European Commission
BMR - European Commission proposes amending Regulation concerning the cessation of benchmarks - 24 July 2020
The European Commission has adopted a legislative proposal for a Regulation (2020/0154(COD)) amending the Benchmarks Regulation (EU) 2016/1011 (BMR), which aims to ensure that the BMR has a mechanism to deal with benchmarks at their cessation.
In particular, the proposed Regulation creates a new framework under which the Commission would have certain powers to designate a statutory replacement rate in respect of any benchmarks in cessation, including LIBOR. These powers would only apply to contracts concluded by supervised entities, such as banks, investment firms or asset managers, as only these are governed by the BMR.
The Commission also proposes amending the BMR to allow EU users to continue using third-country foreign exchange benchmarks.
European Commission legislative proposal for a Regulation (2020/0154(COD)) amending the BMR as regards the introduction of replacement rates for benchmarks in cessation and the use of third-country foreign exchange benchmarks
Impact assessment report on proposed Regulation (2020/0154(COD))
Q&As
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Press release
COVID-19 - European Commission announces Capital Markets Recovery Package - 24 July 2020
The European Commission has announced a Capital Markets Recovery Package, containing proposals for a series of legislative amendments in light of the economic impact and disruption caused by the COVID-19 pandemic. The proposals include targeted amendments to the Securitisation Regulation (EU) 2017/2402, the Capital Requirements Regulation (575/2013/EU) (CRR), the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Prospectus Regulation (EU) 2017/1129.
Securitisation Regulation
The proposal for a Regulation amending the Securitisation Regulation (EU) 2017/2402 aims to extend the simple, transparent and standardised (STS) securitisation framework to on-balance sheet synthetic securitisations, excluding arbitrage synthetic securitisations, and removing regulatory obstacles to the securitisation of non-performing exposures (NPEs). The amendments aim to make it easier for banks to use securitisation to keep lending to small and medium-sized enterprises (SMEs) following COVID-19.
Capital Requirements Regulation
The proposal for a Regulation amending the CRR aims to: (i) provide for a more risk-sensitive treatment of STS on-balance sheet synthetic securitisations; (ii) remove regulatory obstacles to the securitisation of NPEs; and (iii) introduce additional eligibility criteria, in the form of a minimum credit rating requirement, for the recognition of unfunded credit protection for institutions applying the standardised approach to calculate capital requirements for securitisation exposures under Article 249(3) of the CRR. The proposed amendments seek to encourage banks to use securitisation to lend to SMEs and enhance the effectiveness of national public guarantee schemes assisting institutions’ strategies to securitise NPEs in the aftermath of COVID-19.
Markets in Financial Instruments Directive II
The proposal for a Directive amending the MiFID II as regards various information requirements, product governance and position limits, including in relation to energy derivatives markets, aims to help facilitate investments in the real economy. The Commission is also consulting on a draft Delegated Directive, amending Delegated Directive (EU) 2017/593, in respect of the regime for research on small and mid-cap issuers and on fixed-income instruments to help the recovery from COVID-19. The Delegated Directive would create optional exemptions from: (i) current research unbundling requirements if execution services and the provision of research relate to small and mid-cap issuers; and (ii) requirements to set up a research payment account (RPA) or pay for research out of its own resources or to issue separate invoices for research under Article 13.
Prospectus Regulation
The legislative proposal amending the Prospectus Regulation (EU) 2017/1129 aims to:
- introduce a temporary, simplified prospectus regime under Article 14a for secondary issuances of shares by issuers already admitted to trading on a regulated market or an SME growth market for at least 18 months;
- amend Article 23 as regards financial intermediaries’ obligations in relation to contacting investors about supplementary prospectuses; and
- temporarily increase the prospectus exemption threshold for certain type of offers of non-equity securities issued by a credit institution by inserting a new Article 1(4)(k).
The next step is for the European Parliament and the Council of the European Union to agree the legislative texts.
