Banking and Finance

Issue 1163 / 9 June 2022

Basel Committee on Banking Supervision

Climate-related financial risks, prudential treatment of cryptoassets and G-SIB assessment methodology - Basel Committee provides update on its work - 31 May 2022

The Basel Committee on Banking Supervision (the Basel Committee) has announced that it has finalised its principles for the effective management and supervision of climate-related financial risks; progressed its work on the prudential treatment of banks’ cryptoassets; and completed its review of the treatment of cross-border exposures on the assessment methodology for global systemically important banks (G-SIBs).

Its principles on climate-related financial risks will be published “in the coming weeks” and have been designed such that “they can be adapted to a diverse range of banking systems in a proportional manner”. 

The Basel Committee plans to publish a second consultation paper on the prudential treatment of banks' cryptoasset exposures over the coming month, with a view to finalising the framework around the end of 2022. 

It has also completed its targeted review of the treatment of cross-border exposures within the European Banking Union (EBU) on the methodology for G-SIBs. It has agreed to give recognition in the G-SIB framework to this progress through the existing methodology, which allows for adjustments to be made according to supervisory judgment. Under the agreement, a parallel set of G-SIB scores will be calculated for EBU-headquartered G-SIBs and used to adjust their bucket allocations. The Committee's agreement will not affect the classification of any banks as G-SIBs or the scores or bucket allocations of banks outside the EBU.

Press release

Council of the European Union

Consumer Credit Directive - Council of the EU adopts general approach - 7 June 2022

The Council of the EU (the Council) has agreed on a general approach to the proposed Directive on consumer credit, which will revise and replace the Consumer Credit Directive (2008/48/EC) (CCD) (CCD II). The legislative proposal was adopted by the European Commission in July 2021, and the European Parliament published its draft opinion (2021/0171(COD)) on the proposal in February 2022. The Council’s Permanent Representatives Committee approved the text of the general approach on 25 May 2022.

The proposed CCD II recognises the changes that digitalisation has brought to the lending sector and the appearance of new market players, such as peer-to-peer lending platforms offering credit agreements in different forms, and new products, such as short-term high-cost credit. It envisages the application of a proportionate regime with some targeted exclusions from scope of credits that are free of interest and without any other charges.

The Council may now begin negotiations with the European Parliament.

Final Compromise Text: Proposal for a Directive of the European Parliament and of the Council on consumer credits (2021/0171(COD)) (9433/1/22)

Joint statement by Estonia and Lithuania (9433/22)

Press release

European Parliament

CRR III and CRD VI - ECON publishes draft reports on proposed Regulation and Directive

30 May 2022 and 1 June 2022 - The European Parliament’s Economic and Monetary Affairs Committee (ECON) has published two draft reports (dated 23 May 2022):

  • on the proposal for a Regulation amending the Capital Requirements Regulation (575/2013/EU) (CRR) as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor (CRR III) (2021/0342(COD)); and
  • on the proposal for a Directive amending the Capital Requirements Directive (2013/36/EU) (CRD IV) as regards supervisory powers, sanctions, third-country branches, ESG risks, and amending the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) (CRD VI) (2021/0341(COD)).

The reports contain draft European Parliament legislative resolutions, which detail suggested amendments to the proposed CRR III Regulation and CRD VI Directive. They do not contain explanatory statements on the reasons for the amendments.

The European Parliament adopted the relevant legislative proposals in October 2021. They form part of the European Commission’s work to finalise the implementation of the Basel III agreement. ECON is scheduled to vote on the draft reports on 5 December 2022.

ECON I Draft Report: on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor (2021/0342(COD))

ECON I Draft Report: on the proposal for a directive of the European Parliament and of the Council amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks, and amending Directive 2014/59/EU (2021/0341(COD))

European Banking Authority

Publication of approach to implementing the bail-in tool - EBA publishes Consultation Paper (CP/2022/06) on draft Guidelines - 7 June 2022

The European Banking Authority (EBA) has published a Consultation Paper (CP/2022/06) on draft Guidelines addressed to resolution authorities for the publication of their approach to the implementation of the bail-in tool. The draft Guidelines specify information to be made public by resolution authorities on how the write-down and conversion will be applied, in particular in the context of the use of the bail-in tool (that is, the exchange mechanic), in accordance with the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The document follows the EBA’s published Guidelines on improving resolvability for institutions and resolution authorities (GL/2022/01).

The EBA explains that guidelines are needed to ensure a harmonised approach by setting out minimum elements that authorities must publish about their exchange mechanics. They require all authorities, by January 2024, to have published basic information about their approach, including, for example, whether it is intended to make use of interim entitlements and how potential valuation adjustments would take place. Authorities should update this publication continuously as they develop their approach.

The deadline for responses is 7 September 2022.

EBA Consultation Paper: Guidelines to resolution authorities on the publication of the write-down and conversion and bail-in exchange mechanic (EBA/CP/2022/06)

Webpage

Press release

  1.  

CRR - EBA consults on draft RTS on identification of a group of connected clients - 8 June 2022

The European Banking Authority (EBA) has published a consultation paper (CP/2022/07) relating to draft regulatory technical standards (RTS) on the identification of a group of connected clients (GCC) for the purposes of Article 4 of the Capital Requirements Regulation (575/2013/EU) (CRR). The draft RTS set out the specific circumstances in which an interconnection by means of a control and/or an economic dependency relationship leads to a single risk and thus a grouping requirement.

