Banking and finance regulatory news, June 2020 #4

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Recent regulatory developments focussing on banking and finance. Includes updates relating to COVID-19 regulatory response, CRR, and more.

Contents

  • COVID-19: PRA statement on amended regulatory reporting and disclosure requirements
  • COVID-19: PRA statement on EBA guidelines on reporting and disclosure
  • COVID-19: CRR Amending Regulation
  • COVID-19: ESRB Recommendation cancelling reports under Recommendations on CCyB and EU macro-prudential policy framework
  • COVID-19: Commission Delegated Regulation on revisions to RTS on prudent valuation under CRR
  • CRR: EBA final report on draft ITS on public disclosures
  • CRR: EBA final report on draft ITS on supervisory reporting
  • Securitisations of NPLs: BCBS consults on capital treatment

COVID-19: PRA statement on amended regulatory reporting and disclosure requirements

On 26 June 2020, the UK Prudential Regulation Authority (PRA) published a statement on the PRA's revised approach to regulatory reporting and Pillar 3 disclosure for PRA-regulated banks in response to COVID-19.

The PRA refers to its previous statement, published on 2 April 2020, in which it said it would accept delayed submission of certain regulatory returns with deadlines on or before 31 May 2020. In that statement, the PRA advised that, in due course, it would consider the treatment of those returns with a deadline of June 2020 onwards.

The PRA has considered both the fact that firms have had time to adjust to new ways of working, and the prudential benefits to supervisors of the timely submission of regulatory data. It has concluded that it would not be appropriate to continue to apply the reporting measures set out in the April 2020 statement to future submissions. Therefore, going forward, the PRA will generally expect on time submission for future regulatory reporting. Firms experiencing difficulty with timely submission should contact their usual PRA supervisory contact.

The April 2020 statement stated that for Pillar 3 disclosures that a firm would normally expect to make on or before 31 May 2020, the PRA would be flexible in its expectations of firms' publication timeline (compared to the publication date of the financial statements). While the PRA will continue to take a flexible approach to this, it expects that going forward the publication timeline for Pillar 3 disclosures should not be affected by COVID-19 in most cases.

COVID-19: PRA statement on EBA guidelines on reporting and disclosure

On 24 June 2020, the PRA published a statement on the application to UK credit institutions of the European Banking Authority (EBA) "Guidelines to address gaps in reporting data and public information in the context of Covid-19'".

The PRA has considered how to approach these Guidelines in light of the UK Financial Conduct Authority (FCA) and PRA approach to payment deferrals and the data the PRA already collects from UK credit institutions in relation to payment deferrals.

The PRA does not consider it necessary at this time to extend the supervisory reporting elements of the EBA Guidelines to UK credit institutions. Therefore, firms are not expected to prepare or transmit to the PRA the reporting templates contained within the EBA Guidelines.

The PRA is considering how the disclosure elements of the EBA Guidelines are to be applied in a manner reflecting both the proportionality measures in the EBA Guidelines and also the letter from Sam Woods to UK deposit-takers on the International Financial Reporting Standards 9(IFRS 9) and capital requirements aspects of initial and further payment deferrals and FCA guidance. The PRA will provide further details in due course.

COVID-19: CRR Amending Regulation

On 26 June 2020, Regulation (EU) 2020/873 amending the Capital Requirements Regulation (CRR) and CRR II as regards certain adjustments in response to COVID-19 (CRR Amending Regulation) was published in the Official Journal of the EU (OJ).

The CRR Amending Regulation makes targeted changes to the CRR and CRR II to ensure that the prudential regulatory framework interacts smoothly with various measures that address the COVID-19 pandemic.

It entered into force on, and applied from, 27 June 2020, with the exception of amendments to the calculation of the leverage ratio which will apply from 28 June 2021.

On 25 June 2020, the UK Cabinet Office published a letter from John Glen, Economic Secretary to the Treasury, to Lord Kinnoull, Chair of the House of Lords European Union Committee, on the UK's approach to the CRR Amending Regulation.

Among other things in the letter, Mr Glen confirms that only those amendments to the CRR that will apply before the end of the Brexit transition period will become retained EU law. An Annex to the letter sets out details of the amendments made by the Regulation and whether they will apply in the UK. The table indicates that the following measures, which have already been implemented for some firms in the UK within the Financial Policy Committee (FPC) - Prudential Regulation Committee (PRC) ratio, will not apply:

  • offsetting the impact of excluding central bank exposures from the calculation of the leverage ratio; and
  • delaying the application of the new leverage ratio buffer requirement for globally systemically important banks by one year.