Press release: European Commission announces Capital Markets Recovery Package in light of COVID-19
European Commission legislative proposal for a Regulation amending the Securitisation Regulation in light of COVID-19
European Commission legislative proposal for a Regulation amending the CRR in light of COVID-19
European Commission legislative proposal for a Directive amending MiFID II in light of COVID-19
European Commission legislative proposal amending the Prospectus Regulation in light of COVID-19
European Commission consultation on amendments to Delegated Regulation (EU) 2017/593 in light of COVID-19
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EU crowdfunding legislative proposals - European Commission endorses the Council of the EU’s adoption of Regulation and Directive - 29 July 2020
The European Commission has published a Communication endorsing the Council of the European Union’s adoption at first reading of proposed Regulation (EU) 2018/0048(COD), on European crowdfunding service providers (ECSPs) for business, and proposed Directive (EU) 2018/0047(COD), which makes consequential amendments to MiFID II in relation to crowdfunding.
While the adopted legislation contains important deviations from the Commission’s original proposal, it remains in line with the proposal’s original objectives and the Commission expresses a positive opinion on the position adopted by the Council at first reading.
The next step is for the European Parliament to adopt the proposed legislation at second reading, after which it can be published in the Official Journal of the European Union.
European Commission Communication endorsing the Council of the EU’s adoption of a Regulation and Directive on EU crowdfunding service providers
European Banking Authority
BRRD - EBA consults on draft RTS and ITS on the impracticability of contractual recognition of bail-in - 24 July 2020
The European Banking Authority (EBA) has published for consultation draft regulatory technical standards (RTS) and draft implementing technical standards (ITS) on the impracticability of contractual recognition of write-down and conversion powers and related notifications under Article 55 of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The draft RTS and ITS aim to promote the effective application of resolution powers to banks and banking groups and to foster convergence of practices between relevant authorities and institutions across the EU.
In particular, the draft RTS set out: (i) the conditions under which it would be legally, or otherwise, impracticable for an institution or entity to include the contractual term for the recognition of the bail-in in certain categories of liabilities; and (ii) the reasonable timeframe for the resolution authority to require the inclusion of the contractual term for the bail-in recognition. The draft ITS also specify uniform formats and templates for the notification to resolution authorities of contracts meeting the conditions of impracticability defined in the draft RTS.
The consultation period closes on 24 October 2020. Once finalised, the EBA intends to send the final draft RTS and ITS to the European Commission for endorsement.
EBA consultation on draft RTS and ITS on the impracticability of contractual recognition of write-down and conversion powers and related notifications under Article 55 of the BRRD
Webpage
Press release
BRRD - EBA consults on draft RTS specifying the methodology used to estimate Pillar 2 and capital buffer requirements for setting MREL - 24 July 2020
The EBA has published for consultation draft RTS specifying the methodology to be used by resolution authorities to estimate the Pillar 2 and combined buffer requirements at resolution group level for the purposes of setting the minimum requirement for own funds and eligible liabilities (MREL) under the BRRD.
The estimation of the Pillar 2 and combined buffer requirements is necessary for setting MREL when the resolution group perimeter differs significantly from the prudential perimeter at the level of which own fund requirements have been set by the competent authority.
In particular, the EBA proposes a pragmatic approach to create a new framework to improve accuracy in setting the MREL requirement, without requiring sub-consolidation at resolution level and without blurring the lines of responsibilities between competent and resolution authorities in the capital setting process.
The consultation period closes on 24 October 2020. Once finalised, the EBA intends to send the final draft RTS to the European Commission for endorsement by December 2020.
EBA consultation on draft RTS specifying the methodology used to estimate Pillar 2 and capital buffer requirements for setting MREL under the BRRD
Webpage
Press release
BRRD - EBA consults on draft ITS on the reporting of MREL decisions - 24 July 2020
The EBA has published for consultation draft ITS specifying uniform reporting templates, instructions and methodology for the identification and transmission, by resolution authorities to the EBA, of information on MREL. The draft ITS substitute the previous ITS on MREL reporting to reflect changes introduced to the BRRD by the Bank Recovery and Resolution Directive (EU) 2019/879) (BRRD II). The draft ITS aim to ensure that the EBA has all the necessary information to understand how MREL is set within respective EU member states and to help to monitor and promote the consistent application of the MREL framework.
The consultation period closes on 24 October 2020. Once finalised, the EBA intends to send the final draft ITS to the European Commission for endorsement.
