Blog: Banking and finance regulatory news, April 2021 # 4 | Hogan Lovells – JDSupra – JD Supra

Contents

  • BoE stress testing: 2021 Climate Biennial Exploratory Scenario update
  • COVID-19: PRA update on disclosure of exposures subject to COVID-19 response measures
  • Prudential framework for non-systemic banks and building societies: PRA DP1/21
  • “Higher paid material risk taker”: PRA CP9/21 on correcting definition
  • Remuneration benchmarking and remuneration high earners reporting templates: PRA statement
  • BRRD: European Commission adopts Delegated Regulation on contractual recognition of stay powers
  • CRR: EBA consults on draft ITS on supervisory reporting relating to additional liquidity monitoring metrics
  • CRR: EBA consults on draft RTS specifying factors and conditions to be considered when assessing appropriateness of risk weights and minimum LGD values for mortgage exposures
  • DGSD: EBA consults on draft guidelines on delineation and reporting of available financial means of deposit guarantee schemes

BoE stress testing: 2021 Climate Biennial Exploratory Scenario update

The Bank of England (BoE) has updated its webpage on stress testing with information on its Climate Biennial Exploratory Scenario (CBES). The CBES will cover risks to the UK financial sector from climate change and will be launched in June 2021. Participating firms should use:

  • CEBS data templates, which includes all reporting templates participating firms should use to make their quantitative submissions;
  • CEBS data dictionary, which includes all relevant reporting information for the CBES templates including definitions, enumerations, patterns and reconciliations;
  • CEBS qualitative questionnaire, which includes all qualitative queries for firms to respond to; and
  • notes to accompany the Structured Data Templates and the Qualitative Questionnaire

COVID-19: PRA update on disclosure of exposures subject to COVID-19 response measures

On 27 April 2021, the Prudential Regulation Authority (PRA) published updated guidance to UK banks and building societies on the disclosure of exposures subject to measures applied in response to COVID-19.

The PRA explains that it continues to see the benefits to the disclosure of information on the effects of the measures that UK firms have taken in response to COVID-19. Therefore, firms should continue to use the templates published in the PRA’s statement of 28 July 2020 for semi-annual disclosure reference dates up to, and including, 31 December 2021.

Firms may continue to disclose on a semi-annual basis as at 30 June 2021 and 31 December 2021. Firms may also disclose at the half-year and year-end dates for their financial year, if they have an accounting reference date other than 31 December 2021.

Prudential framework for non-systemic banks and building societies: PRA DP1/21

The PRA has published a discussion paper, DP1/21, on exploring the options for developing a “strong and simple” prudential framework for non-systemic banks and building societies. The aim of the framework is to maintain the resilience of those entities and of the UK financial sector while using simplified prudential regulation. The PRA refers to it as the “strong and simple” prudential framework.

The PRA notes that any changes to simplify prudential regulation for smaller firms should be balanced against the risk those changes may create barriers to growth, which could discourage or prevent smaller firms from becoming large enough to provide effective competitive challenge to larger firms. Its intention is to develop a framework that is fully consistent with the Basel Core Principles for Effective Banking Supervision, but simpler than the Basel standards that apply to large and internationally active banks.

Comments can be made on DP1/21 until 9 July 2021 and the PRA intends to publish a summary of the (anonymised) responses to stimulate further debate. The next step will be to publish a consultation paper, which sets out the proposed prudential rules for defining whether a firm is in scope of the simpler regime and the proposed requirements under the regime. The PRA states that design and implementation is likely to take several years to complete.

“Higher paid material risk taker”: PRA CP9/21 on correcting definition

The PRA has published a consultation paper, CP9/21, to correct an error in the definition of “higher paid material risk taker” in the PRA Rulebook. The aim of CP9/21 is to align the definition with the PRA’s intention of continuing the approach outlined in its supervisory statement, SS2/17 “Remuneration”. CP9/21 follows the PRA’s statement of 25 February 2021 which explained the its position in relation to the definition of “higher paid material risk taker”.

The proposals in CP9/21 would result in changes to the Remuneration Part of the PRA Rulebook.

The PRA proposes that the implementation for the changes would take effect on publication of the final policy. To avoid retroactivity, the PRA proposes that firms would not be required to apply the corrected definition to remuneration that has been paid, vested, or is subject to an obligation to pay or vest created before that date in respect of the first performance year beginning on or after 29 December 2020.

Comments can be made on CP9/21 until 26 May 2021. The PRA intends to publish its final policy in Q2 2021.

Remuneration benchmarking and remuneration high earners reporting templates: PRA statement

The PRA has published a statement on its reporting templates for Remuneration Benchmarking and Remuneration High Earners. The statement advises that the PRA is aware of an issue related to these templates.

As part of the European Banking Authority’s (EBA’s) Taxonomy 2.10, the Remuneration module became reportable for the first time in XBRL format from 31 December 2020. The XBRL reportable templates for remuneration benchmarking and high earners were designated COR014 and COR015 respectively, to replace REP004 and REP005 XML reporting templates for PRA-authorised firms in-scope.

The PRA became aware of issues with the EBA’s XBRL remuneration reporting templates, for which the EBA released a patch on 18 March 2021 to address this issue. The PRA and Financial Conduct Authority (FCA) have worked together to assess the amount of change required in the Gabriel and RegData system and the impact on firms of implementing the proposed patch.

