The U.K. Prudential Regulation Authority has announced a series of amendments to regulatory reporting and disclosure requirements applicable to U.K. banks, building societies, designated investment firms and credit unions, in light of the global COVID-19 pandemic. The PRA’s changes follow recent statements and recommendations made by the European Banking Authority, providing clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.

Read more.

The U.K. Prudential Regulation Authority has published its Business Plan for 2020/2021, which sets out its strategic goals for the next 12 months and its work plan to deliver them. The PRA has had to tailor its intended Business Plan to take account of the impact of the COVID-19 pandemic. In particular, it has elected to cancel its 2020 annual cyclical scenario stress tests, delay the publication of the results of the 2019 biennial exploratory scenario, postpone less critical aspects of its supervisory program for individual firms and extend consultation periods and implementation timeframes for new initiatives where possible.

Read more.

The U.K. Prudential Regulation Authority has announced two further measures in response to the coronavirus outbreak. The first is the PRA's decision to maintain the systemic risk buffer rates at the rate set in December 2019. The rates determine the amount of additional regulatory capital that must be held by "systemic risk buffer institutions" (i.e. U.K. financial institutions deemed to be systemically important). In scope firms are the so-called "ring-fenced bodies" within the meaning in the Financial Services and Markets Act 2000 and include banks and large building societies holding more than £25bn in deposits. The buffer applicable to each institution is intended to reflect the relative costs to the U.K. economy if the institution in question were to fall into distress. In December 2019, the PRA maintained the rates that had first been set in May 2019. The SRB rates will be re-assessed in December 2021 and the decision taken then will take effect in January 2023.

Read more.

The European Banking Authority has published two reports on the impact of the Basel III liquidity coverage ratio, as implemented in the EU, and the estimated impact of the Basel III credit and market risk, and credit valuation adjustment reforms, which are yet to be implemented by the EU. The reports are based on 2019 data that was collected prior to the outbreak of COVID-19.

Read more.

The Basel Committee on Banking Supervision has announced a series of measures designed to reduce the impact of COVID-19 on the global banking sector. The latest measures are designed to facilitate bank lending to the real economy and boost banks’ operational capacity to the financial strain of COVID-19. They follow the extension to Basel III implementation deadlines announced by the Group of Central Bank Governors and Heads of Supervision on March 27, 2020.

Read more.

HM Treasury and the U.K. Prudential Regulation Authority have published a joint statement welcoming the delay to implementation of certain aspects of the Basel III regulatory reforms, announced by the Group of Central Bank Governors and Heads of Supervision. The GHOS has delayed the deadlines for introducing certain Basel III standards by one year until 2023 (or, in the case of the output flow, 2028). The Treasury and PRA intend to work together to produce a U.K. implementation timetable that is consistent with the GHOS’s delay.

View the PRA's statement on the delayed implementation of Basel III.

View details of the GHOS's delays to the implementation of Basel III.

Details of other regulatory responses to COVID-19 are available at our COVID-19 Research Center.

The European Banking Authority has published guidelines on legislative and non-legislative moratoria on loan repayments applied in light of the COVID-19 crisis. The Guidelines state that, where payment moratoria are based on national law or a private-sector initiative broadly applied by credit institutions in response to COVID-19, they will not be classified as forbearance or distressed restructuring measures. 

Read more.

The EU Single Resolution Board has written to Eurozone banks about potential COVID-19 relief measures. It is united with the European Supervisory Authorities and national regulators in aiming to alleviate operational burdens on banks to enable them to deal with the COVID-19 crisis. The SRB intends to apply a pragmatic and flexible approach to 2020 resolution plans and MREL decisions and will consider postponing less urgent information requests where necessary. It does, however, confirm that Eurozone banks still need to submit the following reports: Liability Data Report, Additional Liability Report and MREL quarterly template.

View the SRB's letter to Eurozone banks.

