The following posts provide a snapshot of selected UK, EU and global wholesale financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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UK Prudential Regulator Sets Out Expectations for Banks Innovating in Digital Money
11/27/2023
The U.K. Prudential Regulation Authority has published a Dear CEO letter, addressed to CEOs of banks, setting out its expectations of banks (deposit-takers) regarding the risks that arise from innovations in digital money and money-like instruments available to retail customers. The letter focuses on innovations in the use of deposits (and tokenized deposits), e-money and regulated stablecoins used for payment (which are being brought into the regulatory perimeter).
The PRA sets out how banks are expected to limit contagion arising from confusion regarding the different protections available to retail holders of bank deposits, e-money and regulated stablecoins. Where a bank or its group want to issue e-money or regulated stablecoins, that activity should be carried out from an insolvency-remote entity that is separate to the bank, with different branding from the bank to ensure that any failure of the e-money or stablecoin issuer would not impact the bank and the continuity of its deposit-taking services. The PRA also expects any tokenized deposit-taking to be undertaken in a way that ensures protection under the Financial Services Compensation Scheme. An e-money or stablecoin issuer that decides to accept traditional deposits would first need to establish a separate entity to obtain permission to operate as a bank.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech, Payment Services -
Basel Committee Report on 2023 Banking Turmoil
10/20/2023
The Basel Committee on Banking Supervision published a press release in early October in which it announced:- That it would consult on disclosure frameworks for climate-related financial risks (in November 2023) and banks' cryptoasset exposures (soon).
- The publication of its report on the banking turmoil of 2023, which assesses the causes of the turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The Basel Committee states that it will be undertaking some follow-up work, including prioritizing work to bolster supervisory effectiveness globally and assessing whether any aspects of the Basel Framework did not function as intended during the turmoil.
- That by mid-2024 it would publish a report on developments in the digitalisation of finance and their implications for banks and supervisors.
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UK Regulatory Gateway for Financial Promotions Applies from February 2024
08/29/2023
The Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023, made on August 22, 2023, bring into force certain provisions of the Financial Services and Markets Act 2023 and create a number of transitional regimes. We discuss the FSM Act in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023."
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Financial Services -
UK Regulators Propose Requirements for Critical Third Parties' Services to UK Regulated Firms
07/21/2022
The Bank of England, Prudential Regulation Authority and Financial Conduct Authority (together, the supervisory authorities) have published a discussion paper proposing measures to supervise and enhance the resilience of critical third parties (CTPs) to the U.K. financial sector. Responses to the discussion paper may be submitted until December 23, 2022. The supervisory authorities intend to consult on proposed requirements for CTPs in 2023.
Currently, the supervisory authorities' direct powers over entities providing critical services to U.K. authorized firms, their service providers (authorized e-money institutions, payment institutions and registered account information services) and financial market infrastructures (together, U.K. regulated firms) are limited. The Financial Services and Markets Bill, introduced to Parliament yesterday, would grant HM Treasury and the supervisory authorities' new express powers to oversee such third parties. HM Treasury will be able to designate an entity as a CTP if it provides services to U.K. regulated firms and its failure would pose financial stability or confidence risk to the U.K.
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Basel Committee on Banking Supervision Consults Further on Capital Requirements for Banks' Exposures to Crypto-Assets
06/30/2022
Following its consultation last year, the Basel Committee on Banking Supervision has launched a second consultation on bank prudential requirements for exposures to crypto-assets. The first consultation set out a preliminary proposal for the prudential treatment of crypto-assets, based on feedback to the 2019 discussion paper and other input from stakeholders. This second consultation proposes revisions to the initial proposals based on the feedback received and sets out proposed minimum standards based on the principle of "same risk, same activity, same treatment". Responses to the consultation may be submitted until September 30, 2022. The Basel Committee intends to publish final standards before the year-end; standards may be stricter than those presented in this consultation if feedback indicates any deficiencies.
