Banking and finance regulatory news, November 2020

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Recent regulatory developments focussing on banking and finance.

Contents

  • Approach to assessing resolvability: BoE consultation
  • COVID-19: PRA CP19/20 on amendments to reporting and disclosure dates for resolution assessments
  • Operational continuity in resolution policy: PRA CP20/20
  • BRRD II: PRA CP18/20 on transposition
  • COVID-19: FCA information for mutual societies
  • Open banking identification requirements: FCA PS20/13
  • LIBOR transition of SME customers: UK Finance and LSB Best Practice Guidance
  • LSB guidance on Access to Banking Standard
  • CRD IV: EBA consults on changes to guidelines on sound remuneration policies
  • TLAC-MREL instruments: EBA first monitoring report
  • Basel III standards: BCBS progress report to G20

Approach to assessing resolvability: BoE consultation

The Bank of England (BoE) and the Prudential Regulation Authority (PRA) are consulting in parallel on a package of proposals relating to their policies for operational continuity in resolution (OCIR). The BoE consultation paper mainly proposes updates to its Statement of Policy (SoP), "Approach to assessing resolvability". It also proposes amendments to SoPs on "Restructuring planning", "Management, governance and communication", and "Valuation capabilities". The proposed amendments to the SoPs are set out in an accompanying Appendix.

The proposed amendments to the "Approach to Assessing Resolvability" SoP comprise:

  • amendments to the "Scope of operational continuity arrangements in the context of achieving the resolvability outcomes" box in the OCIR section;
  • updates to how the BoE would assess whether firms meet the OCIR objective in paragraph 5.9; and
  • clarification of the BoE's approach (consistent with paragraphs 2.5–2.6) to assessing whether hosted material subsidiaries meet the OCIR objective in the Resolvability Assessment Framework.

In this consultation, the BoE also proposes to reflect the changes to resolution measures, announced in May 2020, aimed at alleviating operational burdens on PRA-regulated firms in response to COVID-19. To reflect the proposals in the PRA's CP19/20 (see below), the BoE proposes to update the SoPs on:

  • "Approach to Assessing Resolvability", to reflect the proposal to extend the deadline for major UK banks and building societies to submit their first reports to the PRA on preparations for resolution to October 2021, and to extend the date for these firms to make public disclosures on their reports to June 2022; and
  • "Valuation Capabilities to Support Resolvability", to reflect the proposal to extend the deadline for compliance with the SoP to 1 April 2021.

The consultation ends on 31 January 2021. Firms are encouraged to read PRA consultations, CP19/20 and CP20/20, published at the same time.

COVID-19: PRA CP19/20 on amendments to reporting and disclosure dates for resolution assessments

A related PRA consultation paper, CP19/20, consults on amendments to reporting and disclosure dates for resolution assessments. The amendments are proposed in light of COVID-19.

CP19/20 sets out the PRA's proposal to extend, by one year, the dates by which firms are first required to submit a report of their assessment of their resolution preparation, and to first publish a summary of that report under Rule 3.1(1) and Rule 4.1(1) respectively of the Resolution Assessment Part of the PRA Rulebook. The proposed changes would amend the dates in the rules as follows:

  • Resolution Assessment 3.1(1), to reflect that the date by which firms must submit a report of their assessment would change from the first Friday in October 2020, to the first Friday in October 2021; and
  • Resolution Assessment 4.1(1), to reflect that the date by which firms must publish a summary of the most recent report would change from the second Friday in June 2021 to the second Friday in June 2022.

In CP19/20, the PRA also proposes consequential amendments to its supervisory statement, SS4/19: Resolution assessment and publication disclosure by firms.

This consultation closes on 31 January 2021. The PRA proposes that the changes would take immediate effect following publication of the final policy in the first half of 2021.

Firms should also refer to the PRA's CP20/20, "Operational continuity in resolution: Updates to the policy" (see below), and the BoE consultation paper, "Updates to the BoE's approach to assessing resolvability" (see above), which were published at the same time.

