European Commission
Recurring subscription payments - European Commission writes to major credit card companies - 21 June 2021
The European Commission has updated its webpage on co-ordinated actions to announce action on recurring subscription payments. The European Commission—together with the EU and EEA national consumer enforcement authorities—has written to three major credit card companies, Visa, MasterCard and American Express. These companies have been asked to make changes to the way information is presented to consumers when they make a payment involving recurring subscription fees. In particular, all necessary information should be presented in the payment window for the consumer when they make such a payment.
The Commission has taken this action further to its finding that as many as one in 12 EU consumers has ordered a cheap product or service online, only to find out later that there is a costly monthly subscription. Common cases involve mobile phones and beauty products sold by online sellers who are concealing the actual costs about recurring payments in hidden or small print in the payment window where the consumer enters their credit card information.
Although credit card companies are not running these schemes, the Commission explains that they have a duty properly to inform their customers. Under the revised Payment Services Directive (EU) 2015/2366 (PSD2) and the Unfair Commercial Practices Directive (2005/29/EC), consumers must be made aware of the specific amount for payment transactions.
The three credit card companies now have two months to inform the Commission, together with the EU and EEA national consumer enforcement authorities, of the positive changes they intend to make to their existing payment processes.
Daily News: Consumer protection: Credit card companies should clearly inform consumers when they risk being tricked into costly monthly subscriptions
Updated webpage
-
PSD2 - European Commission adopts RTS on co-operation and information exchange - 21 June 2021
The European Commission has adopted a draft Delegated Regulation (C(2021) 4273) supplementing the revised Payment Services Directive ((EU) 2015/2366) (PSD2) with regard to regulatory technical standards (RTS) specifying the framework for co-operation and the exchange of information between competent authorities of the home and the host member states in the supervision of payment institutions and electronic money institutions exercising cross-border provision of payment services.
The Commission adopted the draft Delegated Regulation on 18 June 2021. The draft Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.
Commission Delegated Regulation supplementing the revised Payment Services Directive ((EU) 2015/2366) with regard to regulatory technical standards specifying the framework for cooperation and the exchange of information between competent authorities of the home and the host Member States in the context of supervision of payment institutions and electronic money institutions exercising cross-border provision of payment services (C(2021) 4273 final)
-
CRR - European Commission confirms extension of transition period for treatment of exposures to third-country CCPs until June 2022 - 24 June 2021
The European Commission has confirmed that it will extend the transitional period during which EU credit institutions may treat exposures to a third-country central counterparty (CCP) that has not been recognised in accordance with the European Market Infrastructure Regulation (648/2012/EU) (EMIR) as if they were exposures to a qualifying CCP.
Pursuant to Article 497(1) of the Capital Requirements Regulation (575/2013/EU) (CRR), the transitional period is currently due to expire on 28 June 2021 in respect of certain third-country CCPs. These are CCPs that submitted their application for recognition under Article 25(6) of EMIR before 27 June 2019 and await recognition by the European Securities and Markets Authority (ESMA) and in respect of whose jurisdiction the Commission has not made an equivalence decision under Article 25(6) of EMIR, or has made such a decision that has not yet entered into force. Article 497(3) of the CRR allows the Commission to extend this period once by 12 months, where it is deemed necessary and proportionate to avoid disruption to international financial markets.
The Commission has decided to adopt an Implementing Regulation extending the transitional regime until 28 June 2022. The Commission will continue its work on equivalence assessments but warns that there is no guarantee that it will adopt equivalence decisions for all of the affected jurisdictions. It is therefore possible that some or all of the non-EU CCPs within the scope of the transition will not be recognised by ESMA to provide clearing services in the EU. It comments that exposures to those non-EU CCPs that are not recognised by ESMA by 28 June 2022 will no longer be eligible for lower capital requirements after that date and that stakeholders should start preparing for this.
The text of the final version of the Implementing Regulation has not yet been published.