EBA consultation on draft ITS on the reporting of MREL decision by resolution authorities to the EBA under the BRRD
Webpage
Press release
BRRD - EBA consults on draft RTS on the indirect subscription of MREL instruments within groups - 22 July 2020
The EBA has published for consultation draft RTS on the indirect subscription of MREL instruments within groups under Article 45f of the BRRD. Article 45f of the BRRD was introduced by BRRD II and requires an entity that is not a resolution entity to issue own funds to any entity in the resolution group and eligible liabilities directly or indirectly to the resolution entity. The draft RTS specify methods that avoid indirectly issued instruments. The EBA clarifies that patterns of indirect subscription are also known as “daisy chains of internal MREL”.
The draft RTS set out a deduction framework to apply in general cases, by which the deduction occurs at the level of any intermediate entity that has an MREL requirement in a chain of ownership inside a group. The amount of deduction of MREL-eligible instruments equals the full amount of the intermediate entity’s holdings of MREL-eligible instruments of the lower subsidiaries. A risk weight of 0% will be applied to these holdings.
The draft RTS also provide a ‘fall-back’ solution where the deduction approach cannot apply. In such cases, the relevant resolution authority will assess whether indirectly issued instruments hamper the smooth implementation of the resolution strategy and may apply the measures contained in Article 45k where there is a breach of MREL requirements, including the power to remove substantive impediments to resolvability.
The consultation period closes on 27 October 2020. Once finalised, the EBA intends to send the final draft RTS to the European Commission for endorsement.
EBA consultation on draft RTS on the indirect subscription of MREL instruments within resolution groups under Article 45f of the BRRD
Press release
2021 EU-wide stress test - EBA announces details - 30 July 2020
The EBA has published further details of its 2021 EU-wide stress test exercise for EU banks. The stress test aims to assess banks’ resilience to an adverse economic shock, the results of which will inform the 2021 Supervisory Review and Evaluation Process (SREP).
The EBA confirms that the 2021 stress test will be launched at the end of January 2021 and its results should be published at the end of July 2021. It also confirms that the stress test will be carried out at the highest level of consolidation on a sample of 51 banks, for which it has published a tentative sample.
The EBA has also agreed on the preliminary timeline for the implementation of potential future changes to the EU-wide stress test framework. It expects to make a final decision on potential changes to the framework, which take account of the feedback received on its January 2020 Discussion Paper on the matter, in Q2 or Q3 2021. The implementation of any potential change may apply from the 2023 EU-wide stress test.
Press release: EBA announces details of 2021 EU-wide stress test
European Central Bank
Transition from EONIA to €STR - ECB consults on the publication of compounded term rates using €STR - July 2020
The European Central Bank (ECB) has launched a consultation on the publication of compounded term rates using the euro short-term rate (€STR). The consultation outlines the ECB’s proposals to publish compounded term rates based on €STR on a daily basis shortly after €STR is published, with published maturities ranging from one week to one year. The ECB also proposes publishing a daily index, making it possible to compute compounded rates over non-standard periods. The ECB states that this initiative aims to encourage and support the wider use of €STR as a rate that can be used in contractual fallback provisions in contracts using the euro London interbank offered rate (LIBOR) and the euro interbank offered rate (EURIBOR).
The consultation document sets out the proposed rate compounding formula, index calculation methodology and publication policies. The ECB also seeks views on day-count conventions, stating that it proposes determining tenors using the European modified previous business day convention.
The consultation period closes on 11 September 2020.
ECB consultation on the publication of compounded term rates using the €STR
Press release
TARGET2 and TARGET2-Securities - ECB postpones consolidation project in light of COVID-19 - 28 July 2020
The ECB has announced that, following discussions with relevant stakeholders, it has decided to postpone by 12 months the implementation of its project to consolidate various technical and functional elements of TARGET2 and TARGET2-Securities. This includes the implementation of a new trans-European automated real-time gross settlement express transfer system using the ISO 20022 messaging standard. The project is now scheduled to go live in November 2022.
Press release: ECB postpones T2-T2S consolidation project until November 2022
COVID-19 - ECB publishes results of analysis on banks’ vulnerability - 28 July 2020
The ECB has published the results of its vulnerability analysis of banks directly supervised within the Single Supervisory Mechanism. The exercise assessed how the economic impact and disruption caused by COVID-19 would impact 86 euro area banks and aimed to identify potential vulnerabilities within the banking sector over a three-year timescale. Overall, the ECB confirms that the results demonstrate that the euro area banking sector can withstand the economic stress induced by COVID-19.
