Basel Committee on Banking Supervision
Climate-related financial risks - Basel Committee issues principles for effective management and supervision - 15 June 2022
The Basel Committee on Banking Supervision (the Basel Committee) has issued a set of principles for the effective management and supervision of climate-related financial risks (the Paper), following its November 2021 consultation, as previously reported in this Bulletin.
The Paper sets out 18 principles covering topics such as corporate governance, internal controls, risk assessment, management and reporting. Principles 1 to 12 provide guidance for banks on the effective management of climate-related financial risks, while principles 13 to 18 are aimed at prudential supervisors. The principles aim to provide a common baseline for internationally active banks and supervisors, while retaining sufficient flexibility given evolving practices in this area.
The Paper seeks to accommodate a diverse range of banking systems and is intended to be applied on a proportionate basis depending on the size, complexity and risk profile of the bank or banking sector for which the authority is responsible. The principles relating to scenario analysis and stress testing are aimed primarily at large internationally active banks and to supervisory and other relevant financial authorities in member jurisdictions.
The Basel Committee expects implementation of the principles as soon as possible.
Basel Committee on Banking Supervision: Principles for the effective management and supervision of climate-related financial risks
CRD IV - European Commission adopts Commission Delegated Regulation on RTS on authorisation of credit institutions - 10 June 2022
The European Commission has adopted Commission Delegated Regulation C(2022) 3342 (final), supplementing the Capital Requirements Directive IV (2013/36/EU) (CRD IV) with regard to regulatory technical standards (RTS) specifying the information to be provided in an application for authorisation in accordance with Article 8a of CRD IV. The European Banking Authority consulted on the draft RTS in June 2020 and published its final report containing the draft RTS in December 2020.
The draft RTS set out the details required for authorisation as a credit institution in accordance with the new definition in Article 4(1)(1)(b) of the Capital Requirements Regulation (575/2013/EU) (CRR), as amended by Article 62(3)(a) of the Investment Firms Regulation ((EU) 2019/2033) (IFR).
The European Parliament and Council of the EU will now scrutinise the Commission Delegated Regulation. If neither object, it will enter into force and apply on the 20th day following its publication in the Official Journal of the European Union.
Commission Delegated Regulation (EU) …/… of 10.6.2022 supplementing Directive 103/36/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the information to be provided by an undertaking in the application for authorisation in accordance with Article 8a of that Directive (C(2022) 3342 final)
CRR - European Commission adopts two Delegated Regulations on RTS on market risk - 14 June 2022
The European Commission (the Commission) has adopted the following two Delegated Regulations containing regulatory technical standards (RTS), supplementing the Capital Requirements Regulation (575/2013/EU) (CRR):
- Commission Delegated Regulation (EU) …/… supplementing CRR with regard to RTS specifying the criteria for assessing the modellability of risk factors under the internal model approach (IMA) and specifying the frequency of that assessment under Article 325be(3) of CRR (C(022) 3801 final); and
- Commission Delegated Regulation (EU) …/… supplementing CRR with regard to RTS specifying the technical details of back-testing and profit loss attribution requirements under Article 325bf and 325bg of CRR (C(2022) 3800 final).
The European Banking Authority consulted on the draft RTS in June 2019, before submitting the final draft RTS to the Commission in March 2020.
The European Parliament and Council of the EU will now scrutinise the Commission Delegated Regulations. If neither object, they will enter into force on the 20th day following their publication in the Official Journal of the European Union.
Commission Delegated Regulation (EU) …/… of 14.6.2022 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the criteria for assessing the modellability of risk factors under the internal model approach (IMA) and specifying the frequency of that assessment under Article 325be(3) of that Regulation (C(2022) 3801 final)
Commission Delegated Regulation (EU) …/… of 14.6.2022 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the technical details of back-testing and profit and loss attribution requirements under Articles 325bf and 325bg of Regulation (EU) No 575/2013 (C(2022) 3800 final)
Council of the European Union
Consumer Credit Directive - Council of the EU publishes general approach - 10 June 2022
The Council of the EU (the Council) has published the text of its general approach to the proposed Directive on consumer credit (2021/0171(COD)), 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 agreed its general approach on 9 June 2022, as reported in last week’s Bulletin.
