PRA published a statement detailing plans to support firms in focusing their resources on the highest priority work amid COVID-19 outbreak. The announcement covers tasks related to climate change risks, calculation of stressed value-at-risk (SVAR), data reporting for LIBOR transition, and postponement of the insurance stress test. Overall, PRA continues to consider and make other adjustments to ease the burden on regulated entities. BoE also published its interim financial stability report, which covers views on performance of the financial system during the COVID-19-related disruption and the resulting outlook for UK financial stability.
Announcements on climate change work
The Prudential Regulation Committee (PRC) and the Financial Policy Committee (FPC) agreed to postpone the launch of the climate biennial exploratory scenario exercise until at least mid-2021. BoE will continue to work to better understand and mitigate the climate change risks:
- PRA will issue follow-on guidance on the supervisory statement (SS3/19) on enhancing firms’ approaches to managing the financial risks from climate change. Furthermore, the outputs from the Climate Financial Risk Forum will be published in the Summer.
- BoE will work with other central banks within the Network for Greening the Financial System, through which guides on key issues like supervision and scenario analysis will shortly be published.
- BoE will also assist the government with its preparations for COP26. The "COP26 Private Finance Agenda" was launched to help private finance support the economy's transition to net zero.
- BoE will continue to focus on embedding climate disclosure across the financial system, including through its own disclosures.
Other reprioritizations or relaxations
- In an earlier supervisory statement on market risk (SS13/13), PRA had set expectations on how the twelve-month period used for SVAR should be calculated and how frequently it should be reassessed. PRA is now confirming that it does not expect firms to update their SVAR twelve-month period during the current period of financial market stress, other than if a firm’s current period no longer represents a significant period of stress for the portfolio of the firm. PRA will permit firms to delay the review of the choice of historical data until December 2020, in line with the EBA guidance.
- Due to COVID-19, PRA and FCA suspended transition data reporting at the end of the first quarter and cancelled certain firm meetings, which were to be held in the first quarter. In light of the developments since, PRA and FCA have decided to resume full supervisory engagement on LIBOR from June 01, 2020, including data reporting at the end of the second quarter.
- PRA decided to pause further work on the Insurance Stress Test, given other pressures on firms and the need to focus on COVID-19 specific stresses. PRA will, therefore, not be publishing the results of last year’s test and will postpone the next Insurance Stress Test to 2022, with a view to seeking feedback from firms on the proposed design during the fourth quarter of 2021.
Keywords: Europe, UK, Banking, Insurance, Securities, COVID-19, Climate Change Risk, Financial Stability Report, LIBOR, Deadline Extension, ESG, Stress Testing, Value-at-Risk, CRR, Reporting, Market Risk, BoE, PRA
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