International Organization of Securities Commissions
Conduct risks in leveraged loans and collateralised loan obligations - IOSCO launches surveys - 24 May 2021
The International Organization of Securities Commissions (IOSCO) has published four surveys for market participants on conduct risks in leveraged loans and collateralised loan obligations (CLOs). The surveys are for bank lenders, CLO investors, CLO managers, and leveraged loan sponsors.
The surveys seek to identify where potential conflicts of interest and conduct issues may exist and how they are managed by market participants. They form part of the work being carried out by relevant IOSCO committees to understand the potential conflicts of interest and misaligned incentives in the leveraged loan and CLO markets across the chain of intermediation, from credit origination to the sale to investors. IOSCO intends to consider the survey responses when formulating any report on leveraged loans and CLOs.
The deadline for completion of the surveys is 30 June 2021.
Press Release: IOSCO issues industry surveys on conduct risks in leveraged loans and collateralized loan obligations
Bank lender survey
CLO investor survey
CLO manager survey
Leveraged loan sponsors survey
European Commission
European Financial Integration and Stability - Commissioner McGuinness delivers speech at annual joint EC and ECB conference - 27 May 2021
Commissioner Mairead McGuinness has delivered a keynote speech at the annual joint European Commission and European Central Bank conference on the topic of European Financial Integration and Stability.
Commission McGuinness covered five key topics, namely:
- the impact of COVID-19 and the resulting risks to financial stability;
- the Capital Markets Union;
- supervisory convergence;
- digitalisation; and
- sustainability.
McGuinness highlighted that, while it is clear that the economic consequences of the pandemic will occupy us for the near future, it is also important to address the question “what’s next?”, in particular, the impact of climate change on financial stability.
Keynote speech: European Financial Integration and Stability – annual joint EC and ECB conference 2021
European Parliament
Regulation on cross-border payments - European Parliament’s Legal Affairs Committee publishes draft report on legislative proposal - 26 May 2021
The European Parliament’s Legal Affairs Committee (JURI) has published a draft report on the European Commission’s legislative proposal for a Regulation on cross-border payments in the Union, codifying and replacing the existing Regulation on cross-border payments (924/2009) (2020/0145(COD)).
The draft report contains a draft European Parliament legislative resolution, which notes that the proposed Regulation contains a straightforward codification of the existing texts without any change in their substance. The Parliament therefore adopts its position at first reading and instructs its President to forward its position to the Council, the Commission and the national parliaments.
The next step is for the draft report to be adopted. It is due to be considered in plenary on 23 June 2021.
Draft report on the proposals for a regulation on cross-border payments in the Union (codification)
Updated procedure file
European Banking Authority
Mapping climate exposures to risk - EBA publishes results of EU-wide pilot exercise - 21 May 2021
The European Banking Authority (EBA) has published the results of its first EU-wide pilot exercise on climate risk. The main objective of the exercise is to map banks’ exposures to climate risk and provide insight into the green estimation that banks have carried out so far.
Mapping climate risk: Main findings from the EU-wide pilot exercise
Press release
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CRR - EBA publishes final report and draft regulatory technical standards on own funds and eligible liabilities - 26 May 2021
The European Banking Authority (EBA) has published its final report (EBA/RTS/2021/05) on revisions to Commission Delegated Regulation (EU) 241/2014, which contains regulatory technical standards (RTS) on own funds and eligible liabilities, supplementing the Capital Requirements Regulation (575/2013/EU) (CRR). These revisions reflect new mandates introduced by the CRR II Regulation ((EU) 2019/876).
The draft RTS align existing provisions to changes introduced in the revised CRR in the area of own funds, in particular for provisions relating to the regime of supervisory prior permission for the reduction of own funds. In addition, the draft RTS specify some of the newly introduced criteria for eligible liabilities instruments derived from the own funds regime. These include the absence of direct or indirect funding for the acquisition of ownership of eligible liabilities, the absence of incentives to redeem and the need for the resolution authority’s prior permission for the reduction of eligible liabilities. The EBA is explicitly required to ensure full alignment between eligible liabilities and own funds for some of these aspects.
