The Basel Committee on Banking Supervision has today published its guiding principles for the operationalization of a sectoral countercyclical capital buffer (or "SCCyB"). The SCCyB complements the Basel Committee's countercyclical buffer by establishing capital requirements that could be imposed on a particular sector, in addition to the countercyclical buffer that is based on banks' total risk weighted assets. The SCCyB will only apply to jurisdictions that choose to implement it on a voluntary basis and will not form part of the Basel standards.

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The Basel Committee on Banking Supervision has published a joint statement with the Basel Consultative Group on the proportionality of the implementation of the Basel Framework by the banks and jurisdictions to which it applies. The Basel Consultative Group is the Basel Committee's sub-group responsible for enhancing the Basel Committee's engagement with global supervisors, including those from non-member countries. The Basel Framework is the set of bank prudential standards established by the Basel Committee that Basel members have agreed to implement. The joint statement confirms the role of proportionality that is established in the Basel Committee's "Core principles for effective banking supervision".

The statement follows the Basel Committee's survey on proportionality in bank regulation and supervision, in which it found that a majority of Basel Committee and BCG jurisdictions apply proportionality measures in supervision of banks.

View the Basel Committee's statement on proportionality.

View the Basel Committee's Core principles for effective banking supervision.

View the Basel Committee's survey on proportionality in bank regulation and supervision.

The European Banking Authority has published a consultation paper on its draft Implementing Technical Standards for supervisory reporting and public disclosure of minimum requirements for own funds and eligible liabilities (or “MREL”) and total loss-absorbing capacity (or “TLAC”). Responses to the consultation should be submitted by February 22, 2020. The EBA expects to submit the final draft ITS to the European Commission in June 2020.

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The Financial Stability Board has published the 2019 list of global systemically important banks. Alongside the 2019 G-SIB list, the Basel Committee on Banking Supervision has published further information relating to its 2019 assessment of G-SIBs, including:
 

• The denominators of each of the 12 high-level indicators used to calculate the banks’ scores under the G-SIB methodology;
• The 12 high-level indicators used to calculate these denominators; and
• The cutoff score used to identify the G-SIBs in the updated list and the thresholds used to allocate G-SIBs to buckets for the purpose of calculating the specific higher loss absorbency requirements.

The Basel Committee assessment was based on its 2013 methodology for identifying G-SIBs. A revised assessment methodology was published by the Basel Committee in July 2018, which is expected to be implemented by member jurisdictions by 2021.

View the 2019 G-SIB list.

View the Basel Committee's statement on its G-SIB assessment methodology.

View details of the Basel Committee's revised assessment framework for G-SIBs.

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The European Banking Authority has launched a consultation on its proposed draft Implementing Technical Standards on specific supervisory reporting requirements for market risk. “Market risk” relates to the risk of losses that banks face to their on- and off-balance sheet positions from adverse movements in market prices. The EBA was mandated to produce the ITS under the Capital Requirements Regulation II, published in June 2019, which made extensive changes to the EU’s capital requirements regime, including through the implementation of the Basel Committee on Banking Supervision’s international standards on market risk. 

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The European Banking Authority has published a roadmap for the risk reduction package that involved changes to the EU Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive. The EBA is mandated within the changed legislation to prepare technical standards, guidelines and reports on governance and remuneration, large exposures, resolution, reporting and disclosure. The EBA's roadmaps set out the timelines for delivery of all of the mandates, including where deadlines have been adjusted by the EBA.

View the EBA's roadmaps for the risk reduction package.

View details of CRD5 and CRR2.

View details of BRRD 2.

The Basel Committee on Banking Supervision has opened two consultations on revisions to the Basel III Pillar 3 disclosure requirements, one related to market risk disclosures and one on sovereign exposures disclosures. Responses to both consultations should be submitted by February 14, 2020. No indication is given as to when the sovereign exposure disclosure requirements might be introduced. The Basel Committee intends to publish the revisions of the market risk disclosure requirements in time for implementation of the revisions by member jurisdictions by no later than January 1, 2022.

