European Commission
CRR - Commission Delegated Regulation containing RTS on assessment methodology for use of IRB approach published in OJ - 18 March 2022
Commission Delegated Regulation (EU) 2022/439 containing regulatory technical standards (RTS) on the specification of the assessment methodology for competent authorities regarding the compliance of an institution with the requirements to use the internal ratings based (IRB) approach under the Capital Requirements Regulation (575/2013) (CRR) has been published in the Official Journal of the European Union.
The European Commission adopted the RTS on 20 October 2021. They will enter into force and apply from 7 April 2022.
Commission Delegated Regulation (EU) 2022/439 of 20 October 2021 supplementing Regulation (EU) 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards (RTS) for the specification of the assessment methodology competent authorities are to follow when assessing the compliance of credit institutions and investment firms with the requirements to use the Internal Ratings Based Approach
European Banking Authority
CRD IV - EBA publishes final report and guidelines on common supervisory procedures and methodologies for SREP and supervisory stress testing - 18 March 2022
The EBA has published its final report (EBA/GL/2022/03) and revised guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing under the Capital Requirements Directive (2013/36/EU) (CRD IV). It follows the EBA’s consultation (EBA/CP/2021/26) on the draft guidelines, published in June 2021.
Following the consultation, the EBA has made several changes to the final guidelines, including to further reflect the principle of proportionality.
The guidelines will apply from 1 January 2023.
EBA Final Report: Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing under Directive 2013/36/EU (EBA/GL/2022/03)
Press release
CRR - EBA publishes final report on draft RTS on estimating default probabilities and losses given default - 21 March 2022
The European Banking Authority (EBA) has published a final report (EBA/RTS/2022/02) on draft regulatory technical standards (RTS) on the requirements related to the use of the Internal Model Approach (IMA) to estimate default probabilities and losses given default (LGD) under article 325bp(12) of the Capital Requirements Regulation (575/2013/EU). The EBA consulted on the draft RTS in July 2020 (EBA/CP/2020/12).
The draft RTS specify that an internal methodology used to calculate probabilities of default (PDs) and LGDs under the default risk model should meet all requirements that apply to the corresponding internal ratings‐based (IRB) approach. The RTS permit institutions to use conservative ‘fallback’ PD and LGD values under this internal methodology where needed. They also clarify the requirements relating to the use of external sources under the default risk model, with a view to ensuring that the methodology employed to derive the PDs and LGDs from these sources is conceptually sound.
EBA Final Report: Draft Regulatory Technical Standards on requirements that an internal methodology or external sources used under the internal default risk model are to fulfil for estimating default probabilities and losses given default under Article 325bp(12) of Regulation (EU) No 575/2013 (Capital Requirements Regulation) (EBA/RTS/2022/XX)
Press release
European Central Bank
Securitisation Regulation - ECB publishes guide on notification of securitisation transactions - 18 March 2022
The ECB has published a guide for banks on the notification of securitisation transactions, following the ECB’s consultation on the same matter published in November 2021. The guide relates to the notification process for originators or sponsors of securitisation transactions with reference to the risk retention, transparency and resecuritisation requirements under articles 6 to 8 of the Securitisation Regulation ((EU) 2017/2402).
New transactions are to be notified to the ECB within one month of the origination date. The annex to the guide sets out the information that is to be provided.
The guide will be updated periodically to reflect developments in the regulation and supervision of securitisations.
ECB Guide on the notification of securitisation transactions: Articles 6 to 8 of the Securitisation Regulation
Notification template
HM Treasury and Bank of England
Central Bank Digital Currencies - HM Treasury and Bank of England publish response to House of Lords report - 18 March 2022
HM Treasury and the Bank of England (the Bank) have published their responses (dated 9 March 2022 and 16 March 2022, respectively) to the House of Lords Economic Affairs Committee’s (the Committee’s) January 2022 report on a potential UK Central Bank Digital Currency (UK CBDC) - a new type of digital money that would be issued by the Bank but which would not replace cash and bank deposits. The responses follow the February 2022 announcement that a consultation will be launched in 2022 on potential plans for a UK CBDC.
