News

Banking and finance regulatory news, 1 February 2021

FIG Bulletin

01 February 2021

Recent regulatory developments focussing on banking and finance. See also developments of broader scope in our Related Materials links.

Capital buffers: PRA modification by consent

The UK Prudential Regulation Authority (PRA) has published a direction for modification by consent of 5.1 - 5.3 and 5.5 of the Capital Buffers Part of the PRA Rulebook. The PRA has also updated its webpage on capital buffers and Pillar 2A model requirements to reflect this direction. It states that the modification by consent should be read in conjunction with the voluntary requirement relating to capital buffers and Pillar 2A model requirements, which became applicable from 11pm on 31 December 2020.

The direction takes effect on the date stated in the table in Section A of the direction (20 January 2021) and remains in force for a period of five years or, if earlier, until superseded by a further direction relating to the same subject matter.

COVID-19: FCA final guidance on Bounce Back Loan Scheme

The UK Financial Conduct Authority (FCA) has published finalised guidance on the Bounce Bank Loan Scheme for firms using "pay as you grow" (PAYG) options. The guidance is for firms collecting payments under a Bounce Back Loan where the collection of that debt is a regulated activity. Collecting debts under BBLS may be a regulated activity where the borrower is a sole trader or small partnership. The guidance aims to help firms understand how they can use and offer PAYG options, complying with Chapter 7 (Arrears, default and recovery (including repossessions)) of the Consumer Credit sourcebook (CONC) where it applies.

The FCA has also published a feedback statement summarising the feedback it received on its draft guidance and its response.

The guidance came into force on 27 January 2021 and remains in force unless the FCA varies or revokes it. The FCA explains that guidance is relevant to firm behaviour only to the extent it is current at the time of the behaviour in question. The guidance is without prejudice to the application of CONC 7 where it applies more generally.

EU review of crisis management and deposit insurance framework: European Commission consultation

The European Commission has launched a targeted consultation on the review of the crisis management and deposit insurance framework, which sets out the rules for handling bank failures while protecting depositors. The Commission has also published a consultation document and a consultation strategy document.

This targeted consultation is part of the overall consultation strategy for the review of the bank crisis management and deposit insurance framework and focuses on three EU legislative texts: the Bank Recovery and Resolution Directive (BRRD); the Single Resolution Mechanism (SRM) Regulation; and the Deposit Guarantee Schemes Directive (DGSD). The consultation seeks to gather stakeholders' experiences with the current crisis management and deposit insurance framework as well as their views on the revision of the framework.

The consultation closes on 20 April 2021.

CRR and BRRD: EBA letter on inconsistencies an impact on RTS on indirect subscription of MREL instruments

The European Banking Authority (EBA) has published a letter addressed to the European Commission outlining inconsistencies between the Capital Requirements Regulation (CRR) and the Bank Recovery and Resolution Directive (BRRD) and the subsequent impact on its ability to deliver the regulatory technical standards (RTS) under the mandate in Article 45f(6) of the BRRD on "daisy chains" of internal minimum requirement for own funds and eligible liabilities (MREL) instruments.

The EBA committed to deliver the mandate under Art 45f(6) BRRD by 31 December 2020. It published a consultation paper on the draft RTS on 27 July 2020.

However, following feedback to its consultation on draft RTS and further analysis, the EBA notes that it appears that the CRR does not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. Therefore, the EBA concludes that the legislative requirements cannot be fulfilled without additional provisions that the RTS, as mandated, cannot bear on its own, but rather needs to rely on the level 1 text to specify.

As a result, the EBA was unable to deliver the mandate under Article 45f(6) of the BRRD as it was required to do by 31 December 2020. It stands ready to explore, with the Commission, any approach that would enable it to fulfil the mandate in compliance with the relevant legislative acts.

SRF: Eurogroup statement on common backstop

The Eurogroup has announced that member states have signed amendments to the Treaty establishing the European Stability Mechanism (ESM) (ESM Treaty) and the Inter-governmental Agreement (IGA) on the transfer and mutualisation of contributions to the Single Resolution Fund (SRF) relating to the early introduction of the common backstop to the SRF.

The SRF provides medium-term funding support for the resolution of banks within the scope of the single resolution mechanism (SRM). The aim of the backstop, which will be introduced through the amendments to the ESM Treaty, is to address situations where the SRF proves not to be sufficiently funded by the banking sector. It will take the form of a revolving credit line from the ESM to the SRF. The amendments to the SRF IGA relate to consequential amendments arising from the backstop concerning the bringing forward of the mutualisation of ex-post contributions.

Member states will now ratify the amended agreements in accordance with national ratification procedures. They have made a joint declaration on their intention to complete the process of ratification of both sets of amendments as soon as necessary for the early introduction of the common backstop. The Eurogroup intends for the amendments to both agreements to enter into force from the start of 2022.

SFTs: BCBS consults on technical amendments on minimum haircut floors

The Basel Committee on Banking Supervision (BCBS) is consulting on technical amendments relating to the minimum haircut floors for security financing transactions (SFTs).

The BCBS is consulting on amendments to CRE56, which sets out the calculation of minimum haircut floors on SFTs. The BCBS proposes amendments to clarify the application of the exemption for collateral upgrade transactions in CRE56.5 and to correct a formula in CRE56.10 used to calculate haircut floors for netting sets of SFTs.

The deadline for responses is 31 March 2021.

The BCBS expects its members to implement its standards on minimum haircut floors for SFTs in CRE56, which form part of the final Basel III reforms, by 1 January 2023.

Taxonomy Regulation: EBF and UNEP FI report on application to core banking services

The European Banking Federation (EBF) and the United Nations Environment Programme Finance Initiative (UNEP FI) have published a joint report assessing how the Taxonomy Regulation can be applied to core banking products.

The report shares key insights from the first set of comprehensive case studies on the application of the Taxonomy Regulation to core banking products, including retail banking, small and medium enterprises (SME) lending and corporate banking, including trade, export and project finance. From January to August 2020, 26 banks tested the taxonomy on more than 40 live or recently closed transactions and existing client relationships, across a large spectrum of economic activities.

The testing exercise led to eight recommendations addressed to legislators, regulators, owners of environmental and social standards and frameworks, labels and certification schemes used by banks, and banks. The recommendations to legislators and regulators aim to foster confidence and facilitate the implementation of the EU taxonomy in the banking sector. The report also summarises the benefits and challenges of applying the Taxonomy Regulation.