Operational continuity in resolution policy: PRA CP20/20

The PRA has also published CP20/20 on revising its OCIR. The purpose of the proposals is to improve firms' resolvability and support the BoE approach to resolution as set out in its SoP on its "Approach to assessing resolvability".

The PRA proposals would result in a new supervisory statement on OCIR, which would supersede the existing supervisory statement, SS9/16: Ensuring operational continuity in resolution. They would also amend the Operational Continuity Part of the PRA Rulebook and PRA OCIR expectations. The PRA proposes to update its policy in four main ways:

  • requiring firms to consider the operational arrangements supporting the viability of the firm, and its key drivers of revenue and profit, in addition to those supporting its critical functions;
  • changes to its policy regarding the way firms' financial arrangements facilitate operational continuity;
  • changes to provide greater clarity compared with the existing policy, as well as amendments to the policy requirements that facilitate continuity throughout post-resolution restructuring; and
  • the PRA has considered how it may be possible to reduce the burden on firms of implementing OCIR policy without compromising a firm's safety and soundness, or its ability to be resolved in an orderly manner.

The consultation ends on 31 January 2020. The PRA proposes that the changes come into force on 1 January 2022. It intends to publish its final policy in the first half of 2021.

The PRA states that many firms' existing OCIR arrangements may already be consistent with some of the proposals. Therefore, it would expect that firms would be able to leverage their existing OCIR arrangements when considering the extent to which further work may be necessary ahead of 1 January 2022.

BRRD II: PRA CP18/20 on transposition

The PRA is consulting, in CP18/20, on transposing the Directive amending the Bank Recovery and Resolution Directive (BRRD II). The UK is required to transpose BRRD II by 28 December 2020. HM Treasury's statutory instrument (SI) transposing BRRD II was laid in Parliament on 15 October 2020. The SI amends primary legislation that will affect the PRA's Contractual Recognition of Bail-in (CROB) and Stay in Resolution (Stays) rules.

To ensure a faithful transposition of BRRD II, most of the elements of the SI that are relevant to the CROB and Stays rules come into force on 28 December 2020, but will subsequently cease to have effect from 11 pm on 31 December 2020 (IP completion day) ("sunsetting process").

In CP18/20, the PRA sets out proposals relating to the CROB and Stays rules concerning the new Articles 33a and 71a, and the amended Articles 55 and 69, of the BRRD. To support the sunsetting process, the PRA proposes to:

  • temporarily suspend part of the CROB Part of the PRA Rulebook with effect from 28 December 2020 until IP completion day;
  • reinstate the existing CROB Part, with minor amendments, to come into force immediately after IP completion day. The new rules post-IP completion day would be otherwise unchanged from the existing rules;
  • amend the Stays Part to reflect the temporary SI change to the definition of "crisis management measure" in the Banking Act 2009, to come into force from 28 December 2020 until IP completion day; and
  • reintroduce the existing Stays Part, as it was before 28 December 2020, to come into force immediately after IP completion day.

The consultation closes on 30 November 2020.

COVID-19: FCA information for mutual societies

The FCA has updated its webpage on its responsibilities to mutual societies and its webpage on mutual societies' annual returns and accounts with information relating to COVID-19.

The FCA notes that some societies are still experiencing delays in producing annual returns and accounts because of COVID-19. Although it asks societies to take steps to submit their returns as soon as is reasonably practicable, the FCA states that it will not take any action before 31 October 2020 on any delayed submission where the delay is three months or less. For annual returns and accounts due for submission by 30 April 2021, the FCA will not take any action on delayed submissions where the delay is three months or less. Societies do not need to tell the FCA about a delay.

Regarding holding member meetings, the FCA is aware that some societies are considering various options, including postponing scheduled member meetings, such as annual general meetings. Societies are concerned that this could lead to them breaching their own rules or legislative requirements. The FCA states that it is for societies to reach their own decision as to whether to go ahead with any planned meeting, considering any relevant government guidance, their own individual circumstances and, where appropriate, legal advice.

