Committee on Payments and Market Infrastructures
Interlinking payment systems and application programming interfaces - CPMI publishes report - 8 July 2022
The Committee on Payments and Market Infrastructures (CPMI) has published a report on interlinking payment systems and the role of application programming interfaces (APIs). The report provides a framework to help payment system operators and authorities understand and evaluate the benefits, challenges and risks of interlinking arrangements. In doing so, it also provides an overview of important trends in interlinking arrangements and adoption of APIs by payment systems, drawing on recent CPMI surveys.
The CPMI explains that interlinking arrangements for cross-border payments can be defined as a set of contractual agreements, technical links and standards, and operational components between payment systems of different jurisdictions, allowing their respective payment service providers (PSPs) to transact with each other without requiring them to participate in the same payment system or use intermediaries. These arrangements are an important element of enhancing cross-border payments, as, among other things, they can shorten transaction chains, reduce overall costs, and increase the transparency and speed of payments.
However, the CPMI cautions that, despite these potential benefits, interlinking may face challenges and risks that need careful consideration and planning by operators and authorities considering such arrangements. These include challenges related to: the level of political support; divergent legal, regulatory and oversight frameworks; and operational risk management.
CPMI Report to the G20: Interlinking payment systems and the role of application programming interfaces: a framework for cross-border payments
Webpage
Single Resolution Board
2021 bank resolvability assessment - published by SRB - 13 July 2022
The Single Resolution Board (SRB) has, for the first time, published its assessment of the resolvability of banks in the Banking Union. The resolvability assessment and ‘heat-map’ for 2021 shows that banks have made significant progress in the SRB’s priority areas. Banks have improved their ability to absorb losses and recapitalise in the case of failure, and most banks already meet the final minimum requirement for own funds and eligible liabilities (MREL) target to be complied with at the end of the transition period, on 1 January 2024.
The SRB observes, however, that progress is needed by all banks on the swift mobilisation of liquidity and collateral in resolution, the further automation of the management information systems for the purposes of valuation in resolution, as well as the further operationalisation of restructuring and separation capabilities post-resolution.
The SRB will communicate its 2023 priorities to banks in Q3 2022. They will include finalising the work on liquidity and other remaining capabilities, as well as ensuring full compliance with the final MREL targets.
SRB Resolvability of Banking Union Banks: 2021
Press release
European Central Bank
Economy-wide climate stress test - ECB publishes results - 8 July 2022
The European Central Bank (ECB) has published the results of its 2022 Climate Risk Stress Test (CST) exercise for EU banks. The 2022 CST was launched in January 2022 and aims to assess banks’ resilience to a short-term disorderly transition risk scenario (assessing banks’ short-term vulnerabilities triggered by a sharp, abrupt increase in the price of carbon emissions), a drought and heat scenario (which modelled the economic effects of a severe drought and heatwave, assumed to hit Europe on 1 January 2022), and a flood risk scenario (where it was assumed that severe floods took place across Europe on 1 January 2022). 41 banks took part in the 2022 CST, and the results will inform the 2022 Supervisory Review and Evaluation Process (SREP).
Overall, the 2022 CST shows that banks in the Single Supervisory Mechanism do not yet sufficiently incorporate climate risk into their stress-testing frameworks and internal models, despite some progress having been made since 2020. Key findings from the results include:
- credit and market losses in the short-term disorderly transition and the two physical risk scenarios amount to around EUR 70 billion on aggregate. The ECB states that this is an understatement of the actual climate-related risk, owing to challenges such as the scarcity of available data;
- around 60% of banks do not yet have a climate risk stress-testing framework. Similarly, most banks do not include climate risk in their credit risk models, and just 20% consider climate risk as a variable when granting loans;
- on aggregate, almost two-thirds of banks’ income from non-financial corporate customers stems from greenhouse gas-intensive industries. The ECB urges banks to step up their customer engagement to obtain more accurate data and insights into their clients’ transition plans; and
- physical risk has a heterogeneous impact across European banks, as their vulnerability to a drought and heat scenario and a flood scenario is highly dependent on sectoral activities and the geographical location of their exposures.
