PRA Updates Policy for Managing Prudential Risks on Asset Encumbrance
PRA published the policy statement PS18/20 on asset encumbrance with respect to the Capital Requirements Directive (CRD) IV. PS18/20 contains the updated versions of the supervisory statements SS9/17 on recovery planning, SS24/15 on the approach to supervising liquidity and funding risks, and SS20/15 on supervising treasury and lending activities of building societies. PS18/20 also provides feedback to responses to the consultation paper CP24/19 on managing the key prudential risks associated with asset encumbrance. The policy presented in PS18/20 will become effective from the date of publication. PS18/20 is relevant to all PRA-regulated firms, except credit unions and insurance firms.
CP24/19 had set out the proposed expectations from firms in managing the key prudential risks associated with asset encumbrance, specifically in the contexts of managing liquidity and funding risks, recovery planning, and resolution. The proposed expectations relate both to firms’ internal monitoring and management of these risks and to the information that firms are expected to provide to PRA through their periodic regulatory submissions, such as the Internal Liquidity Adequacy Assessment Process documents and recovery plans. Based on the responses received to the consultation paper, PRA has made the following changes to the draft policy in SS20/15 to reflect that
- Market counterparties does not refer to central banks (paragraph 4.163)
- PRA will expect that building societies have an "appropriate" forward view of collateral available, not a "comprehensive" one (paragraph 4.91)
PRA considers that these changes are not significant and remove the potential for ambiguity. The changes in SS24/15 reflect the expectations of PRA on how firms should manage risks associated with asset encumbrance for the purpose of their resilience to liquidity stress and of the stability of their funding profile. Footnote numbers have also been updated throughout in SS24/15. Among other changes, paragraph 3.5 has an additional footnote and includes developments over time. Consequently, footnote numbers have also been updated. The changes in SS9/17 update the PRA expectations to include how firms should consider risks associated with asset encumbrance for their recovery planning. Minor formatting changes have also been made to SS9/17 to improve readability, including removing blank pages and footnote numbering.
The policy set out in PS18/20 has been designed in the context of the withdrawal of UK from EU and entry into the transition period, during which time the UK remains subject to European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with EU take effect. PRA has assessed that this policy would not need to be amended under the EU (Withdrawal) Act 2018.
Related Links
Effective Date: Juy 27, 2020
Keywords: Europe, UK, Banking, Asset Encumbrance, Recovery Planning, ILAAP, CP24/19, PS18/20, SS24/15, SS9/17, SS20/15, Liquidity Risk, CRD IV, PRA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
SARB Publishes Update on COVID-19 Loan Guarantee SchemeNext Article
ACPR Releases Version 4.0.0 of SFRDP TaxonomyRelated Articles
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
IOSCO Welcomes Work on Sustainability-Related Corporate Reporting
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
BoE Allows One-Day Delay in Statistical Data Submissions by Banks
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
ACPR Amends Reporting Module Timelines Under EBA Framework 3.2
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
APRA to Modernize Prudential Architecture, Reduces Liquidity Facility
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.
