Committee on Payments and Market Infrastructures
PvP settlement - CPMI invites interested parties to share ideas on solutions for expansion - 7 October 2021
The Committee on Payments and Market Infrastructures (CPMI) has invited views on the expansion of payment-versus-payment (PvP) settlements to a wider range of transactions as part of the G20 cross-border payments roadmap and associated CPMI programme. PvP mechanisms aim to ensure that the final transfer of a payment in one currency completes only if the final transfer of payment in another currency takes place, thereby mitigating the principal risk exposures associated with the settlement of foreign exchange trades.
The CPMI welcomes responses on a range of questions in this context, including in relation to the types of FX products and currency pairs that solutions would be designed to settle.
Website – CPMI cross-border payments programme
CPMI (2020) enhancing cross-border payments: building blocks of a global roadmap
FSB (2020) enhancing cross-border payments: stage 3 roadmap
Press release
Financial Stability Board
Cross-border payments - FSB publishes reports on targets and progress - 13 October 2021
The Financial Stability Board (FSB) has published a final report entitled ‘Targets for addressing the four challenges of cross-border payments’, which follows its May 2021 consultation, together with an overview of responses to the consultation. The report sets out global quantitative targets to address the four challenges (cost, speed, access and transparency) of cross-border payments for each of the wholesale, retail, and remittances sector. The FSB intends these targets to “reinforce momentum” in relation to the aims of the G20 Roadmap for Enhancing Cross-border Services (the Roadmap).
The FSB has set the end of 2027 as the deadline for achieving the targets, with the exception of the remittance cost target, where a 2030 date has already been set as a United Nations Sustainable Development Group Goal and endorsed by the G20. However, it notes that stakeholders are encouraged to pursue faster implementation if they have the capacity to do so.
The FSB also proposes an approach for assessing progress which includes how targets would be measured, monitored and how frequently data would be collected and published. The FSB will engage with external stakeholders, publish an interim report in June 2022, and provide a final report to the G20 in October 2022, which will specify further details of the monitoring approach.
The FSB has also released a progress report on the Roadmap. The report concludes progress toward the overall end goals of the roadmap is on-track and it sets out the next steps to be taken in 2022.
FSB final report: Targets for addressing the four challenges of cross-border payments
Webpage
Report on Targets for Addressing the Four Challenges of Cross-Border Payments: Overview of responses to the consultation
Webpage
G20 Roadmap for Enhancing Cross-border Payments: First consolidated progress report
Webpage
Press release
Basel Committee on Banking Supervision
Basel III standards - Basel Committee publishes progress report - 14 October 2021
The Basel Committee on Banking Supervision (the Basel Committee) has published its ‘Progress report on the adoption of the Basel regulatory framework’. The report sets out the jurisdictional adoption status of Basel III standards as of the end of September 2021 based on information provided by all Basel Committee member jurisdictions. It focuses on the status of adoption of all Basel III standards in relation to the internationally agreed time frame, including the Basel III post-crisis reforms published by the Basel Committee in December 2017 and the finalised minimum capital requirements for market risk published in January 2019, which will take effect from 1 January 2023.
The report shows that over the past year member jurisdictions have made further progress in adopting the Basel III standards despite the disruptions resulting from COVID-19 and the required shift in regulatory and supervisory priorities.
The report is complemented by a newly developed dashboard which reflects the full history of Basel III implementation and provides an overview of progress to date. The dashboard will be updated regularly and is intended to replace the existing report publications.
The press release accompanying the report indicates that work on the assessment of the consistency of Basel Committee member jurisdictions’ domestic rules with the Basel III standards will resume soon, after it was suspended in 2020 in response to COVID-19.
The Basel Committee has consistently reaffirmed its expectation of full, timely and consistent implementation of all elements of these reforms and will continue to closely monitor their implementation.