Key points of interest in the responses include the following:
- no decision has been made on whether to introduce a UK CBDC. The Joint CBDC Taskforce (the Taskforce) will continue to engage with Parliament and other stakeholders on its CBDC work to ensure open and transparent discussions and appropriate scrutiny of any proposals;
- the 2022 consultation paper will set out the Taskforce’s assessment of the case for a UK CBDC and make some conclusions on the merits of any further work to develop an operational and technology model for a UK CBDC. The consultation will explore a range of issues in more detail, including those raised by the Committee. It will also include discussion of how the case for a CBDC relates to wider developments in the payments landscape, including cryptoassets and stablecoins;
- while the use of cash is declining in the UK, it remains important for millions of people’s daily lives;
- cross-border functionality will be crucial to the success and uptake of any CBDC; and
- responding to the Committee’s recommendation that the Taskforce consults on the use case for a wholesale CBDC alongside the retail CBDC consultation, the Bank points out that it already provides wholesale digital central bank money through its real-time gross settlement (RTGS) system. The RTGS is due to move to a new platform in 2023. In spring 2022, the Bank will issue a public consultation on the roadmap for further enhancements to the RTGS platform beyond 2024.
HM Treasury response to House of Lords (Economic Affairs Committee) report
Bank of England response to House of Lords (Economic Affairs Committee) report
Financial Policy Committee
Cryptoassets and decentralised finance - FPC publishes report on financial stability - 24 March 2022
The Bank of England’s Financial Policy Committee (FPC) has published a report setting out its view on the impact of cryptoassets and decentralised finance on financial stability.
The FPC continues to judge that direct risks to the stability of the UK financial system from cryptoassets and decentralised finance are currently limited. However, if the pace of growth seen in recent years continues and as cryptoassets become more interconnected with the wider financial system, they will present a number of financial stability risks. These include risks from interlinkages between cryptoassets and the traditional financial sector, new forms of financial and operational risk for financial institutions, a growth in activity outside the existing regulatory perimeter and challenges in regulating new forms of entities and business models.
The FPC also notes that where crypto technology is performing an equivalent economic function to one performed in the traditional finance sector, this should take place within existing regulatory arrangements and that the regulatory perimeter should be adapted to ensure an equivalent regulatory outcome. The FPC outlines several initiatives that are already underway domestically and internationally to adjust regulatory frameworks to mitigate risks and support innovation.
The FPC concludes that enhanced regulatory and law enforcement frameworks, both domestically and at a global level, are needed to address market developments and activities, and encourage sustainable innovation as well as maintain broader trust and integrity in the financial system. The FPC considers that financial institutions should take a “cautious and prudent” approach to any adoption of these assets until such enhancements are in place.
Please see below in this section for associated items from the Bank of England, the PRA and the FCA.
Financial Stability in Focus: Cryptoassets and decentralised finance
Bank of England
New forms of digital money - Bank of England publishes responses to discussion paper - 24 March 2022
The Bank of England has published the responses to its June 2021 discussion paper on new forms of digital money.
The Bank notes that it has not yet made a decision on any of the topics in the discussion paper. It highlights the following key takeaways from the responses: (i) access to cash should be preserved; (ii) the Bank should continue to engage with stakeholders including the wider public; and (iii) any regulation for systemic stablecoins should be clear, proportionate and risk-based.
The majority of respondents are supportive of the Bank’s work in this area and stressed the importance of the general public having direct access to central bank money. They agreed that any private sector firm issuing or intermediating payments of new forms of digital money would need to be fully complaint with the regulatory frameworks on data protection. Respondents also noted that interoperability between all forms of money was essential for an effective and competitive payments ecosystem.
Over 80% of respondents agree with the Bank’s four stylised regulatory models for systemic stablecoins. Most support the use of temporary limits to manage any transition from commercial bank deposits to new forms of money.
Please see above and below in this section for associated items from the FPC, the PRA and the FCA.
Responses to the Bank of England’s Discussion Paper on new forms of digital money
Prudential Regulation Authority
UK implementation of Basel III - PRA clarifies intended timetable - 21 March 2022
The PRA has published a statement on UK implementation of the Basel III standards. The statement refers to the PRA’s two earlier policy statements (PS17/21 ‘Implementation of Basel standards’, published in July 2021, and PS22/21 ‘Implementation of Basel standards: Final rules’, published in October 2021) on a number of the Basel III standards that remained to be implemented in the UK. It notes that, since then, the PRA has continued to develop proposals to implement all of the remaining elements of Basel 3.1 (the final package of banking prudential reforms developed in response to the 2008/09 financial crisis).
