European Central Bank
Post-Brexit supervisory co-operation – ECB publishes MoU with BoE and FCA – 19 February 2021
The European Central Bank (ECB) has published a memorandum of understanding (MoU) that it has entered into with the Bank of England (BoE)—acting in its capacity as the PRA—and the FCA on post-Brexit supervisory cooperation, effective from 1 January 2021.
The purpose of the MoU is to formalise supervisory cooperation and information sharing agreements. It focuses on information exchange and supervisory cooperation in the field of prudential supervision of supervised entities and their cross-border establishments.
The press release accompanying the MoU notes that, in order to enhance transparency and accountability, the ECB’s Governing Council recently decided to publish existing supervisory MoUs as well as those signed in the future. The ECB has therefore published a first group of agreements, including this MoU, and in future will publish MoUs as soon as other signatory authorities have consented to publication.
Memorandum of Understanding between the European Central Bank and the Bank of England and the Financial Conduct Authority
Press release
Webpage
Prudential Regulation Authority
Approaches to credit risk after the transition period – PRA statement on EBA Guidelines and EU RTS – 25 February 2021
The PRA has published a statement clarifying its approach to published European Banking Authority (EBA) and EU regulatory technical standards (RTS) relating to the standardised and internal ratings based (IRB) approaches to credit risk following the end of the Brexit transition period.
- Final draft RTS on the specification of the nature, severity and duration of an economic downturn – In its policy statement on probability of default (PD) and loss given default (LGD) estimation for credit risk, the PRA wrongly assumed that the draft RTS would be onshored into UK legislation by the end of the transition period. It will now consult on proposals to incorporate these requirements into UK regulation.
- Guidelines on credit risk mitigation (CRM) for institutions applying the IRB approach with own estimates of LGD - Although the guidelines do not apply in the UK, the PRA will consider them when making decisions related to the CRM framework as part of its implementation of Basel 3.1 standards.
- Final draft RTS on assigning risk weights to specialised lending exposures and final draft RTS on the specification of the assessment methodology for competent authorities regarding compliance of an institution with the requirements to use the IRB approach – Neither of these RTS apply in the UK as they were not onshored at the end of the transition period, but the PRA will continue to apply high standards in respect of capital requirements for specialised lending exposures and its approach to model assessment.
- Guidelines for the estimation of LGD appropriate for an economic downturn and guidelines on the application of the definition of default – The PRA expects firms to comply with these guidelines.
- Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures – The PRA expects firms to comply with these guidelines, except for paragraph 135 where it expects firms to comply with the guidelines in line with paragraph 13.A1 of its supervisory statement on IRB approaches (SS11/13).
- RTS for the materiality threshold for credit obligations past due (Commission Delegated Regulation (EU) 2018/171) – These were onshored at the end of the transition period and continue to apply in the UK.
There is an implementation deadline of 1 January 2022 (subject to exceptions) and firms should continue to submit model change applications in line with their required submission timings.
PRA statement on EBA Guidelines and EU RTS relating to approaches to credit risk following the end of the transition period