Progress report on the adoption of the Basel regulatory framework
Webpage
Press release
European Banking Authority
Internet payment security - EBA repeals its PSD 1 Guidelines - 14 October 2021
The European Banking Authority (EBA) has repealed its Guidelines on the security of internet payments under the Payments Services Directive (2007/64/EC) (PSD 1). These Guidelines were published in 2014, prior to the entry into force of the second Payments Services Directive (EU) 2015/2366 (PSD 2) in 2016, and have since been superseded by PSD 2 and related EBA instruments.
The PSD 1 Guidelines were intended to provide additional detail on how provisions in PSD 1 should be interpreted for the purpose of enhancing the security of payment services, with a view to mitigating the risks posed by payment fraud at the time. PSD 2 includes more specific requirements on the security of payments and related instruments, including the EBA’s Technical Standards on strong customer authentication and common and secure communication, and incorporates and goes further than the requirements set out in the PSD 1 Guidelines. Given these developments, the EBA has decided to repeal the PSD 1 Guidelines and has requested national competent authorities (NCAs) to take any necessary corresponding steps at a national level.
Press release
HM Treasury
Payment Landscapes Review - HM Treasury publishes response to call for evidence - 11 October 2021
HM Treasury has published its response to a call for evidence launched in July 2020 in connection with its Review of the UK payments landscape and regulatory framework. The Review, announced in June 2019, is aimed at ensuring the UK’s payment network regulation and infrastructure keeps pace with new payment models. It builds on a number of previous and live policy initiatives in this area, including the work of the Cryptoassets Taskforce, the government’s consultation on the regulatory approach to cryptoassets and stablecoins, and the government’s consultation on legislative proposals to protect access to cash.
A detailed summary of responses to the call for evidence is set out in Annex A of the document. In short, HM Treasury has identified the following priority areas:
- equipping faster payments for the future, supported by a new payments architecture;
- ensuring that consumers are adequately protected when a payment goes wrong. The introduction of Faster Payments rules setting out reimbursement and liability requirements on all scheme participants, alongside preventative measures, is cited as the best possible solution to the issue of authorised push payment (APP) scams;
- unlocking open banking-enabled payments to allow consumers to pay for goods online or in store directly from their accounts, rather than using a debit or credit card. The response notes the government’s vision “for a payments sector at the forefront of technology and innovation in which the full potential of Open Banking enabled payments is unlocked safely and securely”;
- creating competition between payments networks and providing opportunities for fintechs;
- enhancing cross-border payments so as to make them seamless, quick and cheap; and
- future-proofing the legislative and regulatory framework to ensure it is agile, fosters innovation, protects consumers and provides for resilient payment networks. On this theme, the response refers to the proposal under the Future Regulatory Framework Review to transfer responsibility for firm-facing requirements in areas of retained EU financial services law, including retained EU payment services law, to the regulators.
In response to the increasing use of digital payments and innovations in payments chains, the government will consult on bringing systemically important firms in payment chains into Bank of England regulation and supervision in the first half of 2022.
Payments Landscape Review: response to call for evidence
Webpage
Bank of England
Cryptoassets - a financial stability risk? - Bank of England publishes speech - 13 October 2021
The Bank of England (the Bank) has published a speech by Deputy Governor for Financial Stability, Sir Jon Cunliffe, about the potential impact of cryptoassets on financial stability. He concludes that the risks posed to financial stability by cryptoassets are currently limited, but there remain concerns due to the rapid pace of growth in the sector in a space that is mostly unregulated. Sir Jon highlights three areas of risk:
- unbacked cryptoassets (e.g. bitcoin) - the potential for disruption to financial stability, similar to that seen in the 2008 financial crisis, as a result of major price corrections due to the volatility and lack of intrinsic value of these cryptoassets, their increasing integration in the traditional financial sector and the presence of leveraged players in the market;
- backed cryptoassets (stablecoins) used in payment systems - the safety and interoperability risks associated with private money and the lack of end-to-end risk management due to their decentralised nature; and
- decentralised finance (DeFi) based on algorithms and smart contracts (most commonly used for credit products), which poses challenges to market integrity, given the lack of certain features such as investor protection and anti-money laundering controls, and challenges to regulatory accountability, given DeFi platforms may have no identifiable legal entity.