Press release: Financial stability: Commission adopts final one-year extension of the transitional regime for capital requirements for non-EU central counterparties
Council of the European Union
Banking union - Council of the European Union publishes progress report - 17 June 2021
The Council of the European Union has published a progress report on the strengthening of the banking union (9311/21). The report focuses on technical discussions between member states on the design of the proposed European Deposit Insurance Scheme (EDIS), and includes discussion of the following issues:
- the scope of EDIS and, in particular, whether it should apply to certain entities outside the scope of the Capital Requirements Regulation (575/2013/EU) (CRR), to institutional protection schemes and to third-country branches;
- the treatment of options and national discretions in the context of EDIS; and
- the design of the methodology for calculating risk-based contributions.
The report also summarises member states’ views on the interaction between EDIS and the review of the Crisis Management and Deposit Insurance framework and, in particular, how closely connected the two initiatives should be.
Report: Presidency progress report on the strengthening of the Banking Union (9311/21)
Official Journal of the European Union
CRR - Implementing Regulation amending ITS as regards disclosure of indicators of global systemic importance published in OJ - 22 June 2021
Commission Implementing Regulation (EU) 2021/1018 amending the implementing technical standards (ITS) laid down in Commission Implementing Regulation (EU) 2021/637 as regards the disclosure of indicators of global systemic importance and repealing Implementing Regulation (EU) 1030/2014, has been published in the Official Journal of the European Union (OJ).
Article 441 of the Capital Requirements Regulation (575/2013/EU) (CRR), as amended by the CRR II Regulation ((EU) 2019/876), requires global systemically important institutions (G-SIIs) to disclose annually the values of the indicators used for determining their score in accordance with the methodology set out in Article 131 of the Capital Requirements Directive (2013/36/EU) (CRD IV), as amended by the CRD V Directive ((EU) 2019/878). The Implementing Regulation adds a new Article 6a to Commission Implementing Regulation (EU) 2021/637, incorporating the Article 441 disclosure provisions into the ITS on institutions’ public disclosures of the information referred to in Titles II and III of Part Eight of the CRR.
The Implementing Regulation also repeals Commission Implementing Regulation (EU) 1030/2014.
It enters into force on 24 June 2021 and will apply from 28 June 2021.
Commission Implementing Regulation (EU) 2021/1018 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of indicators of global systemic importance, and repealing Implementing Regulation (EU) 1030/2014 (C/2021/4324)
European Banking Authority
Cross-border payments - European Parliament’s Legal Affairs Committee publishes addendum to report on proposed codified Regulation - 17 June 2021
The European Parliament’s Legal Affairs Committee has published the addendum to its report on the European Commission’s legislative proposal for a Regulation on cross-border payments in the EU, codifying and replacing the existing Regulation on cross-border payments in the EU (2020/0145(COD)).
As reported in last week’s bulletin, the report states that the Parliament should adopt the Commission’s legislative proposal for the proposed Regulation as its own position at first reading, as adapted to the recommendations of the Consultative Working Party of the legal services of the Parliament, the Council of the EU and the Commission. The addendum sets out the text of the Parliament’s draft position after legal linguistic revision. The Parliament’s procedure file for the proposed Regulation indicates that the report will be considered in plenary on 23 June 2021.
Addendum to the report on the proposal for a regulation on cross-border payments in the Union (codifed) (COM(2020)0323 – C9-0204/2020 – 2020/0145(COD)) (PE693.563v02-00)
ESG - EBA publishes report on the management and supervision of ESG risks for credit institutions and investment firms - 23 June 2021
The European Banking Authority (EBA) has published a report (EBA/REP/2021/18) on the management and supervision of environmental, social and governance (ESG) risks for credit institutions and investment firms, together with an accompanying factsheet. The report focuses on the following matters:
- The impact of ESG risks: The EBA outlines the impact that ESG factors, particularly climate change, can have on institutions’ counterparties or invested assets. It also illustrates available indicators, metrics and evaluation methods for effective ESG risk management and identifies remaining gaps and challenges;
- Recommendations to incorporate ESG risk-related considerations: The EBA sets out certain recommendations on the incorporation and management of ESG risk-related considerations in strategies, objectives and governance structures. The EBA also recommends developing methodologies and approaches to test the long-term resilience of institutions against ESG factors and risks; and
- A proposal for a phase-in approach: The EBA proposes a phase-in approach, starting with the inclusion of climate-related and environmental factors and risks into the supervisory business model and internal governance analysis, while encouraging institutions and supervisors to build up data and tools to develop quantification approaches to increase the scope of the supervisory analysis to other elements.