The Basel Committee is maintaining its approach of adopting different prudential treatments depending on whether a crypto-asset meets certain conditions. Crypto-assets that meet all of the conditions are referred to as Group 1 crypto-assets and will be subject to the existing Basel framework. Group 2 crypto-assets are those that do not meet the conditions and are therefore deemed to present additional and higher risks than Group 1 crypto-assets. Group 2 crypto-assets will be subject to an adapted prudential regime, with netting and a 100% capital charge. Group 1 and Group 2 crypto-assets could be tokenized crypto-assets and stablecoins; Group 2 could also include unbacked crypto-assets.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech -
UK Treasury Committee Makes Recommendation for Future Regulatory Framework Review
06/16/2022
The House of Commons Treasury Committee has published a report on the Future of Financial Services Regulation setting out its view on the priorities for regulatory change in the U.K. now that the U.K. has left the EU. The report considers some of HM Treasury's proposals in the Future Regulatory Framework Review and presents its related recommendations. It also makes specific recommendations for the Financial Conduct Authority and the Prudential Regulation Authority.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Financial Services, FinTech, Payment Services -
European Banking Authority Publishes Report on Non-Bank Lending Sector
05/04/2022
The European Banking Authority has published a report on the EU non-bank lending sector i.e., the growing number of financial intermediaries operating outside the EU financial services regulatory perimeter, including BigTech firms (e..g, Meta, Amazon and Google) and FinTech firms, which develop innovative technology for financial services.
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European Banking Authority Publishes Discussion Paper on Role of Environmental Risks in the Prudential Framework
05/02/2022
The European Banking Authority has published a discussion paper on whether, and how, environmental risks should be incorporated into the EU prudential frameworks for EU credit institutions and investment firms. The feedback received will help the EBA to determine (in accordance with its mandates under the EU Capital Requirements Regulation and EU Investment Firm Regulation) whether the EU should introduce specific prudential treatment for certain exposures and assets that are substantially linked to environmental and/or social objectives and impacts. Responses should be submitted by August 2, 2022.
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UK Prudential Regulator Proposes Definition of "Simpler-Regime" Firm
04/29/2022
The U.K. Prudential Regulation Authority has opened a consultation in which it proposes introducing a definition of a "Simpler-regime Firm". This is the PRA's first step in developing a strong and simple prudential framework for non-systemic banks and building societies that are not internationally active following the 2021 discussion paper and feedback paper. Responses to the consultation may be submitted until July 22, 2022. The PRA wants to create a graduated framework for U.K. prudential supervision with simpler rules applying to the smallest firms. The applicable rules would increase in sophistication as the size and complexity of firms increased.
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European Commission Consults on Potential Digital Euro
04/05/2022
The European Commission has launched a targeted consultation on a possible digital euro. The EU is considering introducing a digital euro for retail payments, which would be available alongside cash. A decision has not yet been made. The European Central Bank, responsible for the design and implementation of the digital euro, launched a project in July 2021 to get ready for the potential issuance of a digital euro. The introduction of a digital euro would require an EU regulation based on a proposal by the European Commission and agreed through the co-legislative process. Legislative changes would also be needed for existing legislation (e.g., under the revised Payment Services Directive). Central banks from non-euro area Member States also envisage issuing digital currencies.
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European Banking Authority Publishes Final Draft Implementing Technical Standards on Prudential Disclosures of ESG Risks
01/24/2022
The European Banking Authority has published final draft Implementing Technical Standards on Pillar 3 prudential disclosures of environmental, social and governance risks under the EU Capital Requirements Regulation. The ITS specify the type and format of information to be published in accordance with the new CRR requirements on disclosure of prudential information on ESG risks.
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Feedback Published on Initial UK Discussion Paper 'Strong and Simple' Prudential Framework
12/15/2021
The U.K. Prudential Regulation Authority has published a feedback statement to the discussion paper published earlier this year in which it proposed introducing a "strong and simple" prudential framework for non-systemic banks and building societies that are not internationally active. The discussion paper concerned the possibility of introducing a graduated framework for U.K. prudential supervision with simple rules applying to the smallest firms. The applicable rules would increase in sophistication as the size and complexity of firms increased. The PRA discussed the possible approaches to identifying firms that would be in scope of the first threshold by looking at, for example, their activities, cross-border business and risk exposures. The introduction of such a framework would represent a major policy change for the U.K.