The EBA consulted on the draft RTS in May 2020. In light of feedback received, the calibration of the threshold for determining the predetermined amount for the general prior permission for reducing eligible liabilities instruments was increased from 3% to 10% of the total amount of outstanding eligible liabilities instruments. In addition, the final draft RTS have been revised to recognise some relief for the renewal of general prior permission both for own funds and eligible liabilities, and for introducing a proportionate approach for liquidation entities for which their minimum requirement for own funds and eligible liabilities (MREL) does not exceed the loss absorption amount.
The EBA aims to submit the final draft RTS to the European Commission for adoption and the RTS will enter into force on the day following its publication in the Official Journal of the European Union.
Report: Draft Regulatory Technical Standards on own funds and eligible liabilities amending Delegated Regulation (EU) 241/2014 supplement the Capital Requirements Regulation (575/2013/EU) with regard to regulatory technical standards for Own Funds requirements for institutions (EBA/RTS/2021/05)
Press release
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BRRD - EBA publishes report on application of the early intervention framework - 27 May 2021
The European Banking Authority (EBA) has published a report (EBA/REP/2021/12) on the application of the early intervention framework under Articles 27-29 of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The BRRD introduced early intervention measures (EIMs) to expand the existing set of powers available to supervisors when institutions are experiencing difficulties. The EBA monitored the application of EIMs in 2015-2018 and observed their limited use across the EU. It found that instead of resorting to EIMs, competent authorities often preferred to apply other pre-BRRD supervisory powers available to them. The EBA investigated the reasons for these supervisory practices and published a discussion paper in June 2020.
The first part of the report sets out the results of the survey on the application of the EIMs that the EBA conducted among competent authorities in 2019. The second part of the report focuses on key challenges faced by supervisors in the application of the current regulatory framework on the EIMs and various options for addressing them.
The EBA observed supervisory consensus on the need to eliminate existing overlaps between EIMs and other supervisory powers, as well as to remove the formal sequencing of EIMs specified in Articles 27-29 of the BRRD. In addition, the EBA observed that competent authorities supported the importance of amending Article 27(1) of the BRRD, which includes an example of a quantitative early intervention trigger. For early intervention triggers specified in regulatory technical standards, for example, based on supervisory review and examination process scores or monitoring of key risk indicators, the EBA intends to conduct further work and amend its current guidelines on the early intervention triggers when finalising its ongoing review of the BRRD.
Report on the application of early intervention measures in the European Union in accordance with Article 27-29 of the BRRD (EBA/REP/2021/12)
Press release
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CRD IV - EBA publishes consultation paper on co-operation and information exchange - 27 May 2021
The European Banking Authority (EBA) has published a consultation paper (EBA/CP/2021/21) on draft guidelines on co-operation and information exchange between prudential supervisors, anti-money laundering (AML)/countering financing of terrorism (CFT) supervisors and financial intelligence units (FIUs) under the Capital Requirements Directive (2013/36/EU) (CRD IV), as amended by the CRD V Directive ((EU) 2019/878).
Under Article 117(6) CRD IV, as amended by the CRD V Directive, prudential supervisors, AML/CFT supervisors and FIUs must co-operate closely within their respective competences and provide each other with relevant information for their respective tasks. The draft guidelines put the practical modalities of co-operation and information exchange in place, both at member state level and across the EU’s single market. They aim to facilitate and support the co-operation and information exchange throughout the supervisory life cycle covering authorisations of new institutions, ongoing supervision (including risk assessment), and, where relevant, the imposition of supervisory measures and sanctions (including the withdrawal of authorisation). The guidelines also help authorities exchange information in a more effective way and bring clarity on which information to exchange, with whom and at what stage.
The consultation closes on 27 August 2021. Following this, the EBA intends to consider the responses and finalise the guidelines.
