Banking and finance regulatory news, 8 March 2021

FIG Bulletin

Recent UK and EU regulatory developments focussing on banking and finance. See also our Financial institutions general regulatory news and other sectors news in the Related Materials links.

Contents

LIBOR transition: Working Group's best practice guide for GBP loans and Q&A

The Working Group Sterling Risk-Free Reference Rates published a best practice guide for GBP loans. Alongside the guide, the Working Group also published a GBP loan market Q&A. The publications aim to support market participants in transitioning away from GBP LIBOR and meet the Working Group’s recommended milestones to cease new issuance of GBP LIBOR-linked loans by the end of March 2021.

Adoption of Basel III standards: European Commissioner speech

The European Commission has published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union (CMU) in which she outlines her priorities, including work relating to the implementation of the final Basel III standards. Commissioner McGuiness explains that the European Commission intends to adopt a legislative proposal on the implementation of the final Basel III standards in July 2021.

CRR II corrigendum

A corrigendum to the Capital Requirements Regulation II has been published in the Official Journal of the EU (OJ). The corrigendum amends provisions in the CRR II relating to, among other things, reforms concerning own funds and eligible liabilities, global systemically important institutions (G-SIIs), counterparty credit risk and market risk.

CRR: European Commission adopts draft RTS on standardised approach for counterparty credit risk

The European Commission has adopted a draft Delegated Regulation supplementing the Capital Requirements Regulation (CRR) with regard to regulatory technical standards (RTS) on the standardised approach for counterparty credit risk under articles 277(5) and 279a(3) of the CRR.

The final draft RTS specify:

  • the method for identifying the material risk drivers of derivative transactions under Article 277 of the CRR; and
  • for the purposes of Article 279a(3)(a) and (b) in the standardised approach for counterparty credit risk:
    • the formula for calculating the supervisory delta of call and put options mapped to the interest rate risk category; and
    • the method of determining whether a transaction is a long or short position in the primary risk driver or in the most material risk driver in the given risk category.

The Council of the EU and the European Parliament will now scrutinise the draft Delegated Regulation, which will enter into force 20 days after its publication in the OJ.

CRR: European Commission adopts draft RTS relating to economic downturn

The European Commission has adopted a draft Delegated Regulation supplementing the CRR with regard to RTS on the specification of the nature, severity and duration of an economic downturn referred to in Articles 181(1)(b) and 182(1)(b) of the CRR.

Institutions will use the final draft RTS to identify the relevant downturn periods to take into account for loss given default (LGD) and conversion factors (CF) estimation.

The Council of the EU and the European Parliament will now scrutinise the draft Delegated Regulation. It will enter into force 20 days after its publication in the OJ and apply from 1 January 2021.

CRR: EBA consults on draft ITS on Pillar 3 disclosures on ESG risks

The EBA has published a consultation paper and factsheet on draft implementing technical standards (ITS) on prudential disclosures relating to environmental, social and governance (ESG) risks under Article 449a of the CRR. It has also published separately Annex I (templates), Annex II (instructions), and two infographics: "ESG disclosures for financial institutions" and "Summary of ESG disclosures Pillar 3".

Large institutions with securities traded on a regulated market of any EU member state will be subject to the disclosure requirements, which will apply from June 2022 on an annual basis during the first year, and biannually afterwards. The ITS, mandated under Article 434a of the CRR, must specify uniform formats and associated instructions for the disclosure of this information in a way that conveys sufficiently comprehensive and comparable information for users of that information to assess the risk profile of institutions.

The draft ITS will amend the final draft ITS on institutions' public disclosures under the CRR, which the EBA submitted to the European Commission in June 2020. This reflects the EBA's objective of defining a single, comprehensive Pillar 3 framework under the CRR that should integrate all the relevant disclosure requirements.

The EBA recommends that, to obtain a complete picture of the ESG disclosure framework for banks, the consultation paper should be read in conjunction with its advice to the Commission on key performance indicators and the methodology for disclosures under Article 8 of the Taxonomy Regulation, which has also been published.

The consultation closes on 1 June 2021.

SSM Regulation: ECB guide to setting administrative pecuniary penalties

The European Central Bank (ECB) has published a guide on the method for determining administrative pecuniary penalties for regulatory breaches under Article 18(1) and (7) of the Regulation establishing the Single Supervisory Mechanism (SSM Regulation). The guide outlines the principles and methods for calculating the penalties used by the ECB.

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Authored by Yvonne Clapham

 

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