Annex 2 summarises the feedback received on the EBA’s discussion paper on ESG risk management and supervision. Respondents were broadly supportive of the proposals but, where appropriate, the EBA has adjusted its approach in line with the comments received.
The EBA has submitted the report to the EU Parliament, the Council of the EU and the European Commission, which are invited to take it into consideration in the context of the renewed sustainable finance strategy and the review of the Capital Requirements Directive (2013/36/EU) (CRD IV) and the Capital Requirements Regulation (575/2013/EU) (CRR).
The EBA will use the report and recommendations to develop guidelines on the management of ESG risks by institutions and an update of the Supervisory Review and Evaluation Process (SREP) guidelines to include ESG risks in the supervision of credit institutions.
Report on management and supervision of ESG risks for credit institutions and investment firms (EBA/REP/2021/18)
Factsheet
Press release
-
CRD IV - EBA publishes report on treatment of incoming third-country branches - 23 June 2021
The European Banking Authority (EBA) has published a report on the treatment of incoming third-country branches (TCBs) under the national law of member states, in accordance with Article 21b(10) of the Capital Requirements Directive (2013/36/EU) (CRD IV). The EBA explains that recent structural changes have renewed the EU’s interest in the regulation of TCBs. Cross-border regulatory changes in the aftermath of the financial crisis, as well as the UK’s withdrawal from the EU, have prompted calls for an assessment of the state of play and for further harmonisation of EU law.
The EBA identifies a variety of regulatory and supervisory approaches across the EU to the treatment of TCBs. It sets out 14 high-level policy recommendations for further harmonising EU law applicable to TCBs covering a number of areas, including the following:
- an EU centralised equivalence assessment;
- effective co-operation supported by the conclusion of memoranda of understanding with third-country home authorities;
- appropriately determined scope of authorisation and prudential requirements (notably capital, liquidity and internal governance requirements, including booking arrangements), as well as satisfactory recovery plans; and
- certain anti-money laundering and counter-terrorist financing matters.
Under Article 21b(10), once the EBA has submitted its report, the European Commission is to submit a legislative proposal to the European Parliament and the Council of the EU, where appropriate, based on the EBA’s recommendations. In the meantime, the EBA will continue to monitor the establishment of TCBs in the EU.
Report on the treatment of incoming third country branches under the national law of member states, in accordance with Article 21b(10) of the Capital Requirements Directive (2013/36/EU)
Press release
-
COREP, asset encumbrance and G-SII reporting - EBA publishes consultation paper on draft ITS - 23 June 2021
The European Banking Authority (EBA) has published a consultation paper (EBA/CP/2021/24) on draft implementing technical standards (ITS) amending Commission Implementing Regulation (EU) 2021/1451 with regards to common reporting (COREP), asset encumbrance and global systemically important institution (G-SII) supervising reporting.
Implementing Regulation (EU) 2021/451, which came into force on March 2021, sets out all the ITS on supervisory reporting under the Capital Requirements Regulation (575/2013/EU) (CRR) and reflects additional reporting requirements introduced by the CRR II Regulation ((EU) 2019/876).
Among other things, the proposals in the consultation paper will exempt small and non-complex institutions from reporting more granular data, as recommended by the EBA’s report on the study on the cost of compliance with supervisory reporting requirements as proposed in the report. The proposals would also expand the scope of the requirement to report information for determining G-SIIs and assigning G-SII buffer rates to include certain standalone entities. Minor amendments would also be made to COREP (reporting on own funds and own funds requirements) to allow the EBA to obtain a deeper understanding of a financial institution’s use of the exemption of certain software assets from the deduction from own funds.
