The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
-
UK Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2024 published
November 7, 2024
The Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2024 have been published, with an accompanying explanatory memorandum. Regulations 3 to 7 make consequential amendments in connection with the Financial Services and Markets Act 2023 (Commencement No. 8) Regulations 2024, which bring into force several paragraphs of Schedule 2 to FSMA 2023, granting the Financial Conduct Authority the power to make rules in relation to pre- and post-trade transparency obligations and systematic internalisers.
Read more. -
Financial Stability Board Report on Lessons from March 2023 Banking Turmoil
October 23, 2024
The Financial Stability Board has published a report on depositor behaviour and interest rate and liquidity risks in the financial system. The report draws on lessons from the March 2023 banking turmoil which saw the collapse of several banks, triggered by the confluence of interest rate increases and solvency and liquidity risks. The report identifies life insurers, non-bank real estate investors and banks as most vulnerable to solvency and liquidity risks. These entity types typically have a high proportion of interest rate-sensitive assets and liabilities and are affected by higher rates through various solvency and liquidity risk channels. It also observes that social media may have influenced some of the March 2023 bank runs, along with technological advancements that make it easier and quicker to transfer deposits.
The report finds that the speed of the recent runs means that banks and authorities may need to: (i) be able to react much more quickly to deposit outflows than in the past; (ii) find ways to address the liquidity and solvency vulnerabilities that gave rise to such extreme outflows; and (iii) consider whether monitoring of social media could be helpful as an early warning tool to flag potential stress at a bank or wider turmoil that might affect banks. Consideration could also be given to gathering and publishing data on bank deposits and unrealized losses on bank securities portfolios.Topic : Recovery & Resolution -
HM Treasury Publishes Draft Update to Special Resolution Regime Code of Practice
October 15, 2024
HM Treasury has published a draft new chapter for the Special Resolution Regime Code of Practice that reflects reforms introduced by the Bank Resolution (Recapitalisation) Bill. This draft chapter sets out how the recapitalization mechanism will be used, including the firms that are in scope, how the Bank of England will determine the funds required from the Financial Services Compensation Scheme and assess the relative costs of using the mechanism compared to insolvency, and the Bank of England's accountability. It also clarifies certain aspects of the policy, following the U.K. Government's engagement with industry and Parliament. HM Treasury explains that the draft chapter may change, including as a result of any amendments made to the Bill during the parliamentary process and consultation with the Banking Liaison Panel. The Government intends to issue a finalized version of the Code in full when the Bill comes into force.Topic : Recovery & Resolution -
UK Resolution Authority Consults on Amendments to Approach for Setting MREL
October 15, 2024
The Bank of England has published a consultation paper on amendments to its statement of policy on setting the minimum requirement for own funds and eligible liabilities. The proposals are designed to ensure that the U.K.'s MREL framework: (i) is simplified and consolidated where possible, to make it easier to navigate and implement; (ii) keeps up to date with, and is responsive to, wider developments in financial regulation and markets; (iii) remains aligned with international standards; and (iv) adapts over time to reflect lessons learnt from its implementation.
Read more. -
Basel Committee on Banking Standards Publishes Progress Report on the 2023 Banking Turmoil and Liquidity Risk
October 11, 2024
The Basel Committee on Banking Standards has published a progress report on the 2023 banking turmoil and liquidity risk. The report, requested by the G20 Brazilian Presidency, provides an update on the Basel Committee's analytical work on liquidity risk dynamics observed during the turmoil, building on the Committee's stocktake report published in October 2023. The report includes updated empirical analysis on a range of liquidity-related issues highlighted by the turmoil, including distressed banks' outflow rates, the materiality of different liquidity risk factors, and the role and use of supervisory monitoring tools. Drawing on the findings of this progress report, the Basel Committee plans to pursue a series of follow-up initiatives related to the turmoil, including: (i) prioritizing work to strengthen supervisory effectiveness and identify issues that could merit additional guidance at a global level; and (ii) pursuing additional follow-up analytical work based on empirical evidence to assess whether specific features of the Basel Framework, such as liquidity risk and interest rate risk in the banking book, performed as intended during the turmoil and assess the need to explore policy options over the medium term. -
Single Resolution Board Adapts MREL Policy to Align with the Daisy Chains Directive
September 30, 2024
The Single Resolution Board has published a communication on the changes to its minimum requirements for own funds and eligible liabilities policy to be implemented in line with the "Daisy Chains Directive" (Directive (EU) 2024/1174). That Directive amended the Single Resolution Mechanism Regulation and the Bank Recovery and Resolution Directive. The changes brought in by the Daisy Chains Directive mean that from November 14, 2024, the SRB will not determine the MREL for liquidation entities unless it considers it justifiable to set an amount exceeding the amount sufficient to absorb losses. In addition, provisions of the Capital Requirements Regulation under which resolution authorities may allow, subject to certain conditions being met, institutions to reduce eligible liabilities instruments, will not apply to liquidation entities for which the SRB has not determined MREL. As a result, reporting and disclosure obligations do not apply to the liquidation entities for which the SRB does not determine MREL.
