Basel Committee
Operational risk and resilience - Basel Committee consults on new and updated Principles - 6 August 2020
The Basel Committee on Banking Supervision has published for consultation: (i) proposed Principles for Operational Resilience; and (ii) proposed updates to its Principles for the Sound Management of Operational Risk. The Basel Committee notes that increasing banks’ resilience to absorb shocks from operational risks, such as those arising from pandemics, cyber incidents, technology failures or natural disasters, will provide additional safeguards to the financial system as a whole.
The proposed Principles for Operational Resilience aim to increase banks’ capability to withstand and absorb disruptions arising from potentially severe and adverse events. Among other things, the proposed principles focus on governance, operational risk management, business continuity planning and testing, outsourcing, and IT and cyber security.
The Basel Committee also proposes updates to its Principles for the Sound Management of Operational Risk to: (i) align those principles with the recently finalised Basel III operational risk framework; (ii) update the guidance where needed in the areas of change management and ICT; and (iii) enhance the overall clarity of the document.
The consultation period closes on 6 November 2020.
Press release: Basel Committee consults on Principles for operational risk and resilience
Basel Committee Principles for Operational Resilience
Webpage
Basel Committee Principles for the Sound Management of Operational Risk
Webpage
European Banking Authority
Guidelines on internal governance under CRD IV - EBA consults on proposed revisions - 31 July 2020
The European Banking Authority (EBA) has published for consultation proposed revisions to its Guidelines on internal governance under the Capital Requirements Directive (2013/36/EU) (CRD IV). The EBA originally published the Guidelines in September 2017 and they came into force in June 2018. The proposed changes reflect certain amendments introduced by the Capital Requirements Directive (EU) 2019/878 (CRD V) and the Investment Firms Directive (EU) 2019/2034 (IFD).
Among other things, the draft Guidelines:
- clarify that identifying, managing and mitigating money laundering and terrorist financing risks form part of institutions’ and firms’ sound internal governance arrangements and risk management frameworks;
- reinforce the existing framework relating to loans to members of the management body and their related parties under CRD IV. The EBA also proposes new guidance on the management of conflicts of interest arising from transactions other than loans with such persons; and
- include measures to avoid discrimination and to guarantee equal opportunities to staff of all genders.
The consultation period closes on 31 October 2020, after which the EBA intends to finalise its updated Guidelines. The EBA expects the amended Guidelines to come into force on 26 June 2021.
EBA Consultation Paper on proposed revisions to its Guidelines on internal governance under CRD IV
Press release
CRD IV/MiFID II - EBA and ESMA launch consultation to revise joint Guidelines on the assessment of the suitability of members of the management body and key function holders - 31 July 2020
The EBA and the European Securities and Markets Authority (ESMA) have published for consultation revised joint Guidelines on the assessment of the suitability of members of the management body and key function holders under the CRD IV and the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II). The Guidelines were originally published in September 2017 and came into force in June 2018. The proposed revisions reflect changes introduced by the CRD V and the IFD.
Among other things, the draft joint Guidelines:
- clarify that the knowledge, experience and skill requirements are important aspects in the assessment of members of the management body and key function holders as they contribute to identifying, managing and mitigating money laundering and terrorist financing risk. The Guidelines also clarify that being a member of affiliated companies or entities does not in itself represent an obstacle for a member of the management body to act independently;
- highlight the importance of having a gender-balanced composition of staff in management positions; and
- provide further guidance on the recovery and resolution framework introduced by the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). As part of early intervention measures and during resolution, the suitability of newly appointed managers and of the management body collectively is relevant and requires an assessment.
The consultation period closes on 31 October 2020, after which EBA and ESMA intend to finalise the Guidelines. The amended Guidelines are expected to enter into force six months after publication.
EBA and ESMA consultation on joint Guidelines on the assessment of the suitability of members of the management body and key function holders under CRD IV and MiFID II
Press release
MREL and TLAC - EBA publishes final draft ITS on disclosure and reporting requirements - 3 August 2020
The EBA has published final draft implementing technical standards (ITS) on the supervisory reporting and disclosure of the minimum requirements for own funds and eligible liabilities (MREL) and the total loss absorbency requirement (TLAC). The EBA consulted on the draft ITS in November 2019.
