BoE and PRA Announce Measures to Alleviate Challenges of COVID-19
BoE and PRA announced a number of supervisory and prudential policy measures to alleviate operational burdens on PRA-regulated firms and BoE-regulated financial market infrastructures (FMIs) in the wake of the COVID-19 outbreak. The announcement covers several policy areas such as the exploratory scenarios on climate change risks, bank stress tests, IFRS 9, operational risk and resilience, and implementation of certain Basel reforms.
At this time, the following actions and measures are being announced to ease the operation burdens on regulated firms:
- Cancellation of the 2020 Annual Stress Test—The decision to cancel the 2020 stress test for the eight major UK banks and building societies is intended to help lenders focus on meeting the needs of UK households and businesses via the continuing provision of credit. This is in addition to the measures published on March 11, 2020, which included a decision by the Financial Policy Committee, or FPC, to reduce the UK countercyclical buffer (CCyB) rate to 0% of banks’ exposures to UK borrowers, with immediate effect.
- Amendments to the Biennial Exploratory Scenario (BES) Timetable—BoE has postponed publication of the results of the 2019 BES on liquidity until further notice. BoE had published a discussion paper on the 2021 BES on the financial risks from climate change on December 18, 2019. BoE will take stock of the responses as well as the evolving situation with a view to announcing the way forward for this exercise in the Summer.
- Statement on IFRS 9 and COVID-19—PRA reminds firms that forward-looking information used to incorporate the impact of COVID-19 on borrowers into the expected credit loss (ECL) estimate needs to be both reasonable and supportable for the purposes of IFRS 9. Any forecasts should take into account the relief measures—such as repayment holidays—that will be made available to enable borrowers who are affected by the COVID-19 outbreak to resume regular payments. BoE continues to consider the potential interaction of COVID-19 with IFRS 9, including through discussion with relevant bodies domestically and internationally,and expects to provide further guidance to firms regarding the approach next week, with a view to assisting firms to adopt consistent approaches in the face of the prevailing uncertainty.
- Operational Resilience Policy Development—The deadline for responses to the current BoE and PRA consultations on building operational resilience and PRA consultation on outsourcing and third-party risk management will, in line with FCA, be extended to October 01, 2020.
- Internal Ratings Based (IRB) Models—Implementation of the proposals related to the Definition of Default, Probability of Default, and Loss Given Default estimation, will be delayed by one year to January 01, 2022. The move to hybrid IRB models will also be delayed until January 01, 2022. Firms using the standardized approach to credit risk will also benefit from a delay to changes they need to make as part of guidelines on definition of default.
- Financial Services Regulatory Initiatives Forum—This Forum has been established to help regulators identify and manage peaks in operational demands, on firms and financial market infrastructures, resulting from regulatory initiatives. BoE, PRA, FCA, and other authorities have now agreed that the first meeting will take place as soon as possible in April 2020 to assist co-ordination of the regulatory initiatives. Publication of the Regulatory Initiatives Grid after that meeting will ensure that industry has full sight of a coordinated future work plan as early as possible in light of Covid-19.
- Basel 3.1—PRA acknowledges that the existing Basel timetable may prove to be challenging and is coordinating internationally to ensure that implementation will happen in tandem with the other major jurisdictions. PRA will advise the government on the legislative approach accordingly.
Related Link: News Release
Keywords: Europe, UK, Banking, FMI, CCyB, Stress Testing, IFRS 9, COVID-19, Climate Change Risk, ESG, Basel III, Expected Credit Loss, Operational Risk, BoE, PRA
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
IMF Report Examines Status of Financial Sector in Aruba, NetherlandsRelated Articles
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.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.