Consultation paper: Draft Guidelines on cooperation and information exchange between prudential supervisors, AML/CFT supervisors and financial intelligence units under the Capital Requirements Directive (2013/36/EU) (EBA/CP/2021/21)
Press release
Public hearing
Webpage
European Central Bank
SupTech - ECB publishes speech on the importance of supervisory technology - 27 May 2021
The European Central Bank (ECB) has published a speech by ECB Supervisory Board Member, Pentti Hakkarainen, on the importance of using supervisory technology (SupTech). In the speech Mr Hakkarainen notes that COVID-19 has underlined the need for banks to embrace fully the latest technology and digitalisation, and for banking supervisors to adapt. In addition, ECB Banking Supervision aims to be a ‘SupTech pioneer’ and is in the process of becoming a digital innovation house, with over 100 SupTech tools under development.
In particular, it was noted that frontline supervisors need impactful tools that use state-of-the-art technology. The ECB is developing tools and solutions in various areas, with a particular focus on tools that use natural language processing techniques, for example, to analyse bank documents and flag irregularities. Another key area of focus is advanced analytics and applications to help get the most from large quantities of data. The ECB has simplified the way it interacts with banks by introducing the IMAS portal, a digital gateway through which banks submit documents and communicate directly with the ECB.
Lastly, the ECB is developing a Virtual Lab to provide a unified suite of collaboration and communication tools available to all users across European banking supervision - it is due to go live later in 2021.
Speech by Member of the Supervisory Board of the ECB, Pentti Hakkarainen: The necessity of using supervisory technology
European Securities and Markets Authority
Digital finance - ESMA publishes call for evidence - 25 May 2021
The European Securities and Markets Authority (ESMA) has published a call for evidence on digital finance, following the European Commission’s publication of the digital finance package in September 2020. ESMA intends to use the information received when drafting its response to the Commission, due by 31 January 2022.
The call for evidence is relevant to financial firms who rely on third parties to fulfil important functions, including technology firms, digital platforms and mixed activity groups. ESMA is requesting information on the following areas:
- more fragmented or non-integrated value chains, arising as a result of financial firms increasingly relying on third parties for the delivery of their services and of technology companies entering financial services. ESMA has a particular interest on the extent to which this introduces new risks and creates regulatory and supervisory challenges;
- digital platforms and bundling of financial services - ESMA notes that a more holistic approach to the regulation of platforms may be relevant; and
- mixed activity groups providing both financial and non-financial services. ESMA aims to collect evidence on whether large technology groups should be specifically supervised, how interdependencies within groups can be identified and addressed and how supervisory co-operation could be improved for these groups.
The call for evidence closes on 1 August 2021.
Call for evidence: Digital finance
Response form
Webpage
Press release
Single Resolution Board
MREL - Single Resolution Board updates minimum requirement for own funds and eligible liabilities policy - 26 May 2021
The Single Resolution Board (SRB) has published an updated version of its policy for the minimum requirement for own funds and eligible liabilities (MREL) under the EU banking package (that is the Bank Recovery and Resolution Directive ((EU) 2019/879) (BRRD II), the Capital Requirements Regulation ((EU) 2019/876) (CRR II) and the Regulation on the Single Resolution Mechanism ((EU) 2019/877) (SRM II)). The updated policy introduces a number of new elements and refinements, based on the changes made under the EU banking package.
In particular, the updated policy introduces:
- the MREL maximum distributable amount, which allows the SRB to restrict banks’ earnings distribution in the event of MREL breaches;
- policy criteria to identify systemic subsidiaries for which granting an internal MREL waiver would raise financial stability concerns, based on the absolute asset size and relative contribution to the resolution group; and
- the approach to MREL-eligibility of UK instruments without bail-in clauses.
The updated policy also refines:
- the methodology to estimate the Pillar 2 requirements post-resolution (one of the components used for MREL calibration);
- the MREL calibration on preferred versus variant resolution strategy, confirming that the SRB computes MREL in line with the preferred strategy; and
- the MREL calibration methodology for liquidation entities, under which the SRB clarifies that the loss absorption amount may increase beyond the default adjustment in proportion to financial stability concerns.
The SRB notes that MREL is one of the key tools in resolvability, ensuring banks maintain a minimum amount of equity and debt to support an effective resolution.
