Financial Stability Board and Basel Committee on Banking Supervision
G-SIBs - FSB publishes 2021 list and Basel Committee publishes assessment methodology - 23 November 2021
The Financial Stability Board (FSB) has published an updated list of global systemically important banks (G-SIBs) based on 2020 data. The Basel Committee on Banking Supervision (Basel Committee) has also published information relating to its assessment of G-SIBs, including an updated list of denominators of each of the high-level indicators used to calculate banks’ scores.
The number of G-SIBs on the list remains unchanged since November 2020. There has, however, been some movement between the buckets to which G-SIBs are assigned, which determine the higher capital buffer requirements that will apply to each G-SIB from 1 January 2022.
FSB 2021 list of G-SIBs
Press release
Basel Committee updated data on denominators
Basel Committee updated data on cut-off score and bucket thresholds
Webpage
Press release
European Commission
Mortgage Credit Directive - European Commission launches public consultation - 22 November 2021
The European Commission (Commission) has launched a public consultation on its review of the Mortgage Credit Directive (MCD). It has also published a report on its review and conducted a study evaluating the MCD.
In conducting the review, the Commission’s main aims are to:
- assess whether to adapt the rules to take account of present challenges and trends, particularly digitalisation, the need to enhance sustainability and the COVID-19 crisis; and
- ensure the rules guarantee high levels of consumer protection, further the aims of the single market and contribute to financial stability.
The consultation closes on 28 February 2022.
Public consultation on the review of the Mortgage Credit Directive
Webpage
Press release
Official Journal of the European Union
CRD IV - Implementing Regulation containing amendments to ITS on benchmarking of internal models under CRD IV Directive published in OJ - 19 November 2021
Commission Implementing Regulation (EU) 2021/1971 amending Implementing Regulation (EU) 2016/2070 laying down implementing technical standards (ITS) for templates, definitions and IT solutions to be used by institutions when reporting to the EBA and competent authorities under Article 78(2) of the CRD IV Directive (2013/36/EU) has been published in the Official Journal of the European Union (OJ).
The draft ITS follows the EBA’s December 2020 public consultation (EBA/CP/2020/26) and its final report to the European Commission (EBA/ITS/2021/03).
The European Commission adopted the Implementing Regulation on 13 September 2021. It will enter into force on 9 December 2021 (20 days after its publication in the OJ).
EBA Commission Implementing Regulation (EU) 2021/1971 laying down implementing technical standards for templates, definitions and IT-solutions to be used by institutions when reporting to the European Banking Authority and to competent authorities in accordance with Article 78(2) of Directive 2013/36/EU of the European Parliament and of the Council
European Banking Authority
CRR and risk-weighted exposure amounts of collective investment undertakings - EBA publishes final report and draft RTS - 25 November 2021
The European Banking Authority (EBA) has published its final report (EBA/RTS/2021/14) on draft regulatory technical standards (RTS) regarding the calculation of risk-weighted exposure amounts of collective investment undertakings (CIUs) under Article 132a(4) of the Capital Requirements Regulation (575/2013/EU) (CRR).
Article 132(a) was introduced by the CRR II Regulation ((EU) 2020/876) and sets out three different approaches for the calculation of minimum capital requirements for institutions’ equity investments in CIUs. The mandate-based approach (MBA) allows institutions to calculate the risk-weighted exposure amount of CIUs in accordance with the limits set in the CIU’s mandate and relevant law. Article 132a(4) mandates the EBA to develop RTS, specifying how institutions should calculate the MBA where one or more of the inputs required for that calculation are not available.
The draft RTS are intended to: (i) clarify the steps to be taken for calculating the exposure value of a CIU’s derivatives exposures where the underlying risk of derivatives is unknown; and (ii) provide for cases where the calculation of the exposure amount to counterparty credit risk of a netting set of a CIU’s derivative exposures is needed.
The final report follows the EBA’s consultation paper (EBA/CP/2020/25) on the matter, published on 16 December 2020.
EBA Final Report on Draft RTS on the calculation of risk-weighted exposure amounts of collective investment undertakings under Article 132a(4) of the CRR
Press release
European Central Bank
Management of climate and environmental risks - ECB publishes report - 22 November 2021
The European Central Bank (ECB) has published a report on its review of banks’ approaches to managing climate and environmental (C&E) risks. The ECB asked 112 significant institutions to conduct a self-assessment of their current practices against, and to submit implementation plans in respect of, the 13 supervisory expectations that were set out in the ECB’s November 2020 Guide on C&E risks, as previously reported in this Bulletin.
Overall, the report finds that the pace of progress remains slow and that, more specifically:
- none of the significant institutions are close to fully aligning their practices with the supervisory expectations;
- few significant institutions have put in place C&E risk practices with a discernible impact on their strategy and risk profile;
- most significant institutions have a blind spot for physical risks and other environmental risk drivers, such as biodiversity loss and pollution; and
- virtually all significant institutions have developed implementation plans to further improve their practices, but their quality varies considerably.