The Council may now begin negotiations with the European Parliament.
Outcome of Proceedings: Proposal for a Directive of the European Parliament and of the Council on consumer credits - General approach (2021/0171(COD))
Single Resolution Board
Expectations for banks to demonstrate resolvability - SRB publishes updated guidance on bail-in playbooks and data - 15 June 2022
The Single Resolution Board (SRB) has published several documents – notably, an operational guidance document on bail-in playbooks and instructions relating to bail-in data - supplementing its “expectations for banks” document, which outlines how banks should demonstrate resolvability, published in April 2020.
A bail-in playbook refers to the internal document used by a bank to establish a minimum set of objectives, processes and governance structures to support the implementation of write-down and conversion powers by resolution authorities. The updated guidance adds more detail to the expectations relating to intra-group loss transfer and recapitalisation mechanisms between the resolution entity and its subsidiaries, as well as the required management information systems (MIS) capabilities. It also introduces a dedicated section on the testing of bail-in playbooks and MIS capabilities by banks and includes targeted amendments based on the SRB’s experience since the previous update of the guidance.
The accompanying instructions and explanatory notes on bail-in data outlines the SRB’s expectations around the submission of timely, high-quality data to resolution authorities to enable the execution of write-down and conversion powers and the bail-in tool.
SRB Operational Guidance on bail-in playbooks
SRB Bail-in Data Set: Explanatory Note
SRB Bail-in Data Set: Instructions
Bank of England
Resolvability Assessment Framework for major UK banks - Bank of England publishes findings - 10 June 2022
The Bank of England (the Bank) has published the findings from its first assessment of the resolvability of the eight major UK banks within the scope of the resolvability assessment framework. The Bank has also shared a video in which Sasha Mills, Executive Director for Resolution, introduces the assessment and explains the findings. In short, the exercise demonstrates that “if a major UK bank failed today it could do so safely: remaining open and continuing to provide vital banking services to the economy. Shareholders and investors, not taxpayers will be first in line to bear the costs, overcoming the ‘too big to fail’ problem”.
The Bank explains that “resolvability is best understood as a spectrum… and therefore the Bank has not made a pass-or-fail assessment”. However, a number of thematic and firm-specific areas have been identified where further work is needed for firms to meet the Bank’s expectations and ensure they remain ready for resolution. Funding in resolution and restructuring planning, in particular, are areas requiring relatively more work across the sector.
Section 5.1 of the findings explains the issues identified with each firm’s ability to achieve the resolvability outcomes needed to support a resolution if they fail. Although the findings are specific to individual firms, their business models and resolution strategies, and cannot be compared directly with one another, these terms provide a consistent way of describing the impact the issues identified would have on the Bank’s ability to execute a firm’s preferred resolution strategy.
The Bank has identified ‘shortcomings’ for three firms. These are issues that may complicate unnecessarily the Bank’s ability to undertake resolution. It has also found ‘areas for further enhancement’ for six firms. These are specific areas where continued work is needed by firms to enhance or embed capabilities in order to further reduce execution risks associated with resolution.
The Bank will repeat its assessment in 2024 to review the progress firms have made in addressing these findings and enhancing their preparation for resolution. The Bank notes that future assessments are likely to be focused on particular areas of importance or weakness, and will include more detailed verification of firms’ preparations, building on the Bank’s review of firms’ own assurance arrangements considered in this first assessment. The Bank and the PRA have made resolvability a continuing obligation for banks and require them to publish their own summaries of their preparations for resolution.
Bank of England Resolvability assessment of major UK banks: 2022
Updated webpage: Resolution
Prudential Regulation Authority
Removal of Pillar 2A buffer adjustment - PRA publishes statement - 13 June 2022
The PRA has published a statement on its approach to buffer adjustments. In July 2020, in light of the COVID-19 outbreak, and high uncertainty surrounding the extent of the stress, the PRA announced a temporary increase of the PRA buffer for all firms that received a Pillar 2A (P2A) reduction under Policy Statement (PS15/20) “Pillar 2A: Reconciling capital requirements and macroprudential buffers”. The PRA has been setting firm-specific PRA-buffer adjustments in line with the implementation of PS15/20 from 2020, aligning these to 56.25% of the firm-specific total Pillar 2A reduction (which is the minimum amount of CET1 the PRA requires for firms to meet Pillar 2A requirements). This regulatory measure is no longer considered necessary and therefore the PRA buffer adjustment will be removed with effect from the end of December 2022.
