Featured Product

    PRA Guides Further on Treatment of Payment Deferrals in CRR and IFRS 9

    June 04, 2020

    PRA published a "Dear CEO" letter from Sam Woods, its Deputy Governor and CEO, to update the March guidance on treatment of COVID-19-related payment deferrals under IFRS 9 and the Capital Requirements Regulation (CRR). The letter, which is addressed to the chief executive officers of deposit takers in UK, is in response to the updated FCA guidance on retail mortgage payment deferrals. The aim of the updated guidance is to address the treatment of exits from the initial payment deferrals.

    Much of the March guidance related to payment holidays, moratoria, or deferrals (collectively, payment deferrals). The first payment deferrals are now coming to an end and earlier this week the FCA published an updated guidance on how lenders should treat retail mortgage borrowers at the end of the initial deferral period. As a consequence, firms are assessing the capital and accounting treatment of the various ways in which those initial payment deferrals might end. The purpose of this letter is to update the March guidance to address exits from initial payment deferrals. The guidance in this letter is considered to be consistent with IFRS and CRR. However, PRA also recognizes that it is the responsibility of firms to satisfy themselves that they have prepared their annual and interim financial reports in accordance with the applicable reporting frameworks and for auditors to reach their own audit or review conclusions about those reports. Similarly, it is for firms to ensure they comply with the requirements of CRR.

    The Annex to this letter sets out the detailed guidance, which can be summarized as follows:

    • When there has been a payment deferral, counting of days past due should be based on the agreed schedule for the purposes of the expected credit loss (ECL) backstops and for the CRR definition of default. However, loans that are not past due can still have suffered a significant increase in credit risk or SICR, credit impairment, or default.
    • Eligibility for, and use of, COVID-19 related initial and further payment deferrals taken up in accordance with the FCA guidance on the subject does not on its own automatically result in a loan (a) being regarded as having suffered a significant increase in credit risk or being credit-impaired for ECL, or (b) triggering a default under CRR. Firms will, therefore, need to consider other indicators to determine the appropriate treatment. For example, for CRR purposes, firms will need to assess whether the deferral should be considered a distressed restructuring; in cases where it is likely to result in a diminished financial obligation, this may be an indication of default.
    • Firms are likely to have limited borrower-specific information to make the determinations on an individual borrower basis. Firms will, therefore, need to make holistic assessments that look beyond past-due information and use of payment deferrals to treat such loans appropriately for accounting and regulatory purposes.
    • It is not envisaged that these holistic assessments for accounting and CRR purposes will be made at the time when a payment deferral is taken up, as the FCA guidance does not require such information to be available at that time. These assessments are expected to be made subsequently and be based on the information available at the next and subsequent reporting dates.

    PRA recognizes that distinguishing between different types of payment or other financial difficulty is not easy in the current environment, given the extraordinary level of economic uncertainty and the complex interactions between various public-sector and private-sector COVID-19 related support measures. PRA encourages firms to make well-balanced and consistent decisions that take into account the information they have regarding the borrower, the potential impact of COVID-19, and the unprecedented level of support provided by governments and central banks domestically and internationally to protect the economy.

     

    Related Links

    Keywords: Europe, UK, Banking, IFRS 9, ECL, COVID-19, CRR, Credit Risk, Loan Moratorium, SICR, Guidance, FCA, PRA

    Featured Experts
    Related Articles
    News

    BoE Seeks Information Before Migrating Statistical Reporting to BEEDS

    The Bank of England (BoE) published the Statistical Notice 2021/09 requiring additional information from firms and software vendors to assist in the onboarding and testing phases for migrating statistical reporting to the BEEDS portal.

    October 25, 2021 WebPage Regulatory News
    News

    FCA Publishes Final Rules on Investment Firms Prudential Regime

    The Financial Conduct Authority (FCA) published the final rules on the Investment Firms Prudential Regime (IFPR) to streamline and simplify the prudential requirements for solo-regulated UK firms authorized under the Markets in Financial Instruments Directive (MiFID).

    October 25, 2021 WebPage Regulatory News
    News

    CFRF Publishes Guides to Manage Financial Risks from Climate Change

    The working groups of the Climate Financial Risk Forum (CFRF) published a second round of guides (or Session 2 guides), written by the industry for the industry, to help financial firms manage climate-related financial risks.

    October 21, 2021 WebPage Regulatory News
    News

    PRA Finalizes Policy for Non-Performing Exposure Securitizations

    The Prudential Regulation Authority (PRA) published the final Policy Statement PS24/21 that contains the new Non-Performing Exposures Securitization Part of the PRA Rulebook and an updated Supervisory Statement SS10/18 on the general requirements and capital framework with respect to securitizations.

    October 21, 2021 WebPage Regulatory News
    News

    EBA Updates Filing Rules for Supervisory Reporting

    The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure of Investment Policy Under IFR

    The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).

    October 19, 2021 WebPage Regulatory News
    News

    EU to Explore Potential of Establishing a Joint Cyber Unit

    The European Council adopted conclusions inviting the European Union (EU) and the member states to further develop the cybersecurity crisis management framework.

    October 19, 2021 WebPage Regulatory News
    News

    EC Sets Out Work Program for 2022

    The European Commission (EC) adopted the work program for 2022.

    October 19, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7598