The ECB expects all significant institutions to take decisive action to address the shortcomings set out in a dedicated supervisory feedback letter. In some cases, banks will receive a qualitative requirement as part of the Supervisory Review and Evaluation Process (SREP). The ECB will gradually integrate C&E risk into its SREP methodology, which will eventually influence Pillar 2 capital requirements.
Supervisors are also currently investigating banks’ C&E risk disclosures. The ECB will publish its findings in an updated report on climate and environmental disclosures in the first quarter of 2022, together with individual feedback to the banks.
ECB Report: The state of climate and environmental risk management in the banking sector
Press release
Eurosystem oversight framework for electronic payment instruments, schemes and arrangements - ECB publishes framework - 22 November 2021
The European Central Bank (ECB) has published its Eurosystem oversight framework for electronic payment instruments, schemes and arrangements (PISA framework). This follows the ECB’s public consultation on the same matter, published on 27 October 2020. The ECB has also published an assessment methodology and exemption policy associated with the PISA framework.
The Eurosystem will use the new framework to oversee firms enabling or supporting the use of payment cards, credit transfers, direct debits, e-money transfers and digital payment tokens, including electronic wallets. The PISA framework will also cover cryptoasset-related services, such as the acceptance of cryptoassets by merchants within a card payment scheme and the option to send, receive or pay with cryptoassets via an electronic wallet.
Firms that are already subject to Eurosystem oversight are expected to have adhered to the principles of the new PISA framework since 15 November 2022. Other firms will have a grace period of one year from the moment they are notified that they will fall within scope.
ECB Eurosystem oversight framework for electronic payment instruments, schemes and arrangements
ECB Eurosystem assessment methodology for electronic payment instruments, schemes and arrangements
ECB Exemption policy for the Eurosystem oversight framework for electronic payment instruments, schemes and arrangements
Press release
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SEPA payment scheme - EPC publishes revised guidance an updated version of its Creditor Identifier Overview and a clarification paper - 22 November 2021
The European Payments Council (EPC) has published revised guidance documents relating to the single euro payments area (SEPA) scheme rulebooks, available on its webpage. Separately, the EPC has published an updated version of its Creditor Identifier Overview (EPC262-08) (Version 9.0), designed to inform creditors about the need for a creditor identifier (CI) on SDD mandates and future collections and about the institutions in each SEPA country that can issue a CI.
It has also published a clarification paper (EPC132-17) (Version 2.0) on SDD Core and SDD B2B rulebooks, which addresses certain implementation operational issues and provides information about the 2023 SDD Core and SDD B2B scheme rulebooks.
EPC Creditor Identifier Overview (EPC262-08) (Version 9.0)
EPC Clarification Paper on SEPA Direct Debit Core and SEPA Direct Debit Business-to-Business Rulebooks (EPC132-17) (Version 2.0)
Webpage
HM Treasury
New directions for the future of UK financial services - Speech by economic secretary, John Glen MP - 24 November 2021
HM Treasury has published a speech by the economic secretary to the Treasury, John Glen MP, on 23 November 2021 to the UK Finance Annual Dinner.
In the speech, Mr Glen referred to a need to “dispel that myth of the bad banker,” remarking that: “as we open the chancellor’s ‘new chapter’ for financial services, it’s only fair we acknowledge that banks have taken steps to repair the damage, including by making a bigger tax contribution in the years since the crisis.” Mr Glen also commented on the UK financial sector’s commitment to both diversity and inclusion, and to tackling climate change.
Mr Glen noted that, since his appointment in January 2018, “the landscape is much clearer. We’ve left the EU’s institutional framework. And step by step, where it makes sense, we are taking advantage of those new freedoms to refresh the UK’s position as the world’s pre-eminent financial centre”. With this in mind, Mr Glen drew attention to the Future Regulatory Framework Review consultation, published on 19 November 2021 (as previously reported in this Bulletin).
Finally, Mr Glen confirmed that the government intends to legislate as early as parliamentary time allows, to implement the changes identified in the Wholesale Markets Review. Some of the changes include: (i) giving firms greater choice about where they can trade by revoking the share trading obligation and doubling the volume cap; (ii) recalibrating the transparency regime for fixed income and derivatives markets; and (iii) to remove barriers that prevent the build-up of liquidity, reducing the scope of the position limits regime for commodity derivatives and transferring the setting of position limit controls from the FCA to trading venues.
Speech by John Glenn MP, Economic Secretary to the Treasury, to the UK Finance Annual Dinner
Bank of England
Cross-border payments - Bank of England publishes speech by executive director for banking, payments and innovation - 22 November 2021
The Bank of England (Bank) has published a speech by Victoria Cleland, executive director for banking, payments and innovation, on cross-border payments, delivered at the Central Bank Payments Conference.
In the speech, Ms Cleland remarked that “despite their importance, many cross-border payments continue to suffer from long-standing challenges of high costs, low speed, limited access and insufficient transparency. These challenges can particularly impact remittances.” On the frictions underlying cross-border payments, she noted that they “have been around for many years. These frictions are multi-dimensional, meaning solutions must be developed holistically across the whole payments ecosystem, including issues such as data and messaging standards.”