Sir Jon ends his speech with a call to pursue regulation of cryptoassets “as a matter of urgency”.
Speech by Jon Cunliffe: Is ‘crypto’ a financial stability risk?
Prudential Regulation Authority and Financial Policy Committee
The UK leverage ratio framework - FPC and PRA publish joint Policy Statement (PS21/21) - 8 October 2021
The Financial Policy Committee (FPC) and the PRA have published a joint Policy Statement (PS21/21) which contains, among other things, the final position and feedback on responses to Consultation Paper CP14/21 on changes to the UK leverage ratio framework, as previously reported in this Bulletin.
Part 1 of PS21/21 covers the FPC’s feedback on responses to its proposed direction and/or recommendation, and its final decisions, while Part 2 covers the PRA’s feedback on responses relating exclusively to its separate proposals in CP14/21.
As it stands, the UK leverage ratio framework requires major UK banks and building societies to satisfy a minimum Tier 1 leverage ratio of 3.25% on a measure of exposures that excludes qualifying central bank claims. Three-quarters of this minimum requirement must be met with Common Equity Tier 1 (CET1) capital instruments. The remainder of the requirement can be met with additional Tier 1 capital instruments, as long as they have a conversion trigger of at least 7% of risk-weighted CET1 capital. The UK leverage ratio framework also includes capital buffers that must be met only with CET1; an additional leverage ratio buffer for systemically important banks; and a countercyclical leverage ratio buffer.
The PS confirms that, from 1 January 2023, the following policy will apply:
- the scope of application of the leverage ratio requirement will be extended to firms, ring-fenced bank (RFB) sub-groups and Capital Requirements Regulation (CRR) consolidation entities with non-UK assets equal to or greater than £10 billion (calculated on an individual, sub-consolidated, and consolidated basis, respectively);
- the leverage ratio requirement will apply on an individual basis to any firm that is not a CRR consolidation entity or an RFB that is the ultimate parent within an RFB sub-group; and
- sub-consolidation will become available as an alternative to the individual application of the requirements where a firm has subsidiaries that can be consolidated.
The PS also notes that central bank claims can be excluded from the UK leverage ratio measure “as long as they are matched by liabilities (rather than deposits) of the same currency and equal or longer maturity”.
In due course the PRA will make consequential amendments to the leverage ratio model requirements in its rulebook, in time to reflect the changes.
Policy Statement (PS21/21)
Webpage
Appendix 1 - Leverage Instrument 2021
Appendix 2: SS45/15 ‘The UK leverage ratio framework’
Appendix 3: FPC direction and recommendation
Appendix 4: Policy Statement ‘The Financial Policy Committee’s powers over leverage ratio tools’
Appendix 5: SS34/15 ‘Guidelines for completing regulatory reports’
Prudential Regulation Authority
Implementation of Basel III standards - PRA publishes Policy Statement with final rules (PS22/21) - 14 October 2021
The PRA has published a Policy Statement on implementing the remaining parts of the Basel III standards (PS22/21). The Policy Statement sets out the final rules, Statements of Policy, Supervisory Statements and reporting templates and instructions, following the publication of the Capital Requirements Regulation (Amendment) Regulations 2021, which revokes relevant parts of the UK Capital Requirements Regulation (UK CRR).
The PRA published the rules and supervisory materials in near-final form in Policy Statement 17/21 (July 2021) and these remain unchanged, with the exception of minor amendments and corrections, including:
- removal and deletion of specific cross-references and rules following HM Treasury's decision to revoke certain onshored CRR Articles;
- removal of the definition of ‘Capital Requirement Regulation (CRR) consolidation entity’, given the PRA published the final definition and associated rules in its September 2021 Policy Statement on financial holding companies (PS20/21); and
- minor typographical amendments and factual corrections.