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The European Banking Authority has published a report on non-performing loans in the EU banking sector, in which it finds that total NPLs have decreased from over €1.5 trillion in June 2015 to €636 billion in June 2019. The level of European NPLs was a key concern for EU supervisors and market participants following the financial crisis, triggering efforts to deal with the issue at a supervisory, political and market participant level.

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The Basel Committee on Banking Supervision has published a consultation paper on the “Introduction of guidelines on interaction and cooperation between prudential and anti-money laundering/counter-terrorism financing supervision”. Under the consultation paper, the Basel Committee proposes to amend its guidelines on the “Sound management of risks related to money laundering and financing of terrorism” to include guidance on the interaction between prudential and AML/CFT supervision in a bid to enhance the effectiveness of the supervision of banks’ AML/CFT regimes. Responses to the consultation should be submitted by February 6, 2020.

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The Financial Stability Board has met in Paris to review key issues facing financial markets, including vulnerabilities in the global financial system, FinTech developments and its 2020 work program. 

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The European Commission has published the results of its “fitness check” of EU supervisory reporting requirements.  The reporting requirements imposed by EU and national regulatory authorities require regulated institutions to provide information to their respective authorities regarding their financial condition and activities. The European Commission assessed the effectiveness, coherence, relevance and efficiency of existing reporting requirements in order to identify areas that may be simplified or streamlined.

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Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered "homogenous" have been published in the Official Journal of the European Union. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The RTS will apply directly across the EU from November 26, 2019.

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The Basel Committee on Banking Supervision met on October 30-31, 2019 to discuss key policy and supervisory issues, including: (i) a proposed consultation on adjustments to the credit valuation adjustment risk framework; (ii) a proposed consultation on revised market risk and sovereign exposure disclosure requirements; (iii) a proposed discussion paper on the prudential treatment of cryptoassets; (iv) a proposed consultation on guidelines for enhanced cooperation between prudential regulatory authorities and anti-money laundering/counter-terrorism financing authorities; and (v) its reports into the implementation of the Net Stable Funding Ratio and large exposures standards in Argentina and China. All of the proposed consultation papers, as well as the NSFR/large exposures reports, are expected to be published in November 2019.

Other topics under discussion included benchmark rate reforms, the implementation of the Basel Committee's guidance on managing foreign exchange settlement risk and the usability of capital buffers. On the latter subject, the Basel Committee has also published a newsletter reiterating the importance of the capital buffer framework and emphasizing that the buffers are designed to be usable. The Basel Committee has announced that Canada will host the 21 International Conference of Banking Supervisors on October 21-22, 2020.

View the Basel Committee's press release on its October 30-31 2019 meeting.

View the Basel Committee's newsletter on capital buffers.

View details of the 21 International Conference of Banking Supervisors.

The European Banking Authority has published a report identifying potential barriers to customer choice and the cross-border provision of banking and payment services in the EU, together with proposals for how to overcome these issues. Building on the EBA's FinTech Roadmap and the European Commissioner's Consumer Financial Services Action Plan, the report sets out the areas where the institutions, including FinTech firms, may face challenges when seeking to provide intra-EU cross-border services, focusing on authorizations and licensing, consumer protection and conduct of business requirements and anti-money laundering and countering the financing of terrorism. The EBA makes recommendations for where changes to EU primary legislation or further guidelines could address the issues to enhance the EU's single market.

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The U.K. Prudential Regulation Authority has launched a consultation on the capital requirements that apply to credit unions. The PRA considers that credit unions approaching the thresholds of £10 million in assets or 15,000 members may find barriers to expansion under the current capital regime. It also finds that the risks that the capital regime endeavours to tackle could be addressed in a simpler manner than the link between capital and credit union membership size and activity which is currently used. The PRA also considers that engaging with small credit unions earlier could increase chances of a non-failure solution.