The draft ITS contains integrated disclosure and reporting obligations for firms relating to MREL and TLAC, reflecting mandates set out in Articles 430(7) and 434a of the Capital Requirements Regulation (575/2013/EU) (CRR) and Articles 45i(5) and (6) of the BRRD.
The EBA will submit the final draft ITS to the European Commission for adoption.
The EBA has proposed different application dates for the supervisory reporting and public disclosure requirements. The supervisory reporting requirements will apply from 28 June 2021, with the first reference date for reporting in accordance with the ITS is expected to be 30 June 2021. As for the public disclosure requirements, the provisions on TLAC disclosures will apply immediately after their entry into force, while the provisions on MREL disclosures will apply from 1 January 2024 or from any later compliance deadline set by the relevant resolution authority.
The EBA also intends to develop a data point model, an XBRL taxonomy and validation rules relating to the reporting requirements – all of which will be published in Q3 2020.
EBA final draft ITS on the supervisory reporting and disclosure of MREL and TLAC
Press release
UK Parliament
Draft Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 - House of Lords Secondary Legislation Scrutiny Committee publishes report - July 2020
The House of Lords Secondary Legislation Scrutiny Committee has published its twenty-fourth report of session 2019-21, in which it comments on the Draft Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. The draft Regulations, together with a draft explanatory memorandum, were laid before Parliament on 15 July 2020 and establish the first part of a debt respite scheme, offering temporary protection for people in debt who receive professional debt advice or mental health crisis treatment.
The Committee welcomes the draft Regulations but requests that the explanatory memorandum be amended to include further clarification on the scope of the new scheme and how it will operate in practice, including:
- listing the types of debt that will qualify for the 60 day moratorium;
- clarifying that the fixed period for the breathing space cannot be extended, except in the mental health crisis moratorium where the protections last for as long as the individual’s crisis treatment lasts, plus an additional 30 days; and
- stating that the Regulations provide for a private register of individuals who make use of the moratorium, which will be managed by the Insolvency Service.
The Committee also urges the government to consider establishing a register of authorised professional debt advisers to help direct people to appropriate support.
House of Lords Secondary Legislation Scrutiny Committee report on the draft Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020
Bank of England
Financial Stability Report, Financial Policy Summary and record of the recent Financial Policy Committee meetings - published by the Bank of England - 6 August 2020
The Bank of England has published the Financial Stability Report for August 2020, as written by the Financial Policy Committee (FPC), alongside charts relating to aspects of the UK financial system, including spending in the UK economy and bank lending.
In its report, the FPC maintains that “banks have the capacity, and that it is in the collective interest of the banking system, to continue to support businesses and households” during the pandemic. The FPC also states that it supports the work of UK authorities to consider reforms to payments regulation and welcomes the launch of the Call for Evidence by HM Treasury as part of its Payments Landscape Review. A number of other topics are also addressed, including possible distortions to the supply of illiquid long-term and equity-like investments.
The Bank of England has also separately published a record of the FPC meetings held on 29 July and 3 August 2020, together with a summary.
The FPC’s next policy meeting will be on 30 September 2020.
Bank of England Financial Stability Report for August 2020
Bank of England Monetary Policy Report and Financial Stability Report Opening remarks
Webpage
Bank of England Financial Policy Summary and Record of Financial Policy Committee Meetings on 29 July and 3 August 2020
Webpage
Prudential Regulation Authority
PRA Consultation Paper CP12/20: Capital Requirements Directive V - July 2020
The PRA has published a Consultation Paper (CP12/20) setting out its proposed approach to the implementation of certain aspects of the CRD V. EU member states are expected to adopt and publish the measures necessary to comply with CRD V by 28 December 2020 and to apply the majority of those measures from 29 December 2020.
The application date for most of the reforms in the CRD V fall before the end of the Brexit transition period; the UK is therefore committed to implementing the Directive in line with these deadlines. The PRA proposes not to implement those CRD V requirements that firms do not need to comply with until after the end of the transition period.
