FCA published a short consultation that sets out additional temporary guidance to strengthen payment firms’ prudential risk management and arrangements for safeguarding customer funds, in light of the exceptional circumstances of the COVID-19 pandemic. The proposed guidance also outlines how firms can put in place more robust plans for winding down. Comments are requested by June 05, 2020.
The proposed guidance on managing prudential risk covers the following key areas:
- Governance and controls—Authorized payment institutions and e-money institutions should ensure they have robust governance arrangements, effective procedures, and adequate internal control mechanisms, in accordance with their conditions of authorization.
- Capital adequacy—It is essential that firms accurately calculate their capital requirements and resources on an ongoing basis and report these correctly to FCA in regulatory returns as well as on request from FCA. A firm’s senior management should ensure that its capital resources are reviewed regularly.
- Liquidity and capital stress testing—Firms should carry out liquidity and capital stress testing to analyze their exposure to severe business disruptions and assess their potential impact, using internal and/or external data and scenario analysis. Firms should use the results of these tests to help ensure they can continue to meet their conditions of authorization and own funds requirements.
- Risk management arrangements—As part of the liquidity risk management procedures, FCA expects firms to consider their own liquid resources and available funding options to meet their liabilities as they fall due and whether they need access to committed credit lines to manage their exposures. To reduce exposure to intra-group risk, FCA considers it best practice for firms not to include any uncommitted intra-group liquidity facilities when assessing whether they have adequate resources in place to cover the liquidity risk to which they are exposed.
In addition, FCA published finalized rules and guidance for insurance and premium finance firms on fair treatment of customers in temporary financial difficulty as a result of COVID-19. FCA also published its feedback statement that includes summary of the feedback received on the proposed measures. This guidance applies to all non-investment insurance contracts—that is, general insurance and protection contracts—but not to re-insurance products.
- Proposed Guidance for Payment Firms
- Guidance for Insurance and Premium Finance Firms
- Feedback Statement
Keywords: Europe, UK, Banking, Insurance, COVID-19, Payment Service Providers, Governance, Regulatory Capital, Stress Testing, Liquidity Risk, FCA
Previous ArticleRBI Publishes Guidance on Regulatory Measures to Ease COVID Impact
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.