The consultation closes on 23 September 2021. The EBA will hold a public meeting on its proposals on 9 July 2021. The EBA expects to submit the finalised draft ITS to the European Commission in the fourth quarter of 2021 or the first quarter of 2022. The revised requirements would apply from 31 December 2022.
Consultation paper: Draft Implementing Technical Standards amending Commission Implementing Regulation (EU) 2021/451 with regard to COREP, asset encumbrance and G-SII reporting (EBA/CP/2021/24)
Annex 1 (Solvency) (Excel)
Annex 2 (Solvency) (PDF)
Annex 3 (Annex 16 - Asset Encumbrance) (Excel)
Annex 4 (Annex 17 – Asset Encumbrance) (PDF)
Press release
-
CRR and calculation of risk adjustments - EBA publishes consultation paper on amending RTS - 24 June 2021
The European Banking Authority has published a consultation paper (EBA/CP/2021/25) on amendments to Commission Delegated Regulation (EU) 183/2014, which supplements the Capital Requirements Regulation (575/2013/EU) (CRR) with regard to regulatory technical standards (RTS) for specifying the calculation of specific and general credit risk adjustments under Article 110(4).
This follows the European Commission’s action plan published on 16 December 2020 on tackling non-performing loans in the aftermath of the COVID-19 pandemic, in which it recommended a revision of the treatment of defaulted assets under the standardised approach for credit risk. In that action plan, the Commission asked the EBA to consider the appropriate prudential treatment of the risk weight for defaulted exposures following the sale of a non-performing asset, noting that “only provisions/write-downs (so-called ‘credit risk adjustments’) made by the institution itself can be accounted for, not write-downs accounted for in the transaction price of the exposure”.
The proposals in the consultation allow for the recognition of such write-downs accounted for in the transaction price of the exposure, which are retained by the seller, in the credit risk adjustments recognised for the determination of the risk weight of defaulted exposures applied by the buyer under the standardised approach.
The deadline for comments on the proposed revision to the RTS is 24 September 2021. The EBA will hold a public hearing on the proposals on 13 July 2021. While this amendment is intended to clarify the regulatory treatment of sold non-performing loan assets, the EBA also recommends that the treatment set out in this RTS be included in the European Commission’s considerations as part of the future revised Capital Requirements Regulation (CRR III) proposal.
Consultation paper: Draft Regulatory Technical Standards on the specification of the calculation of specific credit risk adjustment: Amending Delegated Regulation (EU) 183/2014 supplementing the Capital Requirements Regulation (575/2013/EU) on prudential requirements for credit institutions and investment firms, with regard to regulatory technical standards for specifying the calculation of specific and general credit risk adjustments (EBA/CP/2021/25)
Press release
-
CRR - EBA publishes update on monitoring of Additional Tier 1 instruments and issues recommendations for ESG-linked capital issuances - 24 June 2021
The European Banking Authority (EBA) has published an updated report on the monitoring of Additional Tier 1 (AT1) instruments which includes an update on the implementation of its opinion on legacy instruments and its take on environmental, social and governance (ESG) capital bonds.
Among other things, the report identifies variations in ESG issuances made for capital/loss absorbency purposes and makes several recommendations on how ESG capital bond features are meant to interact with the eligibility criteria for own funds and eligible liabilities instruments, and ultimately to safeguard the quality of the instruments from a prudential perspective.
Report on the monitoring of Additional Tier 1 instruments of EU institutions – update (EBA/REP/2021/19)
Press release
European Central Bank
COVID-19 - ECB adopts decision extending exclusion of certain central bank exposures from leverage ratio - 18 June 2021
The European Central Bank (ECB) has adopted a decision to extend the temporary exclusion of certain exposures to central banks from the leverage ratio total exposure measure (TEM) in view of COVID-19 (ECB/2021/07).