The SRB confirms that the previously adopted decisions setting MREL at the level equal to the loss absorption amount will be repealed with effect as of November 14, 2024. Furthermore, the prior permissions granted to the same liquidation entities under CRR and the related process set out in Delegated Regulation (EU) 241/20146 with validity beyond November 14, 2024 are repealed as of the same date. This means that relevant liquidation entities will no longer be limited by the prior permissions and will be in the position to reduce eligible liabilities instruments without the SRB's prior permission.Topic : Recovery & Resolution -
European Banking Authority Sets 2025 Priorities for Resolution Authorities and Reports on the Progress Achieved in 2023
August 13, 2024
The European Banking Authority published its 2025 European Resolution Examination Programme report. The report sets three priorities for resolution authorities and banks for 2025 and looks at the progress achieved in 2023, identifying any areas of improvement. In 2023, convergence increased within the EU with regards to resolution planning practices and objectives: (i) on the minimum requirement for own funds and eligible liabilities, only four banks did not meet their target as of 1 January 2024; (ii) on the operationalization of the bail-in tool, most resolution authorities have now published their bail-in mechanics and consider that certain challenges (e.g., the identification of holders of instruments, suspension of trading and requirements for issuing prospectuses for the new instruments) persist and are particularly prominent in relation to third country stakeholders; (iii) while some progress has been observed in the area of liquidity in resolution, resolution authorities plan to further increase the intensity of their testing and to challenge the severity of banks' scenarios; and (iv) resolution authorities have performed further testing of management information systems for valuation as some banks showed significant gaps in data quality, automation, granularity and timeliness of report delivery.
Read more.Topic : Recovery & Resolution -
Bank of England Publishes Resolvability Assessment of Major UK Banks 2024
August 6, 2024
The Bank of England has published the findings from its second assessment of the eight major U.K. banks under the Resolvability Assessment Framework. The assessment finds that the major U.K. banks have continued to make progress in improving their preparations for resolution, including embedding resolution preparations into their everyday business, and in addressing issues outstanding from the first assessment in 2022. The BoE used the second Resolvability Assessment Framework assessment to assess the major U.K. banks' progress against issues outstanding from the first assessment, and for the first time to test how their preparations for resolution work in practice. The assessment focused on one of the three outcomes major U.K. banks need to achieve to be considered resolvable: having adequate financial resources in the context of resolution. In doing so, the BoE has identified new issues, although it notes that none of these new issues are likely to impede its ability to execute a resolution. Banks are expected, as a priority, to address the feedback from this and the previous Resolvability Assessment Framework assessment and continuously maintain and improve their resolvability capabilities.
Read more.Topic : Recovery & Resolution -
House of Lords Committee Re-Opens FCA-Related Inquiries
August 5, 2024
The House of Lords Financial Services Regulation Committee announced that it has reopened the following inquiries into:- The Financial Conduct Authority's enforcement guidance consultation (CP24/2). The deadline for responding to the call for evidence is now October 11, 2024. The Committee also confirmed that it will invite the FCA to provide oral evidence at a later date.
- The secondary international competitiveness and growth objective given to the FCA and the Prudential Regulation Authority under the Financial Services and Markets Act 2023. The deadline for comments to this call for evidence is November 29, 2024.
