Basel Committee
Principles for effective risk data aggregation and risk reporting - Basel Committee publishes progress report - April 2020
The Basel Committee on Banking Supervision has published its latest progress report on banks’ implementation of its Principles for effective risk data aggregation and risk reporting, published in January 2013. The report is based on the results of a self-assessment survey of authorities with supervisory responsibility for global systemically important banks (G-SIBs) and reviews G-SIBs’ progress as at end-2018.
The Principles aim to strengthen banks’ risk data aggregation and risk reporting with a view to improving their risk management, decision-making processes and resolvability. Although the report explains that none of the banks are fully compliant with the Principles in terms of building up the necessary data architecture, tangible progress has been made in several areas, including overarching governance, risk data aggregation capabilities and reporting practices.
The Basel Committee reiterates its recommendations that:
- banks should continue to closely monitor their implementation programmes and address weaknesses promptly, including committing the resources needed to complete data architecture and IT infrastructure improvement projects; and
- supervisors should continue to monitor banks’ progress in implementing the Principles and take appropriate measures to address delays and ineffective implementation.
Basel Committee progress report on the adoption of the Principles for effective risk data aggregation and risk reporting
Webpage
Press release
European Commission
COVID-19 - European Commission publishes Communication on the application of prudential and accounting frameworks to facilitate bank lending - 28 April 2020
The European Commission has published a Communication on the application of prudential and accounting frameworks to facilitate EU bank lending in response to the economic impact of COVID-19. The Communication confirms how EU rules should be applied by banks and supervisors in a flexible but responsible manner so that they can continue to lend to businesses and households, and sets out its views on the role and responsibility of the banking sector in limiting the economic impact of COVID-19 and promoting a rapid recovery.
The Communication states that the regulatory framework for banks, including the implementation of IFRS 9 and rules concerning the prudential classification of non-performing loans (NPLs), provides ample flexibility for the continued lending to businesses and households affected by the COVID-19 pandemic, while maintaining a prudent approach. The Commission has also:
- adopted a legislative proposal for targeted amendments to the Capital Requirements Regulation (575/2013/EU) (CRR) intended to improve banks’ capacity to lend and absorb losses in light of COVID-19; and
- postponed the adoption of its legislative proposal on the implementation of the final Basel III standards. The Commission intends to adopt the proposal in time for their effective implementation in the EU by the revised January 2023 deadline, having previously indicated that it would adopt this proposal in June 2020.
The Commission intends to monitor the impact that such regulatory flexibility has on bank lending. It calls on the European Banking Authority (EBA) to clarify the regulatory treatment of public guarantees for risk mitigation purposes and the European Systemic Risk Board (ESRB) to co-ordinate an EU-wide approach in relation to the use of macro-prudential buffers in the crisis and recovery phase.
European Commission Communication on the application of prudential and accounting frameworks to facilitate bank lending in response to COVID-19
Legislative proposal for targeted amendments to the CRR to facilitate bank lending in response to COVID-19
Speech by Valdis Dombrovskis (Vice President of the European Commission) on bank lending in response to COVID-19
FAQs
Webpage
Press release
European Central Bank
Cross-border repercussions of macroprudential policies - ECB publishes framework for assessment - April 2020
The European Central Bank (ECB) has published a report with a framework designed to assess the “cross-border spillover effects of macroprudential policies” which may result from regulatory arbitrage and risk management decisions among other things. This should assist national competent authorities (NCAs) in their assessment of the need for reciprocity when implementing macroprudential measures.
ECB framework to assess cross-border spillover effects of macroprudential policies
Prudential Regulation Authority
COVID-19 - PRA publishes statement on the regulatory treatment of guarantees provided under CBILS and CLBILS - 27 April 2020
The PRA has published a statement on the regulatory treatment of guarantees provided under the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the UK Coronavirus Large Business Interruption Loan Scheme (CLBILS) under the CRR. In particular, the statement outlines the PRA’s observations on whether the guarantees provided by the government under the CBILS and CLBILS are eligible for recognition as unfunded credit risk mitigation (CRM) under the CRR.
The PRA explains that, provided it meets the conditions under Articles 194 and 213 to 215 of the CRR, a guarantee is one form of unfunded CRM which may allow a firm to adjust risk weights and expected loss amounts. According to the PRA, the terms of the relevant guarantees “do not contain features that would render them ineligible for recognition as unfunded CRM” and the effects of these guarantees would appear to justify this treatment.