The U.K. Prudential Regulation Authority has published a statement supporting the decisions of the U.K.'s largest banks to suspend dividends and buybacks on ordinary shares until the end of 2020 and to cancel outstanding 2019 dividends. The PRA also makes it clear that it expects banks to refrain from paying cash bonuses to senior staff, including material risk takers. In parallel, the PRA has written to the CEOs of the largest U.K. banks (HSBC, Nationwide, Santander, Standard Chartered, Barclays, RBS and Lloyds Banking Group), notifying them of the PRA's expectation that they should not pay cash bonuses to senior staff.

View the PRA's statement.

The U.K. Prudential Regulation Authority has published two statements addressed to U.K. firms on the application of certain requirements of the EU Capital Requirements Regulation.
 
The first statement sets out the PRA's approach to calculating exposure under the internal models method for counterparty credit risk in light of the significant moves in counterparty credit risk exposures during the COVID-19 pandemic. Firms are reminded of their notification obligations in relation to any changes they make to their internal models method models as a result of the PRA's guidance.

Read more.

The European Banking Authority has published three statements providing clarity on measures to mitigate the impact of COVID-19 on the EU banking sector. The statements are: Statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19: referring to its statement issued on March 12, 2020, the EBA outlines further details on actions that firms, national regulators and resolution authorities can take to mitigate the impact of COVID-19. The EBA stresses the importance of firms providing reliable data for supervisory purposes, particularly given market fluctuations. However, the EBA reiterates that some leeway can be given to firms for certain areas and asks national regulators to consider the extent to which a delay to submission of data may be justified. In general, the EBA suggests that firms should be given an additional month to submit data (with an additional two months given for remittance of data on funding plans), but national regulators should confirm the precise requirements. The EBA excludes from the forbearance information on the liquidity coverage ratio (LCR) and reporting for resolution planning purposes. The EBA also encourages national regulators to be flexible about the deadline for firms to publish their Pillar 3 data. Firms should contact their regulator if they expect that there will be a delay to their Pillar 3 disclosures.

Read more.

The Basel Committee on Banking Supervision has delayed the implementation timeline for Basel III to allow firms to focus on tackling the challenges resulting from the coronavirus (COVID-19) pandemic.

Read more.

The European Central Bank has published an updated Recommendation requiring the largest Eurozone-based banks to suspend the payment of any dividends and buyback of shares until at least October 1, 2020. The Recommendation is addressed to significant institutions that are directly prudentially supervised by the ECB. Eurozone national regulators of smaller banks are expected to apply the Recommendation, as deemed appropriate. The Recommendation applies to both 2019 and 2020 dividends, but does not retroactively apply to dividends that have already been paid for the 2019 financial year. Where a bank believes that it is legally obliged to make a dividend pay-out, it should explain the reasons to its joint supervisory team.

The purpose of the Recommendation is to ensure that banks are able to maintain their lending and therefore the support of businesses during the current global pandemic.

View the ECB recommendation here.

View the ECB press release here.

Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.

The U.K. Financial Conduct Authority has published a statement reminding firms that they are able to use capital and liquidity buffers during the COVID-19 pandemic. The FCA also stated that firms should plan ahead and ensure that any potential exit from the market is conducted in an orderly manner. The statement is relevant for firms that are solo-regulated by the FCA.

Firms are encouraged to contact the FCA if they are unable to meet their capital requirements.

View the FCA announcement.

Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.

The U.K. Financial Conduct Authority, the Financial Reporting Council and the Prudential Regulation Authority have announced a number of measures and initiatives to assist firms during the current global coronavirus pandemic. These include:

• a statement from the FCA on the publishing of audited financial reports for listed companies;
• guidance from the FRC for companies preparing financial statements to be read in conjunction with PRA guidance on assessing expected loss under IFRS9; and
• guidance from the FRC for audit firms.

Read more.

The European Securities and Markets Authority has published a statement to ensure the consistent application by issuers of International Financial Reporting Standards within the European Union. In particular, it addresses the requirement for consistent application of IFRS 9 related to the classification of financial assets and liabilities. ESMA considers a range of accounting implications that may arise for Issuers as a result of national governments' and EU bodies' responses to the COVID-19 pandemic. 

Read more.

