PRA Statement on Changes to CRR in Response to COVID-19 Crisis
PRA published a statement that sets out its views on certain amendments made to Capital Requirements Regulations (CRR and CRR2) via EU Regulation 2020/873 (CRR "Quick Fix"), including some guidance for firms. The CRR "Quick Fix" which was published in response to COVID-19 pandemic is applicable since June 27, 2020. In accordance with the European Union (Withdrawal Agreement) Act, the CRR "Quick Fix" applies directly to PRA-regulated firms. This PRA statement sets out its initial views on the measures included in the "Quick Fix" package. These measures include transitional arrangement for capital impact of IFRS 9 Expected Credit Loss (ECL) accounting, acceleration of certain CRR2 measures, and a temporary prudential filter on certain unrealized gains and losses.
Transitional arrangements for capital impact of IFRS 9 ECL accounting
The CRR "Quick Fix" introduces new transitional arrangements for the capital impact of IFRS 9 ECL provisions. It implements the measures announced by BCBS in April 2020, with respect to the ECL accounting to alleviate the impact of COVID-19. The intention of PRA remains that, subject to the need for sufficient resilience at the end of the transitional period, all aspects of supervision of a firm using the transitional arrangements would be carried out using transitional data on capital resources and not "fully loaded" figures. In particular, as stress tests should reflect how stress would be experienced, those tests should fully take account of the revised transitional arrangements.
Firms already applying the CRR transitional arrangements for IFRS 9 will need to implement the revised calculations set out in the CRR "Quick Fix," including amending the common equity tier 1 (CET1) add-back factors applied to relevant ECL provisions for 2020-24. Firms applying the transitional arrangements that are considering ceasing to apply them should note that, under the CRR, doing so would require the permission of PRA. If a firm wishes to apply for PRA permission no longer to apply the transitional arrangements, the firm is encouraged to contact its PRA supervisor with a request by July 31, 2020. The firm needs to include a written explanation of the basis on which its management body has satisfied itself of the continuing adequacy of the firm’s financial resources, including in stressed scenarios. Its supervisor will discuss the matter with it in the context of supervision of the firm’s resilience and capital adequacy.
Acceleration of Certain CRR2 measures and temporary prudential filter on certain unrealized gains and losses
The CRR "Quick Fix" accelerates the date of application of certain CRR2 measures that had been due to apply from June 28, 2021. These include the revised small and medium-size enterprises (SME) support factor, infrastructure support factor, and non-deduction of certain software assets from CET1 capital. The CRR "Quick Fix" also applies the revised treatment of software assets from the date on which EBA regulatory standards that will specify their prudential treatment enter into force. The CRR "Quick Fix" also includes a temporary discretion for firms until December 31, 2022 to remove a proportion of unrealized gains and losses on exposures to certain public sector authorities. These measures do not derive from BCBS agreements and are specific to the CRR. At present, PRA does not have adequate information on the quantitative impact of these measures. PRA intends to request data to facilitate quantitative analysis of the impact of these CRR "Quick Fix" measures. Analysis of those data, along with the final regulatory technical standards of EBA on software assets, will inform the PRA supervisory approach, including an assessment of whether further action is necessary under Pillar 2.
Related Links
Keywords: Europe, UK, Banking, COVID-19, Basel, CRR, CRR2, IFRS 9, ECL, CET 1, Pillar 2, Withdrawal Agreement, Transitional Arrangements, PRA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
Related Articles
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA Publishes Report on Asset Encumbrance of Banks in EU
EBA published the annual report on asset encumbrance of banks in EU.
MAS Revises Guidelines on Technology Risk Management
MAS revised the guidelines that address technology and cyber risks of financial institutions, in an environment of growing use of cloud technologies, application programming interfaces, and rapid software development.
US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA Proposes Guidelines for Establishing Intermediate Parent Entities
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.