The FCA goes on to note that the rules of an individual society govern the relationship between a society and its members. Societies may want to take their own advice to consider any risks arising from action taken by members as a result of a breach of their own rules. The FCA has no role to play in determining disputes over society rules.

The FCA explains that the Corporate Insolvency and Governance Act 2020 has made it easier for societies to hold meetings virtually. Currently, these provisions apply to meetings due to take place up to 30 December 2020.

Where, following government guidance, the postponement of a general meeting results in breaching a legislative requirement, it may fall to the FCA to decide what, if any, action to take. It does not consider it to be in the public interest to act where it can see that a society is taking steps to ensure they meet the legislative obligation as soon as reasonably practicable.

Open banking identification requirements: FCA PS20/13

The FCA has published a policy statement, PS20/13, on amendments to the open banking identification requirements (eIDAS certificate) after the end of the UK-EU transition period.

The EBA has announced that eIDAS certificates of UK third-party providers (TPPs) will be revoked when the transition period ends on 31 December 2020. Without intervention, UK-based TPPs will then be unable to provide open banking services to consumers. The changes outlined in PS20/13 will permit UK-based TPPs to continue accessing customer data and initiating payments by using alternatives to eIDAS certificates.

The changes will mean:

  • UK-based TPPs will likely need to obtain a new certificate to be able to continue to provide open banking services in the UK, post-Brexit; and
  • account providers (for example, banks) will likely need to make technical changes to their systems to enable TPPs to continue accessing customer account information, by accepting an alternative certificate and informing TPPs as soon as possible which certificate(s) they will accept.

Firms must review the changes immediately and implement any necessary changes as soon as possible. Acknowledging the challenges faced by the industry, the FCA is providing a transition period until the end of June 2021 for complying with the new rules.

LIBOR transition of SME customers: UK Finance and LSB Best Practice Guidance

UK Finance and the Lending Standards Board (LSB) have published Best Practice Guidance on the transition from LIBOR for small and medium-sized enterprise (SME) customers. The guidance is designed to help firms with the transition of SME customers to non-LIBOR linked products.

LSB guidance on Access to Banking Standard

The LSB has published Industry Guidance on the Access to Banking Standard (Standard) to help provide greater consistency in the way the Standard is applied by its signatory firms. The guidance provides non-exhaustive examples of the approach to access to banking that firms may wish to take into consideration when seeking to adhere to the Standard. These include good practice examples relating to the application of the Standard.

CRD IV: EBA consults on changes to guidelines on sound remuneration policies

The European Banking Authority (EBA) has published for consultation a revised version of its guidelines on sound remuneration policies. The consultation is limited to the revisions, reflecting amendments required by CRD V, which are shown in a track changes version of the guidelines.

The deadline for responses is 29 January 2021.

TLAC-MREL instruments: EBA first monitoring report

The EBA has published its first monitoring report on total loss absorbing capacity (TLAC) and minimum requirement for own funds and eligible liabilities (MREL) instruments. The purpose of the report is to inform stakeholders about the implementation review performed by the EBA on TLAC and MREL instruments, and to present its views, examples of best practice and current recommendations on specific features commonly seen in the instruments. It also provides an insight into areas for scrutiny or monitoring, or potential EBA guidance going forward.

Basel III standards: BCBS progress report to G20

The Basel Committee on Banking Supervision (BCBS) has published a report for the G20 leaders on the implementation of the Basel III regulatory reforms and the Basel framework-related measures taken by BCBS members in response to COVID-19.

In the report, the BCBS reiterates its expectation of full, timely and consistent implementation of all Basel III standards based on the revised timeline endorsed by its oversight body in March 2020, in light of COVID-19.

The BCBS will continue to monitor the implementation and evaluate the impact of its standards, and it will regularly report to the G20 on progress. It will also continue to monitor the regulatory and supervisory measures taken by its members in response to COVID-19, including the use of flexibility and consistency of these measures with the Basel framework.

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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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