Contents
- Capital internal models: PRA statement on 2021 supervisory benchmarking exercise
- GBP LIBOR successor rate in legacy bonds: Working Group consultation
- Retail banks: FCA portfolio letter
- EU SRB: European Commission adopts Delegated Regulation amending arrangements for payments of contributions to administrative expenditures
- EU CRD: European Commission adopts Delegated Regulation on RTS specifying methodology for identification of G-SIIs and definition of subcategories of G-SIIs
Capital internal models: PRA statement on 2021 supervisory benchmarking exercise
The UK Prudential Regulation Authority (PRA) has published a statement to provide greater clarity for credit institutions that are in scope of the PRA’s 2021 supervisory benchmarking exercise for capital internal models. The PRA encourages firms, in scope of the reporting requirements for year-end 2020, to submit market risk and credit risk information based on the published final draft package for the 2021 benchmarking exercise. It also clarifies that submission of the IFRS 9 information specified in annexes 8 and 9 of the 2021 final draft package is not required or expected by the PRA. The PRA explains the background to this in its statement.
The PRA intends to publish a consultation paper in due course on its proposals for the 2022 benchmarking exercise.
GBP LIBOR successor rate in legacy bonds: Working Group consultation
The Working Group on Sterling Risk-Free Reference Rates has launched a consultation on the successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR. The consultation seeks feedback on whether it would be helpful for the Working Group to make a recommendation on a successor rate to GBP LIBOR for bonds in connection with the operation of a fallback provision following the occurrence of a permanent cessation event or a pre-cessation event. It also seeks feedback on the preferred successor rate to be recommended.
The successor rates proposed in the consultation paper are (i) overnight SONIA, compounded in arrears and (ii) term SONIA.
The consultation closes on 16 March 2021.
The results of the consultation will not be binding on bond market participants or the Working Group. However, subject to its consideration of the feedback received and any other relevant factors, the Working Group expects to recommend a successor rate based on such feedback in order to assist the intended operation of existing fallbacks which reference successor rates.
Retail banks: FCA portfolio letter
The Financial Conduct Authority (FCA) has published a portfolio letter it has sent to Chief Executives of retail banks. In the letter, the FCA sets out its view of the key risks of harm that retail banks’ activities are likely to pose over the next two years and outlines its expectations of firms. The FCA notes that its view of the key risks of harm over the next two years is dominated by the economic and social impact of the COVID-19 pandemic.
The FCA addresses risks grouped into four priority areas of focus:
- ensuring fair treatment of borrowers, including those in financial difficulties;
- ensuring good governance and oversight of customer treatment and outcomes during business change over the next two years;
- ensuring operational resilience over the next two years and beyond; and
- minimising fraud and other financial crime.
The FCA also sets out its expectations of firms relating to issue arising from the end of the Brexit transition period and LIBOR transition.
The FCA expects CFOs to discuss this letter with fellow directors and the Board and agree what further action is necessary to ensure their firms meet the FCA’s requirements and expectations.
EU SRB: European Commission adopts Delegated Regulation amending arrangements for payments of contributions to administrative expenditures
The European Commission has adopted a Delegated Regulation amending Delegated Regulation (EU) 2017/2361 concerning the arrangements for the payment of contributions to the administrative expenditures of the Single Resolution Board (SRB). The Delegated Regulation amends the current system of invoicing of the SRB and introduces dedicated rules for the year 2021.
The Delegated Regulation enters into force and applies on the day after its publication in the Official Journal of the EU.
EU CRD: European Commission adopts Delegated Regulation on RTS specifying methodology for identification of G-SIIs and definition of subcategories of G-SIIs
The European Commission has adopted a Delegated Regulation amending Delegated Regulation (EU) 1222/2014 supplementing the Capital Requrements Directive (CRD) with regard to regulatory technical standards (RTS) for the specification of the methodology for the identification of global systemically important institutions (G-SIIs) and for the definition of subcategories of G-SIIs.
The list of EU G-SIBs identified by the Basel Committee on Banking Supervision (BCBS) and the G-SIIs identified by member states’ authorities have, to date, been identical. The G-SII identification framework comprises, for the first time, an additional EU methodology to allocate G-SII buffer rates to identified G-SIIs. Relevant authorities wishing to use this additional EU methodology must provide clear and observable evidence of the proposed decisions under the sound supervisory judgement principle. The EBA is including in its technical standards on supervisory reporting the requirement to collect frequent and harmonised data to support the additional EU methodology.
The annual G-SII exercise starts from the end of April, with the deadline for institutions to disclose systemic importance indicators being November, when the relevant authorities must notify identified G-SIIs and correspondent G-SII buffer rates.
To make the update and ongoing exercises easier, the full data template with the detailed specification of indicator values will now only be incorporated in the EBA guidelines to be updated every year. To strengthen national supervisory practices regarding such specifications of data points, the EBA is issuing guidelines every year addressed to national competent authorities. These guidelines will not amend or update binding EU law or jeopardise the methodology to identify G-SIIs (embodied in Delegated Regulation (EU) 1222/2014, as amended), since these updates are limited to technical details under member states’ competence.
The Delegated Regulation will enter into force on the day after its publication in the OJ. It will be binding and directly applicable in member states from that date, with the exception of Articles (4)(a), 4(b) and (5), which will apply from 1 December 2021.