The calls for evidence were reopened following the Committee's reappointment on July 29, 2024. The Committee was dissolved on May 30, 2024, following the dissolution of Parliament.Topic : Recovery & Resolution -
Bank Resolution (Recapitalisation) Bill 2024-25
July 18, 2024
Following the King' Speech, the Bank Resolution (Recapitalisation) Bill 2025-25 has been introduced to Parliament. The Bill intends to avoid additional upfront financial costs for the financial services sector, by relying on the existing Financial Services Compensation Scheme funding system where industry is only levied to pay for the costs of failure after the event. Specifically, it: (i) expands the statutory functions of the FSCS, requiring it to provide funds to the Bank of England upon request which could be used to meet certain costs arising from the use of the resolution regime to manage the failure of a bank, building society or PRA-authorized investment firm; (ii) allows for the FSCS to use its levy-raising powers to recover any funds provided to the BoE after a failure event through imposing levies on the banking sector; (iii) extends the BoE's ability, through explicit provision, to require the issuance of shares in connection with a resolution, to facilitate the BoE's use of the funds provided by the FSCS to meet a failing bank's recapitalization costs; and (iv) makes a number of minor and consequential amendments to legislation to support the measures outlined above and ensure FSCS funds can be used effectively in a resolution.Topic : Recovery & Resolution -
King's Speech 2024
July 17, 2024
The King's speech to Parliament sets out the new government's legislative program. The government has published background briefing notes relating to the King's Speech, providing a summary of the legislation to be brought forward. The Bills announced, in relation to financial services, include:- A Bank Resolution (Recapitalisation) Bill, which would aim to enhance the U.K.'s resolution regime, providing the Bank of England with a more flexible toolkit to respond to the failure of small banks. The Bill would expand the statutory function of the Financial Services Compensation Scheme to provide funds to the BoE upon request, to be used where necessary to support the resolution of a failing bank. The FSCS would then recover the funds provided by charging levies on the banking sector, similar to the current arrangements for funding depositor pay-outs in insolvency. Credit unions will not be in scope of this levy. The BoE will also be provided with the power to require a bank in resolution to issue new shares, facilitating the use of FSCS funds to meet a failing bank's recapitalization costs.
-
European Banking Authority Updates on Own Funds and Eligible Liabilities Instruments
June 27, 2024
The European Banking Authority has published an updated report on the monitoring of Additional Tier 1, Tier 2 and total loss absorbing capacity as well as the minimum requirement for own funds and eligible liabilities instruments of EU institutions. The update provides new guidance on the prudential valuation of non-CET1 instruments and on other aspects related to the terms and conditions of the issuances. The report builds upon the 2023 update with substantial amendments made.
Read more. -
Council of the European Union Agrees Mandate on Bank Crisis Management and Deposit Insurance Framework
June 19, 2024
The Council of the European Union has agreed on a negotiating mandate on the review of the crisis management and deposit insurance framework for banks. The proposals consist of three pieces of legislation, the proposed texts of which the Council has also published: (i) a proposed Directive amending the EU Bank Recovery and Resolution Directive regarding early intervention measures, conditions for resolution, and financing of resolution action; (ii) a proposed Regulation amending the Single Resolution Mechanism Regulation regarding early intervention measures, conditions for resolution, and funding of resolution action; and (iii) a proposed Directive amending the EU Deposit Guarantee Scheme Directive as regards the scope of deposit protection, use of deposit guarantee schemes funds, cross-border cooperation, and transparency. In its announcement, the Council highlights its proposals, including in relation to the public interest assessment, using the DGS funds to "bridge the gap" after the minimum requirement for own funds and eligible liabilities, allowing them to subsequently unlock an intervention of the Single Resolution Fund, the hierarchy of claims, preventative and alternative measures, extraordinary public financial support, and SRB governance. As the European Parliament adopted its position in first reading on April 24, 2024, interinstitutional negotiations may now begin.Topic : Recovery & Resolution -
EU Amends Disclosures and Reporting on MREL and TLAC
June 7, 2024
Commission Implementing Regulation 2024/1618 amending Implementing Regulation (EU) 2021/763, laying down implementing technical standards on supervisory reporting and public disclosure of MREL and TLAC, has been published in the Official Journal of the European Union. The amending ITS were created in response to changes to the EU Capital Requirements Regulation as well as to clarify requirements in response to the Single Rulebook Q&A process. In particular, the amending ITS adjust the templates and reporting instructions to reflect: (i) the requirement to deduct investments in eligible liabilities instruments of entities belonging to the same resolution group ("daisy chain" framework); (ii) the prior permission regime for buying back eligible liabilities instruments issued by the reporting entities and groups; and (iii) other minor updates to the ITS and the accompanying technical package to address some identified issues. The amending ITS will enter into force on June 27, 2024, and will apply from December 27, 2024. -
UK Prudential Regulation Authority Publishes Dear CEO letter on Non-Systemic Firms' Recovery Planning
May 15, 2024
The U.K. Prudential Regulation Authority has published a Dear CEO letter addressed to non-systemic U.K. banks and building societies setting out proposals for improvement on resolvability and recovery planning. The PRA's proposals are also applicable to PRA-regulated international banking subsidiaries operating in the U.K. The letter follows the PRA's recent review of the recovery planning capabilities of a sample of such firms, which found that although many firms understood the basics of recovery planning, there were significant areas for improvement, in particular the development of recovery scenarios and calculation of recovery capacity.