Article 500b of the Capital Requirements Regulation (575/2013/EU) (CRR), introduced by Regulation (EU) 2020/873 (COVID-19 CRR Amending Regulation), currently allows institutions to exclude exposures to their central bank from the TEM where the institution’s competent authority has determined there are exceptional macro-economic circumstances. Further to this provision, in September 2020 the ECB adopted Decision (EU) 2020/1306 (ECB/2020/44) which allows credit institutions to exclude certain central bank exposures from the leverage ratio in light of COVID-19. Article 500b will cease to apply from 27 June 2021, and its provisions on the exclusion of central bank exposures are replicated in new Article 429a which was inserted by the CRR II Regulation ((EU) 2019/876) and which will apply from 28 June 2021.
The ECB has decided to extend the effect of the exclusion, as it considers that exceptional macro-economic circumstances continue to apply in respect of the Eurozone. The decision, made under Article 429a(5) of the CRR, will apply from 28 June 2021 in respect of any credit institution that is a significant supervised entity for the purposes of the ECB’s banking supervision role under the Single Supervisory Mechanism (SSM). The decision also repeals Decision (EU) 2020/1306 with effect from 28 June 2021.
The decision will cease to apply on 31 March 2022. The ECB states that this date was chosen to facilitate the implementation of monetary policy measures linked to the situation resulting from COVID-19, including measures under the Pandemic Emergency Purchase Programme. In a press release, the ECB warns that banks that make use of the exclusion should plan to maintain sufficient capital in preparation for the expiry of the exclusion in March 2022.
Decision (EU) [2021/XX] on the temporary exclusion of certain exposures to central banks from the total exposure measure in view of COVID-19 and repealing Decision (EU) 2020/1306 (ECB/2021/27)
Press release: ECB extends leverage ratio relief for banks until March 2022
Press release: ECB’s Governing Council confirms that exceptional circumstances continue to justify leverage ratio relief
-
Distributed ledger technology - ECB Opinion on proposed Regulation on pilot regime for market infrastructures published in OJ - 22 June 2021
An opinion of the European Central Bank (ECB) (2021/C 244/04) on a proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) has been published in the Official Journal of the EU. The proposed Regulation is part of the Digital Finance package which seeks to further enable and support the potential of digital finance in the EU in terms of innovation and competition, while mitigating associated potential risks.
The legislation would enable investment firms, market operators and central securities depositors to operate market infrastructures based on DLT, either as a DLT multilateral trading facility or a DLT securities settlement system. The ECB raises a number of general concerns, including in relation to monetary policy, oversight and systemic issues, financial stability and prudential supervision. Specific drafting proposals are set out in a separate technical working document, which can be found attached to the original version of the opinion.
European Central Bank Opinion on a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (CON/2021/15) (2021/C 244/04)
Original version of opinion with technical working document attached
Single Resolution Board
BRRD - SRB publishes guidance on notifications of impracticability of bail-in recognition clauses - 21 June 2021
The Single Resolution Board (SRB) has published a document setting out its approach and expectations on notifications of impracticability to include bail-in recognition clauses in contracts. Under Article 55(2) of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD), if a bank determines that it is impracticable to include a contractual recognition clause in a liability contract, it must make a notification to its resolution authority. The resolution authority then assesses the notification and may require the bank to include the clause. Article 55(7) requires resolution authorities to specify, if deemed necessary, categories of liabilities for which banks may reach the conclusion that it is impracticable to include the relevant bail-in recognition clauses.
In the guidance the SRB sets out its expectations regarding these notifications, the conditions and categories for impracticability, as well as the process by which it may require banks to include such clauses following the receipt of the notification. The guidance is based on the European Banking Authority’s final draft regulatory technical standards and implementing technical standards on Article 55 published in December 2020.
