FCA Issues Further Prudential Guidance for Payment Firms Amid Crisis
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.
Related Links
- 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
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.
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.
Previous Article
RBI Publishes Guidance on Regulatory Measures to Ease COVID ImpactRelated Articles
EC to Defer Application of SFDR Standards Till July 2022
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
EBA Seeks Views on Proportionality Assessment Methodology
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
US Agencies Propose Changes to Call Reports and Instructions
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
EBA Examines Asset Encumbrance in Banking Sector
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
EBA Publishes Methodological Guide to Mystery Shopping
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
APRA Issues Update on Capital Reform Policy Settings for Banks
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
CPMI-IOSCO Assess Continuity Planning of Market Infrastructures
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
ESMA Responds to Proposal Related to Sustainability Standards Board
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.