In particular, the PRA found that, with respect to recovery scenarios, firms were not using scenarios of sufficient severity. They are encouraged to provide analysis on how they define and calculate their point of non-viability and to ensure their recovery capacity calculation reflects the parameters of the stress. With respect to recovery capacity, firms were found not to be calculating their recovery capacity effectively and are requested to review their methodology for such calculations.
The PRA proposes to engage with firms and trade associations on the substance of the letter in H2 2024. Firms are expected to consider the PRA's proposals and update their recovery plans to meet expectations in PRA Supervisory Statement 9/17 on Recovery Planning.Topic : Recovery & Resolution -
UK Seeks to Enhance Resolution Regime for Small Banks Following SVB Failure
01/18/2024
HM Treasury has launched a consultation that sets out proposals for enhancing the Special Resolution Regime by introducing a new means for the Bank of England, as the U.K. resolution authority, to use stabilization powers to manage the failure of a smaller bank. The proposal arises from the lessons learned from the failure of SVB, which resulted in its U.K. subsidiary, SVB UK, becoming unviable. SVB UK was transferred to HSBC using the resolution powers of the Bank of England.
The government does not intend to remove the Bank Insolvency procedure from the SRR. However, it is believed that the SRR could be enhanced to better manage the failure of smaller banks which are not identified as systemically important but which may be collectively impacted so as to create a systemic risk for the U.K. financial markets.
Instead of insolvency, the current regime allows for a failing bank to be transferred to a bridge bank or a private owner. However, there is concern about the potential risk to taxpayers as the bank may need to be recapitalized. HM Treasury is proposing that the Bank of England should be permitted to use funds provided by the banking sector to cover the costs linked to a resolution, including those related to recapitalizing and operating the failed bank. The funds would be levied on the banking sector.
Responses to the consultation may be submitted until March 7, 2024. The government will issue its response once it has analyzed feedback to the proposals and, if appropriate, legislate to bring the proposals into effect. If the proposal proceeds, changes will also be made to the Special Resolution Regime Code of Practice.Topic : Recovery & Resolution -
HM Treasury Publishes Response to Consultation on Managing Failure of Systemic Digital Settlement Asset Firms
11/03/2023
HM Treasury has published a response to its consultation on managing the failure of systemic digital settlement asset firms. DSAs are defined broadly under the Financial Services and Markets Act 2023 as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. The FSM Act (discussed in our client note, A Boost for UK Financial Services) granted HM Treasury powers to supervise certain activities related to DSAs. This included the power to apply the Financial Market Infrastructure Special Administration Regime to systemic DSA firms (other than banks, which are covered by existing regulatory frameworks).
Read more. -
UK Government Publishes Draft Regulations on CCP Recovery & Resolution
10/20/2023
The draft Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023 were laid in Parliament on October 16, 2023. The draft Regulations provide for corporate law modifications and other amendments to ensure that the U.K. CCP resolution regime functions effectively. The Financial Services and Markets Act 2023 (discussed in our client note, "A Boost for U.K. Financial Services") expanded the CCP resolution regime, giving the Bank of England, as resolution authority, additional powers to safely resolve a failing CCP. Most of the provisions of the expanded regime entered into force on August 29, 2023, under the first commencement regulations made under the FSM Act. Using powers conferred by the FSM Act, HM Treasury, through the draft Regulations, aims to ensure legal certainty and coherence by amending provisions of existing legislation, such as the Companies Act 2006 and the Bank Recovery and Resolution (No.2) Order 2014. The draft Regulations are intended to enter into force on December 31, 2023. -
Consultation on Near-Term UK Ring-Fencing Regime Reforms
10/10/2023
HM Treasury has launched a consultation on proposed near term reforms to the U.K. ring-fencing regime—"A Smarter Ring-Fencing Regime"—and published its response to its call for evidence on the practicalities of aligning the ring-fencing and resolution regimes for banks. These potential changes to the four-year-old ring-fencing regime were announced in the government's Edinburgh Reforms, which we discuss in our client note: "UK Government Publishes Edinburgh Reforms for Financial Services."