In particular, the SRB specifies four preliminary categories of liabilities for the purposes of Article 55(7):
- liabilities resulting from trade finance operations under internationally agreed frameworks and protocols;
- liabilities resulting from project finance activities under official standardised terms;
- liabilities to financial market infrastructure service providers, where the services are provided on standard terms not susceptible to bilateral negotiation; and
- minor operating liabilities, arising from non-critical business operations, where the terms of the contract are set by the provider and not bilaterally negotiated.
Further detail on each of these categories is set out in Annex I to the document.
Guidance: Notification of impracticability to include bail-in recognition clauses in contracts: SRB approach and expectations
Press release
SRB XBRL Filing rules for the 2021 Notification of Impracticability of Bail-In
Data
-
EU crisis management and deposit insurance framework - SRB publishes speech - 23 June 2021
The Single Resolution Board (SRB) has published a speech by SRB Director of Resolution Planning and Decisions, Mr Pedro Machado, on the challenges of resolving mid-sized banks. Among other things, Mr Machado discusses the European Commission’s ongoing review of the EU crisis management and deposit insurance framework (CMDI).
Mr Machado comments that proposals for the harmonisation of bank insolvency procedures will inevitably be fraught with political difficulty and resistance and suggests that an incremental approach may be a more pragmatic solution. However, the ultimate goal must be to put in place an EU liquidation regime alongside an EU resolution regime, something akin to an EU version of the US Federal Deposit Insurance Corporation.
Speech by SRB Director of Resolution Planning and Decisions, Pedro Machado: The challenges of resolving mid-sized banks
UK Parliament
The Payment and Electronic Money Institution Insolvency Regulations 2021 (SI 2021/716) made - 17 June 2021
The Payment and Electronic Money Institution Insolvency Regulations 2021 (SI 2021/716) have been made and come into force on 8 July 2021, ushering in new special administration procedures for payment and electronic money institutions.
These types of institutions are generally consumer-facing and facilitate card, mobile and electronic payments without themselves being banks. Where such an institution becomes insolvent, the new special administration procedures are designed to improve returns to consumer creditors and the speed of the process, as compared with an administration process under Schedule B1 to the Insolvency Act 1986. The Regulations have been made with no change from the draft version, reported on in a previous edition of this bulletin.
A summary of draft insolvency rules to accompany the new special administration processes has been published, but no further detail on the draft rules has been made available. The explanatory memorandum to the Regulations states that the relevant rules (made under section 411 of the Insolvency Act 1986) “will be made in due course in England and Wales”, and will be put before the Insolvency Rules Committee. These rules will need to become effective before it is practicable to use the new special administration procedures created by the Regulations.
The Payment and Electronic Money Institution Insolvency Regulations 2021 (SI 2021/716)
Explanatory memorandum
Webpage
HM Treasury
UK implementation of IFPR and Basel III - HM Treasury publishes response to consultation - 22 June 2021
HM Treasury has published a response to its February 2021 consultation paper on implementing the Investment Firms Prudential Regime (IFPR) and the final Basel III standards using powers under the Financial Services Act 2021. In light of the comments received, HM Treasury is changing its approach in several areas. Key points include the following:
- HM Treasury now considers that applying the equivalence provision contained in Article 132 of the UK CRR would be a “disproportionate method for addressing the prudential risks arising from UK banks’ investments in overseas funds” and has decided to remove it;
- it has decided to implement the Fundamental Review of the Trading Book (FRTB) reporting requirements alongside FRTB revisions to Pillar 1 capital requirements (that is, as part of Basel 3.1 and not from 1 January 2022) due to concerns about implementation costs;
- it sees no reason to depart from its proposed approach of amending the Financial Services and Markets Act (PRA-Regulated Activities) Order 2013 (SI 2013/556) to remove reference to the EUR 730,000 initial capital requirement, which will become obsolete (this allows the PRA to designate investment firms that deal as principal under Part 4A of FSMA where it considers this is desirable); and
- it has decided to remove FCA-regulated EUR 730,000 initial capital requirement firms from the scope of the UK resolution regime and additional firms brought into the scope of the £750,000 capital requirement will also not be within scope of the UK resolution regime.
