Banking and Finance

Issue 1054 / 9 April 2020

Overview

  • COVID-19 - Basel Committee announces additional measure to alleviate the impact of COVID-19
  • COVID-19 - HM Treasury announces amendments to the CBILS and the introduction of a new loan scheme for large businesses
  • COVID-19 - PRA publishes ‘Dear CEO’ letter to credit unions on supervisory priorities and changes to minimum provisioning requirements

Basel Committee

COVID-19  Basel Committee announces additional measure to alleviate the impact of COVID-19 - April 2020

The Basel Committee on Banking Supervision has announced a series of additional measures which aim to alleviate the economic impact of the COVID-19 pandemic on the global banking system. The measures include:

  • publishing technical clarifications to ensure that banks reflect the risk-reducing effects of government-backed loan guarantee schemes when calculating their regulatory capital requirements;
  • amending the Basel Committee’s transitional arrangements for the regulatory capital treatment of expected credit loss (ECL) accounting. The amended transitional arrangements aim to provide jurisdictions with greater flexibility in how to phase in the impact of ECLs on regulatory capital;
  • in agreement with the International Organization of Securities Commissions (IOSCO), deferring the final two implementation phases of the framework for margin requirements for non-centrally cleared derivatives by one year. The Basel Committee confirms that the final implementation phase will commence on 1 September 2022; and
  • the Basel Committee will conduct the 2020 global systemically important bank (G-SIB) assessment exercise as planned, based on data as at end-2019, but has agreed not to collect the memorandum data included in the data collection template. The Basel Committee has also postponed the implementation of the revised G-SIB framework by one year, from 2021 to 2022.

The Basel committee also reiterates that: (i) capital resources should be used by banks to support the real economy and absorb losses; and (ii) banks and supervisors must remain vigilant to the evolving nature of COVID-19 to ensure that the global banking system remains financially and operationally resilient.

Basel Committee measures to alleviate the impact of COVID-19

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Press release

Basel III - Basel Committee publishes results of latest monitoring exercise - April 2020

The Basel Committee on Banking Supervision has published the results of its latest Basel III monitoring exercise, based on data as at 30 June 2019. The main findings of the report are that: (i) changes in minimum required capital from fully phased-in final Basel III requirements remain stable for large internationally active banks compared with end-2018; and (ii) liquidity ratios remain stable compared with end-June 2019. The Basel Committee confirms that, because the results are based on data as at June 2019, the results do not reflect the economic impact of the COVID-19 pandemic on participating banks.

In order to provide additional operational capacity for banks and supervisors to respond to the financial stability implications arising from the COVID-19 pandemic, the Committee has decided not to collect Basel III monitoring data for end-June 2020 and therefore does not intend to publish a report in spring 2021.

The next step will be publication of the results of the Basel III monitoring exercise based on data provided as at end-December 2019, which the Committee aims to do in autumn 2020.

Basel Committee report on the results of the latest Basel III monitoring exercise

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Press release

European Commission

COVID-19 - European Commission extends consultation deadlines - 3 April 2020

The European Commission has updated its consultation webpage to explain that it is extending the deadlines for responses to certain consultations in light of the disruption caused by the COVID-19 pandemic. These include:

  • the post-implementation review of the regulatory framework for investment firms and market operators under the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR), which will be extended from 20 April 2020 to 18 May 2020; and
  • the review of the Non-Financial Reporting Directive (2014/95/EU), which will be extended from 14 May 2020 to 11 June 2020.

European Commission webpage on consultations

Digital finance and retail payments - European Commission publishes consultations on the adoption of new EU-wide strategies - 3 April 2020

The European Commission has published consultation documents outlining its proposals to adopt a new EU digital finance strategy and an EU retail payments strategy.

The consultation on the adoption of a new digital finance strategy focuses on a number of priority areas for the development of digital finance in the EU, including: (i) ensuring that the EU financial services regulatory framework is fit for the digital age; (ii) enabling consumers and firms to reap the opportunities offered by the EU-wide single market for digital financial services; (iii) promoting a data-driven financial sector for the benefit of EU consumers and firms; and (iv) enhancing the digital operational resilience of the EU financial system.

The consultation on the adoption of an EU retail payments strategy focuses on four key objectives: (i) the provision of fast, convenient, safe, affordable and transparent payment instruments, with a pan-European reach and ‘same as domestic’ customer experience; (ii) the establishment of an innovative, competitive and contestable European retail payments market; (iii) access to safe, efficient and interoperable retail payments systems and other support infrastructures; and (iv) improved cross-border payments, including remittances, to facilitate and increase the international role of the Euro.

The consultation period for each consultation closes on 26 June 2020.

European Commission consultation on a new EU digital finance strategy

European Commission consultation on an EU retail payments strategy

Press release

Sustainable finance - European Commission consults on renewed sustainable finance strategy - April 2020

The European Commission has published a consultation document outlining its proposals to adopt a renewed sustainable finance strategy. The consultation builds on the Commission’s action plan on financing sustainable growth, which was published in March 2018. The renewed strategy aims to provide a roadmap of actions to increase private investment in sustainable projects, support the implementation of the European Green Deal and to manage and integrate climate and environmental risks into the financial system.