Read more. -
UK Regulator Consults on Rules for Ring-Fenced Banks to Establish Overseas Entities
10/10/2023
The U.K. Prudential Regulation Authority is consulting on a proposed rule and policy changes relating to the establishment and maintenance of third-country branches and subsidiaries within ring-fenced banking groups. The PRA's consultation comes out of HM Treasury's Smarter Ring-Fencing Regime consultation, in which it is proposing, among other things, to remove the ban on RFBs that prevents them from operating in or servicing customers outside the U.K. and European Economic Area. Responses to the PRA's consultation may be submitted until November 27, 2023.
The PRA is proposing to require an RFB to ensure that risks from its overseas subsidiary or branch are not material to its safety and soundness, including its ability to continue to provide core services in the U.K. and its resolvability. It also proposes to update its existing Supervisory Statement on RFBs to set out its proposed approach to assessing compliance with the new rule and determining whether there is a material risk to a RFB's stability. -
UK Government Consults on Managing Systemic Stablecoin Firm Failures
05/31/2022
HM Treasury has opened a consultation on managing the failure of systemic digital settlement asset firms, including stablecoin firms. In April 2022, the U.K. government confirmed that it will bring the issuing of or the facilitating of the use of stablecoins used as a means of payment into the U.K. regulatory perimeter. Issuers of stablecoins for payments as well as other entities providing related services, including wallet providers and firms providing custody services, will be subject to regulation by the Financial Conduct Authority. The government also noted that, to manage the failure of systemic stablecoin firms, it would be considering extending the definition of a payment system to include arrangements that facilitate or control the transfer of "digital settlement assets" (DSAs). Such firms that are deemed systemically important will also be subject to supervision by the Bank of England, meaning that they will be authorized by the FCA and recognized by the Bank of England, and the Bank will be the lead prudential regulator.
Read more. -
Bank of England Publishes MREL Consultation and Operational Guide to Bail-In
07/22/2021
The Bank of England has published two documents on the U.K.’s bank recovery and resolution regime: a consultation on its approach to setting minimum requirements for own funds and eligible liabilities and an operational guide to the execution of bail-in in the U.K. In a statement on the publications, the BoE’s Deputy Governor for Markets and Banking explained that, while progress has been made in ensuring the resolvability of U.K. firms, there is more work to do to address resolvability risks. The consultation paper and operational guide form part of the U.K.’s maturing recovery and resolution regime.
Read more.Topic : Recovery & Resolution -
HM Treasury Publishes Response to Consultation on Insolvency Changes for Payment and Electronic Money Institutions
04/26/2021
HM Treasury has published its response to feedback on its December 2020 consultation on a proposed Special Administration Regime for payment institutions and electronic money institutions that fall within the scope of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The SAR is designed to address shortcomings of the existing insolvency regime and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs. Key objectives of the regime will include returning customer funds as soon as reasonably practicable, facilitating timely cooperation with payment systems and authorities and rescuing the institution as a going concern or winding it up in the best interests of creditors.
Read more. -
European Commission Launches Consultation on EU Crisis Management and Deposit Insurance Framework
02/25/2021
The European Commission has launched a consultation to aid its review of the EU crisis management and deposit insurance framework. The framework consists of the EU Bank Recovery and Resolution Directive, the EU Single Resolution Mechanism Regulation and the EU Deposit Guarantee Scheme Directive. It was introduced in the aftermath of the financial crisis and has applied across the EU since 2015 (in the case of BRRD and DGSD) and 2016 (in the case of SRMR). A number of problems have been identified with the framework, as described in the European Commission's November 2020 roadmap for this consultation. Key issues include: (i) incentivization of the use of tools other than resolution by Member States; (ii) discrepancy in the use and availability of insolvency tools across Member States, leading to inconsistent application of the framework; (iii) limited legal certainty and predictability as to when the framework will be used; and (iv) variation in the scope of depositor protection and payout processes across Member States.
Read more.Topic : Recovery & Resolution -
UK HM Treasury Consults on an Expanded Resolution Regime for CCPs
02/24/2021
HM Treasury has opened a consultation seeking views on an expanded resolution regime for CCPs. The existing U.K. CCP recovery and resolution regime was established by the Financial Services Act 2012, which extended to CCPs (with modifications) the special resolution regime for banks and investment firms. Since then, there have been international and EU developments. In particular, the Financial Stability Board published guidance on financial resources for CCP resolution and the EU has published the EU CCP Recovery and Resolution Regulation. The U.K., when it was an EU member state, supported and helped develop the EU Regulation. HM Treasury is proposing to amend the U.K. regime to bring it into line with international standards and the proposals, bar a few technical exceptions, follow the EU Regulation. Responses to the consultation may be submitted until May 28, 2021.
