PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks. One of the notable risks this letter focuses on is liquidity risk. There is a risk for deposit-takers, notably for small and medium-size firms, that deposits from a Deposit Aggregator may represent a significant portion of their balance sheet and present a concentrated liquidity risk. While the deposits from the Deposit Aggregator may come from a diversified client base, the flow of deposits sourced from a Deposit Aggregator may be correlated, as there is a single commercial relationship between the Deposit Aggregator and the deposit-taker. Firms should factor this into their management of liquidity risk and funding needs.
In the letter, PRA and FCA outline the following as the next steps for firms:
- Have discussions at the appropriate level within the firm and consider addressing any aspects that are directly relevant to the firm and its business model
- Consider the extent to which your deposit book relies on business sourced via Deposit Aggregators and whether this requires the firm to take any action
- Consider measures to achieve a faster customer repayment by the Financial Services Compensation Scheme, or FSCS, in the event of need
- Look at widening the information provided to the FSCS, FCA, or PRA to include both information about the Deposit Aggregators used by the firm and the level of deposits coming via them and whether the firm uses a "direct" or "trust" model which will support swift payout
- Consider the level of transparency regulated firms have regarding the beneficial owners of deposits sourced from Deposit Aggregators
Keywords: Europe, UK, Banking, Deposit Aggregators, Liquidity Risk, Risk Mitigation, FSCS, Concentration Risk, FCA, PRA
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.