The consultation period closes on 15 July 2020.

European Commission consultation on a renewed sustainable finance strategy

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European Banking Authority

COVID-19  EBA publishes final Guidelines on moratoria on loan repayments - 2 April 2020

The European Banking Authority (EBA) has published its final Guidelines on legislative and non-legislative moratoria on loan repayments applied in light of the COVID-19 pandemic. The Guidelines aim to clarify several issues in relation to the treatment of legislative and non-legislative moratoria applied before 30 June 2020. This follows on from the EBA’s statement on the application of the prudential framework regarding default, forbearance and IFRS 9 in light of the ongoing COVID-19 pandemic, which was published on 25 March 2020.

The Guidelines clarify that: (i) payment moratoria do not trigger classification as forbearance or distressed restructuring if the measures taken are based on applicable national law or an industry-wide initiative agreed by the relevant credit institutions; and (ii) the requirements for identifying forborne exposures and defaulted debtors remain in effect and institutions must continue to identify those situations where debtors may face longer term financial difficulties and classify them in accordance with existing requirements.

To facilitate the effective monitoring of the economic effects of the COVID-19 pandemic, the Guidelines confirm that institutions must also collect information on the scope and effects of the use of moratoria. The EBA expects institutions to use the general payment moratoria in a transparent manner, providing relevant information to their competent authorities. Specific disclosure requirements to the public will be published at a later time.

The Guidelines will apply from the date of translation into all EU languages. Due to the urgency of the matter, the EBA has not carried out a public consultation or a cost-benefit analysis on these Guidelines.

EBA final Guidelines on moratoria on loan repayments in light of COVID-19

Press release

Basel III - EBA publishes reports on the results of the latest monitoring exercise and liquidity measures - 8 April 2020

The EBA has published two reports, based on data as at end-June 2019, on the results of the Basel III capital monitoring exercise (see item in this section entitled ‘Basel Committee publishes results of latest monitoring exercise’) and on liquidity measures under the Capital Requirements Regulation (575/2013/EU) (CRR).

The EBA’s report on the latest Basel III capital monitoring exercise assesses the impact on EU banks of revisions to the Basel III framework, including in relation to credit risk. The EBA estimates that, once fully implemented, the Basel III reforms will result in an average increase of 16.1% of EU banks’ Tier 1 minimum required capital.

The EBA’s report on liquidity measures under the CRR states that EU banks have continued to improve their compliance with the liquidity coverage ratio (LCR). The report notes that, at the reporting date of 30 June 2019, EU banks’ average LCR was 147%, and 78% of the banks in the sample had an LCR above 140%.

The EBA reiterates that because the results are based on data as at June 2019, the results do not reflect the economic impact of the COVID-19 pandemic on participating banks.

EBA report on the results of the latest Basel III capital monitoring exercise

EBA report on liquidity measures under the CRR

Press release

HM Treasury

COVID-19 - HM Treasury announces amendments to the CBILS and the introduction of a new loan scheme for large businesses - 3 April 2020

HM Treasury has announced that Rishi Sunak MP (Chancellor of the Exchequer) will implement further action to support firms affected by the COVID-19 pandemic, including increasing business interruption loans for small businesses and announcing a new scheme for larger companies. The Chancellor’s announcement comes as more than £90 million of loans to nearly 1,000 small and medium-sized enterprises (SMEs) have been approved under the Coronavirus Business Interruption Loan Scheme (CBILS) and almost £1.9 billion of government financing has been provided to larger companies by the Bank of England.

HM Treasury confirms that the Chancellor will extend the CBILS so that all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing, will now be eligible under the scheme. Furthermore, the government is prohibiting lenders from requesting personal guarantees for loans under £250,000, making operational changes to speed up lending approvals and confirms that it will continue to cover the first twelve months of interest and fees.

The new Coronavirus Large Business Interruption Loan Scheme (CLBILS) will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million. The scheme aims to give banks the confidence to lend to more businesses that are affected by COVID-19. Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest and further details of the scheme will be announced later this month.

Press release: HM Treasury announces amendments to the CBILS and the introduction of a new loan scheme for large businesses

Prudential Regulation Authority

COVID-19 - PRA publishes ‘Dear CEO’ letter to credit unions on supervisory priorities and changes to minimum provisioning requirements - 8 April 2020

The PRA has published a ‘Dear CEO’ letter to the directors, staff members and volunteers of PRA-regulated credit unions, setting out its supervisory priorities and changes to minimum provisioning requirements in response to the COVID-19 pandemic.

The letter states that the PRA’s current supervisory focus in relation to credit unions is ensuring that credit unions act reasonably, prudently and in the best interests of members in light of the economic impact of COVID-19. This includes ensuring that such firms have sufficient capital and liquidity buffers. The PRA also emphasises that boards should think carefully about how to identify, prioritise and focus on the risks their firms are facing.