The European Banking Authority has released two separate statements in response to the COVID-19 pandemic, the first covering bank prudential regulation and the second dealing with consumer protection and payment services.

Read more.

In order to ensure that banks are able to focus on key operations throughout the current COVID-19 pandemic, the European Banking Authority has announced a postponement and extension of certain activities.

Read more.

The Bank of England's Financial Policy Committee met on March 9 and 19, 2020, a time when the COVID-19 pandemic dominated the news and in turn presented challenges for markets.

Read more.

The Bank of England has announced a series of supervisory and policy measures designed to help firms prudentially regulated by the U.K. Prudential Regulation Authority (banks, building societies, insurers and large investment firms) and BoE-regulated financial market infrastructures (CCPs, central securities depositories and recognized payment systems) with the impact of COVID-19. 

Read more.

The European Central Bank has announced a series of measures designed to support banks to continue their vital role of funding the real economy in the wake of COVID-19. Banks will be permitted temporarily to operate below the level of capital required by Pillar 2 Guidance, the capital conservation buffer and the liquidity ratio. They will also be permitted partially to use capital instruments that do not qualify as Common Equity Tier 1 capital to meet Pillar 2 Requirements. The ECB hopes that, together with EU national regulators' relaxation of the countercyclical capital buffer, these measures will provide significant capital relief to banks.

Read more.

The European Banking Authority has published a statement on actions to mitigate the impact of COVID-19 on the EU banking sector. In the statement, the EBA states that it is working with the European Central Bank and EU national regulators to ease the immediate operational burden on EU banks and recommends that national regulators should use, where appropriate, the flexibility embedded in the regulatory framework.

The EBA views supporting banks' focus on core operations as a priority and has decided to postpone the EU-wide stress test to 2021. However, the EBA will conduct an additional EU-wide transparency exercise to provide updated information on banks' exposures and asset quality. The EBA also recommends that national regulators grant some flexibility on the remittance dates for supervisory reporting by banks.

The EBA states that banks should adopt prudent dividend and other distribution policies, including variable remuneration.

View the EBA's statement.

Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.

HM Treasury has published a policy statement on its proposals for the prudential standards in the U.K.'s upcoming Financial Services Bill. The Financial Services Bill will set out a proposed regulatory framework for the financial services industry following the U.K.'s exit from the EU. The U.K. has historically wished and repeatedly sought to impose higher capital requirements on banks and investment firms than the EU has accepted, in part driven by the better capitalization of U.K. banks compared to some EU institutions. The new policy statement establishes four overarching principles which will govern HM Treasury's approach to prudential standards: (i) financial stability and high international standards; (ii) supporting growth, competition and competitiveness; (iii) giving U.K. regulators a central role in designing technical prudential requirements; and (iv) flexibility, allowing the U.K. to maintain its relationship with the EU and take account of U.K.-specific requirements.

Read more.

The Single Resolution Board has launched a consultation on proposed changes to its policy on minimum requirements for own funds and eligible liabilities (MREL) for Eurozone banks, designed to bring the SRB’s MREL policy in line with the changes introduced by the 2019 EU banking package for EU banks.  MREL is the EU's precursor to total loss-absorbing capacity (TLAC) standards at international level.  The SRB is responsible for ensuring the compliance of Eurozone-based institutions that are subject to the Single Resolution Mechanism (primarily Eurozone countries) with their resolution and recovery planning requirements.  It works with national regulators from Eurozone countries to determine MREL requirements. Responses to the consultation should be submitted by March 6, 2020. The SRB expects to publish its final MREL Policy Statement based on these responses by the end of April 2020 and will apply the policy to MREL decisions taken in early 2021.

Read more.

The European Banking Authority has launched a consultation on proposed Guidelines on the appropriate subsets of sectoral exposures to which national regulators may apply a systemic risk buffer under the Capital Requirements Directive. CRD 5 amended the provisions on when a national regulator may set a systemic risk buffer for sectoral exposures.  The EBA is mandated to prepare Guidelines to enhance harmonization of the approach across the EU. CRD 5 must be transposed into Member State laws by December 28, 2020 and those laws must be applied from December 29, 2020. Responses to the consultation can be submitted until July 13, 2020. Once finalized, the Guidelines will apply to the relevant national regulators from December 29, 2020.