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. -
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. -
EU CCP Recovery and Resolution Regulation Published
01/22/2021
The EU Regulation on the recovery and resolution of CCPs has been published in the Official Journal of the European Union. The Regulation sets out the rules and procedures for the recovery and resolution of EU CCPs authorized under the European Market Infrastructure Regulation. The aim of the Regulation is the establishment of a framework for the orderly recovery of a CCP through implementation of recovery plans. A CCP's recovery plan will form part of its operational rules, which are agreed with its clearing members. A CCP's operating rules must also ensure the enforceability of the recovery measures outlined in the recovery plan, including to contracts or assets governed by the law of a third country or to third-country entities.
If the recovery measures do not restore the CCP's viability, the CCP's resolution authority will have the power to take action to ensure the continuity of the CCP's critical functions and, if needed, resolve the CCP. This includes setting up bridge CCPs. In the event of losses arising under a resolution, these will be borne by a CCP's owners, creditors and counterparties in line with the hierarchy of claims in insolvency. The CCP recovery and resolution framework would apply to all CCPs established in the EU. It is not proposed that the recovery and resolution framework would apply to the wider group of a CCP.
Read more. -
Final Draft EU Technical Standards on Conditions of Impracticability of Bail-in Clauses
12/23/2020
The European Banking Authority has published a final report and final draft Regulatory Technical Standards and Implementing Technical Standards on the impracticability of contractual recognition of write-down and conversion (i.e., bail-in) under the EU Bank Recovery and Resolution Directive. BRRD requires certain firms to include contractual recognition of bail-in in their contractual agreements covering particular liabilities which are governed by the law of a third country. This is now a more significant issue than previously, given the prevalence of English law contractual documentation in European financial markets, including following Brexit. A new exemption to the contractual bail-in requirement was introduced under BRRD 2 (which EU member states must apply through national laws from December 28, 2020) where firms consider that it is legally or otherwise impracticable to include the contractual recognition. Liabilities subject to this waiver cannot count towards MREL, must be senior to unsecured claims arising from certain debt instruments and firms intending to take advantage of the exemption should notify their resolution authority.
Read more.Topic : Recovery & Resolution -
Bank of England Publishes Discussion Paper on its Approach to Setting MREL
12/18/2020
The Bank of England has published a Discussion Paper on its approach to setting the minimum requirement for own funds and eligible liabilities for relevant U.K. financial institutions. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution. The requirement applies to all U.K. banks, building societies and certain investment firms supervised by the U.K. Prudential Regulation Authority or Financial Conduct Authority, to financial or mixed financial holding parent companies of those firms, and to PRA or FCA-authorized financial institutions that are subsidiaries of those firms or parent companies. The U.K. first implemented interim MREL requirements (which were lower than the full, “end-state” MREL requirements) in 2016 in line with the EU’s Bank Recovery and Resolution Directive. The U.K.’s MREL policy was updated in 2018 and in June 2018 the BoE announced that it would review MREL calibration before final “end-state” MRELs were set. The Discussion Paper forms the first part of the BoE’s review.
Read more.Topic : Recovery & Resolution -
Bank of England Extends MREL and Resolvability Deadlines for Mid-Tier Banks
12/18/2020
The Bank of England has extended until January 1, 2023 the deadlines for “mid-tier” banks to comply with: (i) end-state minimum requirements for own funds and eligible liabilities; and (ii) resolvability assessment framework requirements. “Mid-tier” banks are those that do not qualify as global systemically important banks (as identified by the Financial Stability Board) or domestic systemically important banks (i.e. those that are subject to the U.K. Prudential Regulation Authority’s leverage ratio requirement or are designated as other systemically important institutions by the PRA and have a resolution entity in the U.K.). The term also includes U.K. material subsidiaries of such firms and certain U.K. subsidiaries of overseas groups for which the BoE has set internal MREL in excess of minimum capital requirements.
Read more.Topic : Recovery & Resolution -
HM Treasury Consults on Draft Rules for Insolvency Regime for Payment and Electronic Money Institutions
12/17/2020
HM Treasury has published a supplementary annex to its consultation on the U.K. Government's proposed Special Administration Regime for payment institutions and electronic money institutions. The SAR would address shortcomings of the existing insolvency regime for PIs and EMIs and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs.