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The European Banking Authority has published an opinion recommending amendments to the regulatory treatment of the securitization of non-performing exposures. The opinion examines how securitizations may be used to fund the reduction of NPEs and outlines regulatory constraints imposed on the use of securitizations in this way, alongside its proposals for amendments to the regulatory framework.

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The Working Group on Sterling Risk-Free Reference Rates has written to the Prudential Regulation Authority raising issues in the banking prudential regulation regime that, in its view, will require changes and/or regulatory forbearance if a smooth transition from LIBOR to SONIA is to be achieved. Although the letter focuses on the U.K. regime, the issues are likely to be relevant globally.

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The European Commission has invited responses to its consultation on proposed changes to the standardized approach for market risk. The changes follow the Basel Committee on Banking Supervision’s revisions to the Basel III market risk capital framework, which were published in January 2019. 

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The U.K. Prudential Regulation Authority has launched a consultation on proposed amendments to its Supervisory Statement, “The PRA’s approach to supervising liquidity and funding risk”. The amendments are intended to clarify the appropriate use of the Bank of England’s liquidity facilities and the credibility of recovery plans that rely on such facilities.  

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The European Banking Authority has launched a consultation on its draft Implementing Technical Standards for public disclosures by financial institutions under the Capital Requirements Regulation. CRR implements the Basel Committee on Banking Supervision’s Pillar 3 disclosure requirements, which require relevant financial institutions 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 was published in June 2019 and, for the most part, will apply directly across the EU from June 28, 2021.  It incorporates the revised Basel Committee disclosure standards into CRR and mandates the EBA to produce the draft ITS to ensure comparability of the disclosures made with international non-EU active banks. Responses to the consultation should be submitted by January 16, 2020. The EBA expects to submit the revised draft ITS to the European Commission in June 2020.

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The European Banking Authority has published a consultation on its proposed guidelines on the implementation of the structural FX position contemplated by the Capital Requirements Regulation. The CRR requires institutions to calculate their net open positions in currencies according to specified formulae, but permits institutions to exclude positions that have been taken for hedging purposes and that are of a structural nature. 

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The European Banking Authority has launched a consultation on its draft Implementing Technical Standards for financial institutions’ reporting requirements under the revised Capital Requirements Regulation. The draft ITS will amend the existing reporting regime applicable to banks subject to the CRR, taking into account certain amendments to that regime made by CRR 2 and the “Backstop Regulation”. Responses to the consultation should be submitted by January 16, 2020.

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The Financial Stability Board has published its annual report on the 2019 progress made in the implementation of the G20’s financial reforms. The FSB published an interim progress report in June 2019 at the meeting of G20 Finance Ministers and Central Bank Governors in Japan, which summarized FSB member jurisdictions’ progress to date in implementing the recommended reforms. The annual report provides further detail on the progress made and sets out areas for future work.

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The Financial Stability Board has published a report on the progress its member jurisdictions have made in 2019 on the implementation of agreed G20 reforms to over-the-counter derivatives markets. The report finds that there has been limited additional implementation of the reforms since the FSB’s 2018 report.

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The U.K. Prudential Regulation Authority has published a Policy Statement and final rules to reciprocate the French measure on large exposures, following a recommendation by the European Systemic Risk Board. In July 2018, France's Haut Conseil de stabilité financière (HCSF) imposed a measure under the Capital Requirements Regulation that lowers the large exposure limit, from 25% to 5% of a firm's eligible capital, for French G-SIIs and French O-SIIs for their exposures to French non-financial counterparties that are 'highly indebted'. The PRA will apply the same 5% large exposure limit for exposures to certain French NFCs through amendments to the Large Exposures part of the PRA Rulebook. The measures apply on a consolidated basis to U.K. firms identified by the PRA as Global Systemically Important Institutions and Other Systemically Important Institutions from January 1, 2020.

View the PRA rules.

View the PRA Policy Statement.

The Financial Stability Board has published a report on the progress its member jurisdictions have made in implementing the agreed G20 reforms to over-the-counter derivatives markets in 2018. The report finds that good progress has been made in implementation of the agenda.