PRA Statement on removing the PRA buffer adjustment in PS15/20
Financial Conduct Authority
Branch and ATM access - FCA publishes guidance consultation (GC22/2) on closures or conversions - 14 June 2022
The FCA has published a guidance consultation (GC22/2) which sets out its expectations for firms considering closing a branch or an ATM or converting a free-to-use ATM to pay-to-use. The FCA previously published finalised guidance on branch and ATM closures or conversions in September 2020 (FG20/3) and has been supervising firms’ closure and conversion processes closely against those expectations. The FCA also published examples of good practice and areas for improvement in February 2022, which have now been updated alongside the consultation.
Key points emerging from the guidance consultation are as follows:
- the FCA proposes to extend its guidance to the ‘partial closure’ of a branch (to be defined as “a long-term reduction in branch opening hours or days or reduction in branch services where this would have a significant impact on customers”);
- firms must consider whether the services they are providing through emerging models meet the broad definition of a branch, meaning that the guidance would apply;
- before closing a branch, the FCA expects firms to conduct a robust analysis, including usage trends and overall transaction volumes across a suitably representative time period. Firms should share details of any commercial evaluation they have completed with the FCA;
- as well as customers, firms should ensure stakeholders, such as relevant consumer groups (for example, charities representing local carers and the elderly) and local councils, are proactively contacted about closure or conversion plans;
- the FCA proposes to add further examples to the guidance to highlight how firms can meet the FCA’s expectations on the treatment of customers in vulnerable circumstances. For example, account opening, proving identity and issues with powers of attorney are likely to be dealt with by face-to-face meetings in a branch. Where a firm identifies a branch for closure, it should make the effective migration of these services to a channel which customers will find accessible part of the pre-closure planning.
The deadline for responses is 26 July 2022. The FCA intends to finalise the guidance later in 2022.
FCA Guidance Consultation: Branch and ATM closures or conversions: Updated Guidance for Firms (GC22/2)
Rising cost of living - FCA publishes Dear CEO letter to lenders - 16 June 2022
The FCA has published a Dear CEO letter sent to approximately 3,500 lenders to remind them of the standards they should meet as consumers are affected by the rising cost of living. The FCA also encourages authorised firms offering consumer credit products (including ‘buy-now-pay-later’ products) to follow the relevant guidance in the letter.
The FCA notes that most firms need to have a better understanding of their customers’ individual circumstances, so they can provide appropriate tailored support and ensure that arrangements to pay back debt are suitable. Firms’ frontline services may have to deal with more customers faced with a complex range of vulnerable circumstances and non-financial knock-on effects of the rising cost of living.
In light of these concerns, the FCA has outlined the following non-exhaustive list of its expectations:
- providing customers with an appropriate level of care and support, and appreciating that the level of care needed for customers who have characteristics of vulnerability may be different from that for others;
- giving borrowers in financial difficulty appropriate tailored forbearance that is in their interests and takes account of their individual circumstances;
- supporting borrowers showing signs of financial difficulty by making them aware of and helping them access money guidance or free debt advice;
- ensuring that any fees and charges levied on borrowers in financial difficulty are fair and do no more than cover firms’ costs;
- making sure firms’ approach to taking on new borrowers takes account of the financial pressure they may be facing and the impact on their expenditure;
- considering what more firms can do to encourage mortgage borrowers to think about switching to a less costly option where that is available; and
- helping consumers avoid falling victim to scams or illegal money lending.
The letter also refers to the FCA’s findings from its review of outcomes for borrowers in financial difficulty and its vulnerable customer guidance. The FCA intends to publish the detailed findings of its work on borrowers in financial difficulty later this year. It plans to consult on the future of the FCA’s tailored support guidance for mortgages, consumer credits and overdrafts, which may involve changes being made to the FCA Handbook. The FCA also notes that it will finalise any rules in relation to the new consumer duty later in 2022.
FCA Dear CEO letter: The rising cost of living - acting now to support consumers