The document also makes certain clarifications regarding the operation of equivalence determinations for the purposes of Large Exposures under Article 391 of the UK CRR and the scope of the use of bail-in and resolution stays. In addition, it confirms the government’s intention to replicate the scope of prudential consolidation that applies under Article 18 of the UK CRR.
HM Treasury intends to lay the relevant implementing secondary legislation to a timeline that provides firms with adequate time to prepare ahead of the 1 January 2022 implementation date.
The FCA is staggering its consultations on the IFPR, with the first consultation undertaken between 14 December 2020 and 5 February 2021 and the second consultation between 19 April 2021 and 31 May 2021. It will publish its third IFPR consultation, and related policy statements, later this year.
The PRA has also consulted on the key elements of the updated Basel 3 regime, and its consultation closed on 3 May 2021.
Consultation response: Implementation of the Investment Firms Prudential Regime and Basel III standards
Updated webpage
Bank of England
Evolution of UK payment systems - Bank of England publishes speech - 21 June 2021
The Bank of England (BoE) has published a speech by its Executive Director for Banking, Payments and Innovation, Victoria Cleland, on the evolution of payment systems in the UK.
Among other things, Ms Cleland discusses the BoE’s real time gross settlement (RTGS) system and its multi-year programme to review the RTGS service. The first key milestone will be in June 2022, when the Clearing House Automated Payment System (CHAPS) will move to the global standard for financial messaging in payments, ISO 20022 (on a like-for-like basis). The BoE intends to move to enhanced ISO 20022 messaging in February 2023 and expects to introduce a state-of-the-art core settlement engine in September 2023.
Ms Cleland notes: “June next year will be the first step in the UK’s migration to ISO 20022. Its implementation is a foundational step that will enable many of the future changes that are coming, both domestically in the renewal of RTGS and internationally including enhancing cross border payments”.
She notes that realising the benefits of these changes “relies on the quality of data submitted being sufficiently high and consistent”. As such, the BoE will mandate the sending of enhanced data in due course, starting with Purpose Codes and Legal Entity Identifiers (LEIs) within certain CHAPS messages from Spring 2024. She stresses that CHAPS Direct Participants (DPs) have a pivotal role in ensuring the success of both the transition to ISO 20022 and the wider RTGS Renewal programme.
Ms Cleland refers to the BoE’s recent discussion paper on digital money, including the possibility of central bank digital currencies (CBDC) and states that a decision on whether to introduce a CBDC will be made in due course.
Speech by Executive Director for Banking, Payments and Innovation, Victoria Cleland: A new dawn for payments
Prudential Regulation Authority
Financial holding companies - PRA publishes consultation paper on implementation of the regulatory framework - 21 June 2021
The PRA has published a consultation paper (CP12/21) on the further implementation of the regulatory framework for financial holding companies. The CP is relevant to financial holding companies, mixed financial holding companies, banks and PRA-designated investment firms that are part of a UK consolidation group controlled by a UK parent financial holding company or UK parent mixed financial holding company.
Following the UK’s implementation of the Capital Requirements Directive ((EU) 2019/878) (CRD V), holding companies in UK banking groups are subject to supervisory approval and consolidated supervision under Part 12B of the Financial Services and Markets Act 2000 (FSMA). A UK consolidated group’s approved parent holding company is responsible for ensuring that consolidated prudential requirements are met. If the relevant holding company cannot be approved, another group entity may be temporarily designated as responsible for ensuring that the requirements are met. The Financial Services Act 2021 gave the PRA the power to make rules relating to approved or designated holding companies.