View the consultation paper.

View details of CRD 5 and CRR 2.

The Banking Supervision arm of the European Central Bank has opened a consultation on a proposed guide on assessing counterparty credit risk. The proposed guide sets out the ECB's approach to assessing the internal models that banks use to calculate their exposure to counterparty credit risk under the Capital Requirements Regulation. The proposed guide would apply to those Eurozone banks for which the ECB is responsible for direct prudential supervision as part of the Single Supervisory Mechanism, and that are permitted to use internal model methods. The consultation closes on March 18, 2020.

View the ECB public consultation.

The European Banking Authority has issued a report on diversity practices in credit institutions and investment firms. The report is based on diversity data collected by national regulators under the Capital Requirements Directive. CRD requires banks (known as “credit institutions”) and investment firms to adopt policies promoting diversity in their management bodies. The report finds that 41% of institutions still do not have a diversity policy, despite a CRD obligation to implement one. Even amongst institutions that have implemented a policy, not all promote gender diversity. The EBA is calling on institutions and Member States to consider additional measures to promote a more balanced gender representation and to ensure compliance with diversity policy requirements. It intends to continue monitoring diversity in management bodies and to issue further benchmark studies in the future.
 
View the EBA's report on diversity practices. 

A Commission Implementing Regulation amending existing Implementing Technical Standards under the Capital Requirements Regulation has been published in the Official Journal of the European Union. The ITS specify the stock indices that are sufficiently diversified to be counted as individual equities, without requiring market participants to take account of their specific risk under CRR for any stock index future placed on them. The amendments to the ITS update the stock indices listed in light of the latest available data. The ITS will apply directly across Member States from February 19, 2020.

View the amending Commission Implementing Regulation.  

The U.K. Prudential Regulation Authority has published a Policy Statement following its consultation last year on changes to the Pillar 2 capital requirements for banks and large investment firms. The amendments will apply from January 23, 2020. The PRA has made some changes to the proposed text following feedback from respondents that further clarification would be helpful, in particular on the setting of the PRA buffer using the hurdle rate in stress, buffer interactions and usability. The amendments are implemented in:

• Statement of Policy, "The PRA's methodologies for setting Pillar 2 capital";
• Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" (SS31/15); and
• Supervisory Statement, "Implementing CRD IV: Capital buffers" (SS6/14).

View the Policy Statement.

View the updated Statements.

View details of the PRA's consultation.

The European Banking Authority has commenced a consultation on proposed changes to the EU-wide stress test framework for banks. The EU-wide stress test contributes to improving the financial resilience of banks. Responses to the consultation may be submitted until June 30, 2020. The EBA is holding a public hearing on the proposals on February 21, 2020.

The EBA is proposing to amend the framework to have two parts. The first would be the supervisory element, based on a common EU methodology. It would include the current constrained bottom-up approach, but also have an option for national regulators to adjust or replace banks' estimates based on top-down models and other tools. The second part would be the bank element and would be based on the same common methodology applied in the supervisory part. However, banks would be given more discretion to calculate their projections, provided an explanation and disclosure of the rational and impact of any deviations is possible. The quality of disclosure of the results would remain high, with only the supervisory leg being amended to limit the quantity of disclosure. Feedback is also sought on the approach to scenario designs.

View the consultation paper and other details.

The Banking Supervision arm of the European Central Bank has set out its expectations of Eurozone banks regarding their dividend distribution and variable remuneration policies. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism and has certain powers relating to the supervision by national Eurozone regulators of smaller banks. The ECB has published a letter addressed to significant banks warning them to take a "prudent, forward-looking stance" when setting the banks' remuneration policy and has also published a Recommendation (dated January 17, 2020) on requiring significant banks to "establish dividend policies using conservative and prudent assumptions". The Recommendation will apply directly to significant Eurozone banks. The ECB expects national Eurozone regulators to consider how it might be applied proportionally to the smaller banks. The ECB expects Eurozone banks to consider how their variable remuneration policies and dividend distribution policies will impact their ability to continue to meet their regulatory capital requirements, particularly taking into account the transitional provisions of the Capital Requirements Directive (version IV) and the transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds.