The feedback statement summarizes the responses to the discussion paper and sets out broad themes emerging. Overall, respondents were supportive of the idea to introduce a strong and simple framework, although concerns were expressed about the number of layers that the framework would involve. The PRA would welcome any comments on the feedback statement. Further consultations on the potential framework will follow in 2022 and/or 2023. -
HM Treasury Identifies Areas for Improving the UK Securitization Framework
12/13/2021
Following its call for evidence earlier this year, HM Treasury has published its report on the review of the U.K. Securitization Regulation. HM Treasury was required to conduct a review of the functioning of the Regulation and report to Parliament on its findings by January 2022. The Securitization Regulation provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related provisions under the Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Funds, Securities -
EU Publishes Proposed Banking Package 2021
10/27/2021
The European Commission has published three legislative proposals to amend the EU Capital Requirements Regulation and the EU Capital Requirements Directive, referred to as the Banking Package 2021. The proposals are subject to consultation, responses to which may be submitted until January 14, 2022.
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European Supervisory Authorities Publish Final Report on Expanded Disclosures under the EU Sustainable Finance Disclosure Regulation
10/22/2021
The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a new final report and draft Regulatory Technical Standards on disclosures to be made under the EU Sustainable Finance Disclosure Regulation. The EU SFDR was published in December 2019 and the majority of its provisions have applied since March 10, 2021.
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European Commission Publishes Study on Banks’ and Prudential Supervisors’ Integration of ESG Factors
09/27/2021
The European Commission has published a study on EU banks’ integration of environmental, social and governance factors into their risk management processes, business strategies and investment policies. The study finds that, although banks have made efforts to pursue ESG agendas, the speed and degree of integration of ESG considerations must accelerate. In addition, it finds that prudential supervisors could take more action to integrate ESG factors into their supervision of banks. Further details of the challenges facing banks and supervisors in ESG integration are set out in the study.
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HM Treasury Publishes Amendments to UK Capital Requirements Regulation
09/23/2021
HM Treasury has made certain amendments under the U.K. Capital Requirements Regulation (Amendment) Regulations 2021 to the U.K. Capital Requirements Regulation. The UK CRR is the U.K. version of the corresponding EU regulation, as applicable after Brexit. The new regulations introduce some new provisions and revoke certain others. The related explanatory memorandum describes the changes in further detail. The changes will come into force on January 1, 2022.
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European Commission Consultation on Improving the EU Secondary Markets for Markets for Non-Performing Loans
07/16/2021
The European Commission is consulting on improving transparency and efficiency in the EU secondary markets for non-performing loans. The objective is to provide a more liquid market by improving the quantity, quality and comparability of NPL data. The consultation was announced in December 2020 as part of the Commission’s Strategy for post-Covid-19 NPLs. Responses to the consultation may be submitted until September 8, 2021.
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UK Government Opens Review of Securitization Regulation
06/24/2021
HM Treasury has opened a Review of the U.K. Securitization Regulation with the issue of a call for evidence. The Review is required under the Regulation, and HM Treasury must report to Parliament on its findings by January 2022. Responses to the consultation may be submitted until September 2, 2021. HM Treasury also asks respondents to consider whether any changes are needed that are time-sensitive so that consideration can be given to whether a change is implemented through legislation or regulator rules. In the context of the Future Regulatory Framework Review, the responsibility for making and implementing rules will be transferred to the regulators. The FRF Review is ongoing, with a second consultation expected later this year.
The Securitization Regulation provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related provisions under the Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
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UK Taskforce on Innovation, Growth and Regulatory Reform Publishes Recommendations
06/16/2021
The Taskforce on Innovation, Growth and Regulatory Reform has published its report, making several recommendations for reforming the U.K.'s approach to regulation as well as practical suggestions for implementing the reforms. The main recommendation tasks the government with building a U.K. regulatory framework that has proportionality at its core and that is based on the principles of the common law. The report also provides specific proposals for regulatory reforms across several sectors, identified as high growth sectors, including the financial services sector. The TIGRR recommendations will be progressed by the newly established Brexit Opportunities Unit, which is being led by Lord Frost, Minister of State at the Cabinet Office. Consultations on proposals to implement these ambitious recommendations are expected later this year.