The timing of the PRA’s work on Basel 3.1 has been uncertain for a number of reasons, “including the internationally agreed delay as part of the response to Covid-19, the need to respond to other priorities and the new processes that the PRA has had to develop to turn Basel standards into detailed rule-making proposals under a UK legal framework.” To support firms in their planning processes, the PRA confirms in the statement that it intends to publish a Consultation Paper on Basel 3.1 implementation in the fourth quarter of 2022 and that it intends to consult on a proposal that these changes will become effective on 1 January 2025.
Press release: Implementation of Basel standards
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Cryptoassets - PRA publishes Dear CEO Letter - 24 March 2022
The PRA has published a Dear CEO Letter from Sam Woods, Deputy Governor and CEO of the PRA, to the CEOs of banks and designated investment firms on existing or planned exposures to cryptoassets. It follows Mr Woods’ previous letter, sent in 2018, and is intended to complement the FPC’s financial stability report, the Bank of England’s response to its discussion paper on new forms of digital money and the FCA’s statement on the risks relating to cryptoassets (see items above and below in this section).
The letter aims to highlight aspects of the existing regulatory framework that the PRA expects firms to consider when measuring and mitigating risks resulting from cryptoasset activities. These cover:
- strong risk controls: cryptoassets should be considered fully by the board and by the highest levels of executive management. An individual approved by the PRA to perform an appropriate senior management function should be actively involved in reviewing and signing off on the risk assessment framework for any planned business direct exposure to cryptoassets and/or entities heavily exposed to cryptoassets.
The PRA also highlights the need for firms to adapt their existing risk management strategies and systems to suit the different risk profiles of many crypto activities through any of: (i) increased monitoring; (ii) factoring greater uncertainty into modelling or valuation; (iii) applying lower risk tolerance levels; (iv) greater reliance on proxies; and (v) using stress tests;
- the prudential framework: firms should consider the full prudential framework when assessing and mitigating risks and exposures to cryptoassets;
- Pillar 1: the PRA reminds firms of the requirements for specific activities and details its position on market risk and counterparty credit risk; and
- Pillar 2: the PRA reminds firms to set out their consideration of risks relating to crypto exposures in their Internal Capital Adequacy Assessment Processes. It highlights operational risks that are particularly relevant to certain crypto-related activities and advises firms on residual liabilities when outsourcing.
The Dear CEO Letter also announces that the PRA is launching a survey of firms’ current and planned crypto exposures over 2022. It requests receipt of this information from firms by 3 June 2022.
Finally, the PRA highlights that it is likely that the long-term treatment of cryptoassets will differ from that under the current framework. As this is developed, the PRA will consult on any proposed changes to the regulatory framework.
PRA letter to CEOs: Existing or planned exposure to cryptoassets
PRA Cryptoasset Data Collection Template
Financial Conduct Authority
Priorities for credit regulation - FCA publishes speech - 23 March 2022
The FCA has published a speech delivered by Brian Corr, Interim Director of Retail Lending, at the 2022 Credit Summit. The speech details the FCA’s priorities for credit regulation in light of the rising cost of living, Brexit, COVID-19 and the Russian invasion of Ukraine.
To help consumers, Mr Corr notes that, “we need credit markets that are innovative, competitive, and focused closely on delivering the right outcomes for the consumers they serve”. To achieve this, he highlights the FCA’s new Consumer Duty (the Duty), which is “intended to be flexible to allow [the FCA] and [consumers] to respond to circumstances”. Mr Corr expects the FCA to have in place a policy statement and any new rules on the Duty by the end of July 2022.
In the interim, Mr Corr highlights work already begun by the FCA to improve consumer outcomes. This includes consulting on the introduction of a ban on debt packagers from accepting referral fees for passing customers on to other providers of debt solutions; buy-now-pay-later products; the ongoing scrutiny of firms’ contracts; and securing improved contract terms and refunds for consumers.