View the ECB's letter.

View the ECB's Recommendation.

The European Central Bank has opened a consultation on proposed guidelines on the materiality threshold for credit obligations past due for less significant institutions based in the Eurozone. The EU Capital Requirements Regulation risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit obligation is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism and has set the materiality threshold for these firms. The proposed guidelines are addressed to national Eurozone regulators within the SSM responsible for setting the threshold for less significant institutions. The ECB is proposing a single materiality threshold for all less significant institutions, both for retail and non-retail exposures.

The consultation closes on February 17, 2020.

View the consultation paper.

The European Banking Authority has launched a consultation on its draft regulatory technical standards specifying how institutions should calculate their own funds requirements for market risk in respect of non-trading book positions that are subject to foreign-exchange risk or commodity risk. The draft RTS have been published for consultation in accordance with the revised Capital Requirements Regulation, which came into force on June 7, 2019 and (subject to certain exceptions) will apply directly across the EU from June 28, 2021. Responses to the consultation should be submitted by April 10, 2020. The EBA is expected to consult in 2020 on other technical standards to supplement CRR II and has published a roadmap providing the due dates for its deliverables.

Read more.

The European Banking Authority has published a report on big data and advanced analytics in the banking sector. The report sets out the findings of the EBA's review of big data and analytics and presents key pillars and elements of trust for the development, implementation and adoption of BD&AA by banks.

Read more.

The Bank of England and U.K. Financial Conduct Authority have published a series of proposals setting out their plans to enhance their data and analytics capabilities. The proposals include a revised FCA data strategy, a BoE discussion paper on transforming data collection and a viability report published by the FCA and BoE, together with seven regulated firms, on the possibilities of digital regulatory reporting. The FCA and BoE depend on data to conduct their supervisory responsibilities.  

Read more.

The European Parliament has published a resolution on relationships between the EU and third countries concerning financial services regulation and supervision. The resolution follows the publication of a report in August 2018 by the European Parliament’s Committee on Economic and Monetary Affairs setting out its proposal for the European Parliament’s resolution, which comes in the wake of the U.K.’s upcoming exit from the EU. The key factors prompting the resolution include the need to mitigate risks to financial stability arising from a possible no-deal Brexit, the need for clarification of the relationship between third-country markets and the EU’s single market in the interests of broader financial stability and the fact that existing third-country equivalence rules are not currently subject to a single framework.

Read more.

The Financial Stability Board has published a statement summarizing the feedback it received to its June 2019 consultation on firms’ public disclosures on resolution planning and resolvability. The consultation sought feedback on a series of questions regarding general and firm-specific disclosures made by systemically important banks and other firms subject to resolution planning requirements.

Read more.

The Financial Stability Board has published a statement summarizing the feedback it received to its June 2019 consultation on the solvent wind-down of derivatives and trading portfolios. The consultation sought feedback on a series of questions regarding existing wind-down practices that may be used as a recovery option for global systemically important institutions that find themselves under stress. The FSB intended to consider publishing guidance on solvent wind-down planning depending on the responses elicited by the consultation.

Read more.

The European Banking Authority has published final draft Regulatory Technical Standards governing the standardized approach to counterparty credit risk in derivatives transactions. The final draft SA-CCR RTS will supplement the requirements set out in the EU's Capital Requirements Regulation, as amended by CRR 2. The SA-CCR requirements aim to address the shortcomings of existing calculation methods to ensure parties are adequately protected in the event of default by a counterparty to a derivatives transaction and these final draft RTS aim to ensure a more harmonized calculation of own funds requirements for counterparty credit risk than has been the case under CRR.

Read more.