Ms Cleland spoke of the Bank’s work in this area, which has focused on upgrading the Real Time Gross Settlement (RTGS) service, the core payments infrastructure in the UK. The upgrades should, according to Ms Cleland, enable longer operating hours and stronger links between payment systems. The Bank intends to consult industry in early 2022 on enhanced functionality under the RTGS service, with a new platform to be launched in late 2023. Ms Cleland also discussed the potential introduction of a UK central bank digital currency (CBDC), which has the potential to improve cross-border payments efficiency. The Bank remains undecided about whether to introduce a CBDC and will consult with HM Treasury in this regard in 2022.
Finally, Ms Cleland called on the private sector to “engage with the policymaking process and start…planning and budgeting”.
Speech: Working together to enhance cross-border payments
Prudential Regulation Authority
Operational resilience, OCIR and financial and mixed activity holding companies - PRA publishes consultation paper (CP21/21) - 25 November 2021
The PRA has published a consultation paper (CP21/21) setting out its proposals to apply the group provisions contained in the Operational Resilience section of the PRA Rulebook relevant to Capital Requirements Regulation (575/2013/EU) (UK CRR) firms to financial and mixed activity holding companies.
The proposals reflect the PRA’s new power under section 192XA of FSMA, introduced by the Financial Services Act 2021, to make rules applying to approved and designated financial and mixed activity holding companies in certain situations.
The PRA is also consulting on minor formatting and clarification amendments to the Operational Resilience and Operational Continuity Parts of the PRA Rulebook, as set out in Annexes 1 and 3, respectively, as well as consequential amendments to the PRA’s Supervisory Statement (SS1/21), ‘Operational resilience: Impact tolerances for important business services’, as set out in Appendix 2.
The PRA consultation closes on 14 January 2022. The proposals on operational resilience would come into force on 31 March 2022, while the proposals on operational continuity in resolution (OCIR) would come into force on 1 January 2023.
PRA Consultation Paper: Operational Resilience and Operational Continuity in Resolution: CRR firms, Solvency II firms, and Financial Holding Companies (for operational resilience)
Press release
Competition and Markets Authority
Open Banking lessons learned - CMA publishes terms of reference - 23 November 2021
The Competition and Markets Authority (CMA) has published the terms of reference for an Open Banking lessons learned review. The Open Banking initiative was launched by the CMA in 2017, following its retail banking market investigation. It is delivered through the Open Banking Implementation Entity (OBIE), funded by the nine largest UK current account providers, and is overseen by the CMA-appointed Implementation Trustee.
The review seeks identify the lessons the CMA should learn from recent issues at OBIE in order to make recommendations for the CMA’s future approach to remedies resulting from market investigations. Kirstin Baker, an independent non-executive director of the CMA, is leading the review.
The review will not revisit the questions considered by the independent investigation into the OBIE, conducted by Alison White, but will take the report into account to answer a number of key questions, including, among others:
- what weaknesses there were in the CMA’s design, implementation and monitoring of the OBIE;
- what factors the CMA should consider when designing, implementing and monitoring remedies in future market investigations;
- what measures or processes would ensure that the governance of market investigations is effective and appropriate, including where scope or timeframes change; and
- what the process for CMA executive and board oversight of remedies should be when the oversight of the Market Investigation Reference Group ends.
The review will be completed within 6 months. The findings will be reported to the CMA Board and published.
CMA Report: Terms of reference for the Open Banking lessons learned review
Press release
UK Finance
Open banking - UK Finance publishes report on future strategy - 22 November 2021
UK Finance has published a report on the future strategy of open banking payments. The report arrives against a backdrop of growth in open banking transactions, which increased fivefold in the year to September 2021.
The report’s key recommendations relate to:
- governance: open banking payment standards should be further developed. A technical group, including industry bodies, should be established once the Competition and Markets Authority (CMA) has reached a decision on open banking governance and a successor body to the Open Banking Implementation Entity (OBIE); and
- a multi-lateral industry framework: a voluntary framework for open banking payments should be explored to prevent market fragmentation.
UK Finance will discuss the report with regulators and other industry bodies with a view to taking the recommendations forward.
Report: The future strategy for open banking payments
Press release
Association for Financial Markets in Europe
Sustainable finance and the regulatory landscape - AFME published Guide - 22 November 2021
The Association for Financial Markets in Europe (AFME) has jointly published a guide with Linklaters on sustainable finance regulation in Europe for banks and capital markets. The guide provides an overview of the regulatory landscape, identifying five key elements of the European sustainable finance framework:
- sustainability reporting and disclosures, including the proposed Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR);
- the development of taxonomies for sustainable activities such as the Taxonomy Regulation ((EU) 2020/852);
- the development of market standards;
- the incorporation of environmental, social and governance (ESG) into banks’ risk management; and
- initiatives relating to sustainable corporate governance.
The guide then identifies three priority areas to facilitate the flow of capital to help achieve sustainability objectives: (i) finalising effective foundations; (ii) ensuring coherence and consistency; and (iii) strong international coordination.
Part 2 of the guide sets out a timeline of sustainable finance and ESG matters within the EU and the UK.
AFME and Linklaters: Guide on Sustainable Finance in Europe: Regulatory State of Play