The PRA and FCA have decided not to implement the EBA’s patch at this time, to minimise the burden on firms. Instead, they have decided to revert to the XML-based REP004 and REP005 reporting templates for submission of 2020 data on Gabriel and RegData. Firms migrated onto the RegData platform should submit their remuneration data on RegData.

Firms will be notified as soon as the reporting schedules on Gabriel and RegData have been amended to reflect this reversion. The PRA recognises that firms with a 31 December year-end will be unable to meet the submission deadlines specified in rules 17.4 and 18.3 of the Remuneration Part of the PRA Rulebook. As a result, the PRA expects such firms to submit REP004 and REP005 reporting templates for 2020 data by 1 June 2021.

The PRA expects that firms with a non-31 December year-end should be able to comply with the submission date. However, if firms anticipate a problem with meeting their usual submission date due to the issues identified, they should contact their usual supervisor.

The PRA will provide further detail on its expectations regarding reporting of remuneration data for 2021 and beyond in due course.

BRRD: European Commission adopts Delegated Regulation on contractual recognition of stay powers

The European Commission has adopted a Delegated Regulation on regulatory technical standards (RTS) determining the content of the contractual terms on recognition of resolution stay powers under the Bank Recovery and Resolution Directive (BRRD).

Article 71a(1) of the BRRD (inserted by BRRD II), requires institutions and entities to include in any financial contract governed by the laws of a third country a contractual term by which the parties recognise that the financial contract may be subject to the exercise of powers to suspend or restrict rights and obligations by the exercise of those powers by a member state resolution authority.

Article 71a(5) of the BRRD empowers the Commission to adopt delegated acts specifying the content of the terms required in Article 71a(1), taking into account institutions’ and entities’ different business models. The RTS sets out a list of mandatory components that must be present in the contractual terms required in the financial contracts.

The Council of the EU and the European Parliament will now scrutinise the draft Delegated Regulation. If neither object, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the European Union (OJ).

CRR: EBA consults on draft ITS on supervisory reporting relating to additional liquidity monitoring metrics

The EBA is consulting on implementing technical standards (ITS) on supervisory reporting with regard to additional liquidity monitoring metrics (ALMM) reporting requirements. The draft ITS have been developed under Article 415(3a) of the Capital Requirements Regulation (CRR), which mandates the EBA to draft ITS to specify which ALMM should apply to small and non-complex institutions. Also, Article 430(7) of the CRR mandates the EBA to develop uniform formats, definitions, frequencies, reference and remittance dates, and IT solutions.

The EBA proposes to introduce some proportionality considerations in ALMM reporting for small and non-complex institutions. It includes additional amendments in the reporting templates designed to streamline reporting requirements, fill in data gaps and further clarify the reporting instructions.

The EBA has published the following amended annexes alongside its consultation: Annex 18 (AMM) (XLS), Annex 19 (AMM) (PDF), Annex 20 (AMM – Counterbalancing capacity) (XLS), Annex 21 (AMM – Counterbalancing capacity) (PDF), Annex 22 (AMM – Maturity ladder) (XLS), Annex 23 (AMM – Maturity ladder) (PDF), together with a tracked changes version (ZIP file).

The consultation closes on 28 June 2021 and there will be a public meeting on 28 May 2021. The EBA expects to submit the draft RTS to the European Commission in December 2021. The application of the revised requirements would be for 31 December 2022 reporting reference date.

CRR: EBA consults on draft RTS specifying factors and conditions to be considered when assessing appropriateness of risk weights and minimum LGD values for mortgage exposures

The EBA is consulting on draft RTS specifying the types of factors to be considered to assess the appropriateness of risk weights and the conditions to be taken into account to assess the appropriateness of minimum loss given default (LGD) values under Articles 124(4) and 164(8) of the CRR (as amended by CRR II).

The mandates deal with the assessments of the appropriateness of risk weights for institutions applying the standardised approach (SA) or minimum LGD values for institutions applying the internal ratings-based (IRB) approach. The paper also addresses other major changes made by CRR II.

The EBA will hold a public hearing on 30 June ahead of the deadline for responses of 29 July 2021. It plans to finalise the RTS and submit them to the European Commission by 31 October 2021.

DGSD: EBA consults on draft guidelines on delineation and reporting of available financial means of deposit guarantee schemes

The EBA has published a consultation paper on draft guidelines on the delineation and reporting of available financial means (AFM) of deposit guarantee schemes (DGS) under the Deposit Guarantee Schemes Directive (DGSD). The guidelines are intended to ensure that only funds that credit institutions contributed, or that stem indirectly from such contributions such as recoveries or investment income, will count towards reaching the target level of the DGS fund. Also, funds that stem directly or indirectly from borrowed resources should not count towards the target level. The clarification aims to avoid the situation where a DGS could meet the target level by taking out a loan.

In drafting the guidelines, the EBA takes into account its January 2020 opinion on DSG funding, in which it identified that there were differences across member states in relation to the interpretation of the concept of AFM and stated that this shows that the current text of the DGSD may not be sufficiently clear. However, since review of the DGSD is several years away from being finalised, the draft guidelines are designed to provide clarification in the meantime.

The deadline for comments on the consultation paper is 28 July 2021. The EBA will hold a public hearing on its proposals on 28 June 2021.

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