The Prudential Regulation Authority has published a letter addressed to the Chair of the Working Group on Sterling Risk-Free Reference Rates. The letter responds to the Working Group's letter in October 2019 requesting regulatory forbearance or clarification from regulators on the impact that the LIBOR transition is likely to have on the prudential requirements for banks. The main issues raised by the Working Group include: (i) the potential for certain capital instruments to no longer qualify as regulatory capital; (ii) the potential for securitizations and MREL-eligible instruments to be considered as "new contracts" as a result of changes to contractual terms, leading to the need to insert bail-in or other bank recovery contractual terms; and (iii) that many banks will need to obtain regulatory approvals for alterations to the models used to determine their regulatory capital arising from their exposures and risks.

Read more.

The European Supervisory Authorities have each published advice to the European Commission on undue short-term pressure from the financial sector on corporations. The ESAs comprise the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The ESAs' advice responds to the European Commission's request in June 2019 for evidence and possible advice on potential undue short-term pressure by financial service participants on corporations. The Commission asked the ESAs to: (i) provide evidence of any short-termism and, if any, the consequences thereof; (ii) assess the drivers of such short-termism, including the effects of regulation on financial market participants, for example, the guidance on remuneration practices; (iii) identify existing regulations that either mitigate or exacerbate short-term pressures; and (iv) evaluate the need for regulatory or policy action and propose specific areas where action is needed. The ESAs' advice, summarized below, may result in the Commission proposing amendments to several pieces of EU legislation, such as the Capital Requirements Directive and related Regulation, the Markets in Financial Instruments package and the Non-Financial Reporting Directive.

Read more.

The Bank of England has published a discussion paper seeking feedback on its proposals for a series of 2021 stress-tests on climate-related risks for the largest banks, insurers and the financial system. The stress tests will help to quantify potential climate change risks faced by the financial system and enable market participants and oversight bodies like the BoE to develop measures to prepare for those risks. Responses to the consultation should be submitted by March 18, 2020. The final stress testing framework will be published in the second half of 2020 with the results of the exercise published in 2021.

Read more.

The U.K. Prudential Regulatory Authority has published a Policy Statement, revised reporting rules and a revised Supervisory Statement on the PRA's approach to supervising liquidity and funding risks (SS 25/15).

Read more.

The Financial Policy Committee of the Bank of England has published its latest financial stability report. The report sets out the FPC's view of the resilience of the U.K. financial system and the main risks to the U.K.'s financial stability as well as the work being carried out to address those risks. The FPC states that the 2019 annual cyclical scenario stress test indicates that the U.K. banking system would be resilient to deep simultaneous U.K. and global recessions. Furthermore, the U.K. financial system is resilient to and prepared for any disruptions that may arise from a disorderly Brexit.

Read more.

The Basel Committee on Banking Supervision has published a discussion paper seeking the views of stakeholders on the prudential regulatory treatment of crypto-assets. The paper is relevant for academics, banks, central banks, finance ministries, market participants, payment system operators and providers, supervisory authorities and technology companies. Responses should be submitted by March 13, 2020.

Read more.

The European Securities and Markets Authority has published draft Implementing Technical Standards amending the existing ITS that establish the standards for the main indices and recognized exchanges that can hold securities eligible as collateral under the revised Capital Requirements Regulation (or “CRR II”).

Read more.

The European Systemic Risk Board has published a Recommendation on the exchange and collection of information for macroprudential purposes by national regulators about branches of banks (credit institutions) that have their head office in another Member State or in a third country. 

Read more.

The European Commission’s Implementing Technical Standards amending the existing Implementing Regulation on closely correlated currencies has been published in the Official Journal of the European Union.

Read more.

The European Banking Authority has published its final report on an update of its guidelines on harmonized definitions and templates for banks (credit institutions) to report their funding plans in accordance with the European Systemic Risk Board’s Recommendation on the funding of banks. The Guidelines apply to national regulators and banks that report their funding plans to national regulators in accordance with the local implementation of the European Systemic Risk Board’s Recommendation.

Read more.

The U.K. Financial Conduct Authority has published a consultation on its proposed changes to various aspects of the FCA Handbook.

Read more.