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
Previous Article
PRA Proposes to Update the Pillar 2 Capital Framework for BanksRelated Articles
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
MAS Amends Notice on Related Party Transactions of Banks
MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.
ECB Amends Guideline on Euro Short-Term Rate
ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.
EBA Consults on Standards Related to FRTB-SA
EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).
PRA Proposes Rules Related to IRB Approach for Credit Risk
PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.
BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK
The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.
FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks
FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.
OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks
OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.
EU Amends CRR and Securitization Regulation in Response to Pandemic
To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).
HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26
HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.
