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.
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
Previous ArticleSARB Publishes Update on COVID-19 Loan Guarantee Scheme
Next ArticleACPR Releases Version 4.0.0 of SFRDP Taxonomy
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.
FSB finalized the toolkit of effective practices to assist financial institutions in their cyber incident response and recovery activities.
ECB published eleventh issue of the Macroprudential Bulletin, which provides insight into the ongoing work of ECB in the field of macro-prudential policy.
HM Treasury issued a call for evidence seeking views to reform the prudential regulatory regime—also known as Solvency II—of the insurance sector in UK.
ESRB responded to the EC consultation on review of Solvency II regime.
HM Treasury launched a consultation on Phase II of the Future Regulatory Framework Review, with the comment period ending on January 19, 2021.
EC adopted the work program for 2021.