BoE published the financial stability report, which sets out the view of the Financial Policy Committee (FPC) on stability of the financial system in UK. It covers the assessment, by FPC, of the resilience of financial system and the main risks to the financial stability, along with the actions being taken to mitigate the identified risks. It also reports on the activities of FPC over the reporting period and on the extent to which the previous policy actions of FPC have succeeded in meeting its objectives. BoE also published the record of the FPC meetings held on June 13, 2019 and July 04, 2019. The next policy meeting of FPC will be on October 02, 2019.
The report highlights that the core of UK financial system, including banks, dealers, and insurance companies, is resilient to, and prepared for, the wide range of risks it could face, including a worst-case disorderly Brexit. FPC is maintaining the UK countercyclical capital buffer (CCyB) rate at 1%. The report specifies that most financial stability risks stemming from disruption to cross-border financial services in a no-deal Brexit have been mitigated. However, in the absence of further action by EU authorities, some disruption to cross-border financial services is possible. Although such disruption would primarily affect EU households and businesses, it could amplify volatility and spill back to the UK in ways that cannot be fully anticipated or mitigated.
BoE will, in 2019, conduct a biennial exploratory exercise to explore the implications of a severe and broad-based liquidity stress affecting major UK banks simultaneously. Banks hold regulatory liquidity buffers that FPC expects to be used in a stress. The exercise will explore how the reactions of banks and authorities to the stress would shape its impact on the broader financial system and the UK economy. BoE intends to publish the results of the exploratory exercise in mid-2020. The report notes that in the 2021 biennial exploratory scenario, BoE will stress test resilience of the financial system to the physical and transition risks of climate change. It will gather views on the design of the exercise and, as a first step, will publish a discussion paper in Autumn 2019. This exercise will integrate climate scenarios with macroeconomic and financial system models. This will also motivate firms to address data gaps and to develop cutting-edge risk management consistent with a range of possible climate pathways—ranging from early and orderly to late and disruptive. The discussion paper will cover issues such as the coverage of the test, the nature of scenarios considered, and the appropriate time horizon and disclosure of results.
The report mentions that continued reliance of global financial markets on LIBOR poses risks to financial stability that can be reduced only through a transition to alternative benchmark rates by the end of 2021. The pace of market participants’ transition efforts now needs to accelerate and FPC will monitor the progress closely. The smoothest transition will be one in which market participants cease new issuance of LIBOR-linked contracts; identify all existing contracts without appropriate fallback clauses and rectify this to the greatest extent possible; and actively reduce legacy exposures by negotiating their transition to new rates. It is not in firms’ own interests to have a large stock of legacy contracts that will become subject to significant legal uncertainty beyond 2021. There are advantages to re-negotiating contracts to refer to alternative reference rates well in advance of the end of 2021. Well-managed firms are expected to lead the transition. All firms that responded to the PRA’s and FCA’s Dear CEO letter have now appointed a Senior Manager accountable for overseeing the transition.
Keywords: Europe, UK, Banking, Insurance, Securities, Financial Stability Board, Brexit, CCyB, LIBOR, Stress Testing, Systemic Risk, Climate Change Risks, FPC, BoE
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.
ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.
ECB published Decision 2021/752 to amend Decision 2019/1311 on the third series of targeted longer-term refinancing operations or TLTRO III.
The Central Bank of Ireland published Version 2.7 of the draft credit data template and rules for monthly AnaCredit reporting by banks.
OSFI proposed revisions to the Basel Capital Adequacy Reporting (BCAR) and leverage requirements returns for the 2023 reporting, with the comment period ending on July 09, 2021.
EBA published a discussion paper on review of the standardized nonperforming loans (NPL) transaction data templates, along with the proposed revised NPL data templates.