The PRA states that it has issued a direction for modification by consent of Rule 3.11 of the Credit Unions Part of the PRA Handbook on minimum provisioning requirements. The modification reduces the minimum provisioning requirements for bad debt in line with the rates set out in its letter and will be available to all consenting credit unions from 8 April 2020 until 1 January 2021. In deciding whether to consent to the modification, the PRA urges credit unions to consider the profile of their membership, historic and current rates of arrears in their loan book, and the overarching PRA requirement to make adequate provision for bad debts. The PRA also states that it will consider using its policy tools to assist credit unions manage the risks arising from the expected increase in provisioning after the point at which the modification expires in January 2021.

The letter also reiterates that, in response to the disruption caused by COVID-19, it will accept the delayed submission of regulatory reports due on or before 31 May 2020 and has granted firms: (i) a two-month extension for submitting annual returns and accounts; and (ii) a one-month extension for submitting quarterly returns.

PRA ‘Dear CEO’ letter to credit unions in response to COVID-19

Webpage

Webpage on credit unions

Payment Systems Regulator

APP scams - PSR publishes details of meeting on progress - April 2020

The Payment Systems Regulator (PSR) has published the details of a meeting, held on 30 March 2020 via conference call, regarding the progress made by the payments industry and other authorities in tackling authorised push payment (APP) scams. The meeting covered several topics, including:

  • recent fraud statistics and the work undertaken by the PSR and FCA on fraud prevention;
  • discussions on the effectiveness, and potential barriers to adoption, of the voluntary Contingent Reimbursement Model (CRM) Code;
  • long-term financing options available for funding the reimbursement of consumers in ‘no-blame’ situations; and
  • alternative ways to achieve progress in these areas, whether this be continuing with a current approach, implementing Faster Payments Service (FPS) rule changes, or relying on regulatory action by the PSR.

PSR note on meeting on authorised push payment scams (30 March 2020)

Press release

COVID-19 - PSR publishes update on access to cash - 8 April 2020

The PSR has published an update on its work to support consumers’ access cash during the COVID-19 pandemic. The PSR provides an update on its recent work to ensure that consumers can access cash, which includes:

  • supporting the industry’s initiative to increase the limit for contactless payments to £45 from 1 April 2020. It cites the FCA’s statement that the regulator is unlikely to take enforcement action if a firm does not apply strong customer authentication when the cumulative amount of transaction values has exceeded €150 or five contactless transactions in a row, provided that the firm sufficiently mitigates the risk of unauthorised transactions and fraud (as previously reported in this Bulletin); and
  • issuing a joint statement with the FCA in response to the Competition and Markets Authority’s (CMA’s) guidance on business cooperation under competition law, stating that it is important that competition law does not impede firms from working together to provide essential services to consumers in light of the ongoing COVID-19 situation (as also previously reported in this Bulletin).

The PSR states that it is working with a number of organisations, including LINK and independent ATM deployers, to make sure cash and digital payment networks remain available. The PSR also states that stakeholders should be mindful of the impact that COVID-19 could have on cash use and access to cash for those consumers that need or want it.

Press release: PSR publishes update on access to cash in light of COVID-19

Recent Cases

Case C-228/18 Budapest Bank and Others, 2 April 2020

Anti-competitive nature of a multilateral interchange fee (MIF) agreement – interpretation of Article 101 of Treaty on the Functioning of the European Union

The European Court of Justice (Fifth Chamber) (ECJ) has given a preliminary ruling on the interpretation of Article 101 of Treaty on the Functioning of the European Union (TFEU) in relation to the anti-competitive nature of a multilateral interchange fee (MIF) agreement, agreed between several Hungarian banks, Visa and MasterCard.

The Hungarian Competition Authority (HCA) had originally ruled that that the MIF Agreement constituted a restriction of competition by both object and effect. The ruling was challenged before the Budapest High Court, which held that: (i) it was not possible for conduct to constitute a restriction of competition by object and, at the same time, a restriction of competition by effect; and (ii) the MIF agreement did not constitute a restriction of competition by object. This case concerns an appeal made by the HCA against the decision of the Budapest High Court in relation to the correct interpretation of Article 101 TFEU.

The ECJ held that:

  • the same conduct of an undertaking can be held to infringe Article 101 of TFEU for having both the object and the effect of restricting competition in the internal market. It is for the referring court to determine whether the MIF agreement constituted a restriction by object; and
  • Article 101(1) of TFEU should be interpreted as meaning that a MIF agreement, which fixes the commission when a card payment transaction is carried out for the banks issuing such cards, cannot be qualified as an agreement having an object to prevent, restrict or distort competition unless that MIF agreement, having regard to its terms, objectives and context, can be regarded as having a sufficient degree of harm to competition to qualify as such, this being a matter for the national court to verify.

The official judgement is not yet available in English.

Case C-228/18 Budapest Bank and Others