The draft RTS, in conjunction with the EBA Guidelines on connected clients, provide the complete framework for the identification of the GCC. The draft RTS focus on a clear specification of the circumstances in which the conditions set out in point (39) of Article 4(1) of the CRR to form a group of connected clients are met, whilst the EBA Guidelines contain practical examples and provide procedural guidance.

The objective of the definition of a GCC is to identify two or more natural or legal persons who are so closely linked by “idiosyncratic risk factors” that it is prudent to treat them as a single risk. In addition, the draft RTS set out rebuttable provisions for the assessment of situations where control and economic dependencies coexist and thus one overall GCC, as opposed to two or more separate GCCs, needs to be formed.

The deadline for responses is 8 September 2022. Following the consultation, the draft RTS will be submitted to the European Commission for adoption. If adopted, they will be subject to scrutiny by the European Parliament and the Council of the EU before being published in the Official Journal of the European Union.

EBA Consultation Paper: Draft Regulatory Technical Standards on the identification of a group of connected clients under Article 4 paragraph 1 number 39 of Regulation (EU) No 575/2013 (EBA/CP/2022/07)

Press release

European Central Bank

Proposal to amend EU MiFIR - ECB issues opinion - 1 June 2022

The European Central Bank (ECB) has issued an opinion on a proposal of the European Parliament and the Council of the European Union amending Regulation (EU) 600/2014 (MiFIR) to enhance market data transparency, remove obstacles to the emergence of a consolidated tape, optimise trading obligations and prohibit receipt of payments for forwarding client orders.

Among other things, the ECB welcomes the introduction of the proposed enhanced regime for the ‘consolidated tape’ (CT) and the competitive bid process for the selection of a consolidated tape provider (CTP) for each asset class. It understands that under the proposal the CTP will only be responsible for consolidating the core market data and disseminating it commercially to the market and that the quality of the contributed data, which remains wholly the responsibility of the market data contributors, will be regulated by the Commission on the basis of a delegated act. The ECB also expresses support for the proposed streamlining of the pre-trade transparency regime for equities, by replacing the double volume cap with a single volume cap set at 7% of the total volume of trades that are executed in the relevant financial instrument under the reference price waiver or the negotiated trade waiver.

Where the ECB recommends amendment to the proposed regulation, it has set out drafting proposals in a technical working document underneath the opinion.

ECB opinion on proposed regulated amending EU MiFIR

Single Resolution Board

MREL - SRB publishes updated policy for 2022 - 8 June 2022

The Single Resolution Board (SRB) has published an updated version of its policy for the minimum requirement for own funds and eligible liabilities (MREL) under the Bank Recovery and Resolution Directive ((EU) 2019/879) (BRRD II). The updated policy reflects the SRB’s experience during the 2020 resolution planning cycle.

The updated policy takes into account regulatory developments such as the end of the supervisory leverage relief measures of the European Central Bank and changes to the Capital Requirements Regulation (CRR) recently agreed by the EU co-legislators on the indirect holding of internal MREL and the MREL calibration for banks with a multiple point-of-entry resolution strategy. It expands the coverage of entities under internal MREL and involves a more dynamic subordination policy, taking into account evolving balance sheets prior to resolution.

The updated MREL policy will apply from the 2022 resolution planning cycle.

SRB Minimum Requirement For Own Funds and Eligible Liabilities (MREL)

Press release

HM Treasury

Cash Ratio Deposit scheme - HM Treasury publishes Policy Statement - 7 June 2022

HM Treasury has published a Policy Statement on proposed changes to the Bank of England’s (the Bank’s) Cash Ratio Deposit (CRD) scheme, which funds the Bank’s monetary policy and financial stability functions. This follows HM Treasury’s September 2021 consultation paper on the proposal to replace the CRD scheme with a levy-based arrangement.

Under the proposal, banks and building societies with eligible liabilities of more than £600 million will be required to place a proportion of their deposit base with the Bank on a non-interest bearing basis. The Bank will invest these funds in interest bearing assets, such as gilts, and the income generated will be used to meet the costs of its monetary policy and financial stability functions. 

Replacing the CRD scheme with the levy will ensure that it no longer has to fund income shortfall through its own capital or reserves. When the levy scheme is introduced, the Bank will publish a framework outlining its approach to levying policy costs. 

The government intends to legislate to introduce the levy when parliamentary time allows. Secondary legislation will allocate the Bank’s policy costs to payers in proportion to their eligible liability base and will set out the formula and ratio for how this will be applied.

HM Treasury Policy Statement: Review of the cash ratio deposit scheme

Updated webpage

Prudential Regulation Authority

Strengthening accountability - PRA publishes updated remuneration templates for identification and exclusion of material risk takers - 1 June 2022

The PRA has published a number of amended remuneration Policy Statement templates (RPS templates) for use by banks to communicate information on the identification and exclusion of their material risk takers (MRTs). The updates reflect changes made to the Remuneration Part of the PRA Rulebook, following the PRA’s December 2021 Policy Statement (PS28/21) on the identification of MRTs.

Although use of the templates is not mandatory, it is considered good practice for firms to use them as they set out the PRA’s expectation of the level of detail that should be included. The updated templates can be accessed under the ‘Remuneration’ section of the PRA’s webpage on strengthening accountability.

Updated webpage