In CP12/21, the PRA sets out proposals for rules and guidance relating to approved and designated holding companies as follows:
- Appendix 1 contains the draft text of the ‘PRA (Rules applying to holding companies) Instrument 2021’, which contains proposed revisions to a number of Parts of the PRA Rulebook to bring approved and designated holding companies within their scope by applying them to ‘Capital Requirements Regulation (CRR) consolidation entities’. This is defined as a UK parent institution, a PRA approved parent holding company, a PRA designated parent holding company or a PRA designated institution;
- Appendix 2 contains the text of a new PRA statement of policy, ‘Supervisory measures and penalties in relation to financial holding companies’. This reflects the PRA’s obligation under section 129Z2 of FSMA to prepare and issue a statement of policy on the taking of supervisory measures, including directions, under section 192T of FSMA and the imposition and amount of penalties under section 192Y of FSMA; and
- Appendix 3 (included in the consultation paper) contains proposed amendments to the PRA’s statement of policy on its approach to enforcement, reflecting the PRA’s powers concerning holding companies under section 192Y of FSMA.
The consultation closes on 22 July 2021. The PRA intends to implement its proposals on 15 September 2021.
Consultation paper: Financial holding companies: Further implementation (CP12/21)
Appendix 1: Draft text of PRA Rulebook: PRA (Rules applying to holding companies) Instrument 2021
Appendix 2: Text of new PRA Statement of Policy: Supervisory measures and penalties in relation to financial holding companies
Webpage
Competition and Markets Authority
Breach of Retail Banking Market Investigation Order 2017 - CMA writes to four banks - 22 June 2021
The Competition and Markets Authority (CMA) has published letters that it has sent to NatWest Group, Virgin Money UK plc, Bank of Ireland and Monzo Bank Limited about breaches of the Retail Banking Market Investigation Order 2017 (the Order), which implements remedies arising from the retail banking market investigation.
The CMA has written separately to the four banks to explain their individual breaches of Article 20 of the Order, which requires the provision of transaction histories to customers who have closed their current account within 10 working days. The banks are taking steps to send all outstanding information to affected customers. If the banks breach the order again, the CMA can take further action by issuing legally binding ‘Directions’. These could include banks having to introduce specific training or carrying out annual compliance audits to prevent this from happening in the future.
CMA Letter to NatWest Group
CMA Letter to Virgin Money UK plc
CMA Letter to Bank of Ireland UK plc
CMA Letter to Monzo Bank Limited
Press release
Recent Cases
Manchester Building Society (Appellant) v Grant Thornton UK LLP (Respondent) [2021] UKSC 20 - 18 June 2021
The Supreme Court has unanimously held that Manchester Building Society suffered a loss falling within the scope of the duty of care assumed by Grant Thornton, having regard to the purpose for which it gave its advice on the use of hedge accounting. Grant Thornton is liable for the loss suffered by the society in breaking swaps—which it had entered into on Grant Thornton’s advice—early, subject to a reduction in damages of 50% for contributory negligence.
Manchester Building Society’s main activity is the provision of mortgage products. The society’s accounts were audited by Grant Thornton until 2012. Grant Thornton negligently advised the society that an accounting treatment, “hedge accounting”, could be applied to reduce the volatility of the market-to-market (MTM) value of swaps in its accounts. In reliance on that advice, Manchester Building Society entered into various fixed rate mortgages hedged against long term swaps under which it paid a fixed rate but received a variable rate. The 2008 global financial crisis led to a fall in interest rates, with the effect that the MTM value of the swaps became negative. When Grant Thornton’s negligence was realised, Manchester Building Society ceased to apply hedge accounting, closed out the swaps and, in consequence, had to pay the MTM losses on the swaps and transaction fees for breaking the swaps early.
The society brought a claim in negligence against Grant Thornton. The issue was whether Grant Thornton was liable for the MTM losses as well as the transaction fees. In the Commercial Court, the judge concluded that Grant Thornton was not liable for the MTM losses. The Court of Appeal dismissed Manchester Building Society’s appeal. The Supreme Court unanimously allowed the appeal and held that the loss suffered by the society fell within the scope of the duty of care assumed by Grant Thornton, in light of the purpose of its advice.
Judgment
Press release
