Featured Product

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    April 06, 2021

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021. In this context, BoE published a statement that sets out the PRA observations on whether the guarantees provided by the Secretary of State for Business, Energy, and Industrial Strategy under the RLS are eligible for recognition as unfunded credit risk mitigation under the UK Capital Requirements Regulation or CRR. The Recovery Loan Scheme is intended to help businesses of any size access loans and other kinds of finance to support recovery from the pandemic. Under this scheme, which is open until December 31, 2021, the government guarantees 80% of finance to the lender.

    The BoE statement does not provide an exhaustive description of the prudential requirements that apply to loans extended by participating banks to businesses under the RLS, nor is it a comprehensive description of the regime under which the credit risk mitigation techniques impact the calculation of risk-weighted exposure amounts. Firms are encouraged to review the relevant articles of CRR, along with any relevant PRA rules and guidance (including expectations set out in the PRA supervisory statement SS17/13 on credit risk mitigation). A guarantee is one form of unfunded credit protection which, where it meets the conditions in Articles 194 and 213-215 of CRR, may allow a firm to adjust risk-weights and expected loss amounts. Under the terms of the guarantee, the Secretary of State may set a limit on the aggregate number of claims that a lender can make for a future "Scheme Period" in respect of an RLS facility. 

    PRA considers that for "Scheme Periods" where the "Claim Limit" is set at not less than 100%, the terms of the guarantee provided by the Secretary of State under the RLS do not contain features that would render the guarantee ineligible for recognition as unfunded credit risk protection and the effects of the guarantee would appear to justify such treatment. Were the Claim Limit to be set lower for subsequent Scheme Periods, this guidance would not apply and the effect of the guarantee on regulatory capital requirements would need to be carefully assessed against the law and guidance applicable at the time. The statement also highlights that, in accordance with CRR, firms recognizing the RLS guarantee as eligible unfunded protection in relation to an exposure are required to adjust the exposure amount to exclude elements not covered by the RLS guarantee.

    RLS will ensure businesses continue to benefit from the government-guaranteed finance throughout 2021. The scheme will be administered by the British Business Bank, with loans available through a diverse network of accredited commercial lenders. Twenty-six lenders have already been accredited for day one of the scheme, with more to come shortly. Interest rates have been capped at 14.99% and are expected to be much lower than that in the vast majority of cases. RLS can be used as an additional loan on top of the support received from the emergency schemes, such as the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS), that were put into place last year. Although up to GBP 10 million is available per business, the actual amount offered and the terms will be at the discretion of participating lenders.

     

    Related Links

    Keywords: Europe, UK, Banking, Recovery Loan Scheme, COVID-19, CRR, Credit Risk, RLS, Regulatory Capital, Basel, Risk-Weighted Assets, HM Treasury, PRA, BoE

    Featured Experts
    Related Articles
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    News

    US Agency Publications Address Basel, Reporting, and CECL Developments

    The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances

    May 09, 2022 WebPage Regulatory News
    News

    SEC Extends Comment Period on Climate Risk Disclosures

    The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.

    May 09, 2022 WebPage Regulatory News
    News

    APRA Reduces Committed Liquidity Facility, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.

    May 09, 2022 WebPage Regulatory News
    News

    CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks

    The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.

    May 06, 2022 WebPage Regulatory News
    News

    PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down

    The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.

    May 06, 2022 WebPage Regulatory News
    News

    EBA Updates Standards for 2023 Benchmarking of Internal Approaches

    The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.

    May 06, 2022 WebPage Regulatory News
    News

    EIOPA Responds to Stakeholder Views on Blockchain in Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.

    May 06, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8172