In light of the extraordinary current circumstances and in order to avoid subjecting banks to additional operational burdens, the ECB used already available data for this exercise, including regular supervisory reporting.
ECB COVID-19 vulnerability analysis results
Press release
COVID-19 - ECB publishes updated Recommendation on dividend distributions - 27 July 2020
The ECB has published an updated Recommendation to banks extending its recommendation not to pay dividend distributions or facilitate share buybacks from 1 October 2020 until 1 January 2021 in light of the economic impact of COVID-19. For the same purpose, the ECB issued a letter to banks asking them to be extremely moderate with regard to variable remuneration payments, for example by reducing the overall amount of variable pay.
The ECB also clarified that it will give enough time for banks to replenish their capital and liquidity buffers in order not to act pro-cyclically. The ECB commits to allow banks to operate below the Pillar 2 Guidance and combined buffer requirement until at least end-2022, and below the Liquidity Coverage Ratio (LCR) until at least end-2021, without automatically triggering supervisory actions. The ECB does not plan to extend the six month operational relief measures it granted to banks in March 2020, with the exception of non-performing loan (NPL) reduction strategies for high-NPL banks.
Finally, the ECB has also published a letter to banks clarifying its operational expectations and capacity to deal with distressed debtors in light of COVID-19. Among other things, the ECB expects credit institutions to: (i) have in place effective risk management practices that identify, assess and implement solutions that can support businesses; and (ii) proactively identify and engage with potentially distressed borrowers ahead of the expiry of relevant payment moratoria to avoid negative impacts on banks’ loan portfolios. The letter also sets out a number of specific operational elements, such as IT resources, reporting, and portfolio segmentation, that the ECB will assess through its ongoing engagement with credit institutions.
Updated ECB Recommendation on dividend distributions in light of COVID-19
ECB letter regarding banks’ ongoing remuneration policies in light of COVID-19
ECB letter regarding banks’ operational capacity to deal with distressed debtors in light of COVID-19
ECB FAQs on its COVID-19 supervisory measures
Press release
Single Resolution Board
Operational guidance on continuity in resolution and FMI contingency plans - published by the SRB - July 2020
The Single Resolution Board (SRB) has published guidance on operational continuity in resolution (OCIR) and on financial market infrastructure (FMI) contingency plans. This follows the publication by the SRB of its Expectations for Banks document in March 2020, which set out the capabilities the SRB expects banks to demonstrate in order to show that they are resolvable, including in relation to OCIR and access to FMIs.
The guidance on OCIR clarifies how banks can implement SRB expectations relating to: (i) service identification and mapping; (ii) assessments of operational continuity risk; and (iii) mitigating measures, including having adequately documented, resolution-resilient contracts, appropriate management information systems and governance arrangements. Further guidance may be provided on other OCIR topics in line with their phase-in.
The guidance on FMI contingency plans sets out the SRB’s expectations with regard to the minimum content of FMI contingency plans prepared by banks. Among other things, it states that each bank is expected to develop an FMI contingency plan in line with the recommendations published by the Financial Stability Board (FSB) in its guidance on continuity of access to FMIs for a firm in resolution, published in July 2017.
Press release: SRB publishes operational guidance on OCIR and FMI contingency plans
SRB operational guidance on operational continuity in resolution
SRB operational guidance on FMI contingency plans
HM Treasury
Payments Landscape Review - HM Treasury publishes call for evidence - July 2020
HM Treasury has published a call for evidence as part of its review of the UK payments landscape and regulatory framework, which was announced in June 2019. The review, which intends to examine the participants, processes and systems involved in the UK’s payment networks, aims to bring together policymakers and regulators to make sure that the UK’s regulation and infrastructure is keeping pace with new payment models.
The call for evidence outlines the government’s aims for payment networks in the UK, which include that: (i) UK payments networks need to operate for the benefit of end users, including consumers; (ii) the payments industry should promote and develop new and existing payments networks; (iii) UK payments networks should facilitate competition by permitting open access to participants or potential participants on reasonable commercial terms; and (iv) UK payment systems must be stable, reliable and efficient. The call for evidence seeks feedback from stakeholders on these objectives and asks how the industry, regulators and government can better meet them.