Updated policy: Minimum requirement for own funds and eligible liabilities – SRB Policy under the Banking Package
SRB MREL Dashboard – Q4 2020
Press release
Prudential Regulation Authority
CRD IV - Material risk takers - PRA publishes statement - 25 May 2021
The PRA has published a statement on updating requirements on the identification of “material risk takers” and its position concerning applications for exclusion of material risk takers in the current performance year.
There is a discrepancy between Commission Delegated Regulation (EU) 604/2014, which supplements the Capital Requirements Directive (2013/36/EU) (CRD IV) and contains regulatory technical standards (RTS) on the criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile, and a revised draft of the material risk takers RTS.
The PRA confirms that the RTS continue to apply and are binding in their entirety (together with technical changes made as part of the onshoring process). Firms must also apply the revised draft material risk takers RTS when determining the individuals to which the requirements of the Remuneration Part of the PRA Rulebook apply. In general, the application of the revised draft material risk takers RTS will result in the identification of a broader scope of individuals.
The PRA also confirms that in cases where the RTS require firms to identify individuals who do not meet any of the criteria under the revised draft material risk taker RTS, firms need not apply the requirements of the Remuneration Part of the PRA Rulebook solely on the basis that individuals meet the criteria of the RTS, provided the firm does not consider that the professional activities of these individuals have a material impact on the firm’s risk profile. The revised draft material risk taker RTS are a minimum standard and firms need to assess whether an individual’s professional activities have a material impact on the firm’s risk profile, even if they do not fall within any of the mandatory criteria.
The PRA indicates that firms with a fiscal year end of 31 December may require additional time to submit remuneration policy statement tables. For the 2021/22 remuneration round, firms are permitted to submit these by 30 September 2021.
The PRA plans to publish a consultation later in 2021. It is also reviewing the templates that firms can use to communicate material risk taker information to the regulator and amended templates will start to be published in summer 2021. The PRA also aims to provide more information on how firms can apply to it for a waiver if they wish to exclude a material risk taker.
PRA statement on updating requirements on the identification of ‘material risk takers’
Financial Conduct Authority
Consumer credit - FCA updates consumer information sheets - 24 May 2021
The FCA has updated its consumer credit webpage to include the publication of updated consumer information sheets in relation to arrears (both generally and in relation to peer-to-peer loans), defaults and high-cost short-term loans (both generally and those provided by peer-to-peer lenders).
Under section 86A of the Consumer Credit Act 1974, lenders are required to include a copy of the relevant information sheet when notifying a consumer that they are in arrears or default. Firms must use the new versions of the information sheets from 25 October 2021, in line with the requirement in section 86A(7) that new versions take effect three months after publication. In the meantime, current versions must be used.
Updated webpage: Information sheets – consumer credit
Updated information sheet: Arrears
Updated information sheet: Default
Updated information sheet: High-cost short-term loans
Updated information sheet: High-cost short term loans, peer-to-peer lenders
Updated information sheet: Arrears, peer-to-peer lenders
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Schemes of Arrangement - FCA publishes statement following High Court decision on Amigo Scheme of Arrangement - 25 May 2021
The FCA has published a statement in response to the High Court’s decision refusing to sanction the Scheme of Arrangement proposed by the Amigo Loans Group (the Group), previously reported in this Bulletin.
The Scheme was intended to manage claims in relation to unaffordable loans issued by the Group between 2005 and 2020. The FCA wrote to the Group in March 20201 indicating it did not support the proposed Scheme and set out its key concerns, including that borrowers with a valid redress claim stood to receive significantly less than the value of their claims.
The FCA indicates in its statement that it is carefully considering the court’s judgment and the Group’s response. It considers that Amigo can propose a fairer Scheme to customers, while also ensuring that they are fairly represented and receive advice on any alternative proposals.
The FCA also reminds firms that they must maintain adequate financial resources, which must take into account the need to pay redress liabilities. They should regularly assess the adequacy of these resources and inform the FCA immediately if they assess they are, or will be, in financial difficulty. The FCA refers firms to its finalised guidance FG20/1 on assessing adequate financial resources.
The statement also includes some brief Q&A on the Amigo Scheme and borrowers’ continuing rights to seek compensation from the Group or complain to the Financial Ombudsman Service.
