PRA Statement on LIBOR Transition and PRA Resolution-Related Rules
PRA published a statement that outlines its view on the implications of LIBOR transition for contracts in scope of the “Contractual Recognition of Bail-In” and “Stay in Resolution” parts of the PRA Rulebook. PRA considers that, where the sole purpose of an amendment to a liability (as defined in Contractual Recognition of Bail-In Part) or a financial arrangement (as defined in Stay in Resolution Part) is to transition away from LIBOR, the amendment should not be considered a material amendment, as the term applies to either the Contractual Recognition of Bail-In Part or the Stay in Resolution Part of the PRA Rulebook.
The statement mentions that firms should consider adding terms of Contractual Recognition of Bail-In Part and Stay in Resolution Part into the documentation for a third-country law governed liability or financial arrangement that is amended for the sole purpose of transitioning away from LIBOR, as it enhances firm resolvability. These Parts of the PRA Rulebook are part of the UK resolution regime, ensuring that firms can fail in an orderly way. Both sets of rules are needed for the effectiveness of UK resolution actions in third-country jurisdictions. Consistent with paragraph 5.10 of the minimum requirements for own funds and eligible liabilities (MREL) Statement of Policy of BoE, firms should consider whether having non-common equity tier 1 (CET1) own funds instruments governed by third-country law but without statutory or contractual recognition of UK bail-in rules would create difficulties for resolution.
On December 18, 2019, PRA published a letter, from Sam Woods of PRA, on LIBOR transition. As set out in the letter, PRA has been considering the issues raised by the Working Group on Sterling Risk-Free Reference Rates, including possible implications of benchmark rate reform for rules related to resolution. Firms may particularly need to consider whether existing contracts in scope of the Contractual Recognition of Bail-In and Stay in Resolution parts of the PRA Rulebook that are changed to reflect the transition away from LIBOR could be considered materially amended and, thus, required to include terms of Contractual Recognition of Bail-In Part and Stay in Resolution Part of the PRA Rulebook.
Related Links
Keywords: Europe, UK, Banking, Securities, LIBOR, Bail-In, PRA Rulebook, MREL, Interest Rate Benchmark, Risk-Free Rates, Resolution Framework, BoE, PRA
Previous Article
PRA Statement on Application of Matching Adjustment Amid CrisisRelated Articles
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
SRB Chair Outlines Work Priorities for 2021
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC Selects Companies to Compete in Final Phase of Tech Sprint
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.
