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The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • 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 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.

    Read more.
  • 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.

    Read more.
  • 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. 

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more
  • 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.

    Read more.
  • 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. 

    Read more.
  • 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. 

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • EU Technical Standards Supplementing the Securitization Regulation
    09/03/2020

    Several EU Technical Standards supplementing the EU Securitization Regulation have been published in the Official Journal of the European Union. The Securitization Regulation has applied directly across the EU since January 1, 2019. It 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 amendments to the EU Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

    Read more.
  • UK Prudential Regulator Announces Termination of Temporary Approach to VAR Back-Testing Exceptions
    08/27/2020

    The U.K. Prudential Regulation Authority has published a statement confirming that, following its review of the temporary approach that allows firms to offset increases in VAR back-testing exceptions through a reduction in risks-not-in-VAR capital requirements, it has decided to terminate the temporary approach from September 30, 2020. The PRA has made this decision because of the changes introduced to the EU Capital Requirements Regulation (known as the CRR Quick Fix package), which has applied directly across the EU since June 27, 2020.

    From October 1, 2020, firms should no longer apply any commensurate reduction in risks-not-in-VAR capital requirements. Firms should apply to the PRA to exclude back-testing options that do not result from deficiencies in their internal model occurring between January 1, 2020 and December 31, 2021.

    View the PRA's statement.

    View details of CRR Quick Fix.
  • UK Prudential Regulator Issues Updated Statement on IFRS 9 and Capital Requirements
    08/26/2020

    The U.K. Prudential Regulation Authority has published a further statement on IFRS 9 and capital requirements in the context of COVID-19. In line with the Financial Conduct Authority's guidance in relation to mortgage payments, firms should consider tailored forbearance arrangements where, at the end of the COVID-19 payment deferral period, a borrower is unable to resume payments in full immediately, with all deferred sums either paid in full or capitalized. The PRA states that the tailored forbearance arrangements may be as good an indicator of significant increases in credit risk, credit impairments or defaults as forbearance before the pandemic. Any loans subject to tailored forbearance should not be automatically treated as having experienced SICR or become credit impaired or in default, and firms will need to exercise judgment where the position is not clear.

    The PRA also states that some of the guidance in its statement on March 26, and June 4, 2020 continues to be relevant, depending on the circumstances.

    View the PRA's statement.

    View details of the PRA's June statement.

    View details of the PRA's March statement.
  • EU Consultation on Draft Guidelines to Implement Alternative Internal Model Approach
    08/12/2020

    The European Banking Authority has opened a consultation on proposed guidelines on criteria for the use of data inputs in the risk measurement model under the Internal Model Approach for market risk, set out in the revised Capital Requirements Regulation, known as CRR2. The consultation closes on November 12, 2020.

    CRR2 implements a revised framework for minimum capital requirements based upon market risk—the Fundamental Review of the Trading Book, published in January 2019 by the Basel Committee on Banking Standards. The revisions include an alternative IMA, one part of which is the expected shortfall risk measure used to determine capital requirements for those risk factors with sufficient available observable market data.

    Read more.
  • European Banking Authority Provides Clarity on Application of CRR Quick Fix Package
    08/11/2020

    The European Banking Authority has published guidance on the impact on supervisory reporting and disclosure of the EU's CRR Quick Fix adjustments, which were made in response to COVID-19. The CRR Quick Fix introduced changes to a broad range of requirements on firms under the Capital Requirements Regulation. It has applied directly across the EU since June 27, 2020. The EBA's guidance consists of:
     
    1. Guidelines on supervisory reporting and disclosure requirements in compliance with the CRR "quick fix" in response to the COVID‐19 pandemic (EBA/GL/2020/11). These Guidelines aim to clarify how firms should report the Implementing Technical Standards on supervisory reporting versions 2.9 and 2.10, and on the existing ITS on disclosure of leverage ratio.