See 'Re ALL Scheme Ltd [2021] EWHC 1401 (Ch)' below on the High Court’s decision refusing to sanction the Scheme of Arrangement.
FCA Statement: FCA response to Amigo’s Scheme being rejected by the High Court
Payment Systems Regulator
APP scams - Confirmation of Payee - PSR publishes consultation paper - 21 May 2021
The Payment Systems Regulator (PSR) has published a consultation paper (CP21/6) which contains a call for views on the second phase of delivering Confirmation of Payee (CoP). CoP is a name-checking service designed to prevent Authorised Push Payment (APP) scams and misdirected payments, and is already offered by the UK’s six largest banking groups.
CP21/6 outlines the PSR’s findings on the impact of Phase 1 of CoP and the feedback received on the upcoming rollout of Phase 2. Phase 1 required, by PSR Specific Direction 10, the UK’s six largest banking groups to introduce CoP for Faster Payments and CHAPS transactions by 30 June 2020.
Phase 2 will enable more Payment Service Providers (PSPs) to join CoP and the call for views requests stakeholders to provide:
- their views on the impact and progress of CoP so far;
- their views on the progress, dependencies and expected costs and benefits of Phase 2;
- feedback on whether certain types of accounts using secondary reference data to direct payments to their customers, such as accounts in building societies and credit card accounts, should be excluded from the scope of Phase 2 and whether alternative solutions are more appropriate to secure the benefit of CoP; and
- their views on how CoP messaging works and how it could be enhanced.
The consultation paper also sets out potential policy options to enhance the service and deliver increased implementation across a greater number of PSPs.
The consultation closes on 30 June 2021. The PSR intends to consult on next steps in July or August 2021 and to publish a policy statement with directions, if appropriate, in September or October 2021.
Call for views: Confirmation of Payee (CP21/6)
Press release
Webpage
Network for Greening the Financial System
Climate-related data gaps - The Network for Greening the Financial System publishes a progress report with preliminary findings - 26 May 2021
The Network for Greening the Financial System (NGFS) has published a progress report on bridging climate-related data gaps. In the report, the NGFS notes that reliable and comparable climate-related data is crucial for financial sector stakeholders to assess financial stability risks, properly place and manage climate-related risks and take advantage of the opportunities arising from the transition to a low-carbon economy. However, persistent gaps in climate-related data impede the achievement of these objectives.
The report sets out the issues that need to be considered going forward and lays the foundation for a comprehensive assessment of climate-related data needs and gaps. One of the key points made in the report is that a mix of policy interventions is required to catalyse progress towards better data, based on the following “building blocks”: rapid convergence towards a common and consistent set of global disclosure standards; efforts towards a minimally accepted global taxonomy and the development and transparent use of well-defined and decision-useful metrics; and certification labels and methodological standards.
The NGFS intends to continue its evidence-based identification of the most prevalent data gaps, including by further engaging with other stakeholders, such as non-financial corporates, data providers and ratings agencies, and issuing recommendations on how to bridge them. The report forms part of the first phase of the work programme of the NGFS workstream on bridging the data gaps, initially established in July 2020.
Progress report on bridging data gaps
Press release
Recent Cases
Re ALL Scheme Ltd [2021] EWHC 1401 (Ch)
Scheme of arrangement under Part 26 Companies Act 2006 – scheme of arrangement compatibility with FCA rules - Amigo Loans Group
The High Court has refused to sanction the scheme of arrangement proposed by Amigo Loans Group. Mr Justice Miles stated that he was “not satisfied that the court should sanction the scheme”. He explained that some form of restructuring of the group is “clearly desirable and indeed needed” but accepted the FCA’s submission that refusing to sanction the scheme “will probably not lead to the imminent insolvency” of the Amigo Loans Group.
Mr Justice Miles accepted the FCA’s view that the redress creditors lacked the necessary information or experience to enable them properly to appreciate the alternative options reasonably available to them.
The FCA issued a statement and published a letter of concerns in relation to the Scheme, and has published a statement in response to the court’s rejection, as reported in this Bulletin.
Re ALL Scheme Ltd [2021] EWHC 1401 (Ch)