The TIGRR report recommends the approach to regulation is reformed along traditional common law lines, moving away from the EU codified system. The report suggests that the government reconsiders the approach to regulation with the aim of enhancing productivity, encouraging competition and invigorating innovation.
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Basel Committee on Banking Supervision Proposes Capital Requirements for Banks' Exposures to Crypto-Assets
06/10/2021
The Basel Committee on Banking Supervision has launched a consultation on bank prudential requirements for exposures to crypto-assets. The consultation follows the Basel Committee's 2019 discussion paper on the prudential treatment of crypto-assets. This latest consultation sets out a preliminary proposal for the prudential treatment of crypto-assets, based on feedback to the discussion paper and other input from stakeholders. The Basel Committee believes that setting the policy will be an iterative process and that a further consultation will be needed. Responses to this consultation may be submitted until September 10, 2021.
The Basel Committee considers that the increasing growth of crypto-assets raises financial stability concerns and is increasing the risks encountered by banks. Certain crypto-assets are highly volatile and may pose risks for banks as exposures increase, including liquidity risk, credit risk, market risk, operational risk, money laundering/terrorist financing risk, and legal and reputation risks.
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UK Discussion Paper on Systemic Stablecoins Published
06/07/2021
The Bank of England has published a discussion paper on new forms of digital money that are potentially systemically important, focusing on systemic stablecoins. HM Treasury recently consulted on bringing certain crypto-assets into the U.K. regulatory perimeter and proposed that the BoE would regulate systemic stablecoins (under the Banking Act 2009) and that the Financial Conduct Authority would be responsible for consumer protection and conduct regulation. Feedback to the discussion paper can be submitted until September 7, 2021. The feedback will inform the BoE's next steps and it will consult on a specific regulatory framework for stablecoins, pending the finalization of the anticipated legislation.
According to the BoE, systemic stablecoins would be those that have the potential to scale up and grow rapidly and become widely used for payments by individuals and non-financial businesses. Non-systemic stablecoins would be those that are not widely used for payments and would not be subject to regulation by the BoE. Systemic stablecoins would be: (i) denominated in sterling; (ii) backed by assets that make them stable in value, unlike crypto-assets that have no safeguard, such as Bitcoin; and (iii) would not be created by lending to the real economy, unlike commercial bank money.
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European Securities and Markets Authority Issues Call for Evidence on Digital Finance
05/25/2021
Following the publication by the Commission of its Digital Finance Strategy in September 2020, the Commission has asked the European Supervisory Authorities for technical advice on the regulatory and supervisory challenges of three areas, namely the growing fragmentation of value chains in finance, digital platforms and bundling of various financial services, and groups combining financial and non-financial activities.
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UK Prudential Regulator Consults on "Strong and Simple" Prudential Framework for Small Banks
04/29/2021
In what would be a significant policy change, the U.K. Prudential Regulation Authority has published a discussion paper in which it proposes introducing a "strong and simple" prudential framework for non-systemic banks and building societies that are not internationally active. The aim is to simplify the prudential regulation of these firms, reducing costs for firms, but to maintain their resilience. The consultation closes on July 9, 2021, and will be followed by a consultation with proposals.
The existing regulatory approach broadly applies the same requirements to all banks and building societies, irrespective of their size and activities. Certain prudential rules are simplified for smaller banks and building societies, but to a lesser extent than in some other jurisdictions. The PRA notes that a graduated framework may take years to implement. Therefore, it is starting with the smallest firms and will consider how it might be built out for larger, non-systemic U.K. domestic firms. The plans follow the principles of the Basel Standards and consider how other jurisdictions have implemented similar regimes, such as Australia, Canada and the U.S.
The discussion paper sets out what the simpler regime might look like, including:- the possible approaches to identifying firms that will be in scope by looking at, for example, their activities, cross-border business and risk exposures;
- the possible requirements under the regime; and
- ways in which firms might transition in and out of the regime, such as by using an intermediate stage or PRA waivers.