    Read more.
  • Basel Committee on Banking Supervision Proposes Principles for Operational Risk
    08/06/2020

    The Basel Committee on Banking Supervision has opened a consultation on proposed principles for operational resilience and updated Principles for the Sound Management of Operational Risk (PSMOR). The consultation closes on November 6, 2020.

    Read more.
  • UK Prudential Regulator Proceeds with Extension of Coverage under Financial Services Compensation Scheme
    08/04/2020

    The U.K. Prudential Regulation Authority has published a Policy Statement and final rules on the temporary high balances coverage extension under the Financial Services Compensation Scheme. The PRA has decided to implement the proposal, made in July this year and in response to the coronavirus pandemic, to extend coverage under the FSCS for temporary high balances, from six months to 12 months from the date of the deposit or the first date the balance becomes legally transferrable to the depositor. The change will be effected by changes to the PRA's depositor protection rules and the Statement of Policy on the Deposit Guarantee Scheme. The change will take effect from August 6, 2020. The coverage will revert to six months from February 1, 2021.

    View the Policy Statement, updated rules and Statement of Policy.
  • EU Final Draft Technical Standards on TLAC and MREL Disclosure & Reporting
    08/03/2020

    The European Banking Authority has published a final report and final draft Implementing Technical Standards on disclosure and reporting of Minimum Requirement for Own Funds and Eligible Liabilities and Total Loss Absorbing Capacity. Revisions to the EU's Bank Recovery & Resolution Directive and the Capital Requirements Regulation, which were finalized in 2019, implement the Financial Stability Board's TLAC requirements in the EU as well as amend the EU's existing MREL requirements. The TLAC requirements will apply to all EU global systemically important institutions and the revised MREL requirements to G-SIIs and other relevant firms. The final draft ITS will supplement the Pillar 3 disclosure requirements and supervisory reporting requirements on TLAC and MREL introduced by BRRD2 and CRR2.

    The EBA has submitted the final draft ITS to the Commission for endorsement. The ITS on TLAC disclosures will apply immediately on entry into force. The MREL disclosure requirements will apply either from January 1, 2024 (the expiration date of relevant transitional periods) or from the later deadline set by the relevant resolution authority.

    View the EBA's report, final draft ITS and related annexes.

    View details of BRRD2.

    View details of CRR2.
  • UK Prudential Regulator Consults on UK Implementation of CRD V
    07/31/2020

    The U.K. Prudential Regulation Authority has published a consultation on proposed changes to the PRA rules to implement the fifth Capital Requirements Directive. 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. must transpose those 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. Certain of those provisions (including those relating to capital buffers and holding company approval and supervision) must be implemented in the U.K. by HM Treasury. Those provisions are the subject of a separate consultation by HM Treasury consultation (published on July 16, 2020). HM Treasury has delegated responsibility for implementation of the remaining provisions to the PRA.

    Read more.
  • EU Single Resolution Board Publishes Guidance on Bank Operational Continuity and FMI Contingency Plans
    07/29/2020

    The EU Single Resolution Board has published new guidance for Eurozone banks for which it is the resolution authority on: (i) operational continuity in resolution for Eurozone banks; and (ii) financial market infrastructure contingency plans. The guidance applies to "significant" Eurozone banks that are directly prudentially supervised by the European Central Bank and certain other cross-border groups, for whom resolution is their strategy.

    Read more.
  • European Central Bank Publishes Results of Bank COVID-19 Vulnerability Analysis
    07/28/2020

    The European Central Bank Banking Division has published the results of the COVID-19 vulnerability analysis it conducted on Eurozone banks directly prudentially supervised under the Single Supervisory Mechanism. The analysis was designed to establish how 86 Eurozone banks would be impacted by the COVID-19 pandemic and any vulnerabilities that may arise over a three-year horizon.

    Read more.
  • UK Prudential Regulation Authority Announcement on Bank Dividend Payments and Share Buybacks Beyond 2020
    07/28/2020

    The U.K. Prudential Regulation Authority has published an announcement on its approach to dividend payments and share buybacks by large U.K. banks subject to its prudential supervision, in light of COVID-19. The PRA states that it intends to assess firms' plans for distributions beyond 2020 in Q4 2020, taking into account banks' current and projected capital positions and the level of uncertainty around the economy, market conditions and capital trajectories at that time.

