Contents

• COVID-19 and bank lending: letter from HM Treasury, BoE and FCA
• COVID-19: Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2020
• COVID-19: LSB Information for Practitioners document updated re SME support
• COVID-19: BCBS statement on policy and supervisory response
• COVID-19: ECB gives banks more flexibility to help fund households and corporations
• COVID-19: EBA statement on application of prudential framework regarding default, forbearance and IFRS 9
• COVID-19: EBA postpones activities
• COVID-19: BCBS announces deferral of Basel III implementation
• Disclosures for takaful and retakaful undertakings: IFSB consults on draft standard
• Hogan Lovells EBA Outsourcing Solution

COVID-19 and bank lending: letter from HM Treasury, BoE and FCA

On 25 March 2020, HM Treasury published a joint letter, from the Chancellor, the Governor of the Bank of England (BoE) and the Chief Executive Officer (CEO) of the Financial Conduct Authority (FCA), to the CEOs of UK banks, on the impact of COVID-19 on bank lending.

The letter summarises some of the steps that have been taken in the past week or so to support businesses and the financial system. The action already taken by banks, with the regulators' support, to offer help and flexibility to businesses and consumers is welcomed.

The priority for the government, the regulators and the industry should now be to take necessary action to ensure that the benefit of the measures taken so far are passed through to businesses and consumers. It is noted that this will require a willingness to maintain and extend lending despite the uncertain economic conditions. The government, the regulators and the industry must ensure that firms whose business models were viable before this crisis remain viable once it is over.

The BoE and FCA will be monitoring the situation closely and will be in regular contact to discuss developments and any issues arising.

COVID-19: Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2020

The Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2020 (SI 2020/322) (Amendment Order), which exempts Covid Corporate Financing Facility Ltd (CCFF) from the general prohibition under the Financial Services and Markets Act 2000 (FSMA), has been published, together with an explanatory memorandum.

The Amendment Order amends the list of persons in Part 1 of the Schedule to the Financial Services and Markets Act 2000 (Exemption) Order 2001 (SI 2001/1201) to include CCFF. CCFF will provide funding to large corporate businesses by purchasing commercial paper of up to one-year maturity and will be exempt from the general prohibition in section 19 of FSMA .

The Amendment Order came into force on 23 March 2020.

COVID-19: LSB Information for Practitioners document updated re SME support

The Lending Standards Board (LSB) has updated its Information for Practitioners document relating to the Standards of Lending Practice for business customers on product sale. The LSB has updated the document to take account of short-term measures to support lending to small and medium-sized enterprises (SMEs) impacted by COVID-19.

COVID-19: BCBS statement on policy and supervisory response

The Basel Committee on Banking Supervision (BCBS) has published a statement on its coordination of the policy and supervisory response to the COVID-19 pandemic.

The BCBS states that:

• it is continuing to assess and address the banking and supervisory implications of COVID-19, and is co-ordinating with the Financial Stability Board (FSB) and other standard setting bodies on cross-cutting financial system issues;
• it is suspending consultation on all policy initiatives and postponing all outstanding jurisdictional assessments planned in 2020 under its Regulatory Consistency Assessment Programme (RCAP); and
• it will "in the coming days" consider additional measures aimed at supporting the financial resilience of banks and the operational resilience of banks and supervisors.

The BCBS supports the objectives of measures taken by member jurisdictions to alleviate the financial stability impact of COVID-19, including the targeting of the provision of lending by banks to the real economy and facilitating banks' ability to absorb losses in an orderly manner. The BCBS notes that members have the flexibility to undertake further measures if needed.

The BCBS also notes that the Basel framework contains capital and liquidity buffers that are designed to be used in periods of stress and states that the use of these tools will allow for flexibility in responding to the current circumstances.

COVID-19: ECB gives banks more flexibility to help fund households and corporations

On 20 March 2020, the European Central Bank (ECB) announced further measures to ensure that the banks it supervises can continue to fulfil their role in funding households and corporations in the light of the shock to the global economy caused by COVID-19.

