FCA Issues Further Prudential Guidance for Payment Firms Amid Crisis
FCA published a short consultation that sets out additional temporary guidance to strengthen payment firms’ prudential risk management and arrangements for safeguarding customer funds, in light of the exceptional circumstances of the COVID-19 pandemic. The proposed guidance also outlines how firms can put in place more robust plans for winding down. Comments are requested by June 05, 2020.
The proposed guidance on managing prudential risk covers the following key areas:
- Governance and controls—Authorized payment institutions and e-money institutions should ensure they have robust governance arrangements, effective procedures, and adequate internal control mechanisms, in accordance with their conditions of authorization.
- Capital adequacy—It is essential that firms accurately calculate their capital requirements and resources on an ongoing basis and report these correctly to FCA in regulatory returns as well as on request from FCA. A firm’s senior management should ensure that its capital resources are reviewed regularly.
- Liquidity and capital stress testing—Firms should carry out liquidity and capital stress testing to analyze their exposure to severe business disruptions and assess their potential impact, using internal and/or external data and scenario analysis. Firms should use the results of these tests to help ensure they can continue to meet their conditions of authorization and own funds requirements.
- Risk management arrangements—As part of the liquidity risk management procedures, FCA expects firms to consider their own liquid resources and available funding options to meet their liabilities as they fall due and whether they need access to committed credit lines to manage their exposures. To reduce exposure to intra-group risk, FCA considers it best practice for firms not to include any uncommitted intra-group liquidity facilities when assessing whether they have adequate resources in place to cover the liquidity risk to which they are exposed.
In addition, FCA published finalized rules and guidance for insurance and premium finance firms on fair treatment of customers in temporary financial difficulty as a result of COVID-19. FCA also published its feedback statement that includes summary of the feedback received on the proposed measures. This guidance applies to all non-investment insurance contracts—that is, general insurance and protection contracts—but not to re-insurance products.
Related Links
- Proposed Guidance for Payment Firms
- Guidance for Insurance and Premium Finance Firms
- Feedback Statement
Keywords: Europe, UK, Banking, Insurance, COVID-19, 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
BaFin and Bundesbank Postpone Stress Test Exercise Amid COVID CrisisRelated 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.