The call for evidence closes on 20 October 2020. Following the call for evidence, the government intends to provide a summary of responses received and to set out the next steps for the review.
HM Treasury call for evidence on its review of the UK payments landscape and regulatory framework
Webpage
Prudential Regulation Authority
PRA Policy Statement PS18/20: Asset encumbrance - July 2020
The PRA has published a Policy Statement (PS18/20) setting out its expectations of firms’ internal management and regulatory reporting of the prudential risks associated with asset encumbrance, specifically in relation to liquidity and funding risks, recovery planning and resolution. This follows the PRA’s consultation on its proposed expectations, published in September 2019.
In light of feedback received, the PRA has decided to implement its proposed expectations set out in Supervisory Statements (SS) 24/15 ‘The PRA’s approach to supervising liquidity and funding risks’, SS20/15 ‘Supervising building societies’ treasury and lending activities’ and SS9/17 ‘Recovery planning’ largely as consulted on, save for minor amendments to paragraphs 4.163 and 4.91 of SS20/15 to reflect that: (i) ‘market counterparties’ does not refer to central banks; and (ii) the PRA will expect that building societies have an ‘appropriate’ forward view of collateral available, rather than a ‘comprehensive’ one.
The PRA states that its expectations contained in updated SS24/15, SS20/15 and SS9/17 apply from 27 July 2020.
PRA Policy Statement PS18/20: Asset encumbrance
Updated SS24/15 ‘The PRA’s approach to supervising liquidity and funding risks’
Updated SS20/15 ‘Supervising building societies’ treasury and lending activities’
Updated SS9/17 ‘Recovery planning’
Webpage
COVID-19 - PRA publishes updated statement on the implementation of the EBA Guidelines on the reporting and disclosure of exposures subject to COVID-19 measures - 28 July 2020
The PRA has published an updated statement in relation to the implementation of the EBA Guidelines on the reporting and disclosure of exposures subject to COVID-19 measures, published by the EBA on 2 June 2020. As in the PRA’s previous statements, published on 24 June and 10 July 2020 respectively, the regulator confirmed that it does not consider it necessary to extend the supervisory reporting elements of the Guidelines to UK credit institutions.
Acknowledging the practical difficulties in implementing the EBA Guidelines by the 30 June 2020 reporting reference date, the PRA states that it will exercise some flexibility in its assessment of the timeliness of these disclosures. Disclosures made for subsequent reference dates, including 31 December 2020, should be made as part of the Pillar 3 report. The PRA expects firms to continue making disclosures for reporting periods ending on dates up to and including Thursday 31 December 2020.
The PRA will keep its approach to these disclosures under review for disclosure reference dates after 31 December 2020.
Updated PRA statement on the implementation of EBA Guidelines on the reporting and disclosure of exposures subject to COVID-19 measures
COVID-19 - PRA publishes statement on dividend payments and share buybacks beyond 2020 - 28 July 2020
The PRA has published a statement confirming that it will undertake its assessment of firms’ distribution plans beyond the end of 2020 in Q4 2020. This follows the PRA’s statement on 31 March 2020, welcoming large UK deposit-taking banks’ decision to suspend dividend payments, share buybacks and cash bonuses until the end of 2020 in light of COVID-19.
The PRA states that its assessment will be based on the current and projected capital positions of the banks and will take into account the level of uncertainty on the future path of the economy, market conditions, and capital trajectories prevailing at that time.
PRA statement on dividend payments and share buybacks beyond 2020 in light of COVID-19
Financial Conduct Authority
FCA Policy Statement PS20/8: Motor finance discretionary commission models and consumer credit commission disclosure - July 2020
The FCA has published a Policy Statement (PS20/8) setting out its final rules on motor finance discretionary commission models and consumer credit commission disclosure requirements in the motor finance sector. This follows the FCA’s consultation on its proposed rules in October 2019, after concerns were raised over the widespread use of commission models linking the broker’s commission to the customer’s interest rate under the finance agreement and allowing brokers wide discretion to set or adjust that rate.