View the PRA's discussion paper. -
UK Financial Services Act 2021 Published
04/29/2021
The U.K. Financial Services Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the Financial Services Act 2021. Some provisions of the Act came into force on the date of Royal Assent, with a limited number following on June 29, 2021. The majority of the Act will come into force on a date specified in regulations yet to be made by HM Treasury.
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UK Regulators Publish Dear CEO Letter for Banks and Building Societies on Deposit Aggregators
04/14/2021
The U.K. Prudential Regulation Authority and Financial Conduct Authority have published a joint Dear CEO letter addressed to CEOs of U.K. banks and building societies on the risks of accepting deposits from deposit aggregators.
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European Central Bank Publishes Guide to Pecuniary Penalties for Prudential Regulatory Breaches
03/02/2021
The European Central Bank Banking Supervision division has published a guide to its method for setting pecuniary penalties for breaches of prudential regulatory requirements by Eurozone banks that are directly prudentially supervised by the ECB. The ECB will adopt a two-stage approach, first determining the base amount, and then deciding whether to adjust that amount by reference to a range of factors.
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European Banking Authority Publishes Draft Regulatory Technical Standards Under EU Capital Requirements Regulation
03/01/2021
The European Banking Authority has published draft Regulatory Technical Standards under the revised EU Capital Requirements Regulation, designed to harmonize the methodology for calculating certain technical elements of the standardized approach to counterparty credit risk across the EU.
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UK Prudential Regulation Authority Identifies Error in "Higher Paid Material Risk Taker" Definition
02/25/2021
The U.K. Prudential Regulation Authority has identified an error in the definition of "Higher Paid Material Risk Taker" within Rule 1.3 of the Remuneration Part of the PRA Rulebook, implementing part of the EU's Fifth Capital Requirements Directive in U.K. laws before the end of the Brexit transitional period. The definition currently requires an individual to be treated as a Higher Paid Material Risk Taker when: (a) their annual variable remuneration exceeds 33% of their total remuneration; and (b) their total remuneration exceeds £500,000. Instead, an individual should be treated as a Higher Paid Material Risk Taker when either condition (a) or (b) are satisfied.
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Bank of England Publishes Dear CEO Letter on Resolvability Assessment Framework
02/24/2021
The Bank of England has published a Dear CEO letter addressed to the CEOs of eight major U.K. banks, emphasizing the importance of the BoE's Resolvability Assessment Framework and the BoE's expectation that banks will take responsibility for their resolvability. The eight banks are in scope of the first RAF reporting and disclosure cycle.
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EU Final Draft Technical Standards on the Determination of Indirect Exposures Published
02/19/2021
Following its consultation last year, the European Banking Authority has published a final report and final draft Regulatory Technical Standards on the determination of indirect exposures to underlying clients of derivative and credit derivative contracts. The EU Capital Requirements Regulation, as amended by CRR 2, requires firms to add to the total exposures to a client the exposures arising from derivative contracts listed in Annex II of the CRR and credit derivative contracts, where the contract was not directly entered into with that client but the underlying debt or equity instrument was issued by that client. The final draft RTS will form part of the EU's large exposures framework. The final draft RTS include a methodology for the calculation of indirect exposures for different classes of derivative contracts and credit derivative contracts with a single underlying debt or equity instrument and a methodology for calculating exposures arising from contracts with multiple underlying reference names.
The final draft RTS have been submitted to the European Commission for endorsement.
View the final report and final draft RTS on the determination of indirect exposures.
View details of CRR 2.
View details of the EBA's consultation. -
Final Draft EU Technical Standards on Disclosures of Indicators of Global Systemic Importance Published
02/18/2021
The European Banking Authority has published a final report and final draft Implementing Technical Standards on the disclosure of indicators of global systemic importance by Global Systemically Important Institutions. The EU Capital Requirements regulation requires G-SIIs to disclose annually the values of the indicators used for determining their score in accordance with a set identification methodology. The final draft ITS set out the uniform disclosure formats and associated instructions for the disclosures to be made. The provisions of these final draft ITS will be incorporated into the existing comprehensive ITS on firms' public disclosures and, to facilitate comparability. The format has been aligned with the format set out in the Basel III standards - the "Disclosure of G‐SIB indicators".
