HM Treasury issued a statement clarifying that only COVID-19-related amendments to the Capital Requirements Regulations (both CRR and CRR2) that are applicable before the end of the transition period will form part of the EU law to be retained in the UK. The EU Regulation 2020/873, which was published in the Official Journal of the European Union in June 2020, amends CRR and CRR2 in response to the COVID-19 pandemic. The statement from HM Treasury sets out provisions that will and will not be on-shored at the end of the transition period.
HM Treasury will use powers under the European Union (Withdrawal) Act 2018 (as amended by the European Union (Withdrawal Agreement) Act 2020) to address any deficiencies arising from the relevant provisions of EU Regulation 2020/873 and will ensure that the elements of retained EU law operate effectively in the UK at the end of the transition period. The provisions within Regulation 2020/873 that became applicable on June 27, 2020 and, therefore, will form part of the retained EU law at the end of the transition period include the following:
- Extension of preferential prudential treatment to non-performing loans guaranteed by COVID government schemes
- Re-introduction of a temporary prudential filter for public-sector exposures from January 01, 2020 to December 31, 2022
- Extension of transitional arrangements for mitigating the impact of IFRS 9 provisions on regulatory capital
- Temporary treatment of public debt issues in the currency of another member state until December 31, 2024
- Temporary exclusion of certain exposures to central banks from the total exposure measure in view of the COVID-19 pandemic until June 27, 2021
- Exclusion of overshootings from the calculation of the backtesting addend in view of the COVID-19 pandemic
- Temporary calculation of the exposure value of regular-way purchases and sales awaiting settlement in view of the COVID-19 pandemic, until June 27, 2021
- Mandate for a report from EC on overshootings and supervisory powers to limit distributions
- Application date brought forward for provisions on treatment of certain loans granted by credit institutions to pensioners or employees laid down in Article 123 of CRR as amended by CRR 2
- Application date brought forward for provisions on adjustment of risk-weighted non-defaulted SME exposures laid down in Article 501 of CRR as amended by CRR 2
- Application date brought forward for provisions on adjustment to own funds requirements for credit risk for exposures to entities that operate or finance physical structures or facilities, systems, and networks that provide or support essential public services laid down in Article 501a of CRR, as amended by CRR 2
- Provisions on the exemption from deductions of prudently valued software assets will apply from the date of entry into force of the regulatory technical standards referred to in Article 36(4) of CRR as amended by CRR 2
The statement also sets out the following provisions within Regulation 2020/873 that will not be applicable in the UK, as they apply after the end of the transition period:
- Amendments to article 429a, as amended by CRR 2, setting out the basis on which central bank exposures may be excluded from the calculation of the leverage ratio
- Requirements for own funds for globally systemically important institutions laid down in Article 92(1a) of CRR, which will apply from January 01, 2023
Keywords: Europe, UK, Banking, COVID-19, CRR, CRR2, Basel, IFRS 9, Leverage Ratio, Brexit Transition, Regulatory Capital, EC, HM Treasury
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