Featured Product

    PRA Sets Out Supervisory Priorities for Banks and Insurers for 2021

    December 15, 2020

    PRA published "Dear CEO" letters outlining the 2021 priorities for deposit-takers, international banks, and insurance firms in the UK. The key focus areas for these supervisory priorities include financial resilience, credit risk, operational risk and resilience, LIBOR transition, and financial risks arising from climate change. The letters highlight that PRA will continue to use the Senior Managers Regime to support its objectives in 2021. Additionally, PRA has been running a pilot project to assess the standard of regulatory returns, which will continue in 2021, as mentioned in the letters for deposit-takers and international banks. The letter to insurance firms informs that, following the end of the Brexit transition period, PRA will assume a number of functions previously performed by EIOPA, including the publication of technical information used in the calculation of insurance liabilities.

    The key supervisory priorities for deposit-takers, international banks, and insurance firms for 2021 include the following:

    • Financial resilience—PRA will continue to monitor its regulatory regime to ensure it does not act in a procyclical way, including ensuring firms can draw down on capital and liquidity buffers where necessary. PRA has judged that there is scope for large UK banks to recommence shareholder distributions and that bank boards should make decisions about 2020 distributions. Large UK banks will operate within temporary guardrails set by PRA, as a stepping stone toward its standard approach to capital-setting and distributions through 2021. BoE will conduct a stress test in 2021 to explore the financial resilience of major UK banks and building societies. PRA intends to build on previous, sector-wide insurance stress test exercises to develop stress testing as a supervisory tool. PRA will run another comprehensive insurance stress test in 2022. In 2021, PRA will also develop its approach to recovery and resolution planning in the insurance sector.
    • Credit risk—PRA will maintain engagement, as appropriate, to assess whether firms have robust credit risk management practices and whether they are considering an appropriate range of scenarios in determining provisioning levels, including appropriate use of staging within IFRS 9 or other applicable accounting regimes. In the letter for deposit-takers, PRA notes that the assessment of firms’ credit risk will continue to be a risk-based blend of thematic and firm-specific reviews. Three thematic reviews are underway and PRA anticipates further thematic work on wholesale portfolios in potentially COVID-19 vulnerable sectors, plus some international portfolios subject to challenging economic and credit risk conditions. While payment deferrals remain of interest, the intensity of data collection is expected to ease over 2021. PRA will also look to re-assess the temporary COVID-19 data collections at an appropriate time. 
    • Operational risk and resilience—PRA will continue to challenge how firms are ensuring that risk and control frameworks are operating effectively under the current working environment. Following the policy consultations, PRA intends to set standards for operational resilience and outsourcing during 2021.
    • Transition from LIBOR to alternative Risk Free Rates—The continued reliance of global financial markets on LIBOR poses a risk to financial stability that can only be reduced through a transition to alternative risk-free rates. PRA will expect to see intensive efforts and early progress in 2021. PRA will be monitoring firms’ progress against the targets of the Working Group on Sterling Risk Free Reference Rates (RFRWG) and targets for non-GBP exposures where relevant. 
    • Competition and future regulatory frameworks—PRA will finalize the proposed approach for new and growing banks, set out in CP9/20, in the first half of 2021. BoE has been reviewing aspects of its minimum requirement for own funds and eligible liabilities (MREL) framework and intends to make an initial publication by the end of 2020. The Financial Policy Committee and Prudential Regulation Committee also intend to conduct a review of the UK leverage ratio framework, as noted in the letter for deposit-takers.
    • Financial risks arising from climate change—BoE will undertake a system-wide climate scenario exercise in 2021. The letters state that firms should continue to take a proportionate approach that reflects their exposure to climate-related financial risk and the complexity of their operations. By the end of 2021, an insurance firm should be able to demonstrate that it has implemented and embedded the expectations set out in supervisory statement on enhancing firms’ approaches to managing climate-related financial risks (SS3/19). Five UK life insurers and six UK general insurers are expected to participate in the Climate Biennial Exploratory Scenario (CBES), which will be launched in June 2021. This exercise aims to test the resilience of the current business models of the largest banks, insurers, and the financial system to the physical and transition risks from climate change. 

     

    Related Links

    Keywords: Europe, UK, Banking, Insurance, COVID-19, Supervisory Priorities, Credit Risk, Stress Testing, Recovery and Resolution, Operational Risk, LIBOR, Brexit Transition, Climate Change Risk, ESG, PRA, BoE

    Featured Experts
    Related Articles
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets

    The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.

    January 12, 2022 WebPage Regulatory News
    News

    FCA Registers Securitization Repositories; PRA Issues 2022 Priorities

    The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.

    January 12, 2022 WebPage Regulatory News
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    News

    APRA Licenses Two More Banks, Reduces Committed Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.

    January 07, 2022 WebPage Regulatory News
    News

    EU Issues SII Corrigendum; EIOPA Assesses SII Reporting Exemptions

    EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).

    January 06, 2022 WebPage Regulatory News
    News

    EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges

    The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.

    January 05, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7860