The ECB will integrate the findings from the 2022 CST into its SREP. There will be no direct impact on capital through the Pillar 2 guidance in 2022. The ECB will conduct follow-up work and produce guidance on best practices in Q4 2022.
ECB 2022 climate risk stress test
Press release
Prudential Regulation Authority
Capital and Liquidity Buffers - PRA publishes speech - 14 July 2022
The PRA has published a speech by Victoria Saporta, Executive Director of Prudential Policy, on capital and liquidity buffers.
In the speech, Ms Saporta points to evidence suggesting that banks may be overly reluctant to use their liquid asset buffers when facing liquidity pressures. She suggests that prudential regulators may need to be bolder in the future to address this reluctance, as regulatory messages in support of liquidity buffer usability communicated before and during the pandemic were insufficient for this purpose on their own. Ms Saporta argues that impediments to liquid asset usability include low internal risk appetites to let regulatory ratios fall hardwired in banks’ behaviours, market stigma amplified by stringent spot disclosures of volatile ratios and uncertainty about the eventual size of the shock.
With regards to capital buffers, Ms Saporta points to evidence which shows market stigma is a factor in banks’ reluctance to use these. The speech identifies certain policy implications of this evidence, in particular with respect to the concepts of usability and the releasability of capital buffers. Mr Saporta also examines possible supporting measures that could be taken by regulators to tackle these issues.
Speech by Victoria Saporta, Executive Director of Prudential Policy
Financial Conduct Authority
SME collections and recoveries review - FCA publishes multi-firm review - 12 July 2022
The FCA has published a review of the way retail banks treat small and medium-sized enterprises (SMEs) that are in collections and recoveries. Regulated firms that offer lending to SMEs are encouraged to consider, and if necessary, act on, the findings of the review.
The FCA took into account the following considerations (among others) against its Principles for Businesses and borrower protection rules:
- how likely firms’ policies and procedures were to deliver fair outcomes for customers;
- whether customers benefited from fair outcomes when they were in collections and recoveries;
- whether banks provided appropriate forbearance to SME customers; and
- whether due consideration of customers’ financial difficulties was evident during interactions between staff and customers.
The review highlights frequent poor outcomes for customers and persistent failures to treat customers fairly. The FCA states that firms failed to keep adequate records, use outcomes testing that considered fairness to customers and provide training to staff that adequately covered conduct requirements.
The FCA provided individual feedback to each bank it considered in the review and communicated its findings in an accompanying Dear Chair letter to all firms with an SME customer base. The FCA will continue to monitor outcomes for customers and states that it will take action where required to ensure customers are treated fairly. In future engagement with firms with SME customers, the FCA is likely to ask firms to demonstrate their compliance with the expectations set out in the review.
SME collections and recoveries review
FCA Dear Chair letter
Press release
Recent cases
ABLV Bank AS v Single Resolution Board (SRB) EUECJ T-280/18, 6 July 2022 - Decision of the SRB not to adopt a resolution scheme - Action for annulment - Article 18 of the Single Resolution Mechanism Regulation (806/2014/EU)
The General Court of the Court of Justice of the EU has dismissed an application by ABLV Bank AS (the Applicant) seeking an annulment of the Single Resolution Board’s (SRB’s) decision not to adopt resolution schemes within the meaning of Article 18(1) of the Single Resolution Mechanism (SRM) Regulation (806/2014/EU) for the Applicant or its subsidiary, ABLV Bank Luxembourg S.A. (the Banks). The SRB’s decision was made following the European Central Bank’s (ECB’s) decision to declare the Banks as ‘failing or likely to fail’.
Dismissing ABLV’s action, the judgement affirmed that the SRB has the power to take a formal decision not to adopt a resolution scheme within the meaning of Article 18(1) SRM Regulation, and that it did not err by taking the ECB’s assessment that ABLV was failing or likely to fail as the basis for its own decision. The judgement also confirmed that the ECB and the SRB are not required to take account of factors such as the coverage ratio or the level of capitalisation of a credit institution before being able to conclude that a credit institution is failing or is likely to fail under Article 18(4) SRM Regulation; in this instance, focus on the temporary cash-flow shortage affecting the Banks was sufficient.
ABLV Bank AS v Single Resolution Board (SRB) EUECJ T-280/18
