European Parliament
CRR - European Parliament publishes timetable for proposal - 19 May 2020
The European Parliament has updated its procedure file timetable on proposed Regulation (2020/0066(COD)), containing amendments to the Capital Requirements Regulation (575/2013/EU) (CRR) in response to the COVID-19 pandemic. The procedure file indicates that the European Parliament will consider the proposed Regulation during its plenary session to be held from 17 to 18 June 2020.
The European Commission adopted the legislative proposal for the Regulation in April 2020.
European Parliament procedure file: Regulation (2020/0066(COD))
European Banking Authority
BRRD - EBA consults on draft RTS on the contractual recognition of stay powers - 15 May 2020
The European Banking Authority (EBA) has published a consultation on draft regulatory technical standards (RTS) on the contractual recognition of stay powers under Article 71a(5) of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD), as amended by the second Bank Recovery and Resolution Directive (EU) 2019/879 (BRRD II).
Under Article 71a of the BRRD, certain firms and entities subject to the BRRD must include in any financial contract governed by the laws of a third country a contractual term by which the parties recognise that the financial contract may be subject to the exercise of powers by the resolution authority to suspend or restrict particular rights and obligations under the BRRD. The contractual term must also recognise that the parties are bound by the requirements of Article 68 of the BRRD, which relates to the exclusion of certain contractual terms in early intervention and resolution. Article 71a(5) of the BRRD requires the EBA to develop draft RTS to determine the contents of this contractual term and, to this end, the draft RTS set out a list of mandatory components which it must include, such as:
- an acknowledgement and acceptance that the contract may be subject to the exercise of certain powers by a resolution authority to suspend or restrict rights and obligations arising from such a contract;
- a description of the powers of the relevant resolution authority, a description of the requirements of Article 68 of the BRRD, as well as a recognition by the parties that they are bound by these powers and requirements; and
- an acknowledgement that no other contractual provision impairs the effectiveness and enforceability of the term.
The consultation period closes on 15 August 2020. The EBA intends to finalise these RTS by December 2020.
EBA consultation on draft RTS on the contractual recognition of stay powers under the BRRD
Webpage
Press release
BRRD - EBA publishes report on interlinkages between recovery and resolution planning - May 2020
The EBA has published a report which assesses the interlinkages between recovery and resolution planning under the BRRD. The report aims to enhance synergies between recovery plans, which are prepared by banks, and resolution plans, which are prepared by banks’ resolution authorities, by outlining best practices and areas where further improvement or clarification may help to ensure consistency in their implementation.
The report contains a comparative analysis of recovery and resolution plans, with a specific focus on critical functions and use of central bank facilities. Among other things, the report concludes that, where there are material divergences between a bank’s recovery and resolution plans, the plans should explain these divergences and establish a dialogue between the bank and its resolution authority on such divergences. The EBA has also developed a framework intended to help resolution and competent authorities when assessing the potential impact of recovery options on institutions’ resolvability.
The EBA intends to carry out further work on the impact of resolution plans on ongoing supervision and recovery planning and, in particular, the impact of measures to remove impediments to resolvability. The EBA also intends to develop guidance on practical aspects of interlinkage, such as on the timelines of recovery and resolution planning cycles.
EBA report on interlinkages between recovery and resolution planning under the BRRD
Annex 1 (containing a comparative analysis of recovery and resolution plans)
Annex 2 (containing a framework to assess the potential impact of recovery options on institutions’ resolvability)
Press release
European Central Bank
COVID-19 - ECB publishes Opinion on amendments to the prudential framework - 20 May 2020
The European Central Bank (ECB) has published an Opinion on amendments to the EU prudential framework under proposed Regulation (2020/0066(COD)), which amends the CRR in response to the COVID-19 pandemic.
Among other things, the Opinion comments on each of the key reforms proposed by the Regulation and welcomes proposals aiming to increase the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. In particular, the ECB states that:
- in relation to capital buffers, if the common equity Tier 1 (CET1) ratio of credit institutions falls below the level of the combined buffer requirement, these credit institutions can distribute resources only within the limits of the maximum distributable amount. However, if earnings turn negative, distributions will be cancelled, irrespective of the size of the breach. The ECB comments that credit institutions might not be willing to use their buffers for additional lending because of concerns about being obliged to cancel additional Tier 1 (AT1) coupons and comments that this behaviour would impair the intended beneficial effect of the buffer framework; and
- in relation to market risk, the volatility across financial markets caused by the pandemic has led to an increase in the value-at-risk (VaR) risk metrics used to calculate own funds requirements for market risk for institutions using the internal model approach for market risk. This has caused an increase in the quantitative market risk multipliers reflecting the number of back-testing overshootings. The ECB calls for the CRR to be amended to allow competent authorities the flexibility to disregard overshootings resulting from both actual and hypothetical losses in extraordinary circumstances.
