PRA Consults on Eligibility of Guarantee as Unfunded Credit Protection
PRA published the consultation paper CP6/18, which sets out the proposed changes to the supervisory statement SS17/13 on credit risk mitigation. The consultation closes on May 16, 2018 and aims to clarify expectations about the eligibility of guarantees as unfunded credit protection under Part Three, Title II, Chapter 4 (credit risk mitigation) of the Capital Requirements Regulation or CRR (Regulation 575/2013). CP6/18 is relevant to all firms that come under the CRR.
CRR Part Three, Title II, Chapter 4 (Credit risk mitigation) sets out the criteria that a guarantee must meet to be eligible for credit risk mitigation. CRR allows firms to recognize some forms of credit risk mitigation in the calculation of their capital requirements. Credit risk mitigation can be funded or unfunded. One of the ways unfunded credit protection can be achieved is through a guarantee. That can be achieved through the obligation of a third party to pay out in the event of non-payment or default of a credit obligor. To be eligible as a guarantee for credit risk mitigation under the CRR, strict eligibility criteria must be met. PRA has identified that some firms are unclear on what contracts or other documented obligations are eligible to be treated as guarantees for credit risk mitigation under the CRR. Thus, PRA believes that additional clarity is needed to ensure that capital relief from guarantees is obtained only where the risk has been effectively transferred to the guarantor. The proposals extend to any contract or other documented obligation that purports to be a guarantee for achieving unfunded credit protection under credit risk mitigation of CRR. Part Three, Title II, Chapter 4 (Credit risk mitigation) of CRR sets out the criteria that a guarantee must meet to be eligible for credit risk mitigation. CP6/18 proposes amendments to SS17/13 to provide guidance on the eligibility criteria for the recognition of guarantees.
Related Links
Comment Due Date: May 16, 2018
Keywords: Europe, United Kingdom, Banking, Credit Risk, Credit Risk Mitigation, CRR, CP6/18, SS17/13, PRA
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.