The FCA has decided to implement its proposed rules largely as consulted on, including: (i) banning commission models that give motor finance brokers and dealers an incentive to raise customers’ finance costs; and (ii) amending its commission disclosure rules and guidance in the FCA Consumer credit sourcebook (CONC) to make sure credit brokers give consumers more relevant information about commission. The FCA states that both changes, which will apply across all credit sectors, will take effect from 28 January 2021.
The FCA also confirms that it will look closely at any attempt by a motor finance firm to introduce a commission model that could lead to the same harm that it has sought to ban and, starting in September 2021, will monitor compliance with the ban on discretionary commission models by carrying out supervisory work across a sample of firms. The FCA also plans to review its intervention in the motor finance market in 2023/24.
FCA Policy Statement PS20/8: Motor finance discretionary commission models and consumer credit commission disclosure
Webpage
Press release
FCA Consultation Paper CP20/13 - Consultation on mortgages: Removing barriers to intra-group switching and helping borrowers with maturing interest-only and part-and-part mortgages - July 2020
The FCA has published a Consultation Paper (CP20/13) setting out two proposed interventions in the ‘closed book’ mortgage market to help two different groups of mortgage borrowers who are affected by the adverse market conditions created by COVID-19. These interventions consist of:
- implementing rules that will make it easier for lenders to offer switching options to customers who are in a closed book within the same financial group as the lender. The proposed rules would mirror the flexibility that active lenders have, under existing rules, when their existing customers wish to switch; and
- issuing guidance stating that firms should allow borrowers to delay repayment of the capital at maturity on interest-only and part-and-part mortgages up to 31 October 2021, provided borrowers are up-to-date with payments and they continue to make interest payments.
The consultation period closes on 8 September 2020. The FCA intends to publish its final rules and guidance in a Policy Statement in Q3 2020, with the proposed rule changes on intra-group switching entering into force immediately and its proposed guidance on maturing interest-only and part-and-part mortgages coming into effect on 31 October 2020.
Alongside its consultation, the FCA has also published a statement on its work to help so-called ‘mortgage prisoners’, borrowers who are up to date with payments, but who are unable to switch to a new mortgage deal and who may be paying more than they need to. The FCA states that it expects to consult later in 2020 on potential remedies to help borrowers with inactive firms switch mortgages, and that it is working with the Money and Pensions Service (MaPS) to provide further support for mortgage prisoners.
FCA Consultation Paper CP20/13 – Consultation on mortgages: Removing barriers to intra-group switching and helping borrowers with maturing interest-only and part-and-part mortgages
FCA statement on mortgage prisoners
Webpage
Press release
Employer Salary Advance Schemes - FCA publishes statement on risks and benefits - 30 July 2020
The FCA has published a statement on the use of Employer Salary Advance Schemes (ESASs). ESASs allow employees to access, usually for a fee, some of their salary before their regular payday. The FCA states that ESASs are commonly promoted as an alternative to high-cost credit and that most of these schemes do not fall under the FCA’s regulation as they do not involve the provision of credit per se. Given the similarities with some credit products, however, the FCA believes it would be helpful to set out its views to help employers, employees and scheme providers make informed decisions.
Among other things, the FCA discusses: (i) considerations for employees and employers; (ii) how ESASs operate; (iii) the risks for employees and employers; (iv) how employees and employers can mitigate risks arising from ESASs; and (v) its ongoing work in relation to ESASs.
FCA statement on Employer Salary Advance Schemes
Payment Systems Regulator
Future strategy - PSR launches call for input on development - 29 July 2020
The Payment Systems Regulator (PSR) has published a new webpage launching the development of its new future strategy. To this end, the PSR outlines three key themes that it believes are relevant to current issues in the payments industry, on which it invites comment:
- Innovation and future payment methods: The PSR aims to ensure that the UK payments industry is innovative and agile enough to allow consumers and businesses to access payment methods suitable for their needs and preferences;
- Competition: The PSR aims to ensure that effective competition exists at all levels of the payments chain; and
- Choice and availability of payment methods: The PSR aims to ensure that all consumers and businesses can access a range of different payment methods suitable for their needs and preferences.
The initial engagement period will end in September 2020 and the PSR will use all input received to inform its development of a full draft strategy. This will form the basis of a formal consultation to be published at the end of 2020 or the beginning of 2021.
Press release: PSR launches development of new future payments strategy
Webpage