    Read more.
  • UK Prudential Regulator Publishes Policy Statement on Asset Encumbrance
    07/27/2020

    The U.K. Prudential Regulation Authority has published a Policy Statement on asset encumbrance, relevant to all PRA-regulated firms other than credit unions and insurance firms. The Policy Statement takes account of the PRA's consultation on its proposed expectations of how firms manage prudential risks associated with asset encumbrance. "Encumbered assets" are those that are used to secure, collateralize or credit-enhance a transaction and so cannot be freely transferred or liquidated by the pledging party. The PRA's consultation aimed, among other things, to ensure that firms: (i) put in place, and document, adequate risk management processes to monitor the potential impacts of asset incumbrance; (ii) appropriately consider the effects that increased asset encumbrance may have on the restoration of financial viability during a stress scenario; and (iii) ensure that asset encumbrance levels do not unduly impact the amount and cash value of assets that could be lent against in resolution.

    Read more.
  • European Central Bank Publishes Recommendation on Bank Dividend Distributions During COVID-19
    07/27/2020

    The European Central Bank has published an updated Recommendation on dividend distributions by significant institutions that are directly prudentially supervised by the ECB. The Recommendation states that, until January 1, 2021, no dividends should be paid out for the financial years 2019 and 2020, nor should share buy-backs aimed at remunerating shareholders take place. Banks that consider themselves legally required to pay out dividends should explain their underlying reasons to their joint supervisory team. Banks that plan to pay dividends to a non-Eurozone parent institution, parent financial holding company or parent mixed financial holding company should also discuss their intentions with their joint supervisory team.

    Read more.
  • European Banking Authority Consults on Technical Standards on Indirect Exposures
    07/23/2020

    The European Banking Authority has opened a consultation on proposed draft Regulatory Technical Standards on the determination of indirect exposures to clients of derivative and credit derivative contracts underlying a debt or equity instrument for large exposures purposes. 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 proposed draft RTS set out how firms should determine exposures arising from derivative and credit derivative contracts not entered directly into with a client but whose underlying debt or equity instrument was issued by a client. The consultation closes on October 23, 2020.

    View the EBA's consultation paper.

    View details of CRR 2.
  • European Banking Authority Consults on Technical Standards for Estimating Default Probabilities and Losses Given Default under CRR 2
    07/22/2020

    The European Banking Authority has published draft Regulatory Technical Standards on the requirements for the internal methodologies or external sources to be used for estimating default probabilities and losses given default for firms subject to the revised Capital Requirements Regulation (CRR 2). Responses to the consultation should be submitted by October 22, 2020.

    Read more.
  • UK Prudential Regulator Consults on Supervision of New and Growing Non-Systemic Banks
    07/22/2020

    The U.K. Prudential Regulation Authority has published a consultation on proposed changes to its supervision of new and growing non-systemic U.K. banks. The consultation will primarily be relevant to banks in their first few years of authorization as a PRA deposit-taker and prospective banks interested in, or currently, applying for deposit taker authorization. The PRA notes that some new and growing banks may have sufficient experience and resources to quickly move to the standard expected of established banks. In deciding which banks should be subject to its new policy, the PRA would consider each banks' case on its merits and apply supervisory judgement. Responses to the consultation should be submitted by October 14, 2020. The PRA expects the amendments set out in the consultation to take effect in the first half of 2021.

    Read more.
  • HM Treasury Provides Guidance on Application of EU CRR Quick Fix Package During Brexit Transitional Period
    07/16/2020

    HM Treasury has published a statement on the application of the EU CRR Quick Fix package during the Brexit transitional period. The EU CRR Quick Fix package consists of a Regulation amending the Capital Requirements Regulation (and also amending the Regulation amending the CRR, known as CRR2) and it was published in the Official Journal of the European Union on June 26, 2020. The Regulation forms part of the EU's response to the coronavirus pandemic.