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The Financial Stability Board has published a progress update on its ongoing work to tackle market fragmentation. The update follows the FSB’s June 2019 Report on Market Fragmentation, which explored the link between market fragmentation and financial stability and identified four areas for further work to address the issue: deference (e.g. the reliance authorities place on one another when regulating or supervising participants on a cross-border basis); pre-positioning of capital and liquidity; regulatory and supervisory coordination and information-sharing; and market fragmentation as part of the evaluation of reforms, starting with the “too-big-to-fail” evaluation.

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The Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors describing the progress of post-financial crisis reforms and key focus areas for the future. Over the past ten years, the FSB has proposed a number of reforms to the global financial system, working with international organizations on implementation to improve financial stability.

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The U.K. Prudential Regulation Authority has announced that it will provide a new waiver by consent of the Continuity of Access Rules under the Depositor Protection Part of the PRA Rulebook. The DPP Rulebook sets out rules requiring firms to ensure that eligible depositors have access to deposits covered by the Financial Services Compensation Scheme in the event of the firm’s insolvency, by establishing systems to facilitate a transfer of such deposits (the so-called “Continuity of Access” rules).

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The European Commission has launched a public consultation on aligning the EU rules on capital requirements to certain final outstanding elements of the Basel III international standards. On December 7, 2017, the Basel Committee on Banking Supervision published the last part of the Basel III reforms. The revisions were to the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. It was agreed that the revised standards would be implemented from January 1, 2022, except that the output floor would be phased-in until January 1, 2027. The Commission's consultation closes on January 3, 2020.

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The European Banking Authority has issued a further Communication on issues associated with the U.K.'s withdrawal from the EU, scheduled to take place on October 31, 2019. The EBA notes that financial institutions have made progress on their preparations for a no-deal Brexit. However, national regulators have highlighted concerns about the operationalization of relocation plans and customer communication. In particular, national regulators have noted that in some cases authorization has been obtained, but it remains unclear whether the firm has transferred assets, skilled staff and risk function to fully operationalize the new business. The EBA reminds firms of the principles it set out in its October 2017 Opinion on structures, and particularly the need for firms not to set up so-called "empty shells".

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The European Central Bank's Banking Supervision arm has published the 2020 supervisory priorities of the Single Supervisory Mechanism and a risk assessment for 2020. ECB Banking Supervision has identified the following risks to the euro banking sector: (i) economic, political and debt sustainability challenges in the euro area; (ii) business model sustainability; (iii) cybercrime; (iv) execution risk related to banks' strategies for non-performing loans; (v) easing lending standards; (vi) repricing in financial markets; (vii) misconduct, money laundering and terrorism financing; (viii) Brexit; (ix) global outlook and geopolitical uncertainties; (x) reaction to regulation; and (xi) climate-change related risk.

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The European Central Bank has issued a statement on the results of its 2019 supervisory stress test. The European Central Bank is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. It found that the vast majority of banks directly supervised by the ECB have overall comfortable liquidity positions, although there were some vulnerabilities that required further attention. 

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The European Banking Authority has published two reports reviewing the impact of the EU’s implementation of the Basel III capital monitoring reforms and Capital Requirements Regulation liquidity measures. The EBA estimates that once the Basel III reforms are fully implemented, EU banks’ Tier 1 minimum required capital will have increased by an average of 19.3%. Liquidity coverage ratios, meanwhile, averaged roughly 149% in December 2018, significantly above the minimum threshold of 100% set out in the CRR.

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The U.K. Prudential Regulation Authority has launched a consultation on its proposed expectations of how firms manage prudential risks associated with asset encumbrance. The PRA’s expectations are relevant to all PRA-authorized firms, other than credit unions and insurance firms. Responses should be submitted by January 17, 2020.

