Hogan Lovells

Reports on key UK and EU recent regulatory developments focussing on banking and finance.

Contents:

  • Resolution assessments: PRA PS10/21 on amendments to reporting and disclosure dates
  • OCIR: PRA PS9/21
  • OCIR: BoE updates SoPs on resolvability assessment framework
  • NPL securitisations: PRA CP10/21 on implementation of Basel standards
  • UK bank ring-fencing legislation: FMLC working group
  • CRD: EBA updates ITS for 2022 benchmarking of internal approaches
  • CRR: EBA consults on institutions' Pillar 3 disclosure of interest rate risk exposures
  • EBA 2020 annual report
  • Resolution framework public interest assessment: SRB revises approach

Following a short break, the next update will be published on 21 June 2021.

Resolution assessments: PRA PS10/21 on amendments to reporting and disclosure dates

Following its consultation in CP19/20, the UK Prudential Regulation Authority (PRA) has published a policy statement, PS10/21, on amendments to reporting and disclosure dates for resolution assessments. PS10/21 is relevant to UK banks and building societies with £50 billion or more in retail deposits on an individual or consolidated basis, as at the date of their most recent annual accounts.

Following CP19/20, the PRA has amended paragraph 2.11 in its supervisory statement, SS4/19: Resolution assessment and publication disclosure by firms, to remove the proposed expectation that firms' assessment in 2021 should also include the progress made towards, and outstanding steps needed, for meeting the revised operational continuity in resolution (OCIR) policy. This change confirms that for their first report in October 2021, firms should assess their compliance against the OCIR policy that came into force on 1 January 2019.

Appendixes to PS10.21 contain:

The PRA advises firms to also refer to its policy statement, PS9/21, on revisions to its policy on OCIR and the Bank of England's (BoE) statement of policy (SoP) on its approach to assessing resolvability (see below).

OCIR: PRA PS9/21

Following its consultation in CP20/20, the PRA has published a policy statement, PS9/21, on revisions to its policy on OCIR.

In response to feedback, the PRA has amended the definition of "critical services". The term will now refer to both critical functions and core business lines and the proposed term "essential services" will not be introduced. The PRA has also decided to delay implementing the revised OCIR policy to 1 January 2023, 12 months after the application date of 1 January 2022 proposed in CP20/20.

The Appendices to PS9/21 set out the final versions of:

The amendments and SS4/21 come into force on 1 January 2023. The PRA emphasises that the current Operational Continuity Part and SS9/16 will remain in place until that date and that, consequently, firms will continue to be responsible for ensuring that they continue to meet existing OCIR policy while they are working to implement the revised policy.

The BoE has amended some of its statements of policy on the resolution assessment framework to reflect the PRA's revised OCIR policy (see below).

OCIR: BoE updates SoPs on resolvability assessment framework

The BoE has published on its website updated versions of the following SoPs:

The BoE has revised the SoPs to reflect the publication of PRA PS9/21 on updates to its policy on OCIR (see above). The BoE has proceeded with the changes it consulted on in October 2020, as well as making revisions to reflect changes in the PRA's approach to OCIR as set out in PS9/21.

The BoE states that its assessment of firms' resolvability during 2021 and 2022 will focus on the PRA OCIR policy that came into force on 1 January 2019, taking into account the 1 January 2023 effective date for the PRA's revised OCIR policy.

NPL securitisations: PRA CP10/21 on implementation of Basel standards

The PRA has published a consultation paper, CP10/21, setting out its proposed rules relating to the implementation of prudential standards agreed by the Basel Committee on Banking Supervision (BCBS) for non-performing loan (NPL) securitisations. It sets out how the PRA proposes to define non-performing exposure (NPE) securitisations and proposes changes to the associated capital treatment.

The proposals would result in the addition of a new Non-Performing Exposure Securitisation Part of the PRA Rulebook and amendments to SS10/18: Securitisation: General requirements and capital framework.

