Banking and finance regulatory news, August 2021

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Reports on key UK and EU recent regulatory developments focussing on banking and finance. See also our supplementary Financial institutions general regulatory news and other sector news in the Related Materials links.

Contents:

  • Bank of England Act 1998 (Macro-prudential Measures) (Amendment) Order 2021
  • Frozen banks accounts: Treasury Select Committee requests information from FCA
  • Executing bail-in: BoE operational guide
  • MREL framework: BoE consultation
  • BBLS: FCA Dear CEO letter on lenders reporting fraudulent activity
  • COVID-19: ECB repeals recommendation to banks on dividend distributions from 30 September 2021
  • CRR: SRB approach to prior permissions regime
  • CRR: EBA consults on amendments to ITS on currencies with constraints on availability of liquid assets
  • Proposed Directive on cross-border law enforcement access to bank account registries: European Commission consultation
  • Mystery shopping: EBA methodological guide
  • G-SIB assessment methodology review process: BCBS consults on technical amendments

Bank of England Act 1998 (Macro-prudential Measures) (Amendment) Order 2021

The Bank of England Act 1998 (Macro-prudential Measures) (Amendment) Order 2021 (SI 2021/869) has been published, together with an explanatory memorandum. The Order sets out amendments to the statutory instruments that give the Financial Policy Committee (FPC) the power to direct the PRA and the FCA to take action with respect to specified macro-prudential measures. The intention of these amendments is to ensure that the macro-prudential measures Orders made under sections 9I(2) and 9L of the Bank of England Act 1998 appropriately track the PRA's new powers that are being introduced under the Financial Services Act 2021.

The Order came into force on 21 July 2021.

Frozen banks accounts: Treasury Select Committee requests information from FCA

The House of Commons Treasury Select Committee published a letter it has sent to the Financial Conduct Authority (FCA) on frozen bank accounts. The Committee is concerned about recent press reports that the bank accounts of some vulnerable customers on low incomes may have been frozen for no apparent reason. The FCA is asked to respond to a number of questions by 9 August 2021. The FCA's response will be published.

Executing bail-in: BoE operational guide

The Bank of England (BoE) has published an operational guide on executing bail-in. This operational guide provides practical information on the ways in which the BoE might execute a bail-in resolution, and in particular the operational processes and arrangements that may be involved. The BoE has also published three draft template resolution instruments: a Bail-in Resolution Instrument, a Supplemental Resolution Instrument, and an Onward Transfer Resolution Instrument, all available on the BoE website. The BoE states that the template resolution instruments would be a useful starting point for the preparation of the instruments and other documents required for a bail-in.

In light of the fact that bail-in is a crisis management tool, the BoE reserves its full discretion to depart from the approach in the operational guide and template resolution instruments should it be judged appropriate in the circumstances of a particular case.

MREL framework: BoE consultation

Following its December 2020 discussion paper on the topic, the BoE has published a consultation paper on proposed changes to its minimum requirement for own funds and eligible liabilities (MREL) framework. Annex 1 of the consultation paper also includes the BoE's feedback to the points raised in response to its discussion paper, which have informed its proposals. Proposed changes to the text of the BoE's MREL statement of policy are set out in Annex 2 to the consultation paper.

The consultation closes on 1 October 2021. The BoE intends to make any policy changes by the end of 2021, taking account of feedback received.

BBLS: FCA Dear CEO letter on lenders reporting fraudulent activity

The FCA has published a Dear CEO letter setting out its expectations of lenders in reporting any instances where an FCA firm, as a borrower of the Bounce Back Loan Scheme (BBLS), has committed or otherwise been involved in fraudulent activity.

The FCA states that, if there are allegations of fraud regarding an authorised firm (or a firm registered for supervision under the Money Laundering Regulations 2017 (Annex 1 firms)), the FCA expects the lender, after completing its initial investigations to understand the validity of the allegation, to inform the FCA in line with its Principles of Business, PRIN 11.

Once a report has been submitted, the firm should continue its own investigations and take appropriate action (notification to the FCA is complementary to and not a replacement for other obligations being fulfilled). The FCA will engage with firms on cases that are of particular interest to it and may request additional information about the loan or the firm's investigation.