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The European Banking Authority has published its 2020 Work Programme. The Programme details six strategic areas of focus for 2020 and these are:
 

1. Support the development of the risk reduction package and the implementation of the global standards in the EU. The EBA will work on developing level 2 legislation required by the revised Capital Requirements Regulation and Directive, the revised Bank Recovery & Resolution Directive and the new Covered Bonds Directive and Investment Firm Regulation and related Directive (the latter two have not yet entered into force). The EBA will continue to work on the implementation of the market risk requirements, following the finalization of the Basel Committee on Banking Standard's fundamental review of the trading book (FRTB). In particular, in 2020, the EBA anticipates implementing the reporting requirement and certain aspects of the FRTB revisions for the internal model approach and for the treatment of non-trading book positions subject to FX or commodity risk. Another priority will be finalization of the EBA's roadmap for the internal ratings-based approach for calculating minimum capital requirements for credit risk.
2. Providing efficient methodologies and tools for supervisory convergence and stress testing. The EBA intends to consult on Pillar 2 changes during 2020 and will conduct the 2020 stress test for EU banks.

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The U.K. Prudential Regulation Authority has launched a consultation on its approach to implementing the European Banking Authority's Technical Standards and Guidelines on Probability of Default estimation, Loss Given Default estimation and the treatment of defaulted exposures in the Internal Ratings Based approach to credit risk. The consultation is relevant to U.K. banks, building societies and PRA-designated U.K. investment firms. Responses to the consultation need to be submitted by December 18, 2019.

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The U.K. Prudential Regulation Authority has announced that it will provide a new waiver by consent of the Continuity of Access Rules under the Depositor Protection Part of the PRA Rulebook. The DPP Rulebook sets out rules requiring firms to ensure that eligible depositors have access to deposits covered by the Financial Services Compensation Scheme in the event of the firm’s insolvency, by establishing systems to facilitate a transfer of such deposits (the so-called “Continuity of Access” rules).

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The European Banking Authority has announced that it will clarify by mid-2020 the position of instruments that were both issued and qualified as "own funds" for capital purposes before December 31, 2011. When the Capital Requirements Regulation entered into force, transitional provisions provided that these legacy instruments would also qualify as own funds instruments under the CRR, even if they did not meet the enhanced requirements for own funds introduced in that measure. The transitional period for such instruments ends on December 31, 2021. The EBA has stated that it will provide clarification on the appropriate treatment of the legacy instruments to ensure that banks maintain high quality regulatory capital and that the rules are consistently applied across the EU. The EBA confirms that it will take into account recent changes to own funds requirements in CRR II as well as other linked changes under the Bank Recovery and Resolution Directive.

View the EBA's announcement.

The U.K. Prudential Regulation Authority has published a consultation paper in which it proposes amendments to the Pre-Issuance Notification (PIN) requirements for regulatory capital instruments. The PIN requirements are applicable to PRA-authorized Capital Requirements Regulation firms and require firms to notify the PRA of certain capital instruments that they intend to issue. The PRA assesses the terms and conditions of these instruments prior to issuance, to ensure that firms maintain quality capital resources which comply with CRR. Responses to the consultation are requested by December 9, 2019.

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The Prudential Regulation Authority has published a "Dear CEO" letter sent to all PRA-regulated banks and investment firms (firms that are subject to the Capital Requirements Regulation) on the prudential supervision of money laundering and terrorist financing risks. The PRA reminds firms of the Opinion published by the European Banking Authority on July 24, 2019, which invited national prudential supervisors to (i) make clear to institutions the expectation that prudential supervisors should be aware of AML/CTF risks that may affect the institutions they oversee; and (ii) notify institutions that AML/CTF concerns will be taken into account in determining prudential supervision.

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Following the coming into force on April 26, 2019 of an EU regulation amending the Capital Requirements Regulation that introduced a statutory prudential backstop, and requires banks to have minimum loan loss coverage for newly originated loans, the European Central Bank has published a communication on supervisory coverage expectations for non-performing loans. The ECB communication announces that the ECB has revised its supervisory expectations on NPLs that it published in its March 2018 Addendum to the Guidance for Eurozone banks on NPLs as a result of the Amending Regulation. Neither the Guidance nor the Addendum are legally binding, but both apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries.