The Consultation Paper is structured as follows:
- Chapter 2 sets out the PRA’s approach to implementing CRD V revisions to the Pillar 2 framework, including in relation to supervisory powers, the Supervisory Review and Evaluation Process (SREP), Pillar 2A, Pillar 2B and the application of the PRA buffer;
- Chapter 3 sets out the PRA’s approach to implementing CRD V reforms relating to remuneration, including in relation to the identification of material risk takers, minimum deferral periods, payment in financial instruments and the proportionate application of remuneration requirements;
- Chapter 4 sets out the PRA’s approach to implementing CRD V reforms relating to intermediate parent undertakings (IPUs), including a requirement that a third-country group have an IPU. The PRA proposes to implement that requirement only in respect of third-country groups that: (i) operate through two or more EU firms; and (ii) have total EU assets equal to, or exceeding, €40 billion, but had total assets that were less than €40 billion on 27 June 2019. It does not intend to implement the IPU requirement for third-country groups that had total EU assets of €40 billion or more on 27 June 2019, as these requirements do not apply until after the end of the transition period.
After the end of the transition period, the PRA intends to remove rules requiring third-country groups to establish an IPU, stating that it can “monitor effectively the prudential risks arising from the operations of third-country groups without requiring the establishment of an IPU”;
- Chapter 5 sets out the PRA’s approach to implementing CRD V reforms relating to governance arrangements, including operational risk from outsourcing, loans to board members and verification of fitness and propriety; and
- Chapter 6 sets out the PRA’s approach to implementing CRD V reforms relating to reporting requirements for third-country branches of credit unions. The PRA proposes to update its branch reporting rules to implement CRD V requirements where it does not currently have equivalent reporting rules.
The consultation period closes on 30 September 2020.
The PRA will publish a second Consultation Paper in due course on the remaining elements of CRD V and changes introduced by the Capital Requirements Regulation (EU) 2019/876 (CRR II) that will apply from 28 December 2020. This second consultation will consider: (i) a new requirement for the approval and supervision of holding companies; (ii) clarification of the capital stack; (iii) a revised definition of the maximum distributable amount; (iv) potential revisions to the capital buffers that may be applied; and (v) the introduction of supervisory requirements to measure, monitor, and control interest rate risk in the banking book.
PRA Consultation Paper CP12/20: Capital Requirements Directive V
Webpage
PRA Policy Statement PS19/20 - Financial Services Compensation Scheme: Temporary High Balances Coverage Extension - August 2020
The PRA has published a Policy Statement (PS19/20) setting out its final policy for the temporary extension of coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balances (THBs) from six to twelve months from the date of deposit, or the first date on which the THB becomes legally transferable to the depositor. The PRA consulted on its proposals in July 2020, as reported in this Bulletin.
The PRA has decided to implement its proposals as consulted on, such that: (i) THB coverage will be extended from six to twelve months up to, and including, 31 January 2021; and (ii) THB coverage will revert back to six months from 1 February 2021. Corresponding amendments will be made to the Depositor Protection Part of the PRA Rulebook and the Deposit Guarantee Scheme Statement of Policy.
The rule change and updated Statement of Policy will apply from 6 August 2020.
PRA Policy Statement PS19/20 – Financial Services Compensation Scheme: Temporary High Balances Coverage Extension
Webpage
Financial Conduct Authority
COVID-19 - FCA publishes call for input on ongoing support for mortgage and consumer credit customers - 31 July 2020
The FCA has published a call for input in relation to ongoing support measures for mortgage and consumer credit customers experiencing financial difficulties as a result of COVID-19. It seeks views on a range of measures, all of which aim to ensure that appropriate support is available for customers when their current payment deferrals and temporary arrangements end. According to the FCA, while its guidance on payment deferrals for mortgage and consumer credit customers remains in effect until 31 October 2020 (which means that consumers who have not yet had a payment deferral can request a deferral of up to 3 months until that time), many consumers who have already benefitted will have deferrals that end from September 2020 onwards.