The rules come into effect on 1 January 2022 and the PRA will update the online version of the PRA Rulebook later in 2021 to reflect changes made by the new rules.
Policy Statement: Implementation of Basel standards: Final rules (PS22/21)
Webpage
Appendix 1: CRR Rules Instrument 2021
Appendix 2: PRA Rulebook: CRR firms: (CRR 2 revocations and other amendments) Instrument 2021
Appendix 3 – 11: Final new and updated Supervisory Statements (SS15/13, SS12/13, SS16/13, SS24/14, SS34/15 and SS2/19) and Statements of Policy
Appendix 12: Detailed analysis of objectives and have regards
Appendix 13: Summary of the purpose of the rules
Appendix 14: Corresponding provisions
Appendix 15: Restatement provisions
O-SII buffer - PRA issues statement on freezing rates for a further year - 8 October 2021
The PRA has published an update on its position to maintain relevant firms’ Other Systemically Important Institutions (O-SII) buffer rates at 2019 levels for a further year, with no new rates set until December 2023. Any decision on O-SII rates in December 2023 will be based on end-2022 financial results and will take effect from January 2025.
Further reassessment of the rates will be in line with the PRA’s Statement of Policy and the FPC framework for the Systemic Risk Buffer. It will also take into consideration the evolution in firms’ balance sheets in response to the COVID-19 pandemic.
PRA statement on freezing O-SII buffer rates
Trading activity wind-down - PRA publishes Consultation Paper (CP20/21) - 8 October 2021
The PRA has published a Consultation Paper (CP20/21) on its expectations relating to the wind-down of trading activities that may affect UK financial stability. Trading activities for these purposes include the trading book and activities carried out in connection with the trading book, such as margin loans and other financing activities carried out in relation to trading, that the firm would consider appropriate to wind down as part of post-resolution restructuring.
The proposals aim to enhance firms’ ability to recover from firm-specific and/or market-wide stress and are designed to be read in conjunction with the Bank of England’s (the Bank’s) Resolvability Assessment Framework. They apply to “trading activity wind-down (TWD) firms”. These are firms that have been identified as O-SII; have the full or partial wind-down of their trading activities as a recovery and post resolution restructuring option; and whose preferred resolution strategy is bail-in led by the Bank or that are a material subsidiary of an overseas banking group for the purposes of setting the internal minimum requirement for own funds and eligible liabilities (MREL) in the UK.
Chapter 3 of the CP explains the PRA’s proposed expectations for the development of the TWD option (namely, the wind-down of trading activities, whether it be full or partial, or whether it would be carried out as a recovery or post-resolution restructuring option), scenario testing, the flexibility of the recovery plan in the context of the TWD option, and the execution of the TWD option. Chapter 4 sets out the PRA’s proposals to introduce expectations for the capabilities that the PRA expects TWD firms to have to enable them to develop and execute the TWD option in a variety of real-life circumstances. In particular, TWD firms should develop their TWD capabilities based on executing a full wind-down of their trading activities in post-resolution restructuring.
The proposals in the CP would result in a new Supervisory Statement on TWD (a draft of which is included as Appendix 1) and a Statement of Policy (SoP) (Appendix 2). The PRA will introduce non-mandatory templates, set out in the appendices of the draft SS, which would provide a guide to TWD firms as to the breadth and granularity of data the PRA expects them to be able to produce using their TWD capabilities.
The proposed implementation date for these proposals is 1 January 2025. The deadline for responses is 21 January 2022. The PRA intends to publish its final policy in the first half of 2022.
Consultation Paper (CP20/21)
Webpage
Appendix 1: Draft Supervisory Statement: Trading activity wind-down
Appendix 2: Draft Statement of Policy: Trading activity wind-down
Capital Buffers and Pillar 2 - PRA publishes direction for modification by consent - 14 October 2021
The PRA has published a direction for modification by consent that amends the Capital Buffers Part of the Rulebook and has updated its webpage on rule waivers and modifications. The webpage states that the modification has been made to ensure the capital stack operates as intended. It applies to parent financial holding companies (FHCs) and parent mixed financial holding companies (MFHCs) and mirrors the existing modification which applies to PRA-authorised subsidiaries.