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The European Banking Authority has published several documents setting out its advice to the European Commission on the impact and implementation in the EU of the Basel III 2017 reforms. On December 7, 2017, the Basel Committee on Banking Supervision published the last part of the Basel III reforms. The revisions were to the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards take effect from January 1, 2022, except that the output floor may be phased-in until January 1, 2027.

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The European Banking Authority has launched a consultation on its proposed guidelines on the methodology used to determine the weighted average maturity of contractual payments due under securitization transaction tranches for the purposes of the Capital Requirements Regulation. The CRR establishes, amongst other things, the principles by which firms should calculate their credit risk, including in relation to securitization transactions. 

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A series of Implementing Decisions on the equivalence with the EU Credit Rating Agencies Regulation of the credit rating regimes of certain non-EU countries have been published in the Official Journal of the European Union. The EU CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes if a rating is issued by: (i) an EU CRA registered with the European Securities and Markets Authority; (ii) a third-country CRA under the endorsement regime; or (iii) a third-country CRA under the equivalence/certification regime. Equivalence decisions for several jurisdictions were adopted in 2012 under the CRA Regulation, as it was at the time. The equivalence decisions were for Brazil, Canada, Argentina, Singapore, Australia, Mexico, the U.S., Japan and Hong Kong. CRAs from Mexico, the U.S. and Japan subsequently obtained certification from ESMA.

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The European Banking Authority has published an Opinion signaling the importance of money laundering and terrorism financing risks in the prudential supervision of EU Member States. The Opinion invites national prudential supervisors to make clear to institutions in their jurisdictions the expectation that prudential supervisors should be aware of AML/CTF risks that may affect the institutions they oversee. 

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The U.K. Prudential Regulation Authority has published the final version of its amended Supervisory Statement on credit risk mitigation, providing additional clarity on the eligibility of financial collateral under the Capital Requirements Regulation. The Supervisory Statement is published alongside the PRA's Policy Statement, which provides feedback on the responses to the PRA's consultation paper on the same topic launched in January this year. The amendments to the Supervisory Statement are effective as of July 23, 2019, the date the Policy Statement is published. Firms with concerns about their ability to comply with the revised Supervisory Statement are advised to liaise with their usual supervisory contacts.

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The U.K. Prudential Regulation Authority has issued a consultation on proposed additions to its Supervisory Statement on counterparty credit risk. The additions are intended to provide clarity to the market on how firms should satisfy the Capital Requirements Regulation's requirement to ensure senior management are aware of the limitations and assumptions included in models used to calculate exposure values for derivatives. The consultation is relevant to all firms captured by the provisions of the Capital Requirements Directive. Responses to the consultation are requested by October 25, 2019.

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Fulfilling its mandate under the European Commission's FinTech Action Plan to map the current authorization and licensing approaches for innovative FinTech business models in Europe, the European Banking Authority has published a report on the regulatory perimeter, regulatory status and authorization of FinTech activities under its remit, in particular the banking, payment services and electronic money services sectors. The European Securities and Markets Authority published its related report on July 12, 2019.

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The U.K. Prudential Regulation Authority has published a consultation on proposals to reciprocate the French measure on large exposures, following a recommendation by the European Systemic Risk Board. In July 2018, France's Haut Conseil de stabilité financière (HCSF) imposed a measure under the Capital Requirements Regulation that lowers the large exposure limit, from 25% to 5% of a firm's eligible capital, for French G-SIIs and French O-SIIs for their exposures to French NFCs that are 'highly indebted'.

The PRA is proposing to apply the same 5% large exposure limit for exposures to certain French NFCs through amendments to the Large Exposures part of the PRA Rulebook. The proposals would apply to Global Systemically Important Institutions and Other Systemically Important Institutions from January 1, 2020.

Responses to the consultation should be submitted to the PRA by September 6, 2019.

View the consultation paper.