The consultation closes on 26 July 2021. The PRA proposes that changes resulting from CP10/21 would be implemented on 1 January 2022. It states that the changes would take effect in conjunction with any consequential amendment to the retained EU law version of the Capital Requirements Regulation by HM Treasury.

UK bank ring-fencing legislation: FMLC working group

The Financial Markets Law Committee (FMLC) has published a letter to Keith Skeoch, Chair of the Ring-fencing and Proprietary Trading Independent Review, outlining the remit and output of its recently established working group on the legal uncertainties relating to the ring-fenced banking regime that arise from the Financial Services (Banking Reform) Act 2013.

The FMLC explains that the working group's work is parallel to the work of the Review, which is largely concerned with policy issues or aspects of the regime that do not involve any question of legal uncertainty. However, the FMLC's work may impinge on some of the Review's questions concerning the appropriateness of aspects of the regime and whether there are any unintended consequences.

The working group will produce a paper identifying and suggesting how the legal uncertainties might be eliminated or ameliorated. It does not expect to complete its work by the deadline for responding to the Review's call for evidence of 13 June 2021 and expects to share the paper with the Review by the end of July 2021. It will also share the paper with HM Treasury in the hope that the FMLC's suggestions can be addressed.

CRD: EBA updates ITS for 2022 benchmarking of internal approaches

The European Banking Authority (EBA) has published a final report on draft implementing technical standards (ITS) updating Commission Implementing Regulation (EU) 2016/2070 on benchmarking of internal models. Commission Implementing Regulation (EU) 2016/2070 contains ITS specifying the information that firms must report to the EBA and competent authorities in order to enable the assessments of internal approaches for calculating own funds requirements in accordance with Article 78 of the Capital Requirements Directive (CRD) (the benchmarking exercise).

The updated draft ITS contain all benchmarking portfolios and metrics that will be used for the 2022 benchmarking exercise. The exercise covers approved internal approaches used for own funds requirements calculation of credit and market risk, as well as internal models used for IFRS 9. The update also includes changes and clarifications to the draft ITS, which the EBA consulted on in December 2020.

The EBA has separately published Annexes (scroll down to link at bottom of page) to the draft ITS which replace or are added to the existing set of templates to create a consolidated version of the updated draft ITS package.

It will submit the draft ITS to the European Commission for endorsement. The technical standards will apply 20 days after publication in the Official Journal of the European Union.

CRR: EBA consults on institutions' Pillar 3 disclosure of interest rate risk exposures

The EBA has published a consultation paper on draft ITS amending Implementing Regulation (EU) No 637/2021 on disclosure of information on exposures to interest rate risk on positions not held in the trading book in accordance with Article 448 of the Capital Requirements Regulation (CRR).

Article 448 of the CRR requires institutions to disclose, from 28 June 2021, quantitative and qualitative information on the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of their non‐trading book activities referred to in Article 84 and Article 98(5) of the CRD. To implement this disclosure, the EBA has developed these draft ITS amending Implementing Regulation (EU) 637/2021.

The EBA has separately published templates and instructions in Annex I and Annex II to the consultation paper.

The deadline for responses is 30 August 2021. The EBA intends to submit the draft ITS to the European Commission in October 2021.

EBA 2020 annual report

The EBA has published its 2020 annual report which provides a detailed account of all the work the EBA has achieved in the past year and anticipates the key areas of focus in the coming year. These include the review of the stress-testing framework, implementation of the mandates in the domain of anti-money laundering and counter-terrorism financing, financial innovation and sustainable finance.

Resolution framework public interest assessment: SRB revises approach

The Single Resolution Board (SRB) has published an addendum setting out its revised approach to the public interest assessment in resolution planning.

The SRB's updated approach takes into account that a bank's failure may take place not only under an idiosyncratic scenario, but also under broader financial instability or a system-wide event. The SRB explains that this strengthens the choice of the best resolution strategy to protect EU taxpayers and promote EU financial stability.

Sebastiano Laviola, SRB Director of Resolution Strategy and Policy Co-ordination, explains the new approach, and areas of possible future enhancement, in a blog.

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