The final draft ITS have been submitted to the European Commission for endorsement.
View the EBA's final report and final draft ITS on G-SII disclosures. -
UK Government Publishes Proposals for Investment Firm Prudential Regime and Implementation of Outstanding Basel III Requirements
02/04/2021
The U.K. Government has opened a consultation on the implementation of the Investment Firms Prudential Regime and the remaining Basel III Standards in the U.K. The Financial Services Bill, once it is finalized, will introduce powers for the Financial Conduct Authority and the Prudential Regulation Authority to introduce the IFPR and outstanding Basel III prudential requirements for banks. The FCA has already launched a consultation on some aspects of the IFPR and will consult on the others throughout the year. The PRA is expected to consult on implementation of Basel III in Q1 2021. HM Treasury's consultation concerns those aspects of the two regimes that will require secondary legislation under the Financial Services Bill. The consultation closes on April 1, 2021.
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HM Treasury to Review Ring-Fencing and Proprietary Trading in UK Banks
02/02/2021
HM Treasury has published its terms of reference for a review of the operation of ring-fencing legislation and banks' proprietary trading activities in the U.K. The Treasury is required to conduct each review under the Financial Services (Banking Reform) Act 2013. The FS(BR)A introduced reforms based on recommendations made by the Independent Commission on Banking that was established in the wake of the 2008 financial crisis. The U.K. ring-fencing laws require U.K. banks which hold more than £25 billion in core deposits and banking groups whose members hold an average core deposit of more than £25 billion to separate their core retail banking business from their investment banking business. Restrictions limit the products that a ring-fenced bank can offer and where it can conduct business. Restrictions on proprietary trading (being the trading of financial instruments or commodities as principal by banks or investment firms) were introduced for ring-fenced retail banks and came into force in January 2019. The U.K. decided not to impose a complete ban on proprietary trading for all banks, as had been seen in other countries, such as the U.S. under the Volcker Rule. Among the purposes of this legislation is an attempt to limit taxpayer liability for bank bail-outs in future financial crises.
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Basel Committee on Banking Supervision Consults on Technical Amendments to Rules on Haircuts for Securities Financing Transactions
01/26/2021
The Basel Committee on Banking Supervision has launched a consultation on two proposed technical amendments to the Basel II Framework rules on minimum haircut floors for securities financing transactions. The proposals aim to address an interpretative issue relating to collateral upgrade transactions and correct a misstatement of the formula used to calculate haircut floors for netting sets of SFTs. Responses to the consultation may be submitted until March 31, 2021.
View the consultation paper.
View details of the FSB's delay to the framework for minimum haircuts for uncleared SFTs. -
UK Prudential Regulator Consults on its Approach to Supervising International Banks
01/11/2021
The U.K. Prudential Regulation Authority has launched a consultation on its proposed approach to supervising international banks. The proposals cover the U.K. activities of PRA-authorized banks and designated investment firms that are headquartered outside of the U.K. or are part of a group based outside of the U.K., including those firms operating in the U.K. through a branch. Responses to the consultation may be submitted until April 11, 2021. Implementation of the final policy is expected to occur in Q2 2021, except for those EEA firms that are in the Temporary Permissions Regime which are expected to meet the expectations "as soon as reasonably practicable" and at least by the time the firm is authorized and exits the TPR.
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UK Prudential Regulator Publishes Final Rules on Implementation of CRD V
12/28/2020
The U.K. Prudential Regulation Authority has published its final Policy Statement setting out the final rules for implementing CRD V in the U.K. The Policy Statement confirms the final rules set out in the PRA's near-final Policy Statement, published on December 9, 2020. The Policy Statement also confirms the PRA's proposed approach to enforcing compliance with consolidated prudential requirements for U.K. banking consolidation groups, as proposed in the PRA's consultation paper published on December 9, 2020. The Supervisory Statements and Statements of Policy attached to the Policy Statement should be read together with the PRA's Supervisory Statement, "Non-binding PRA materials: The PRA's approach after the UK's withdrawal from the EU", for guidance on how to interpret the materials after the end of the transition period.
