European Banking Authority
Banking book and trading book provisions - EBA publishes letter and opinion - 27 February 2023
The European Banking Authority (EBA) has published a no-action letter from the Chair of the EBA to the Director General of the European Commission, regarding the EBA’s opinion on the application of the new banking book-trading book boundary framework.
The letter states that national competent authorities (NCAs) should not prioritise any supervisory or enforcement action in relation to new boundary requirements set out in the new banking book-trading book boundary provisions until the full implementation of the Basel III standards. The amendments to the Capital Requirements Regulation II (EU) (2019/876) (CRR II) introduced certain components of the Basel standards on the trading book and non-trading book boundary framework, which apply from 28 June 2023.
As part of the ongoing legislative process to amend the CRR II through the proposed CRR III Regulation, both the Council and the European Parliament have proposed to postpone the application date of the boundary provisions to 1 January 2025, although this postponement will be void if the legislative process ends after 28 June 2023.
The EBA’s competence to deliver this opinion in the form of a non-action letter is based on Article 9c of Regulation (1093/2010/EU), which provides that the EBA may issue no-action letters, if it considers the application of one of the relevant legislative acts is liable to raise significant issues.
Letter: Opinion of the EBA on the application of the new banking book-trading book boundary framework
Opinion of the EBA on the application of the provisions relating to the boundary between trading book and banking book, and on the internal risk transfer between books as referred to in Article 3(6) Regulation (EU) 2019/876
Press release
HM Treasury
Bank ring-fencing regime - HM Treasury publishes call for evidence - 2 March 2023
HM Treasury has published a call for evidence on aligning the bank ring-fencing and resolution regimes. It follows recommendations made by the independent review on ring-fencing, chaired by Sir Keith Skeoch. The review panel found that the benefits of the ring-fencing regime would likely reduce over time as the resolution regime for banks is embedded. While both regimes address the issue of ‘too big to fail’, it was concluded that the resolution regime offers a more comprehensive and dynamic solution to this issue.
The call for evidence seeks views on the ongoing benefits that ring-fencing provides to financial stability not found elsewhere in the regulatory framework and invites respondents to consider a range of options for the longer-term future of ring-fencing. HM Treasury’s view is that there are three broad options for future alignment: (i) retaining the existing regimes; (ii) disapplying the ring-fencing regime from some or all in-scope firms; and (iii) revising elements of the ring-fencing regime that do not provide material benefits. Feedback is sought on, among other things, the operational costs of the ring-fencing regime as well as its impact on competitiveness.
The deadline for comments is 7 May 2023, following which the government is expected to issue its response and set out next steps.
HM Treasury Call for Evidence: Aligning the ring-fencing and resolution regimes
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Prudential Regulation Authority
Prudential framework for smaller banks - PRA publishes Consultation Paper (CP4/23) on liquidity and disclosure requirements - 27 February 2023
The PRA has published a Consultation Paper (CP4/23) on the liquidity and disclosure requirements that would apply to simpler-regime firms under the proposed strong and simple framework. It marks the first phase of proposed simplifications that will apply to simpler-regime firms, which are firms that meet the criteria set out in the PRA’s consultation on Basel 3.1 standards (CP16/22), published in November 2022. The proposals include:
- new liquidity requirements for the application of the net stable funding ratio (NSFR). The PRA proposes to apply to simpler-regime firms a new retail deposit ratio (RDR) to measure the extent of their use of relatively more stable retail funding. It proposes to disapply the NSFR to a simpler-regime firm where the RDR condition is met;
- revisions to the application of Pillar 2 liquidity add-ons. The PRA proposes that generally it will not apply Pillar 2 liquidity guidance to simpler-regime firms, except in the case of a particularly material idiosyncratic risk;
- new Pillar 3 disclosure requirements for simpler-regime firms to reflect the lower capacity for these firms to cause significant financial disruption;
- simplifications to certain proportionality approaches currently applicable in the PRA Rulebook;
- introduction of a new streamlined Internal Liquidity Adequacy Assessment Process (ILAAP) template; and
- the removal of certain liquidity reporting templates.
The PRA proposes that the implementation date for the simplifications would be in H2 2024. The PRA also intends to make available a rule modification enabling eligible firms to become simpler-regime firms, at least six months before the implementation date.
The consultation closes on 30 May 2023.
PRA Consultation Paper (CP4/23): The Strong and Simple Framework: Liquidity and Disclosure requirements for Simpler-regime Firms
Prudential framework for smaller banks - PRA publishes Consultation Paper (CP5/23) on remuneration requirements - 27 February 2023
The PRA has published a Consultation Paper (CP5/23) setting out proposed changes to the current rules and expectations to enhance the proportionality of the remuneration requirements that apply to small Capital Requirements Regime (CRR) firms and small third-country CRR firms (small firms).
The PRA’s proposals aim to increase proportionality of the remuneration regime by reducing the regulatory burden on small firms commensurate with the lower risk they pose to their own safety and soundness, and the stability of the UK financial system. The PRA considers that risks to in-scope firms’ safety and soundness can be mitigated sufficiently by other remuneration rules that the PRA is not proposing to modify.
The proposals include:
- defining small firms in line with the proposed simpler-regime size threshold and with reference to selected other simpler-regime criteria under the strong and simple framework, as set out in the PRA’s Consultation Paper (CP5/22);
- removing the requirement for small firms, as defined in this Consultation Paper, to apply rules on malus, clawback, and buyouts; and
- providing clarity on how disclosure requirements apply for all proportionality levels.
These proposals would result in changes to the Remuneration Part of the PRA Rulebook (Appendix 1) and updates to the Supervisory Statement (SS2/17) on remuneration (Appendix 2). It should be read in conjunction with the PRA’s and the FCA’s joint Consultation Paper, which sets out the regulators’ proposals on removing the bonus cap, and the PRA’s consultations on the ‘strong and simple’ framework.
The consultation closes on 30 May 2023. The proposed changes would come into force on the next calendar day after the publication of the final policy, which is scheduled for Q4 2023, and would apply to firms’ performance years beginning after that date.
PRA Consultation Paper (CP5/23): Remuneration: Enhancing proportionality for small firms
Committee on Payments and Market Infrastructures
Harmonisation of ISO 20022 - CPMI publishes Consultative Report - 1 March 2023
The Committee on Payments and Market Infrastructures (CMPI) has published a consultative report on the harmonisation of ISO 20022 for enhancing cross-border payments. The report notes that “at present, the fragmentation and mixed use of payment messaging standards is a major friction in cross-border payments.”
The fifteen proposed harmonisation requirements provide overarching guidance so that “the ISO 20022 messaging standard is consistently used to facilitate faster, cheaper, more accessible and more transparent cross-border payments.” The requirements are grouped into three sections: (i) Block A - fundamentals; (ii) Block B - transparency; and (iii) Block C - structured and coded data.
The deadline for comments is 10 May 2023, with the requirements likely to be finalised later this year. The CPMI proposes that payment system operators and participants begin preparations to align their ISO 20022 usage guidelines with the finalised CPMI requirements by November 2025, at which point SWIFT will no longer support the current standards for cross-border payments.
CPMI Consultative Report: ISO 20022 harmonisation requirements for enhancing cross-border payments
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