FCA Publishes Additional Guidance for Supervised Firms Amid Crisis
FCA finalized additional guidance to strengthen the prudential risk management of payment and e-money firms and the arrangements for safeguarding customer funds, in light of the impact of COVID-19 on the business models of firms. The guidance provides additional direction for firms to meet their safeguarding requirements and outlines the expectation for firms to put in place more robust plans for winding down. In addition, FCA finalized rules and guidance that set out the expectation that firms should provide, for a temporary period only, exceptional and immediate support to consumers facing payment difficulties due to circumstances arising out of COVID-19. FCA rules and guidance provide support for users of motor finance, buy-now pay-later, rent-to-own, pawnbroking, and high-cost short-term credit products, who continue to face payment difficulties due to COVID-19; the rules and guidance have been in effect from July 17, 2020 and, unless renewed or updated, shall expire on October 31, 2020.
Guidance on Managing Prudential Risk for Payment Firms
The key areas covered in the guidance on managing prudential risk include governance and controls, capital adequacy, liquidity, capital stress testing, and risk management arrangements. The finalized guidance on managing prudential risk follows the consultation published on May 22, 2020. FCA has also published a feedback statement (FS20/10) that summarizes the feedback received to the proposed guidance. FCA hopes to conduct a full consultation later in 2020-21 on changes to its approach document. As part of this, FCA is likely to propose incorporating this additional guidance on safeguarding and prudential risk management. This will give stakeholders a second opportunity to comment on any measures that FCA propose to apply permanently, building on this temporary guidance. This guidance on managing prudential risk applies to authorized payment institutions or small payment institutions, e-money institutions or small e-money institutions, and credit institutions and custodians.
Rules and Guidance to Support COVID-Impacted Customers
The finalized rules and guidance set out that firms should support, for a temporary period, the users of motor finance, buy-now pay-later, rent-to-own, pawnbroking, and high-cost, short-term credit products, who have been adversely impacted by the COVID crisis. These rules and guidance were part of a consultation that published in July 2020 and FCA has now published a feedback statement (FS20/11) on the comments received to this consultation. The final rules and guidance outline a range of measures, specifying that:
- Firms should contact customers coming to the end of a first payment freeze to find out if they can resume payments—and if so, agree a plan on how the missed payments could be repaid.
- Customers that have not yet had a payment freeze or requested an extension of an existing payment freeze can request this up until October 31, 2020.
- High-cost short-term credit customers can only apply for a payment freeze under the guidance once up to October 31, 2020 in respect of each high-cost short-term credit agreement. For those customers who have had a payment freeze and are still experiencing payment difficulties, firms will provide a range of support—including formal forbearance—in accordance with the FCA Handbook.
- Where a customer needs further temporary support to bridge the crisis, any payment freezes or partial payment freezes offered under the guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.
For customers still facing temporary payment difficulties as a result of COVID-19:
- Firms should provide them with support by freezing or reducing payments to a level they can afford, on their motor finance, buy-now pay-later, or rent-to-own agreements for a further three months.
- For buy-now pay-later customers, where a loan is within the promotional period, this will mean offering customers an additional extension to that period.
- For pawnbroking agreements, where a loan is within the redemption period (irrespective of when the redemption period is due to end), this will mean firms offering a further extension to the redemption period. If the redemption period has already ended, this will mean agreeing not to sell the item during the payment deferral period.
Related Links
- Notification
- FS20/10
- FS20/11
- Guidance for Payment Firms
- Guidance on Motor Finance Agreements
- Guidance on High-Cost, Short-Term Credit agreements
- Guidance on Rent-to-Own and Other Agreements
Effective Date: July 17, 2020
Keywords: Europe, UK, Banking, Securities, COVD-19, Credit Risk, 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.
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
ESMA to Assess German Reporting System Post Wirecard CollapseRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.