ECB Opinion on proposed Regulation (2020/0066(COD)) amending the CRR in light of COVID-19
Climate-related and environmental risks - ECB consults on draft Guide - May 2020
The ECB has published for consultation a draft Guide for banks on climate-related and environmental risks. The Guide outlines the ECB’s understanding of the safe and prudent management of climate-related and environmental risks under the current prudential framework. It describes how the ECB expects institutions to consider climate-related and environmental risks - as drivers of established categories of prudential risks - when formulating and implementing their business strategy. It further explains how the ECB expects institutions to become more transparent by enhancing their climate-related and environmental disclosures.
The ECB states that the Guide is not binding, but rather serves as a basis for supervisory dialogue. Banks are expected to assess whether their current practices are safe and prudent in light of the supervisory expectations described in the Guide and, if necessary, to start adapting them. Moreover, as from end-2020, banks classed as significant institutions will be asked to inform the ECB of any divergences of their practices from these supervisory expectations.
The consultation period closes on 25 September 2020.
Draft ECB Guide on climate-related and environmental risks
FAQs
Webpage
Press release
Single Resolution Board
BRRD and SRM Regulation - SRB publishes consultation on its standardised valuation data set - May 2020
The Single Resolution Board (SRB) has published a consultation on its standardised valuation data set to ensure that a minimum level of data is available to support a robust valuation for resolution. This supplements the SRB’s Framework for Valuation, which was published in 2019, and whose aim is to provide independent valuers with the SRB’s expectations regarding the principles and methodologies for valuation reports required by the BRRD and the Single Resolution Mechanism Regulation (2014/806/EU).
The consultation period closes on 30 June 2020.
SRB consultation on its standardised valuation data set
Press release
MREL - SRB publishes final MREL policy - May 2020
The SRB has published its final minimum requirement for own funds and eligible liabilities (MREL) policy following its consultation on proposed changes to the policy in February 2020. The SRB’s MREL policy has been amended to bring the policy in line with amendments introduced by the 2019 EU banking package, including the second Capital Requirements Regulation (EU) 2019/876 (CRR II), the fifth Capital Requirements Directive (EU) 2019/878 (CRD V), the BRRD II and the second Single Resolution Mechanism Regulation (EU) 2019/877 (SRM II).
Among other things, the policy covers: (i) MREL requirements for global systemically important institutions (G‑SIIs); (ii) changes to the calibration of MREL, including introducing MREL based on the leverage ratio; (iii) changes to the quality of MREL (subordination); (iv) dedicated rules for certain business models, such as cooperatives, and for resolution strategies, such as multiple point of entry (MPE) resolution strategies; (v) provisions on internal MREL; and (vi) clarifications on third-country issuances.
The new policy changes will be phased in by 2024, with intermediate targets set for 1 January 2022 and 2023. MREL decisions implementing the new framework will be taken based on this policy in the 2020 resolution planning cycle. These decisions will be communicated to banks in early 2021.
SRB final MREL policy
SRB feedback statement on its MREL policy consultation
Press release
Treasury Committee
COVID-19 - FCA publishes response to inquiry - May 2020
The House of Commons Treasury Committee has published a letter, dated 12 May 2020, from Christopher Woolard (Interim Chief Executive of the FCA) to Mel Stride MP (Chair of the Treasury Committee) responding to a number of questions relating to the FCA’s actions to support borrowers and small and medium-sized enterprises (SMEs) during the COVID-19 pandemic.
The letter addresses several topics, including:
- the FCA’s introduction of rules providing temporary financial relief for customers affected by COVID-19, including details on how it will ensure that customers making use of the temporary relief will not have their credit ratings affected;
- the FCA’s work to determine what actions will be needed following the initial three-month implementation of temporary financial relief measures for customers affected by COVID-19;
- whether the FCA’s regulatory interventions to date have been sufficient to ensure the fair treatment and protection of vulnerable customers affected by the COVID-19 pandemic; and
- clarifying the objectives of the FCA’s newly-established unit for small business issues, and what the unit has achieved to date.
FCA letter to Treasury Committee responding to inquiry questions on the impact of COVID-19
Banking Business Resolution Service
Complaints - BBRS publishes interim findings of its live pilot - 15 May 2020
The Banking Business Resolution Service (BBRS) has published a report containing interim findings of its study of how a new, more supportive approach to settling disagreements between SMEs and banking service providers could work. The BBRS is a non-profit organisation set up to provide eligible SMEs and participating banks access to a dispute resolution service.
The BBRS explains that a live pilot, set up at the end of last year, took on board over 40 complaints by SME customers against their banks. Key initial findings from the live pilot include that:
- some customers need longer than others to respond to requests for documentation and imposing harsh or arbitrary deadlines is unrealistic and unhelpful;
- unresolved disputes have a far-reaching impact on customers and it is important to adapt working styles to support higher-than-anticipated incidences of customer vulnerabilities, such as challenges to mental health or severe financial setbacks, especially for historical complaints; and
- the BBRS has been able to progress complaints materially and has enabled all of those involved to take steps to shape a different type of service, designed with the public interest in mind.
BBRS report containing interim findings of its live pilot
Press release
