Banking and Finance

Issue 1172 / 11 August 2022

European Banking Authority

CRR - EBA publishes consultation paper on draft RTS on the determination by originator institutions of the exposure value of SES in securitisations - 9 August 2022

The European Banking Authority (EBA) has published a consultation paper (EBA/CP/2022/11) on draft regulatory technical standards (RTS) specifying the determination by originator institutions of the exposure value of synthetic excess spread (SES), under Article 248(4) of the Capital Requirements Regulation (575/2013/EU).

The draft RTS, set out in chapter 4 of the consultation paper, specify the calculation of the exposure value of certain elements that should be included in the exposure value of SES, taking account of the relevant losses expected to be covered by SES. The proposals reflect a more risk sensitive prudential framework concerning synthetic securitisation by contractually designating certain amounts to cover losses of the securitised exposures during the life of the transaction. These amounts, which encumber the originator institution's income statement like an unfunded guarantee, were not previously risk weighted.

The deadline for comments is 14 October 2022. A related public meeting will take place on 6 September 2022. The final draft RTS will be submitted to the Commission for adoption, after which they will be scrutinised by the European Parliament and Council of the EU before their publication in the Official Journal of the European Union.

EBA Consultation Paper: Draft Regulatory Technical Standards Specifying the determination by originator institutions of the exposure value of synthetic excess spread pursuant to Article 248(4) of Regulation (EU) No 575/2013 (EBA/CP/2022/11)


Press release

Please see the General section for an item on policy statement 7/22 which includes consequential amendments arising from the introduction of the CRR Rules in the PRA Rulebook.

UK Parliament

‘Strong and simple’ prudential framework - House of Commons Treasury Sub-Committee publishes letter - 10 August 2022

The House of Commons Treasury Sub-Committee on Financial Services Regulations (the Sub-Committee) has published a letter sent to the PRA regarding its proposed ‘strong and simple’ framework (the Framework), on which the PRA published a consultation paper (CP5/22) in April 2022. The letter follows the Sub-Committee’s inaugural meeting on 20 July 2022, during which it took evidence from two ‘challenger banks’ as well as representatives from the banking industry and the building society sector on the proposed Framework.

A number of concerns were raised during that session, including:

  • a lack of clarity on the PRA’s overall strategy when developing the Framework means that firms do not know whether the simpler-firm regime thresholds are appropriate;
  • the £15 billion balance sheet cap on the simpler-firm regime should be brought in line with the £25 billion balance sheet threshold for the minimum requirement for own funds and eligible liabilities (MREL), to prevent additional complexity;
  • the creation of cliff-edges by setting upper limit thresholds within the Framework. In addition, it is not yet clear how firms will transition between ‘layers’ within the Framework; and
  • the requirement for 85% of a firm’s obligors to be based in the UK in order for a firm to qualify for the simpler-firm regime may lead to existing customers who live abroad being de-banked by their lender, or prospective customers living abroad having fewer lenders from which to secure a mortgage or loan.

During the session, the Sub-Committee heard that, of the 35 new banks formed in the UK since the 2008 financial crisis, none have yet scaled up to a point where they can compete with the larger players. MPs were told that increasing the proposed £15 billion balance sheet ceiling for smaller firms to qualify for a simpler regime to at least £25 billion could allow medium-sized firms to compete with high street banks.

The Sub-Committee has requested the PRA’s views on increasing the proposed threshold and its views on how firms would transition between layers within the Framework, by 2 September 2022.

Sub-Committee on Financial Service Regulations Letter: The Strong and Simple Framework consultation

Press release

Bank of England

Financial Services and Markets Bill - House of Commons Treasury Committee publishes letter from Bank of England - 11 August 2022

The House of Commons Treasury Committee has published a letter (dated 27 July 2022) from Andrew Bailey, Governor of the Bank of England (the Bank), on the Financial Services and Markets Bill (the Bill). The letter follows Mr Bailey’s appearance at the Treasury Select Committee on 11 July 2022, where he received questions from members of the committee related to the Bill following the Bank’s latest financial stability report.

The Bank welcomes the Future Regulatory Framework measures contained in the Bill and supports the proposals for regulators to have increased responsibility for setting regulatory requirements, acting within a strong policy and accountability framework set and overseen by Parliament. The Bank also welcomes the increased accountability mechanisms set out in the Bill, which Mr Bailey notes “strike an appropriate balance” between the desire for independent regulators to be more responsive to new risks and opportunities and the need for Parliament, stakeholders, and the public at large to hold regulators to account.

The PRA expects to publish a discussion paper in September 2022 that will set out the Bank’s vision for implementing the Future Regulatory Framework.

Letter from Andrew Bailey, Governor of the Bank of England: Future Regulatory Framework for financial services

Press release

Recent cases

Algebris (UK) Ltd and another v Single Resolution Board (Case T 570/17) [2022] - 1 June 2022 - Resolution tools - Single Resolution Mechanism - Charter of Fundamental Rights

The European General Court has dismissed an action seeking an annulment of a decision by the European Commission (the Commission) endorsing the resolution scheme for Banco Popular Español SA under the Single Resolution Mechanism (SRM) Regulation (806/2014). The applicants were investment fund managers that held Additional Tier 1 capital instruments and Tier 2 capital instruments issued by Banco Popular before the resolution. Among other things, the applicants argued that certain actions of the Commission and the Single Resolution Board were in breach of principles established by the Charter of Fundamental Rights of the EU (the Charter). In particular, the applicants claimed that the resolution process for Banco Popular had breached their right to property under Article 17(1) of the Charter, as the resolution scheme involved the write-down of capital instruments, and their right to be heard under Article 41(2)(a) of the Charter, as the decision had been made without their having the opportunity to make representations.

The Court held that the resolution process pursued an objective of general interest under Article 52(1) through the pursuit of ensuring the stability of the financial markets and consequently was capable of justifying a limitation on these rights. Consequently, it issued a judgment dismissing the applicants’ action in seeking to annual the Commission’s decision to endorse a resolution scheme.