    Read more.
  • UK Financial Services Sector Plan for Supporting COVID-19 Recovery
    07/16/2020

    TheCityUK, the U.K.'s industry body for financial and related professional services, has published a report entitled "Supporting UK Economic Recovery: Recapitalising Businesses Post COVID-19". The report sets out options for how large debt burdens incurred by small and medium-sized businesses as a result of COVID-19 can be managed. The report was prepared in consultation with financial and professional services firms, HM Treasury, the Bank of England and the Financial Conduct Authority.

    Read more.
  • HM Treasury Consults on UK Implementation of CRD V
    07/16/2020

    HM Treasury has launched a consultation on the U.K.'s implementation of the EU amendments to the Capital Requirements Directive that were published in June 2019 (known as CRD V). EU Member States are required to implement the CRD V changes into their national regimes by December 28, 2020. As this is prior to the end of the U.K.'s Brexit transition period, the U.K must transpose those 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. HM Treasury's consultation relates only to those aspects of CRD V that must be implemented via legislation. The rest of CRD V will be implemented by the U.K. Prudential Regulation Authority through updates to the PRA rules. Responses to HM Treasury's consultation should be submitted by August 19, 2020.

    Read more.
  • Basel Committee on Banking Supervision Finalizes Credit Valuation Adjustment Risk Framework
    07/09/2020

    The Basel Committee on Banking Supervision has published final revisions to the credit valuation adjustment risk framework under the Basel III standards. The updated international standard sets out the proposed regulatory capital treatment of CVA risk for derivatives and securities financing transactions. The CVA risk framework is designed to manage the risk of banks incurring mark-to-market losses from deterioration in the creditworthiness of counterparties in derivatives or SFTs. The framework was last revised in December 2017, partly to align it with the Basel Committee's market risk framework. The latest revisions include:
     
    1. The reduction of certain risk weights;
    2. The introduction of new index buckets and revised aggregation of CVA capital requirements;
    3. An amendment to the scope of portfolios subject to CVA risk capital requirements. SFTs, where the CVA risks stemming from such positions are not material, are excluded and certain client-cleared derivatives are exempt; and
    4. Revision of the overall calibration of the CVA risk framework, covering both the standardized and the basic approach.

    View the updated CVA standard.
  • UK Prudential Regulator Proposals to Extend Coverage under the Financial Services Compensation Scheme
    07/09/2020

    The U.K. Prudential Regulation Authority has opened a consultation on proposals for extending coverage of the Financial Services Compensation Scheme for temporary high balances. Responses to the consultation may be submitted until July 23, 2020. The PRA is proposing to extend coverage under the FSCS for temporary high balances, from six months to 12 months from the date of the deposit or the first date the balance becomes legally transferrable to the depositor. The coverage would revert to six months from February 1, 2021. The proposal is made because of the impact of COVID-19 on consumers.

    View the consultation paper.
  • European Banking Authority Report on Implementation of EU Prudential Framework During COVID-19
    07/07/2020

    The European Banking Authority has published a report on the implementation of certain prudential policies introduced by the EBA to deal with the effects of the COVID-19 pandemic. The report focuses on two areas in particular: implementation issues around the EBA's Guidelines on legislative and non-legislative moratoria on loan repayments and the criteria that institutions should follow for the identification and treatment of operational risk events and losses.

    Read more.
  • European Central Bank Publishes Guideline on Default Definition for Less Significant Eurozone Institutions
    07/07/2020

    The European Central Bank, Banking Supervision division has published a guideline harmonizing the threshold for assessing the materiality of credit obligations past due for the purposes of default assessments under the EU Capital Requirements Regulation. CRR defines the circumstances in which an obligor under a credit obligation will be deemed to be in default. The materiality of the credit obligation is relevant for these purposes, and CRR grants competent authorities the discretion to determine, according to their view of a reasonable level of risk, the threshold against which materiality should be measured.

    Read more.
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