Banking and finance regulatory news, 1 March 2021

Contents

• Download the full regulatory news bulletin
• Resolvability Assessment Framework: BoE Dear CEO letter
• End of Brexit transition period: PRA statement on EBA guidelines and EU RTS relating to approaches to credit risk
• EU Crowdfunding Regulation: ESMA Q&As
• EU crisis management and deposit insurance framework: European Commission consultation
• EU CRR: EBA final report on draft RTS for determination of indirect exposures to underlying clients of derivatives and credit default derivatives

Resolvability Assessment Framework: BoE Dear CEO letter

The Bank of England (BoE) has published a letter sent by Dave Ramsden, BoE Deputy Governor for Markets and Banking, to the CEOs of the eight UK banks in the scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle. In the letter, the BoE sets out its expectations of banks in their preparations for submitting their RAF in October 2021.

In particular, the BoE reminds banks that a key principle of the RAF is that firms are responsible for their own resolvability and that they must be able to achieve the three resolvability outcomes specified in the BoE's statement of policy (SoP) on the RAF by January 2022. The Annex to the letter sets out examples of good practice intended to assist firms in designing and implementing resolvability capabilities to meet the resolvability outcomes.

The BoE intends to engage with firms later in 2021 on the operational arrangements for the first RAF cycle.

End of Brexit transition period: PRA statement on EBA guidelines and EU RTS relating to approaches to credit risk

The UK Prudential Regulation Authority (PRA) has published a statement to clarify its approach to European Banking Authority (EBA) guidelines 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. Specifically, it comments on:

• the final draft RTS on the specification of the nature, severity and duration of an economic downturn;
• guidelines on credit risk mitigation for institutions applying the IRB approach with own estimates of loss given default (LGD);
• the 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;
• guidelines for the estimation of LGD appropriate for an economic downturn and guidelines on the application of the definition of default;
• Guidelines on probability of default (PD) estimation, LGD estimation and the treatment of defaulted exposures; and
• RTS for the materiality threshold for credit obligations past due (Commission Delegated Regulation (EU) 2018/171).

EU Crowdfunding Regulation: ESMA Q&As

The European Securities and Markets Authority (ESMA) has published its first set of Q&As relating to the Regulation on European crowdfunding service providers for business (Crowdfunding Regulation). The purpose of the Q&As is to promote a convergent application of the provisions of the Crowdfunding Regulation and to provide responses to possible questions posed by the general public, market participants and competent authorities. The first set of Q&As clarify the use of special purpose vehicles under the Crowdfunding Regulation.

EU crisis management and deposit insurance framework: European Commission consultation

The European Commission has launched a public consultation on its review of its crisis management and deposit insurance (CMDI) framework, together with a consultation document. The review focusses on three EU legislative texts acting together with relevant national legislation: the Bank Recovery and Resolution Directive (BRRD); the Single Resolution Mechanism (SRM) Regulation; and the Deposit Guarantee Schemes Directive (DGSD).

The purpose of the consultation is to gather relevant stakeholders' views on and experience with the current CMDI framework, as well as opinions on the CMDI framework’s possible evolution in the forthcoming reviews. The consultation is only concerned with insolvency proceedings applying to banks, and no other types of institutions.

The consultation closes on 20 May 2021.

EU CRR: EBA final report on draft RTS for determination of indirect exposures to underlying clients of derivatives and credit default derivatives

Following its July 2020 consultation, the EBA has published a final report on draft RTS for the determination of indirect exposures to underlying clients of derivatives and credit default derivatives under Article 390(9) of the Capital Requirements Regulation (CRR).

The EBA will submit the final draft RTS to the European Commission for adoption. The RTS will enter into force on the twentieth day following their publication in the Official Journal of the European Union.

Download the full regulatory news bulletin 

Authored by Yvonne Clapham