For borrowers in financial difficulty, the FCA is now running a comprehensive programme on the treatment of borrowers so that it can ensure those who need help are receiving it. A full report setting out the findings of this programme will be published in H2 2022.
Mr Corr also notes actions the FCA has taken to help people who cannot access credit. He cautions that the FCA’s analysis suggests that, in the future, there will be limited supply of credit available to consumers at the highest risk end of the market, in large part due to too much unaffordable lending, which has caused direct and significant harm to borrowers. Mr Corr highlights that the FCA sees ‘no case’ for lowering the Financial Ombudsman Service’s standards for assessing affordability complaints, noting that it will not assist consumers if the lending process is made easier for firms, potentially leading to a greater number of loans to consumers who unable to repay them. However, he sets out the FCA’s continued commitment to working with government and industry to ensure that people who need ways to manage short-term income shortfalls, and consumers who can afford to use high-cost credit, are supported.
Speech by Brian Corr, Interim Director of Retail Lending at the FCA, delivered at Credit Summit 2022
Cryptoassets - FCA publishes notice - 24 March 2022
The FCA has published a notice to all regulated firms, reminding them of their existing obligations when interacting with or becoming exposed to cryptoassets and related services.
The FCA highlights areas of risk that firms need to consider, including: (i) being clear with customers; (ii) financial crime and registering cryptoasset business; (iii) having appropriate systems and controls in place; (iv) assessing risks; (v) relevant prudential requirements; and (vi) client money requirements under the CASS regime.
The FCA notes that this is not an exhaustive list and reminds firms to consider its latest guidance on how to manage financial crime risks associated with cryptoassets in the ongoing Russia/Ukraine conflict. The FCA also recommends that firms read the PRA’s letter on existing or planned exposures to cryptoassets, as well as the Bank of England and Financial Policy Committee’s publications on cryptoassets and new forms of digital money (see items above in this section).
As a final point, the FCA states that it is continuing to work with international bodies, including the International Organization of Securities Commissions, the Financial Stability Board and the Financial Action Task Force, to achieve international co-operation and standards, as well as with the UK government and other bodies through the Cryptoassets Taskforce to achieve a UK approach that balances innovation and competition with orderly markets and consumer protection.
Notice to all FCA regulated firms with exposure to cryptoassets
Competition and Markets Authority
Retail Banking Market Investigation Order 2017 - CMA publishes letters to two banks - 21 March 2022
The Competition and Markets Authority (CMA) has published letters sent to Barclays Bank UK PLC and Lloyds Banking Group (the Banks) about breaches of Part 2 of the Retail Banking Market Investigation Order 2017 (the Order).
Part 2 of the Order implements Open Banking by requiring the largest banks to make accurate, comprehensive and up to date product and service information continuously available through Open Banking Application Programming Interfaces (APIs). This allows third party app and website providers to make available personalised services and information. The CMA notes in the letters that the Banks have already resolved the breaches and that no further formal action is required at present.
CMA Letter to Barclays: Breach of the Retail Banking Order
Webpage
CMA Letter to Lloyds: Breach of the Retail Banking Order
Webpage
Retail Banking Market Investigation Order 2017 - CMA publishes letter to OBIE - 23 March 2022
The Competition and Markets Authority has published a letter to the Open Banking Implementation Entity (OBIE) updating the status of its Roadmap items. The OBIE was established by the Retail Banking Market Investigation Order 2017 to implement Open Banking and is funded by the UK’s nine largest retail banks (known as the CMA9).
The CMA highlights that there are three remaining Roadmap items that require implementation:
- variable recurring payments for sweeping, due for completion by July 2022;
- consent and access dashboards as part of version 3.1.10 of the Open Banking standard, due for completion by September 2022; and
- delivery of the enhanced management information submission mechanism, also due for completion by July 2022.
The CMA requests the OBIE to continue monitoring progress and to keep the CMA updated. The CMA anticipates being in a position to determine that the Roadmap has been completed later in 2022 and encourages progress on these final implementation steps to achieve full transition to Open Banking.
CMA letter: OBIE update on status of the Roadmap items
OBIE Roadmap Progress - Outstanding Items
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