BoE and PRA announced a number of supervisory and prudential policy measures to alleviate operational burdens on PRA-regulated firms and BoE-regulated financial market infrastructures (FMIs) in the wake of the COVID-19 outbreak. The announcement covers several policy areas such as the exploratory scenarios on climate change risks, bank stress tests, IFRS 9, operational risk and resilience, and implementation of certain Basel reforms.
At this time, the following actions and measures are being announced to ease the operation burdens on regulated firms:
- Cancellation of the 2020 Annual Stress Test—The decision to cancel the 2020 stress test for the eight major UK banks and building societies is intended to help lenders focus on meeting the needs of UK households and businesses via the continuing provision of credit. This is in addition to the measures published on March 11, 2020, which included a decision by the Financial Policy Committee, or FPC, to reduce the UK countercyclical buffer (CCyB) rate to 0% of banks’ exposures to UK borrowers, with immediate effect.
- Amendments to the Biennial Exploratory Scenario (BES) Timetable—BoE has postponed publication of the results of the 2019 BES on liquidity until further notice. BoE had published a discussion paper on the 2021 BES on the financial risks from climate change on December 18, 2019. BoE will take stock of the responses as well as the evolving situation with a view to announcing the way forward for this exercise in the Summer.
- Statement on IFRS 9 and COVID-19—PRA reminds firms that forward-looking information used to incorporate the impact of COVID-19 on borrowers into the expected credit loss (ECL) estimate needs to be both reasonable and supportable for the purposes of IFRS 9. Any forecasts should take into account the relief measures—such as repayment holidays—that will be made available to enable borrowers who are affected by the COVID-19 outbreak to resume regular payments. BoE continues to consider the potential interaction of COVID-19 with IFRS 9, including through discussion with relevant bodies domestically and internationally,and expects to provide further guidance to firms regarding the approach next week, with a view to assisting firms to adopt consistent approaches in the face of the prevailing uncertainty.
- Operational Resilience Policy Development—The deadline for responses to the current BoE and PRA consultations on building operational resilience and PRA consultation on outsourcing and third-party risk management will, in line with FCA, be extended to October 01, 2020.
- Internal Ratings Based (IRB) Models—Implementation of the proposals related to the Definition of Default, Probability of Default, and Loss Given Default estimation, will be delayed by one year to January 01, 2022. The move to hybrid IRB models will also be delayed until January 01, 2022. Firms using the standardized approach to credit risk will also benefit from a delay to changes they need to make as part of guidelines on definition of default.
- Financial Services Regulatory Initiatives Forum—This Forum has been established to help regulators identify and manage peaks in operational demands, on firms and financial market infrastructures, resulting from regulatory initiatives. BoE, PRA, FCA, and other authorities have now agreed that the first meeting will take place as soon as possible in April 2020 to assist co-ordination of the regulatory initiatives. Publication of the Regulatory Initiatives Grid after that meeting will ensure that industry has full sight of a coordinated future work plan as early as possible in light of Covid-19.
- Basel 3.1—PRA acknowledges that the existing Basel timetable may prove to be challenging and is coordinating internationally to ensure that implementation will happen in tandem with the other major jurisdictions. PRA will advise the government on the legislative approach accordingly.
Related Link: News Release
Keywords: Europe, UK, Banking, FMI, CCyB, Stress Testing, IFRS 9, COVID-19, Climate Change Risk, ESG, Basel III, Expected Credit Loss, Operational Risk, BoE, PRA
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