The further measures:

• give banks further flexibility in the prudential treatment of loans backed by public support measures. The ECB has introduced supervisory flexibility regarding the treatment of non-performing loans (NPLs), in particular to allow banks to fully benefit from guarantees and moratoriums put in place by public authorities to tackle the current distress; and
• encourage banks to avoid excessive procyclical effects when applying the International Financial Reporting Standard 9 (IFRS 9 ). The ECB recommends that all banks avoid procyclical assumptions in their models to determine provisions and that those banks that have not done this so far opt for the IFRS 9 transitional rules.

The ECB has also activated the capital and operational relief measures it announced on 12 March 2020.

The ECB estimates that the capital relief amounts to EUR120 billion of CET1 capital and could be used by banks to absorb losses without triggering any supervisory actions or to potentially finance up to EUR1.8 trillion of loans to households and corporate customers in need of extra liquidity.

The ECB has published FAQs on these supervisory measures, as well as those it announced last week.

COVID-19: EBA statement on application of prudential framework regarding default, forbearance and IFRS 9

On 25 March 2020, the EBA has published a statement in which it seeks to clarify to the EU banking sector, in light of COVID-19, how to handle in a consistent manner, aspects related to the classification of loans in default, the identification of forborne exposures, and accounting treatment.

The statement covers:

• general considerations on the accounting and regulatory framework;
• prudential identification of default;
• classification of forbearance; and
• considerations on IFRS 9. The EBA has coordinated with European Securities and Markets Authority (ESMA), which has also issued a statement on financial reporting in light of COVID-19 measures. The EBA advises that the two statements are consistent and should be read jointly in relation to the IFRS 9 aspects.

COVID-19: EBA postpones activities

On 25 March 2020, the EBA announced that is it postponing certain activities in light of COVID-19. The EBA is supporting banks to focus on key operations and to limit any non-essential requests in the short term. Therefore, it has reviewed all ongoing activities requiring inputs from banks in the next months.

Accordingly, the EBA has decided to:

• extend, by two months, the deadlines of ongoing public consultations;
• postpone all public hearings already scheduled to a later date and run them remotely via teleconference or similar means;
• extend the remittance date for funding plans data; and
• in coordination with the BCBS, extend the remittance date for the quantitative impact study (QIS) based on December 2019 data.

The statement contains a series of tables setting out the detailed changes.

A footnote to the statement advises that regular data collections, such as those based on implementing technical standards (ITS) on supervisory reporting, are not considered for these purposes.

COVID-19: BCBS announces deferral of Basel III implementation

On 27 March 2020, the BCBS announced the deferral of the implementation of Basel III to increase operational capacity of banks and supervisors to respond to the immediate financial stability priorities resulting from the impact on the global banking system of COVID-19. The changes include:

• the implementation date of the Basel III standards finalised in December 2017 is deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor is also extended by one year to 1 January 2028;
• the implementation date of the revised market risk framework finalised in January 2019 is deferred by one year to 1 January 2023; and
• the implementation date of the revised Pillar 3 disclosure requirements finalised in December 2018 is deferred by one year to 1 January 2023.

The revised timeline is not expected to dilute the capital strength of the global banking system.

Disclosures for takaful and retakaful undertakings: IFSB consults on draft standard

The Islamic Finance Standards Board (IFSB) has published for consultation an exposure draft of a standard on disclosures to promote transparency and market discipline for takaful and retakaful undertakings.

The consultation period ends on 25 May 2020.

Hogan Lovells EBA Outsourcing Solution

In September 2019, the EBA guidelines on outsourcing agreements came into effect, and imposed obligations and requirements which must be met by financial institutions and outsourced service providers. Businesses impacted include credit institutions and investment firms subject to the Capital Requirements Directive (CRD), and any member of their groups, payment institutions, and electronic money institutions.

To help address the complex challenges posed by the new guidelines, Hogan Lovells has developed a custom AI-driven extraction and workflow-based EBA Outsourcing Solution.

Our machine learning software is trained to process outsourcing agreements and identify any terms that need to be updated in order to be compliant with the new guidelines: increasing efficiency and reducing costs in a project-managed environment.

Learn more about our EBA Outsourcing Solution here.

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