Banking and finance regulatory news, September 2020 # 2

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Recent regulatory developments focussing on banking and finance. See also our General regulatory news of relevance to all financial institutions.

Contents

  • Credit unions: PRA 2020 annual assessment of category 5 credit unions
  • LIBOR transition: progress in the European leveraged loans market

Credit unions: PRA 2020 annual assessment of category 5 credit unions

The UK Prudential Regulation Authority (PRA) has updated its webpage on credit unions to publish letters sent to directors of category 5 credit unions, setting out the findings of its 2020 assessment of these firms. Category 5 credit unions received one of two letters, depending on which peer group they fell into:

In its letters, the PRA sets out its supervisory expectations relating to the response to COVID-19, the single customer view and orderly resolution, operational risk and resilience, prudential management and governance. For category 5 plus credit unions, the PRA sets out its expectations concerning credit risk and, for small unions, the PRA sets outs its expectations concerning bad debt provisioning and the calculation of regulatory capital.

The letter received by the credit union should be considered by all directors.

LIBOR transition: progress in the European leveraged loans market

As we fast approach the end of Q3, it is a good time to assess what progress is being made in the European leveraged loans market towards LIBOR transition. That's because one of the stated top level priorities of the UK Working Group on Sterling Risk Free Reference Rates (the £RFRWG) is that by the end of this month regulated lenders should be capable of making available loans which use a non-LIBOR benchmark and should include contractual conversion mechanisms in new or refinanced LIBOR products.

In other words, from 1 October 2020, sterling loans which extend beyond the end of next year should either hardwire a transition to SONIA or at least set out an agreed process for the renegotiation of the contract to reflect a SONIA benchmark or other alternative rate.

Whilst not regulated, debt fund lenders also need to be alive to these deadlines, particularly where they are looking to sell down part of the debt or where the financing structure depends on bringing in a bank to provide working capital facilities.

Read more in our latest update: Gearing up a rate: LIBOR transition progress in the European leveraged loans market.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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