The FCA also asks firms to be alert to the possibility of fraud when undertaking BBLS collection and recovery activities. The scheme rules for the BBLS set out the obligations on a firm, as a scheme lender, to inform the British Business Bank (BBB). They should also report BBLS fraud to Action Fraud or Police Scotland and the FCA asks firms to consider the need to report alleged or identified fraud to other professional bodies or regulators linked to the borrower.

More generally, where fraud is identified or alleged, the FCA reminds firms to consider their obligations under the Proceeds of Crime Act to report suspicions of money laundering.

The FCA also reminds firms of its key messages relating to the fair treatment of customers through regulated collections and recoveries. It also reminds firms that it is important that senior managers under the senior managers and certification regime (SMCR) are taking reasonable steps to ensure that the business of the firm for which they are responsible is controlled. The FCA emphasises that a senior manager's accountability stretches across both regulated and unregulated lending.

COVID-19: ECB repeals recommendation to banks on dividend distributions from 30 September 2021

On 29 July 2021, European Central Bank (ECB) recommendation ECB/2021/31 was published in the Official Journal of the EU. Recommendation ECB/2021/31 repeals, from 30 September 2021, the ECB's recommendation ECB/2020/35 on banks' dividend distributions during the COVID-19 pandemic with effect from 30 September 2021.

The ECB has also published an updated version of its FAQs on the supervisory measures it has taken in reaction to the COVID-19 pandemic, which details that the original recommendation for banks to suspend and then to curtail their distributions was an exceptional measure intended for exceptional circumstances. The latest macroeconomic projections confirm the economic rebound and point to a further reduction in the level of economic uncertainty, which is improving the reliability of banks' capital projections when compared to the beginning of the pandemic. These elements allow the ECB to repeal the recommendation with effect from the end of September 2021. The ECB states that supervisors are well prepared to go back to the previous supervisory practice of discussing capital trajectories and dividend or share buy-back plans with each bank in the context of the normal supervisory cycle.

CRR: SRB approach to prior permissions regime

The Single Resolution Board (SRB) has published guidance on "Information requirements for applications for permission in line with the draft RTS on own funds and eligible liabilities, Section 2 Subsection 2 – 'Permission for reducing eligible liabilities instruments'".

The SRB explains in a related press release that banks need authorisation under Articles 77 and 78a of the Capital Requirements Regulation (CRR) to redeem eligible liabilities. Article 78a of the CRR provides for the development of regulatory technical standards (RTS) to specify certain elements of that authorisation. To date, pending the RTS, the SRB applied a provisional procedure to assess and authorise banks' applications. Under the provisional procedure, 1 January 2022 is the deadline for institutions to comply with the intermediate MREL targets set under the SRM Regulation.

In May 2021, the European Banking Authority (EBA) published final draft RTS on own funds and eligible liabilities under the CRR, which includes the permission regime to be applied as of 1 January 2022. The European Commission will finalise the draft RTS by adopting them in the form of a delegated regulation in due course. However, for procedural reasons, the SRB explains that this is unlikely to be achieved by January 2022.

To contribute to a smooth transition to the framework in the upcoming delegated regulation, the SRB will amend its provisional policy in line with the draft RTS for all permissions effective as of 1 January 2022. This will limit the need for banks to re-submit a second authorisation application for general prior permissions within the same calendar year (that is, once the delegated regulation enters into force). It means that applications for permission for redemptions of eligible liabilities should be compliant with the requirements in the RTS. Exceptionally, banks can file their applications until the end of September 2021, to allow them to familiarise themselves with the details.

An additional communication on the new regime will be published in early September. Banks are encouraged to contact the SRB with any additional questions.

CRR: EBA consults on amendments to ITS on currencies with constraints on availability of liquid assets

The EBA is consulting on proposed amendments to the implementing technical standards (ITS) on currencies with constraints on the availability of liquid assets supplementing the CRR.

Article 419 of the CRR relates to currencies with constraints on the availability of liquid assets for the purpose of the calculation of the liquidity coverage ratio. It allows for one or more derogations where the justified needs for liquid assets in the light of the liquidity coverage requirement exceed the availability of those liquid assets in a currency. Commission Implementing Regulation (EU) 2015/2344 contains ITS made under Article 419(4) of the CRR identifying the currencies that should benefit from a derogation and the extent to which such a derogation should be available. Currently only one currency, the Norwegian Krone (NOK), is specified in the ITS.