Where customers are unable to resume payments following the end of their payment deferrals, the FCA seeks to ensure that: (i) customers receive the support they need in managing their finances; (ii) customers get appropriate forbearance in accordance with their best interests; (iii) customers are treated fairly, with good outcomes; (iv) firms have appropriate systems and controls in place to provide their customers with appropriate help and support; and (iv) firms recognise and respond to vulnerable consumers’ needs.
The FCA also seeks views on whether, and under what circumstances, any aspect of its current temporary guidance should continue beyond 31 October 2020 and, if not, what, if anything, should take its place.
The deadline for responses to the call for input is 7 August 2020. If the FCA determines that further guidance is needed in respect of mortgages, it will aim to publish draft guidance in late August 2020, followed by final guidance in early September 2020. If the FCA determines that further guidance is required in relation to consumer credit, it will aim to publish draft guidance in mid-September 2020, followed by final guidance in late September 2020.
FCA call for input on ongoing support measures for mortgage and consumer credit customers in light of COVID-19
Webpage
FCA Consultation Paper CP20/14: Updating the Dual-regulated firms Remuneration Code to reflect CRD V - August 2020
The FCA has published a Consultation Paper (CP20/14) setting out proposals to update its Dual-regulated firms Remuneration Code to reflect amendments to remuneration requirements introduced by CRD V. The UK is required to transpose certain elements of CRD V because the transposition deadline is before the end of the Brexit transition period (see above for a separate item on the PRA’s consultation paper on the transposition of CRD V).
The Dual-regulated Remuneration Code is set out in Chapter 19D of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) in the FCA Handbook and mirrors the corresponding PRA rules. Among other things, the FCA proposes to amend SYSC 19D and its finalised guidance on proportionality for dual-regulated firms (FG17/8) to reflect certain CRD V reforms, including in relation to: (i) the identification of material risk takers; (ii) proportionality; (iii) minimum deferral and clawback periods; and (iv) listed firms being permitted to award variable remuneration in the form of share-linked instruments and equivalent non-cash instruments. The FCA also proposes to update its FAQs on remuneration which currently apply to firms within the scope of the Dual-regulated firms Remuneration Code and firms within the scope of the IFPRU Remuneration Code, by creating separate versions of the guidance for these two types of firms (see Chapter 7 of the CP20/14).
The FCA will not apply the CRD V remuneration requirements to solo-regulated investment firms; they remain subject to the existing rules in the IFPRU Remuneration Code or BIPRU Remuneration Code, as appropriate, and should continue to apply their existing remuneration regime until the new UK prudential regime for investment firms is in place.
The consultation period closes on 30 September 2020, following which the FCA intends to publish a Policy Statement before the CRD V transposition deadline of 28 December 2020.
FCA Consultation Paper CP20/14: Updating the Dual-regulated firms Remuneration Code to reflect CRD V
Webpage
Webpage on Dual-regulated Remuneration Code
Press release
High-cost credit - FCA publishes findings of multi-firm review of relending and additional borrowing practices - 6 August 2020
The FCA has published the findings of its multi-firm review of relending or repeat borrowing practices by firms offering high-cost credit. The review highlights concerns about some firms’ poor practices in this context and sets out the FCA’s expectations regarding the fair treatment of relevant customers. This follows the FCA’s Portfolio Strategy Letter to high-cost lenders, published in March 2019, which highlighted the key risks that high-cost credit firms pose to customers and the markets they operate in, including high volumes of additional borrowing.
The review identified several areas of concern regarding firms’ conduct, including failures to balance the use of online accounts, apps and marketing messages to emphasise the ease and benefits of taking additional credit with the financial risks of taking additional, potentially unaffordable, credit.
Among other things, the FCA states that:
- firms should ensure that relending leads to positive customer outcomes and does not cause harm;
- firms should ensure that they undertake appropriate affordability assessments for repeat borrowers, in line with the FCA’s expectations;
- it expects firms to review their lending practices and operations to ensure they are appropriately discharging their obligations to lend responsibly;
- firms should ensure that their marketing materials comply with financial promotion rules, do not mislead consumers and enable consumers to make informed decisions;
- it expects firms to assess their use of online accounts to offer additional credit to customers to ensure that customers receive good outcomes; and
- it expects firms not to charge early settlement charges when a customer refinances their loan.