Read more. -
HM Treasury Consults on Insolvency Changes for Payment and Electronic Money Institutions
12/03/2020
HM Treasury has launched a consultation on the U.K. Government's proposed Special Administration Regime for payment institutions and electronic money institutions that fall within the scope of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The SAR would address shortcomings of the existing insolvency regime for PIs and EMIs and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs. Responses to the consultation should be submitted by January 14, 2021.
Read more. -
Financial Stability Board Issues Final Guidance on Financial Resources for CCP Resolution
11/16/2020
The Financial Stability Board has issued a final report and guidance on financial resources to support CCP resolution and on the treatment of CCP equity in resolution. The FSB consulted on the guidance in 2018, stating that, in its view, further evidenced-based guidance was needed to develop the guidance, such as the practical experience of resolution planning that resolution authorities and Crisis Management Groups have gained.
Read more. -
European Commission Publishes Roadmap for EU Bank Crisis Management and Deposit Insurance Framework
11/10/2020
The European Commission has published a roadmap for its proposed review of the EU's crisis management and deposit insurance framework. The framework consists of the EU Bank Recovery and Resolution Directive, the EU Single Resolution Mechanism Regulation and the EU Deposit Guarantee Scheme Directive. It was introduced in the aftermath of the financial crisis and has applied across the EU since 2015 (in the case of BRRD and DGSD) and 2016 (in the case of SRMR).
Read more.Topic : Recovery & Resolution -
Global Common Template Published to Aid Continuity of Access to Financial Market Infrastructures
08/14/2020
The Financial Stability Board has published a common template for gathering information about continuity of access to financial market infrastructures for firms in resolution. The template facilitates implementation of the FSB’s 2017 Guidance on continuity of access to FMIs for a firm in resolution. The aim of the common template is to streamline the process of gathering information, reduce the burden on FMIs who receive multiple requests for information and make more efficient the process of giving information by FMIs to participants and authorities. All FMIs are urged to complete the questions in the common template and to make those available to their participants and national resolution authorities by November/December 2020. The FSB intends, after 12 months, to assess how the common template has achieved its goals.
View the comment template.
View the FSB’s Guidance. -
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. -
European Banking Authority Consults on Technical Standards on Pillar 2 and Combined Buffer Requirements for MREL under BRRD
07/24/2020
The European Banking Authority has launched a consultation on its draft Regulatory Technical Standards for the methodology that EU resolution authorities should use to estimate the Pillar 2 and combined buffer requirements used to set the minimum requirement for own funds and eligible liabilities under the EU Bank Recovery and Resolution Directive. Responses to the consultation should be submitted by October 24, 2020. The draft RTS are intended to be finalized by December 2020.
Read more.Topic : Recovery & Resolution -
European Banking Authority Consults on Technical Standards on Impracticability of Contractual Recognition of Bail-In
07/24/2020
The European Banking Authority has launched a consultation on draft Regulatory Technical Standards and draft Implementing Technical Standards on the impracticability of contractual recognition of write-down and conversion (i.e. bail-in) powers under the EU Bank Recovery and Resolution Directive. Responses to the consultation should be submitted by October 24, 2020.
Read more.Topic : Recovery & Resolution -
UK Prudential Regulator Consults on Simplified Obligations for Bank Recovery Planning
07/23/2020
The U.K. Prudential Regulation Authority has published a consultation on simplified obligations for PRA-authorized banks, buildings societies, PRA-designated investment firms and their qualifying parent undertakings that are subject to the Recovery Plans Part of the PRA Rulebook. The consultation is primarily aimed at smaller and non-systemic firms. The PRA's consultation closes on October 23, 2020, after which it plans to publish a final Policy Statement on its proposals in the second half of 2020 or 2021.
Read more.Topic : Recovery & Resolution -
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. -
UK Resolution Authority Provides Clarity on Impact of LIBOR Transition on Bail-In and Stays Clauses
07/07/2020
Following the letter published on December 18, 2019, to the Chair of the Working Group on Sterling Risk-Free Reference Rates, which provided clarification on the impact that the LIBOR transition is likely to have on the prudential requirements for banks, the Prudential Regulation Authority has published a statement providing clarity on the implications of LIBOR transition for contracts in scope of the PRA’s rules on Contractual Recognition of Bail-In and Stay in Resolution. The PRA states that, where the sole purpose of an amendment to a liability or a financial arrangement is to cease using LIBOR, the amendment should not be considered a material amendment under the PRA rules.