In the consultation paper, the EBA sets out proposals to amend Commission Implementing Regulation (EU) 2015/2344 by removing NOK from the list of currencies. The EBA states that there has been a change in the supply of and demand for NOK-denominated liquid assets since the assessment underlying the existing ITS and, as there is no longer a shortage in the supply of liquid assets in the NOK currency, the derogations are no longer deemed necessary.

The EBA states that it does not intend to update Commission Delegated Regulation (EU) 2016/709, which contains RTS specifying the conditions for the application of the Article 419 derogations. It will propose updates to those RTS if a currency is added to the list in Commission Implementing Regulation (EU) 2015/2344 in future.

The deadline for responses is 16 October 2021. The EBA expects to submit the final draft amendments to the ITS to the European Commission before the end of 2021.

Proposed Directive on cross-border law enforcement access to bank account registries: European Commission consultation

The European Commission has adopted a legislative proposal and launched a consultation on a Directive amending Directive (EU) 2019/1153 as regards access of competent authorities to centralised bank account registries through the single access point.

Under the Fourth Money Laundering Directive (MLD4), member states must establish national centralised automated mechanisms, which allow the timely identification of any natural or legal person holding or controlling payment accounts, bank accounts and safe-deposit boxes held by credit institutions established in a member state. Examples include central registries or central electronic data retrieval systems, and these are referred to as "national centralised bank account registers".

In addition to the MLD4 requirements, Directive (EU) 2019/1153 on the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences, sets out a number of measures to ensure that law enforcement authorities have swift access to information held in national centralised bank account registers. It also requires member states to ensure certain rules relating to accessing national centralised bank account registers are transposed by 1 August 2021.

The proposed Directive seeks to extend access to the national centralised bank account register single access point, as introduced by the new anti-money laundering (AML) directive, to the authorities competent for the prevention, detection, investigation or prosecution of criminal offences that are designated as competent authorities under Article 3(1) of Directive (EU) 2019/1153. It will allow designated authorities to establish quickly whether an individual holds bank accounts in other member states, without having to request to all their counterparts in all EU member states.

The Commission has also published a staff working document on the proposal.

The consultation closes on 16 September 2021. Comments received will be summarised and presented to the European Parliament and Council of the EU to feed into their consideration of the proposed legislation.

The initiative forms part of the Commission's AML and counter-terrorist financing action plan. Further steps taken to implement the action plan are reported in our Financial institutions' general regulatory news section.

Mystery shopping: EBA methodological guide

The EBA published a report containing a methodological guide to mystery shopping. The purpose of the guide is to support national competent authorities (NCAs) in the design and implementation of mystery-shopping activities. For these purposes, mystery shopping is an undercover research approach used by NCAs to measure quality of customer service or gather information about financial products and services and the conduct of financial institutions towards consumers. The guide sets out seven steps that NCAs can consider and adapt when carrying out mystery shopping activities for retail banking products and services.

G-SIB assessment methodology review process: BCBS consults on technical amendments

The Basel Committee on Banking Supervision (BCBS) has published a consultation paper on technical amendments to its global systemically important bank (G-SIB) assessment methodology review process. At present the BCBS is committed, under SCO40.30 in the Basel framework, to undertake a review of the methodology used to determine the list of G-SIBs every three years. In the consultation, the BCBS sets out proposals for revisions to SCO40.30 to replace the three-year review cycle with a new process of ongoing monitoring and review. This process will include monitoring:

  • recent developments in techniques or new indicators that can be used for the assessment of systemic risk;
  • emerging evidence on the effectiveness of the G-SIB regime; and
  • structural changes that could impact the effectiveness of the regime.

The BCBS decided to change its approach to the review of the methodology following the decision of the Group of Governors and Heads of Supervision in November 2020 that any further potential adjustments to the Basel framework should be limited in nature and consistent with the BCBS' evidence-based evaluation work.

The consultation closes on 3 September 2021.

[View source.]

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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