The statement does not provide an exhaustive description of the prudential requirements that apply to loans extended under the CBILS and the CLBILS, nor is it a comprehensive description of the regime under which CRM techniques impact the calculation of risk-weighted exposure amounts. The PRA encourages firms to review relevant Articles of the CRR and PRA rules and guidance, including its expectations set out in Supervisory Statement SS17/13 ‘Credit risk mitigation’.
PRA statement on the regulatory treatment of guarantees under the CBILS and the CLBILS under the CRR
Financial Conduct Authority
COVID-19 - FCA Feedback Statement FS20/4: Temporary financial relief for consumers impacted by COVID-19 - 24 April 2020
The FCA has published a Feedback Statement (FS20/4) and accompanying guidance that confirm the adoption of a series of targeted, temporary financial relief measures for customers in light of the economic impact of COVID-19. The FCA consulted on the measures between 17 and 20 April 2020, as reported previously in this Bulletin. The measures focus on the application of FCA Principle 6 (treating customers fairly) and relate primarily to motor finance, the provision of high-cost short-term credit and pawnbroking agreements.
The proposed measures are largely as consulted on, save for some minor amendments clarifying the scope of application of the guidance. Among other things, they will require:
- motor finance firms to offer a three-month payment freeze to customers that are experiencing temporary difficulties meeting finance or leasing payments due to the pandemic; firms must also agree not to take steps to end agreements or repossess vehicles in such circumstances;
- high-cost short-term credit and payday loan firms to offer a one-month interest-free payment freeze to customers experiencing payment difficulties, with no additional interest charges; and
- firms entering into buy-now pay-later (BNPL), rent-to-own (RTO) or pawnbroking agreements to offer a three-month payment freeze to customers facing temporary payment difficulties.
The measures will apply from 27 April 2020.
The FCA recognises that there may be other types of regulated credit agreements that are not specifically covered by this, or previous, COVID-19-related guidance. Firms that enter into such agreements are expected to treat customers fairly through the provision of payment deferrals in line with this guidance. The FCA will work with firms, consumer and debt advice groups, and the government to consider whether additional forms of support may be needed.
FCA Feedback Statement FS20/4: Temporary financial relief for customers impacted by coronavirus
FCA temporary guidance for motor finance firms in light of COVID-19
FCA temporary guidance for high-cost short-term credit and payday loan firms in light of COVID-19
FCA temporary guidance for BNPL, RTO and pawnbroking firms in light of COVID-19
Webpage on Feedback Statement FS20/4
Webpage on information for credit consumers in light of COVID-19
Press release
COVID-19 - FCA publishes statement outlining its approach to the regulation of firms participating under the CBILS and BBLS - 27 April 2020
The FCA has published a statement outlining its approach to the regulation of firms participating in the CBILS and the new Bounce Back Loan Scheme (BBLS). This follows announcements by the government and HM Treasury on the implementation of amendments to the CBILS to support small businesses, including changes to the criteria to be applied by lenders when considering businesses for loans under these schemes.
Among other things, the FCA states that:
- as an interim measure, pending the roll-out of the BBLS, if a firm complies with the requirements of the CBILS, the FCA will not expect it to comply with rules 5.2A.4 to 5.2A.34 of the Consumer Credit sourcebook (CONC) where the lending is regulated. However, firms must continue to carry out creditworthiness assessments in line with CONC 5.2A on all other regulated lending;
- it will regard individuals’ compliance with the relevant requirements of the CBILS as compliance with Chapters 2.1 and 2.2 of the Code of Conduct sourcebook (COCON) (with the exception of 2.1.1, 2.1.3 and 2.2.4), for the purposes of the Senior Managers and Certification Regime (SMCR) and assessments of creditworthiness and affordability. The FCA intends to provide similar clarity on the BBLS when it is formally launched;
- in light of the need to balance the risks of fraud and money laundering against the need for the fast and efficient release of funds, where a firm has carried out appropriate customer due diligence (CDD) for existing customers prior to receiving an application under the CBILS or BBLS, it does not need to make further additional checks unless the firm has information suggesting that a customer poses a higher risk; and
- firms should continue to carry out the normal CDD processes for new customers. However, if the money laundering and terrorist financing risks associated with a new business relationship are low, the firm may implement simplified due diligence or consider alternative verification methods.
