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    UK Authorities Issue Reporting and Regulatory Updates for Banks

    April 13, 2023

    The Prudential Regulation Authority (PRA) and the Bank of England (BoE) published thematic findings from the 2022 cyber stress test. Additionally, PRA published results of the systemic risk survey for the first half of 2023, a discussion paper on the review of the Senior Managers and Certification Regime (SM&CR), a feedback statement on the prudential liquidity framework, a policy statement on the depositor protection, and censured Wyelands Bank Plc for breaching large exposure limits. In yet another development, BoE published a Statistical Notice (2023/02) informing that, due to the bank holiday granted for the coronation of King Charles III, the reporting schedule for submission of statistical data will be delayed by one day, during May 08 to May 31, 2023; the Bankstats publication for April 2023 data will now take place on June 01, 2023.

    The Objectives of the 2022 cyber stress test were to explore firms’ ability to quickly identify the nature of the disruption they faced and the potential financial stability impacts of firms not meeting the impact tolerance in the case where data integrity had been compromised. The findings support individual and collective work to improve the financial sector’s response to and recovery from incidents. As a next step, BoE and PRA will be proactive in the monitoring of firms’ implementation of the operational resilience policy ensuring that firms are ready to remain within their impact tolerances in severe, but plausible scenarios, by March 2025. Firms should share with their supervisors how they have assured themselves that their investment plans deliver the necessary improvements. Firms may also need to take forward the lessons from these findings at firm, financial market infrastructure (FMI), and/or sector level as appropriate, to further enhance the sector’s resilience. Going forward, BoE and PRA will consider the learnings from this test to inform future work in this space. BoE will also consider how best to monitor and gain assurance over firms’ work on these capability enhancements.

    Below are the key highlights of additional recent developments:

    • BoE published results of the systemic risk survey for the first half of 2023. The survey was conducted between January 06 and February 03. BoE conducts this survey biannually to quantify and track views of market participants on risks to, and their confidence in, the stability of the UK financial system. The key results show that survey respondents remain confident in the stability of the UK financial system and the perceived probability of a high-impact event affecting the UK financial system in both the short term and medium term has decreased. The results suggest that concern around inflation risk has fallen from its peak in the second half of 2022. Climate change and risks associated with a UK economic downturn are more frequently cited as key risks compared to the previous survey, the latter continuing an upward trend since the second half of 2021.
    • PRA seek views, until June 01, 2023, on the review of the Senior Managers and Certification Regime (SM&CR). The review aims to understand stakeholders’ views on the functioning of the SM&CR and to identify ways to improve the regime to help it work better for firms and regulators, while preserving its underlying aims. The SM&CR seeks to promote safety and soundness, reduce harm to consumers and strengthen market functioning by requiring that financial services professionals are individually accountable to their employers and to the regulators. In a recent development, PRA has fined Mr. Carlos Abarca, the former Chief Information Officer (CIO) of TSB Bank plc (TSB), of GBP 81,620 for breaching PRA Senior Manager Conduct Rules. He failed to take reasonable steps to ensure that TSB adequately managed and supervised appropriately its outsourcing arrangement in relation to its 2018 IT migration program.
    • PRA published a feedback statement that provides a summary of responses to the discussion paper on the prudential liquidity framework: supporting liquid asset usability. The feedback statement highlights that banks are reluctant to draw on their stock of high quality liquid assets (HQLA) in periods of unusual liquidity pressure. Banks are concerned about regulatory reactions to initial falls in their Liquidity Coverage Ratio (LCR), including more intensive supervisory oversight and heightened regulatory reporting. In addition, most respondents noted that banks allowing LCR to fall would be perceived by the market as a signal that a bank is experiencing a liquidity stress. The feedback statement also sets out recommendations from stakeholders to improve HQLA usability, possible adjustments to how the LCR is calculated in stress, simplifications to liquidity-related disclosures in a liquidity stress, as well as recalibrations of the LCR to account for pro-cyclicality in the metric.
    • PRA published a policy statement that provides feedback to part of the responses to the consultation on depositor protection. It also contains the PRA’s final rules concerning the relevant amendments to the depositor protection part of the PRA rulebook (Appendix: Annex A). The policy statement is relevant to e-money institutions, authorized payment institutions, small payment institutions, credit unions (in respect of e-money), and PRA-authorized credit institutions.
    • PRA has censured Wyelands Bank Plc (Wyelands) for wide-ranging significant regulatory failings between December 21, 2016 and May 28, 2020, which included breaches related to large exposure limits, capital reporting, governance and risk controls, PRA Own Initiative Requirements, and poor retention of WhatsApp messages. The seriousness of the breaches justifies a substantial fine of GBP 8,515,000. However, Wyelands is in wind-down and PRA accepted that it has very limited financial resources. Thus, PRA concluded that fining Wyelands would not advance the general objective to promote the safety and soundness of firms.


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    Keywords: Europe, UK, Banking, Systemic Risk, Operational Resilience, Cyber Stress Test, Statistical Notice, Sm Cr, Depositor Protection, Regulatory Capital, Climate Change Risk, HQLA, Basel, Cyber Risk, Reporting, Liquidity Risk, Stress Testing, LCR, Wyelands Bank, PRA, BoE

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