Parent FHCs and MFHCs will be asked to consent to the rule modification by email prior to their approval. The direction takes effect on the date shown on each specific direction and remains in force for five years or, if earlier, until superseded by a further direction relating to the same subject matter.
Direction for modification of 5.3 and 5.5 of the Capital Buffers Part of the PRA Rulebook
Updated webpage: Waivers and modifications of rules
Financial Conduct Authority
Consumer credit regulation - FCA publishes speech on outcomes and next steps - 8 October 2021
The FCA has published a speech by Nisha Arora, the FCA’s Director of Consumer and Retail Policy, entitled ‘Regulating for better outcomes - next steps in consumer credit’. In the speech Ms Arora confirms that consumer credit remains a priority for the FCA, particularly in light of the consequences of the COVID-19 pandemic. She sets out the ways in which the FCA is becoming “more innovative, adaptive and assertive” in its approach to supervision in order to deliver the outcomes it wants to see in the credit market.
Ms Arora refers to the proposals for a new Consumer Duty which will set standards for firms in retail markets and test whether credit products are causing financial harm. She also states: “buy-now-pay-later is a product that can have important benefits for consumers as it develops and becomes more widespread, but it also carries risks and the potential for harm,” noting that the government is expected to consult on a proposed regulatory framework in the next few weeks. Other key areas of work for the FCA are the continued focus on outcomes for credit borrowers in financial difficulty and the protection of those using products such as high-cost short-term credit, home collected credit and guarantor lending, particularly in light of increased complaints to the Financial Ombudsman Service (FOS) about unaffordable loans.
Speech by Nisha Arora: Regulating for better outcomes - next steps in consumer credit
Payment Systems Regulator
Interbank payments - PSR publishes Policy Statement on consumer protection (PS21/2) - 11 October 2021
The Payment Systems Regulator (PSR) has published a Policy Statement (PS21/2) on consumer protection in interbank payments. This follows the publication, in February 2021, of the PSR’s call for views (CP21/4) on this topic in which it outlined its intention to further protect consumers when they make retail purchases over Faster Payments. Having considered the 34 responses it received, the PSR has decided not to intervene in the market. Instead, it has outlined its expectations in this area as follows:
- it expects improved coordination between Faster Payments participants in order to reduce the risk of payment fraud;
- it wants the industry to continue to provide information to consumers about their protections;
- it expects Faster Payments participants to identify and share payment risk levels and to act responsibly to minimise customer harm; and
- it will continue to support the Open Banking Implementation Entity (OBIE), Pay.UK and Faster Payments participants in improving prevention and compensation measures.
The PSR will monitor developments and intervene if necessary.
Policy Statement: Consumer protection in interbank payments (PS21/2)
Webpage
Competition and Markets Authority
Retail Banking Market Investigation Order 2017 - CMA publishes letter to Lloyds Banking Group - 13 October 2021
The Competition and Markets Authority (CMA) has published a letter to Lloyds Banking Group (Lloyds) about its breach of the Retail Banking Market Investigation Order 2017 (the Order).
The breach was in relation to Article 31 of the Order, which requires banks to publish certain information, such as the rate of interest and whether it is fixed or variable, about unsecured lending products for small and medium sized enterprises (SMEs) on its website. Although Lloyds had published this information in some places on its website, it had not included the information on the page where the representative APR was published, which is specifically required by the Order.
Lloyds notified the CMA of the breach in February 2021 as part of its annual compliance report, and the CMA notes in the letter that Lloyds had already taken steps to end the breach, prevent recurrence and remedy the breach for affected customers. In light of this, the CMA has concluded that no further formal action in relation to the breach is required by Lloyds at present.
CMA Letter to Lloyds: Breach of the Retail Banking Order
