Banking and financial regulatory news, July 2021 # 3 | Hogan Lovells

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Content

  • UK CRR: Draft Capital Requirements Regulation (Amendment) 2021
  • Implementation of Basel III standards in the United Kingdom: PRA PS17 / 21
  • COVID-19: PRA removes safeguards on distributions to shareholders by big banks
  • GBP LIBOR loan agreements: Sterling task force publishes timelines and considerations for borrowers
  • BRRD: RTS on the estimation of the requirements of pillar 2 and the combined cushion for the fixation of the MREL
  • CRR: EBA guidelines on criteria for using input data in the risk measurement model
  • Effective Islamic Deposit Insurance Systems: Fundamentals of IADI and IFSB

UK CRR: Draft Capital Requirements Regulation (Amendment) 2021

A draft version of the Capital Requirements (Amendment) Regulation 2021 has been published, together with a draft explanatory memorandum. The regulation contains amendments to the United Kingdom Capital Requirements Regulation (UK CRR) relating to the implementation in the United Kingdom of certain standards developed by the Basel Committee on Banking Supervision (BCBS) which have been implemented. implemented in the EU through the Capital Requirements Regulation (CRR) II. HM Treasury intends to transfer to the Rules of the Prudential Regulatory Authority (PRA) those provisions of the UK CRR and related legislation which are affected by the implementation of the provisions of the BCBS. Therefore, once the regulations are established, the PRA will be able to establish final rules in PS17 / 21 (see below).

These regulations also contain additional changes related to the UK’s exit from the EU to the CRR which are necessary to ensure that these pieces of legislation continue to function effectively now that the UK has left the EU.

Implementation of Basel III standards in the United Kingdom: PRA PS17 / 21

Following its consultation in CP5 / 21, the PRA issued a policy statement, PS17 / 21, providing comments on responses to its consultation and giving its near-final policy on the implementation of certain Basel III standards. The PRA will also establish rules that will reword elements of the EU CRR and related EU Level 2 onshore regulations made under the EU CRR which are revoked by the UK Treasury (see point above ). The PRA has not developed the rule instruments at this stage, as the UK Treasury must first revoke the relevant parts of the UK CRR, as provided for in the Financial Services Act 2021, before the PRA can replace them. in the rules of the PRA.

In response to the comments, the PRA made changes to some of the policies it reviewed, details of which are described in PS17 / 21. He considers that the changes will reduce overall costs for businesses, while maintaining the prudential benefits of implementing Basel III.

The policy material is presented in the annexes to PS17 / 21, many of which have been published separately and are accessible through the Basel Standards Implementation webpage by the PRA.

This policy is intended to take effect concurrently with the revocation by the UK Treasury of relevant parties from UK CRR, which will take place on 1 January 2022.

COVID-19: PRA removes safeguards on distributions to shareholders by big banks

On July 13, 2021, the PRA issued a statement updating its December 2020 statement on its temporary approach to shareholder distributions by major UK banks in light of the COVID-19 pandemic. In the press release, the PRA announces that the framework of temporary “safeguards” that applied to distributions from banks to common shareholders in respect of their 2020 results has been removed with immediate effect. The view of the PRA is that these safeguards are no longer necessary, in light of developments, including the advancement of vaccination programs and the capital positions and trajectories of banks, based on intermediate results. of the 2021 Bank of England (BoE) solvency test.

The PRA states that the boards of directors of banks should continue to exercise an appropriate degree of caution about the level of any distribution to shareholders. His view is that this would be in line with his standard approach to setting capital and distributing to shareholders until 2021. Within this framework, banks’ boards of directors are responsible for making distribution decisions subject to standard constraints of the regulatory framework, including the regular annual stress test. .

GBP LIBOR loan agreements: Sterling task force publishes timelines and considerations for borrowers

The UK Risk-Free Benchmark Rates (RFRWG) Working Group has published an article titled GBP LIBOR Loans Agreements – Timelines and Considerations for Borrowers, to help borrowers understand and reach the loan milestone. the end of the third quarter regarding the active transition of the legacy sterling LIBOR loans. Among other things, the paper explains why market participants should aim to convert their loans by the end of the third quarter of 2021 rather than wait until the end of 2021, when most LIBOR exchange rate parameters will be deleted.

BRRD: RTS on the estimation of the requirements of pillar 2 and the combined cushion for the fixation of the MREL

Commission Delegated Regulation (EU) 2021/1118 containing Regulatory Technical Standards (RTS) specifying the methodology to be used by resolution authorities to estimate buffer 2 and combined requirements at the resolution group level has been published in Official Journal of the European Union (OJ). This involves setting the minimum requirement for own funds and eligible liabilities (MREL) under the Bank Recovery and Resolution Directive (BRRD).

The delegated regulation will enter into force on July 28, 2021.

CRR: EBA guidelines on criteria for using input data in the risk measurement model

The European Banking Authority (EBA) has published a final report on the guidelines for the criteria for the use of input data in the risk measurement model referred to in article 325bc of article 325bh, paragraph 3 , of CRR.

The guidelines will apply from January 1, 2022.

Effective Islamic Deposit Insurance Systems: Fundamentals of IADI and IFSB

The International Association of Deposit Insurers (IADI) and the Islamic Financial Services Board (IFSB) have published Fundamental Principles for Effective Islamic Deposit Insurance Systems (CPIDIS). CPIDIS consists of 17 fundamental principles for the development and implementation of an effective Islamic deposit insurance system (IDIS). The principles take into account the specificities of Islamic banks, while complementing existing international standards in this area, mainly the fundamental principles of the IADI for effective deposit insurance systems.

It is envisaged that jurisdictions will use the CPIDIS and their conformity assessment methodology as a benchmark to assess the quality of their IDIS and to identify gaps in their Islamic deposit insurance practices, including measures to address them.

The IADI and the IFSB say their work on this issue will continue with a series of pilot tests for CPIDIS that will be used to help develop a joint IADI-IFSB manual for assessing compliance with CPIDIS.


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