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UK Regulator Publishes Proposals for New Investment Firm Prudential Regime
12/14/2020
Following the discussion paper published earlier this year, the U.K. Financial Conduct Authority has launched its first consultation on the new U.K. Investment Firms Prudential Regime. The IFPR is a new prudential regime for U.K. firms authorized under the Markets in Financial Instruments Directive, which it is proposed will be introduced from January 1, 2022, subject to the progress of the Financial Services Bill. The IFPR is intended to simplify the prudential requirements applicable to solo-regulated U.K. investment firms. It will not apply to the larger investment firms that will remain dually regulated, that is, prudentially regulated by the Prudential Regulation Authority and regulated by the FCA for all other aspects. The consultation closes on February 5, 2021.
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UK Prudential Regulator Publishes Policy Statement and Near-Final Rules on Implementation of CRD V
12/09/2020
The U.K. Prudential Regulation Authority has published a policy statement setting out responses to its consultations on the U.K. implementation of CRD V, as well as its near-final policy material. The final rule instruments will be published in time for the December 28, 2020 deadline for implementation of CRD V. The policy statement is relevant to U.K. banks, building societies, PRA-designated investment firms and U.K. financial holding companies and mixed financial holding companies.
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UK Prudential Regulator Consults on Banking Consolidation Group Prudential Compliance During Brexit Transition Period
12/09/2020
The U.K. Prudential Regulation Authority has launched a consultation on which bank entities should be responsible for ensuring compliance with consolidated prudential requirements for U.K. banking consolidation groups for a transitional period between December 28, 2020 and the date on which the relevant group's parent holding company is approved or declared exempt from the requirements under the PRA's approval regime.
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EU Authorities Warn of Potential Loss of Preferential Capital Treatment for STS Securitizations
12/07/2020
The European Supervisory Authorities have issued a press release warning of the change in the status of "simple, transparent and standardized" securitization transactions at the end of the Brexit transition period on December 31, 2020. The Securitization Regulation provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related amendments to the EU Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations. For a securitization to qualify as an STS securitization, the EU Securitization Regulation requires the originator, sponsor and securitization special purpose entity to be established in the EU. The ESA's announcement highlights that securitizations that currently meet the STS criteria may not do so from January 1, 2021, if one or more of the originator, sponsor or SSPE are established in the U.K. The loss of STS status will mean that the EU CRR preferential capital treatment is no longer available.
The European Securities and Markets Authority will be working with EU national regulators to ensure that its database of STS securitizations is up to date as at January 1, 2021.
View the ESA's press release. -
UK Parliament Publishes Financial Services Bill for Post-Brexit Regulatory Framework
10/21/2020
The U.K. Government has published a Financial Services Bill setting out a proposed regulatory framework for the financial services industry following the U.K.'s exit from the EU. The Bill is part of the U.K.'s wider initiative under the Future Regulatory Framework Review to re-frame its regulatory framework. Although Brexit has brought challenges to the financial sector, there may also be post-Brexit opportunities for the U.K. to seize. The aim of these reforms is to cement the U.K.'s position as a global financial centre of excellence. A core piece of that will be to set conditions that continue attracting business to the U.K. and to look for opportunities to cut "red tape" whilst at the same time maintaining the U.K.'s globally recognized high regulatory standards.
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UK Prudential Regulator Issues Further Consultation on Implementation of CRD V and CRR II
10/20/2020
The U.K. Prudential Regulation Authority has published a further consultation on its proposed implementation of the fifth Capital Requirements Directive. CRD V came into force in July 2019. EU Member States are required to implement the majority of CRD V provisions by December 28, 2020. As this is prior to the end of the U.K.'s Brexit transition period, the U.K. is obliged to transpose those provisions of CRD V that are applicable befor the end of the transition period into U.K. law under the terms of the EU-U.K. Withdrawal Agreement.