Mr Glen also acknowledges concerns already raised by Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England, that amendments in the Regulation relating to the treatment of certain software assets are deviations from the Basel standards. He highlights specifically a temporary measure to apply favourable treatment of unrealised gains and losses for exposures for certain public sector entities and the treatment of certain software assets. These amendments will apply before the end of the transition period.

COVID-19: ESRB Recommendation cancelling reports under Recommendations on CCyB and EU macro-prudential policy framework

On 22 June 2020, a decision of the European Systemic Risk Board (ESRB) on the cancellation of certain reports on actions and measures taken pursuant to Recommendation ESRB/2014/1 and Recommendation ESRB/2015/2 was published in the OJ. ESRB/2014/1 relates to guidance for setting countercyclical buffer rates (CCyB), and ESRB/2015/2 addresses the cross-border effects of macro-prudential measures (that is, measures that have been adopted by member states to prevent and mitigate systemic risk). Reports on the Recommendations had been due by 30 June 2020.

Due to the challenges posed by COVID-19, addressees of the Recommendations are no longer requested to submit the reports that were due by 30 June 2020. The submission of subsequent reports is not affected.

COVID-19: Commission Delegated Regulation on revisions to RTS on prudent valuation under CRR

On 25 June 2020, Commission Delegated Regulation (EU) 2020/866 was published in the OJ. The Delegated Regulation amends Delegated Regulation (EU) 2016/101 supplementing the CRR with regard to regulatory technical standards (RTS) for prudent valuation under Article 105(14) of the CRR. It was made in response to COVID-19 triggering an unprecedented systemic shock and extreme levels of volatility, which have had an impact on aggregated additional valuation adjustments.

The Delegated Regulation entered into force on 26 June 2020.

CRR: EBA final report on draft ITS on public disclosures

The EBA has published a final report on draft implementing technical standards (ITS) on public disclosures by institutions for the information referred to in Titles II and III of Part Eight of the CRR.

The draft ITS aim to:

  • optimise the Pillar 3 policy framework to provide a single comprehensive package, improving clarity for users of information;
  • promote market discipline by increasing the consistency and comparability of the information disclosed by institutions, and its alignment with the new regulatory changes introduced by the revised CRR and with the Basel Committee on Banking Supervision (BCBS) revised Pillar 3 disclosure framework;
  • facilitate access by users of information to institutions' key prudential data by introducing new key metrics templates;
  • foster ease of implementation for institutions by facilitating their access to, and understanding of, all the disclosure templates and tables; and
  • increase the efficiency of disclosures by institutions and reduce costs through technology, the integration of quantitative disclosure data and supervisory reporting.

Once endorsed by the European Commission and published in the OJ, the ITS will apply from 30 June 2021.

CRR: EBA final report on draft ITS on supervisory reporting

The EBA has published a final report on draft ITS on supervisory reporting requirements for institutions under the CRR, to replace the existing ITS on supervisory reporting (Commission Implementing Regulation (EU) 680/2014) in light of changes introduced by CRR II and Regulation (EU) 2019/630 (Backstop Regulation).

The draft ITS will be submitted to the European Commission for endorsement before being published in the OJ. The first reference date for the application of the ITS is expected to be 30 June 2021. The expected implementation period for the proposed changes is one year.

The EBA will also develop the data point model (DPM), eXtensible Business Reporting Language (XBRL) taxonomy and validation rules based on the final draft ITS, expected by the end of summer 2020.

Securitisations of NPLs: BCBS consults on capital treatment

The BCBS is consulting on the capital treatment of securitisations of non-performing loans (NPLs). The BCBS's proposal aims to addresses a gap in the regulatory framework and set out a prudent treatment for securitisations of NPLs.

The BCBS proposes to establish a 100% risk weight for certain senior tranches of NPL securitisations. The risk weight applicable to the other positions is determined by the existing hierarchy of approaches, in conjunction with a 100% risk weight floor and a ban on the use of certain inputs for capital requirements. It does not change the applicable capital requirements to securitisations of performing assets.

The consultation ends on 23 August 2020. The BCBS proposes that the amendment should come into effect by no later than 1 January 2023.

[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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