Banking and Finance

FR1201 / 5 April 2023

Basel Committee on Banking Supervision

Basel framework - BCBS publishes proposed technical amendments - 30 March 2023 

The Basel Committee on Banking Supervision (BCBS) has published its proposed technical amendments to help promote a consistent interpretation of the Basel framework.

The BCBS has proposed technical amendments to the Basel framework relating to:

  • the standardised approach to operational risk (chapter OPE25);
  • the disclosure standards for credit valuation adjustment (CVA) risk (chapter DIS51);
  • the calculation of the score for the trading volume indicator in the global systemically important banks (G-SIB) framework and related disclosure requirements (chapters SCO40 and DIS75);
  • the inclusion of insurance subsidiaries in the disclosure of the leverage ratio exposure measure in the G-SIB framework (chapter DIS75); and
  • the countercyclical capital buffer (CCyB) and related disclosure requirements (chapters RBC30 and DIS75).

Further, as part of the technical amendments, the BCBS has also finalised FAQs on the Basel framework. These are set out in an Annex to the document and are intended to clarify interpretation of the Basel standards and promote their consistent global implementation.

The deadline for comments on the proposed technical amendments is 15 May 2023.

Technical amendment

Webpage

European Central Bank

Oversight of cryptoasset activities - ECB publishes blog post - 5 April 2023

The European Central Bank (ECB) has published a blog post on its oversight of cryptoasset activities, written by Elizabeth McCaul, Member of the Supervisory Board of the ECB.

The post notes recent events in the financial sector and stresses the crucial role of sound regulation in maintaining financial stability. It highlights three principles to keep in mind when shaping cryptoasset regulation, namely:

  • looking at lessons learned from historical banking crises, as well as recent events, and applying these lessons to the oversight of cryptoasset markets;
  • the requirement for good governance and strong risk management to reduce the risk of bank failures. In particular, the regulatory framework should ensure that all cryptoasset service providers (CASPs) have sound governance and risk management arrangements in place, including binding external audit and financial disclosure requirements; and
  • thinking about novel challenges brought about by cryptoasset activities.

Further, the post notes that the banking system relies on the home-host supervision model and consolidated supervision through supervisory colleges. In the securities sector, recognition of regulatory equivalence regimes forms the basis for oversight. However, in the cryptoasset world, no such framework exists. The lack of a traditional central point of entry poses challenges for current regulatory and supervisory approaches. Although the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) have acknowledged the need for a global regulatory and supervisory framework for cryptoassets, this project is still very much in its infancy.

The basis for home-host co-operation is, first and foremost, sound regulation and supervision in each jurisdiction. In the cryptoasset world, however, the very concept of borders and jurisdictions is being challenged. How can businesses that have no physical borders be supervised? More thought needs to be put into imagining what international co-ordination will look like and how it can be effective in regulating the cryptoasset sector.

The post also makes the point that contagion within the cryptoasset ecosystem has been spreading, with several filings for bankruptcy owing to the high level of interconnectedness. The nature and scale of cryptoasset markets are rapidly evolving and could reach a point where they represent a threat to global financial stability.

ECB Blog: Oversight of crypto activities

Prudential Regulation Authority 

Depositor protection reforms - PRA publishes Policy Statement (PS2/23) - 31 March 2023

The PRA has published a Policy Statement (PS2/23) on depositor protection in response to feedback received on its Consultation Paper (CP9/22) published in September 2022. The Policy Statement sets out the PRA’s final rules on amendments to the Depositor Protection Part of the PRA Rulebook.

In response to feedback on its proposed amendments, the PRA has made minor amendments to rule 6.2 on safeguarding customers’ funds to clarify that the Financial Services Compensation Scheme (FSCS) depositor protection regime covers FSCS-eligible customers of e-money institutions, authorised payment institutions, small payment institutions and credit unions (in respect of e-money) if a credit institution holding these firms' safeguarded funds were to fail. Appendix 1 sets out the full text of these amendments.

PRA Policy Statement (PS2/23): Depositor protection

Appendix

Bank of England and Prudential Regulation Authority 

Prudential liquidity framework - Bank of England and PRA publish joint Feedback Statement (FS1/23) on supporting liquid asset usability - 3 April 2023

The Bank of England (the Bank) and the PRA have published a joint Feedback Statement (FS1/23) in relation to supporting liquid asset usability in the context of the prudential liquidity framework. This follows publication of the regulators’ joint Discussion Paper (DP1/22) in March 2022.

The Discussion Paper explained that the UK’s prudential framework is calibrated to ensure that banks have sufficient liquidity to continue their activities through severe stresses. It is important that banks feel able to draw on their liquidity, as appropriate, to reduce the risk of destabilising actions that could cause unnecessary adverse impacts on the wider economy and financial system. Therefore, while in normal times banks maintain Liquidity Coverage Ratios (LCR) of 100% or more, firms may draw down their HQLA even if it may mean that LCRs decline below 100% in periods of stress.

However, the Bank and the PRA have been concerned for a number of years that banks may be overly reluctant to draw on their HQLA in periods of unusual liquidity pressures. Results from the Bank’s 2019 Liquidity Biennial Exploratory Scenario (LBES) stress testing exercise as well as international supervisory intelligence gathered during COVID-19, reinforced these concerns. Therefore, the Discussion Paper sought views from banks, wider market participants, and other interested parties to understand issues surrounding HQLA usability.

The Feedback Statement sets out broad themes from the responses to the Discussion Paper with the intention of providing an overall summary in an anonymised way. It summarises the responses as far as they concern the matters raised in the Paper, but does not include policy proposals or signal how the PRA is considering to support banks in prudently using their HQLA when facing liquidity pressures in the future. In publishing the Statement, the Bank and the PRA make clear that their aim is to contribute to improving understanding of why and to what extent banks are reluctant to draw on their stock of HQLA when facing liquidity pressures and how HQLA usability could be improved.

Potential improvements to HQLA usability proposed by respondents to the Paper, and set out in the Statement, include:

  • future regulatory communications in a liquidity stress should clarify the extent to which LCRs can fall and the time that banks have to rebuild their stocks of HQLA subsequent to such falls;
  • adjustments to how the LCR is calculated in a stress. This could include adjusting the LCR's calibration and design to reduce expected liquidity outflows in the LCR stress, and expanding the range of assets eligible as HQLA. Reductions in liquidity requirements in a stress could be codified in the PRA Rulebook or a liquidity stress ‘playbook’ could be developed that would enable pre-defined adjustments to the liquidity regulatory framework to be triggered in a market disruption; and
  • simplifications to liquidity-related disclosures in a liquidity stress and recalibrations of the LCR to account for procyclicality in the metric.

PRA Feedback Statement (FS1/23): The prudential liquidity framework: Supporting liquid asset usability

Payment Systems Regulator 

Annual plan and budget 2023/24 - published by PSR - 30 March 2023

The Payments Systems Regulator (PSR) has published its annual plan and budget for 2023/24, together with an accompanying factsheet which summarises its key projects.

The PSR’s aims and activities for the year include: (i) tackling fraud; (ii) open banking and account-to-account payments; (iii) shaping the new payments architecture; (iv) card fees; (v) ATM network regulation and digital payments; and (vi) digital currencies and cryptoassets. The PSR will also create a new division, ‘Supervision and Compliance Monitoring’, to enhance its supervision of the firms it regulates.

Annual plan and budget 2023/24

Factsheet

Webpage

Press release