PRA Publishes Policy Statement Related to Credit Risk Mitigation
PRA published a policy statement (PS8/19) that contains the final policy in the updated supervisory statement SS17/13 on credit risk mitigation (Appendix 1) as well as the statement SS31/15 on Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process or SREP (Appendix 2). PS8/19 also provides feedback to the responses to the consultation paper (CP6/18) that proposed changes to SS17/13 to clarify expectations about the eligibility of guarantees as unfunded credit protection under credit risk mitigation. The changes to SS17/13 and SS31/15 will be effective from September 13, 2019.
The consultation took place from February to May 2018 and PRA had received 31 responses to CP6/18. Respondents generally welcomed the clarification of PRA expectations regarding the eligibility of guarantees as credit risk mitigation. However, several respondents raised concerns about the impact of the proposals on certain types of guarantees. Several respondents also requested further clarification on certain aspects of the proposals. Following the consideration of responses, PRA has made the following three significant changes to the proposals that were the subject of consultation in CP/18:
- Removal of the proposal around the meaning of pay out in a timely manner
- New expectation around risks arising from eligible guarantee arrangements
- New expectation around recognizing any residual risks
PRA has made other changes to the draft policy which, in the opinion of PRA, are not significant. This includes minor changes to the proposal on legal effectiveness and enforceability of qualifying guarantees and to the proposal around qualifying guarantees being clearly defined and incontrovertible. Further details on these changes have been set out in Chapter 2 of PS8/19. PRA does not consider that the impact is significant, or significantly different, for mutuals. Therefore, the assessment of the impact on mutuals and the cost-benefit analysis in respect of these changes has not been updated. PS8/19 is relevant to all firms bound by the Capital Requirements Regulation (575/2013) or CRR.
Related Links
Effective Date: September 13, 2019
Keywords: Europe, UK, Banking, Credit Risk, Credit Risk Mitigation, CRR, PS8/19, CP6/18, ICAAP, SREP, 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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS Quarterly Review Discusses Developments in Fintech and ESG Space
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
BCBS to Consult on Supervisory Practices for Climate Risks by Year-End
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
OCC Identifies Operational Risk Deficiencies in MUFG Union Bank
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
EC Rule on Contractual Recognition of Write Down and Conversion Powers
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
ECB to Consider Climate Risks When Reviewing Collateral Framework
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021.
SRB Provides Update on Approach to Prior Permissions Regime
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
APRA Issues Further Guidance on Application of Securitization Standard
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
ACPR Publishes Corrective Version of RUBA Taxonomy
The French Prudential Control and Resolution Authority (ACPR) published the corrective version of the RUBA taxonomy Version 1.0.1, which will come into force from the decree of January 31, 2022.
Nordea Bank and EIB Sign Agreement to Fund Green Projects in Nordics
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