Read more. -
HM Treasury Consults on UK Transposition of Revised EU Bank Recovery & Resolution Directive
06/23/2020
HM Treasury has launched a consultation on the U.K.'s intended transposition of the revised EU Bank Recovery and Resolution Directive (known as BRRD 2). BRRD 2 came into force in June 2019 and introduced a series of amendments to BRRD. EU Member States are required to transpose BRRD 2 into their national laws and apply the provisions by no later than December 28, 2020, except for provisions relating to Minimum Requirements for Own Funds and Eligible Liabilities, which apply from January 1, 2024. Under the terms of the Brexit Withdrawal Agreement, the U.K. government has committed to implementing all EU legislation due to be transposed before the end of 2020. HM Treasury has confirmed that, as the implementation of MREL provisions is not required until 2024, the U.K. intends to exercise its discretion to transpose those requirements. The U.K. already has a MREL framework which is based on the Financial Stability Board's Total Loss Absorbing Capacity standards.
Read more. -
European Commission Publishes Adjusted 2020 Work Program
05/27/2020
The European Commission has published an adjusted 2020 Work Program to reflect the unexpected challenges arising from COVID-19. The Commission still intends to deliver on the commitments made under its original Work Program, published in January 2020, but has adjusted the timing of certain actions necessary to achieve its objectives. An update on the delivery and expected timing of the objectives under the adjusted Work Program are set out in an amended version of Annex 1 on the Commission’s website.
Read more. -
European Banking Authority Report on Links Between Bank Recovery and Resolution Planning
05/20/2020
The European Banking Authority has published a report on the links between recovery and resolution planning for EU credit institutions and investment firms subject to the EU Bank Recovery and Resolution Directive.
BRRD sets out the actions that must be taken where EU credit institutions and certain EU investment firms run into financial difficulty. Recovery and resolution are the BRRD “crisis preparation tools” designed, in the case of recovery, by the firm itself to help the firm recover from a severe stress scenario and, in the case of resolution, by the resolution authority where recovery is no longer viable and resolution action must be taken. The EBA notes that, while the two processes are separate, they are related and recovery may often lead to resolution. By assessing links between planning for each process, synergies could be maximized and material inconsistencies addressed to ensure a more effective application of the regime.
Read more.Topic : Recovery & Resolution -
Single Resolution Board Launches Consultation on Standardized Data Set for Resolution Valuations
05/19/2020
The EU Single Resolution Board has launched a consultation on two proposed documents providing further guidance on the SRB’s expectations for the minimum data sets required to support a robust valuation for Eurozone bank resolutions. Responses to the consultation should be submitted by June 30, 2020.
In February 2019, the SRB published its Framework for Valuation, a guidance document for independent valuers and the public setting out the SRB’s expectations on the principles upon which valuations for resolution under the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation should be based.
Read more.Topic : Recovery & Resolution -
EU Consultation on Requirements for Contractual Provisions for Recognition of Stay Powers
05/15/2020
The European Banking Authority has opened a consultation on proposed Regulatory Technical Standards on the contractual recognition of stay powers under the Bank Recovery and Resolution Directive. Revisions to the BRRD were published in June 2019. EU Member States are required to transpose the amending Directive into their national laws and to apply the provisions by no later than December 28, 2020, except for provisions relating to the minimum requirement for own funds and eligible liabilities (MREL), which apply from January 1, 2024. The consultation closes on August 15, 2020.
The BRRD provides resolution authorities with powers to stay the contractual rights of parties in financial contracts. These powers allow resolution authorities, for a limited period of time, to suspend contractual payment or delivery obligations due under a contract with a firm under resolution. In certain circumstances before resolution, a resolution authority may also restrict the enforcement of security interests and suspend certain rights of counterparties, such as rights of close-out, netting, accelerating future payments or terminating financial contracts.
Read more.Topic : Recovery & Resolution -
European Banking Authority Publishes Final Set of Recommendations for Improving the EU Deposit Guarantee Scheme Directive
02/11/2020
The European Banking Authority has published the third in a series of three opinions on the implementation of the Deposit Guarantee Scheme Directive in the EU. This opinion relates to DGS funding and uses of DGS funds. It is dated January 23, 2020. The first opinion related to the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes and was published in August 2019. The second opinion, published in October 2019, was on DGS payouts. The opinions have been prepared to assist the European Commission in its obligation to report on the implementation of the DGSD.
Read more. -
European Commission Publishes 2020 Work Programme
01/29/2020
The European Commission has published its 2020 Work Programme, setting out the EU’s strategic priorities for the next 12 months.
Read more. -
EU Proposals to Amend the EU-Wide Stress Test Framework for Banks
01/22/2020
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.