU) 2021/249, which amends Implementing Regulation (EU) 2015/2197 laying down implementing technical standards (ITS) as regards closely correlated currencies in accordance with the Capital Requirements Regulation (CRR) has been published in the Official Journal of the European Union (OJ). The ITS are mandated under Article 354(3) of the CRR.

The Amending Regulation replaces the text of the Annex to Implementing Regulation (EU) 2015/2197 to update the list of closely correlated currencies.

The Amending Regulation is based on draft ITS submitted by the European Banking Authority (EBA) to the European Commission. As the amendments do not involve significant substantive changes, the EBA did not consult on them.

The Amending Regulation will enter into force on 10 March 2021.

EU CRR: European Commission report on leverage ratio buffer framework and calculating total exposure measure

The European Commission has published a report to the European Parliament and the Council of the EU under Article 511 of the CRR. The report is on whether it is appropriate to introduce a leverage ratio surcharge for other systemically important institutions (O-SIIs), and whether the definition and calculation of the total exposure measure referred to in Article 429(4) of the CRR, including the treatment of central bank reserves, is appropriate.

The Commission concludes in its report that:

  • it is not appropriate to introduce a leverage ratio surcharge for O-SIIs in the current context. This question should be examined as part of the comprehensive review of the macro-prudential toolbox in banking by 30 June 2022, as set out in Article 513 of the CRR;
  • it is appropriate to adjust the calculation of the total exposure measure referred to in Article 429(4) of the CRR to align the treatment of client-cleared derivatives with internationally agreed standards; and
  • in the absence of further international developments on the treatment of central bank reserves and considering its recent revision in Regulation (EU) 2020/873, additional amendments in this area are unnecessary.

EU CRR: EBA final report on guidelines on application of alternative treatment of institutions' exposures related to tri-party repurchase agreements

The EBA has published a final report on guidelines specifying the conditions for the application of the alternative treatment of institutions' exposures related to "tri-party repurchase agreements" set out in Article 403(3) of the CRR for large exposure purposes. The EBA consulted on a draft of the guidelines in July 2020 following which it has made some minor clarificatory amendments.

The guidelines will be translated into the official EU languages and published on the EBA website. NCAs will have two months from publication of the translations to report to the EBA on whether they comply with the guidelines. The guidelines will apply from 28 June 2021.

EU CRR: EBA final report containing draft ITS on G-SIIs' disclosure of indicators of global systemic importance

Following its March 2020 consultation, the EBA has published a final report containing draft ITS on the disclosure of indicators of global systemic importance by global systemically important institutions (G-SIIs).

The draft ITS specify the disclosure provisions contained in Article 441 of the CRR. Article 441 requires G‐SIIs to disclose, on an annual basis, the values of the indicators used for determining their score in accordance with the identification methodology referred to in Article 131 of the Capital Requirements Directive (CRD). The draft ITS implement the Article 441 disclosure provisions by incorporating them into the EBA's final draft ITS on institutions' public disclosures of the information referred to in Titles II and III of Part Eight of the CRR, which the EBA published in June 2020. They insert a new Article 6a into the final draft ITS, which requires G-SIIs to disclose the Article 441 information in their year-end Pillar 3 report, using the same format used for the collection of indicator values by relevant authorities as set out in Commission Delegated Regulation (EU) 1222/2014.

The ITS also repeal Commission Implementing Regulation (EU) 1030/2014, which reflects the deletion of Article 441(2) of the CRR by CRR II.

To help the comparability of information, the ITS aim to maintain consistency of disclosure formats with international standards on disclosures. For this purpose, the Article 441 disclosure is aligned with the BCBS template GSIB1, which the BCBS included in the revised Pillar 3 disclosure standards that it finalised in March 2017.

EU CRR: EBA consults on guidance to assess breaches of the large exposure limits

The EBA is consulting on draft guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits in Article 395(1) of the CRR and the time and measures required to return to compliance under Article 396(3) of the CRR.

The guidelines are split into four sections:

  • criteria to determine the exceptional cases referred to in Article 396(1) of the CRR;
  • information to be provided to the competent authority in case of a breach of the large exposure limits;
  • criteria to determine the appropriate time to return to compliance with the limits of Article 395(1) of the CRR; and
  • measures to be taken to ensure the timely return to compliance of the institution with the limits of Article 395(1) of the CRR.

The consultation closes on 17 May 2021. Once finalised, the guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from 1 March 2022.

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Authored by Yvonne Clapham

 

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