Firms are expected to review their relending operations in the light of the findings and make any necessary changes to improve customer outcomes.
FCA multi-firm review relending and additional borrowing by high-cost credit firms
Press release
Payment Systems Regulator
Innovation and competition in real-time payments - PSR publishes statement - 4 August 2020
The Payment Systems Regulator (PSR) has published a statement on driving innovation and competition in real-time payments while maintaining appropriate consumer protection.
The statement highlights a range of topics to be addressed by the PSR as part of its ongoing work, including: (i) the benefits that various types of protection offer consumers; (ii) the role that fledgling innovations, such as digital identity, have in the identification of payers and the authentication of payments; (iii) whether regulatory intervention is necessary to introduce new consumer safeguarding measures; and (iv) if additional consumer protection measures are necessary, whether they should be introduced by individual payment service providers or through the Faster Payments Service (FPS) itself. The statement also discusses the regulator’s work in relation to open banking, the potential growth of the FPS and authorised push payment (APP) scams.
PSR statement on driving innovation and competition in real-time payments
APP fraud and scams - PSR publishes statement on improving the reimbursement of victims - 6 August 2020
The PSR has published a statement on the reimbursement of victims of APP fraud and scams, following the launch of the Contingent Reimbursement Model Code (CRM Code) in May 2019. The CRM Code, developed by a steering group established by the PSR, sets out industry practices and expectations for payment service providers (PSPs) in respect of preventing and responding to APP scams and the reimbursement of customers.
Despite the introduction of the CRM Code, the PSR notes that more still needs to be done and “wants to see the industry doing everything it can to prevent APP scams” and protect consumers, including: (i) ensuring that repatriation or reimbursement occurs in the vast majority of APP scam cases assessed under the CRM Code; and (ii) establishing a sustainable, long-term funding model for reimbursement.
The PSR states that the most obvious solution for funding reimbursements is to make PSPs commit to self-funding these costs. It clarifies that it is happy for signatories to participate in shared funding arrangements, subject to their obligations under competition law, but if the current voluntary approach is to continue, it believes the industry must move away from temporary funding commitments and towards a permanent solution that focuses on reimbursing innocent defrauded consumers.
PSR statement on improving the reimbursement of victims of APP fraud and scams
Lending Standards Board
Standards of Lending Practice for business customers - LSB publishes update and announces the FCA’s continued recognition - 5 August 2020
The Lending Standards Board (LSB) has published an updated version of its Standards of Lending Practice for business customers, as well as supporting updates to its Information for Practitioners, and has announced the FCA’s continued recognition of those Standards and of the Information for Practitioners in relation to products offered under the government’s Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). This follows the LSB publishing updates to the Standards to take account of the CBILS and BBLS in May 2020. The FCA had previously published a Feedback Statement (FS20/1) in February 2020, announcing its decision to formally recognise the Standards as an industry code.
The FCA’s rational for the recognition of industry codes for certain unregulated activities is that, where firms’ behaviour is in line with an FCA-recognised code, this will tend to indicate that they are complying with applicable FCA market conduct rules when they undertake unregulated activities.
The updated drafts of the Standards and of the Information for Practitioners clarify their application to products offered under the CBILS and BBLS, and recognise that the government may issue further guidance relating to the Schemes.
Updated LSB Standards of Lending Practice for business customers in light of CBILS and BBLS
Draft LSB Standards of Lending Practice for business customers
FCA webpage on FS20/1
Press release
Competition and Markets Authority
Retail Banking Market Investigation Order 2017 - CMA revokes Directions - 6 August 2020
The Competition and Markets Authority (CMA) has revoked the Directions given to HSBC in April 2019 upon confirmation that the bank is compliant with the app-to-app functionality requirements outlined under Article 14.1 of the Retail Banking Market Investigation Order 2017.
CMA revokes Directions given to HSBC under the Retail Banking Market Investigation Order 2017
Please see the General section for an item on the FCA’s consultation on guidance for consumers on cancellations and refunds in light of COVID-19.
Please see the Securities and Markets section for an item on the launch of ISDA’s IBOR Fallback Protocol.