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HM Treasury Publishes Results of Consultation on CRD V Implementation
10/15/2020
HM Treasury has published a summary of the responses to its consultation on the U.K.'s implementation of the fifth Capital Requirements Directive, together with HM Treasury's proposed next steps. CRD V came into force in July 2019 and EU Member States are required to implement the majority of its provisions by December 28, 2020. As this is prior to the end of the U.K.'s Brexit transition period, the U.K. is obliged to transpose these provisions of CRD V that are applicable before the end of the transition period into U.K. law under the terms of the EU-U.K. Withdrawal Agreement.
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Bank of England Financial Policy Committee Publishes Policy Summary
10/08/2020
The Bank of England's Financial Policy Committee has published its latest Policy Summary and the minutes of its meeting held on September 30, 2020. The FPC notes a range of near-term risks that could impact the U.K. economy, including the evolution of the COVID-19 pandemic, post-Brexit trading arrangements between the U.K. and EU and various other geopolitical risks.
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European Banking Authority Phases Out COVID-19 Guidelines on Loan Repayments Moratoria
09/21/2020
The European Banking Authority has confirmed that it will phase out its Guidelines on legislative and non-legislative payment moratoria in accordance with its September 30, 2020 deadline. The EBA originally published the Guidelines in April 2020, stipulating that, for a period of three months, banks should not class payment moratoria that were based on national law or private-sector initiatives as forbearance or distressed restructuring practices, in light of the COVID-19 pandemic. The Guidelines were extended for a further three months on June 30, 2020 but the EBA now intends to comply with the September 30, 2020 phase out deadline in light of the success of the temporary moratoria and the need to return to the usual rescheduling of loans on a case-by-case approach. The treatment described in the Guidelines will continue to apply to payment holidays granted prior to September 30, 2020.
View the EBA's statement on the phase-out of its Guidelines.
View details of the EBA's Guidelines. -
UK Prudential Regulation Authority Publishes Proprietary Trading Review
09/21/2020
The U.K. Prudential Regulation Authority has published a report on the extent of proprietary trading by PRA-authorized deposit takers and investment firms incorporated in the U.K. Restrictions on proprietary trading (being the trading of financial instruments or commodities as principal by banks or investment firms) were introduced for ring-fenced retail banks in the wake of the 2008 financial crisis and came into force in January 2019. However, the U.K. decided not to impose a complete ban on proprietary trading for all banks, as had been seen in other countries, such as the U.S. under the Volcker Rule. Instead, the PRA was mandated to produce a report under the Financial Services (Banking Reform) Act 2013, with a view to informing the U.K. Parliament of the need for any further restrictions on proprietary trading.
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European Central Bank Decision Excluding Eurozone Central Bank Exposures from Total Exposure Measures
09/21/2020
The European Central Bank has published a Decision in the Official Journal of the European Union temporarily excluding certain central bank exposures from significant Eurozone banks' leverage ratio calculations for the purposes of the EU Capital Requirements Regulation. The Decision will enter into force on September 26, 2020 and the exclusion will apply until June 27, 2021.
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European Central Bank Publishes Guide to Assessment Methodology for Counterparty Credit Risk and Credit Valuation Adjustment Risk Calculations
09/18/2020
The European Central Bank has published its final Guide on the assessment methodology it will use to examine: (i) the internal model methods banks use to calculate exposures to counterparty credit risk; and (ii) the advanced methods banks use to calculate own funds requirements for credit valuation adjustment risk. The EU Capital Requirements Regulation requires the ECB to permit banks to use internal models for counterparty credit risk purposes if those models comply with relevant CRR provisions. The ECB's Guide sets out how the ECB will determine banks' compliance.
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European Banking Authority Publishes Survey on Banks' Environmental, Social and Governance Risk Disclosure Frameworks
09/17/2020
The European Banking Authority has published a survey designed to collect information on large banks' disclosure practices on environmental, social and governance risks. The EU Capital Requirements Regulation implements the Basel Committee on Banking Supervision's Pillar 3 disclosure requirements, which require banks to disclose information about their risks and risk management procedures and policies. In 2018, the Basel Committee published updated Pillar 3 requirements. The revised CRR, published in June 2019, incorporates the revised Basel Committee disclosure standards and mandates the EBA to produce draft Implementing Technical Standards to ensure comparability of the disclosures made with international non-EU active banks.
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