FCA statement on its approach to the regulation of firms participating under the CBILS and the BBLS
COVID-19 - FCA extends deadline for implementing SCA requirements under PSD2 - 30 April 2020
The FCA has published a statement announcing that it is extending the deadline for firms to implement strong customer authentication (SCA) requirements for e-commerce transactions under the revised Payment Services Directive (EU) 2015/2366 (PSD2). The deadline will be extended by six months to 14 September 2021. The FCA has made the decision to delay the implementation of SCA requirements in light of the disruption caused by COVID-19.
Following consultation with stakeholders, the FCA intends to work closely with UK Finance in order to publish a revised implementation plan and critical path. In the meantime, it expects firms to continue with the necessary preparatory activities, such as robust end-to-end testing.
The FCA reminds firms that any firm that does not comply with the SCA requirements after 14 September 2021 will be subject to full FCA supervisory and enforcement action.
FCA statement on extending deadline for implementing SCA requirements under PSD2 in light of COVID-19
Consumer credit firms - FCA publishes guidance on authorisation - 30 April 2020
The FCA has published a sample business plan and additional guidance for use by firms applying for authorisation to carry on consumer credit lending activities under FSMA 2000. The FCA states that it is publishing the guidance to help firms meet its expectations and to help avoid delays in the application process caused by lack of detail being provided in the business plan.
The sample business plan covers issues including capitalisation, governance, treating customers fairly (TCF), business model overview, marketing activities, customer journey, compliance and complaints, training and staff incentives, and policies and procedures. The FCA confirms that this is not an exhaustive list of the information that is needed to be provided by firms and additional information may be required depending on the firm and the permissions for which it is applying.
The FCA also provides further guidance on:
- key issues that all business plans should address, such as the business opportunity identified, the services to be offered and the firm’s governing body or senior management experience;
- the production of business plans for different types of lending firms, such as unsecured credit lenders, pawnbrokers, home collected credit firms and high-cost short-term credit firms; and
- content that should be included in business plans by firms with appointed representatives.
FCA sample business plan for consumer credit lending firms
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Lending Standards Board
CRM Code for APP scams - LSB publishes report on its application by firms - April 2020
The Lending Standards Board (LSB) has published a report setting out its findings and recommendations on how firms have interpreted and applied the voluntary Contingent Reimbursement Model (CRM) Code. The CRM Code sets out customer protection standards for signatories, including a commitment to reimburse ‘no blame’ victims of authorised push payment (APP) fraud and scams. The report analyses the Code’s effectiveness in delivering fair outcomes for consumers and the consistency of approach across its application by signatory firms.
The report states that all signatory firms have taken positive steps to implement the requirements of the Code and have demonstrated a willingness to ensure a consistent approach. However, it identifies key areas for improvement, including in relation to: (i) reimbursement processes; (ii) identification of vulnerability; (iii) effective warnings; and (iv) and record keeping. The LSB confirms that more consistent approaches are required across these areas.
The LSB intends to monitor firms’ progress in applying the Code before undertaking a full review of the Code itself during 2020.
LSB report on firms’ application of the CRM Code for APP scams
Press release
UK Finance
COVID-19 - UK Finance announces commitment to help mortgage customers transfer products - 28 April 2020
UK Finance has announced that mortgage lenders have renewed and expanded a commitment to help existing mortgage customers easily transfer products when they reach the end of their fixed-rate term, in light of the economic impact of the COVID-19 pandemic. This follows an industry-wide agreement in 2018 between UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA) that eligible customers coming to the end of a fixed-rate mortgage should be offered a product transfer by their lender, giving customers the option to switch to a new deal with their existing lender instead of automatically moving onto a reversion rate.
UK Finance states that normally customers on payment holidays and existing borrowers who have been furloughed would not be eligible for a product transfer but, given the current exceptional circumstances, lenders are waiving these rules. To be eligible for a product transfer, customers need to: (i) be up to date with payments; (ii) be approaching the end of their fixed-rate term and not looking to borrow any more; and (iii) have a minimum remaining mortgage term of two years and an outstanding loan of at least £10,000. This cross-industry commitment only applies to customers of those lenders that are able to offer alternative products to their existing borrowers.
UK Finance states that this commitment forms part of a broad range of measures introduced by the industry to support borrowers, including the introduction of three-month payment holidays, a moratorium on repossessions and a commitment to extend mortgage offers for three months for customers who have already exchanged contracts.
Press release: UK Finance announces commitment to help mortgage customers transfer products in light of COVID-19
Please see the General section for an item on the House of Commons Treasury Committee publishing its Terms of Reference for the next stage of its inquiry into the economic effects of COVID-19.
