Featured Product

    PRA on Modification by Consent of Definition of Capital Rules in CRR 2

    June 10, 2019

    PRA announced its decision to offer a modification by consent of the Rules 7.1 and 7.5 of the Definition of Capital Part of the PRA Rulebook. This is because of the amendments introduced by the recently published revised Capital Requirements Regulation (CRR II) in the Official Journal of the European Union, which includes certain requirements that enter into force from June 27, 2019. The changes under discussion relate to the classification of common equity tier 1 (CET1) instruments.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

     

    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • Following amendments to CRR Article 26(3), firms may classify as CET1 instruments the subsequent issuances of a form of CET1 instruments for which they have already received the competent authority’s permission, where both of the following conditions are met:

    • The provisions governing those subsequent issuances are substantially the same as the provisions governing those issuances for which the firms have already received permission.
    • Firms have notified those subsequent issuances to the competent authorities sufficiently in advance of their classification as CET1 instruments.

    In light of the change to CRR Article 26(3), PRA recognizes that Rules 7.1 and 7.5 of the Definition of Capital Part of the PRA Rulebook no longer achieve the purpose for which they were made. Therefore, it has been decided to offer a modification by consent. PRA intends to consult in due course on amending Chapter 7 of the Definition of Capital Part of the PRA Rulebook and any expectations it has from firms on the application of CRR Article 26(3). A firm wishing to take up this modification by consent should contact the Authorizations Division with a request for the modification. PRA will confirm in writing whether the request has been granted and will publish the approved modification direction on the Financial Services Register.

    Furthermore, CRR II introduces new requirements for UK global systemically important banks (G-SIBs) and UK material subsidiaries of non-EU G-SIBs in respect of own funds and eligible liabilities: some of these requirements will enter into force on June 27, 2019, while other aspects will apply in later years. BoE, in its capacity as the resolution authority, intends to communicate directly with affected firms in due course regarding these new own funds and eligible liabilities requirements. The BoE Statement of Policy on the approach to setting a minimum requirement for own funds and eligible liabilities (MREL) should be read in compliance with the new CRR II requirements for those firms that are affected by the requirements. As previously communicated, BoE is also committed to, before the end of 2020, reviewing the calibration of MREL and the final compliance date, prior to setting end-state MRELs. In doing so, BoE will have regard to any intervening changes in the UK regulatory framework as well as firms’ experience in issuing liabilities to meet their interim MRELs.  

     

    Related Links

    Keywords: Europe, EU, UK, Banking, CRR 2, CET 1, Definition of Capital, MREL, G-SIB, PRA, BoE

    Featured Experts
    Related Articles
    News

    BCBS Amends Guidelines on Sound Management of AML/CFT Risks

    BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).

    July 02, 2020 WebPage Regulatory News
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS Publishes List of Internationally Active Insurance Groups

    IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.

    July 01, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act

    FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).

    July 01, 2020 WebPage Regulatory News
    News

    EC Launches Consultation on Review of Solvency II Directive

    EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.

    July 01, 2020 WebPage Regulatory News
    News

    ECB Consults on Supervisory Approach to Consolidation in Banking

    ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.

    July 01, 2020 WebPage Regulatory News
    News

    PRA Letter Sets Expectations on Approach to Managing Climate Risks

    PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.

    July 01, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Amendments to Swap Margin Rule

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS on Package for 2020 Data Collection on ICS and Aggregation Method

    IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.

    June 30, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5425