Featured Product

    PRA Issues Statement on Regulatory Treatment of Loan Guarantee Schemes

    April 27, 2020

    PRA published a statement in response to the changes announced to UK COVID-19 business interruption loan schemes by HM Treasury. The statement sets out PRA’s observations on whether the guarantees provided under the Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) are eligible for recognition as unfunded credit risk mitigation under the Capital Requirement Regulation (CRR). Additionally, BoE announced that it will continue to offer three-month and one-month term Contingent Term Repo Facility (CTRF) operations on a weekly basis through May 2020, with the final operation scheduled on May 29.

    PRA considers that the terms of the guarantees provided by the Secretary of State under the schemes do not contain features that would render these guarantees ineligible for recognition as unfunded credit risk protection and the effects of these guarantees would appear to justify such treatment. In accordance with CRR, firms recognizing the CBILS guarantee as eligible unfunded protection in relation to an exposure are required to adjust the exposure amount to exclude elements not covered by the CBILS guarantee. Some of the CBILS guarantees exclude cover for interest and fees. 

    The government is taking additional steps on CBILS to ensure that lenders have the confidence they need to process finance applications quickly, including removing the per lender portfolio cap for the government guarantee, and changing the viability tests that so that all banks will need to assess is whether a business was viable before the COVID-19 disruption. In the current extraordinary circumstances, it will be challenging for many businesses to provide forecast financial information with a high degree of confidence to support firms’ loan underwriting processes. Given that, PRA expects lenders to use their judgment on what information is required to make credit decisions. Lenders are reminded that they should consider the range of information available to them including (but not limited to) the performance of the business prior to the COVID-19 outbreak; a view of how the loan will be repaid in due course, judgment in the absence of financial forecast information; and general prospects for the sector in which the business operates once the effects of the pandemic have receded.

    The government of UK also launched a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders. The government, which has been consulting extensively with business representatives about the design of the new scheme, will provide lenders with a 100% guarantee for the loan and pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months. The loans will be easy to apply for through a short, standardized online application. The loan should reach businesses within days, providing immediate support to those that need it as easily as possible. This new scheme will run alongside the existing CBILS and CLBILS. 

     

    Related Links

    Keywords: Europe, UK, Banking, COVID-19, CBILS, CLBILS, Credit Risk, CRR, Regulatory Capital, HM Treasury, CTRF, Loan Guarantee, PRA, BoE

    Featured Experts
    Related Articles
    News

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News
    News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News
    News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News
    News

    APRA Penalizes Heritage Bank for Incorrect Reporting of Capital

    The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Releases Annual Report 2021-2022

    The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Updates Timeline for Implementation of Certain Basel Rules

    Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.

    November 29, 2021 WebPage Regulatory News
    News

    EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR

    EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.

    November 29, 2021 WebPage Regulatory News
    News

    FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR

    The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.

    November 29, 2021 WebPage Regulatory News
    News

    APRA Finalizes Capital Adequacy Standards for Banks

    The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.

    November 29, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.

    November 29, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7751