July 2019 Regulation Update

Capital Requirements Regulation (CRR II)

Most changes to the regulation will be effective from 28 June 2021 and can be found in the Official Journal (2019-01) and Regulation EU Regulation (EU) 2019/87. The document is accessible from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019R0876

Leverage Ratio (Article 92)

The ratio threshold is to be 3% for all firms except certain investment institutions as specified in Articles 95(1) and 96(1).

Intangible Assets (Article 36)

The deduction when determining Common Equity Tier 1, need not include a ‘prudently valued software asset’ such that its value would not be materially affected by a resolution. Materiality is expected to be defined by 28 June 2020.

Counterparty Credit Risk (Articles 273 to 282)

The revised standardised methods for calculating the exposure value are to be introduced. The Mark to Market calculation is being replaced by the ‘Standardised Method’. According to the EBA roadmap issued on 27th June 2019, it is understood that the methods will be effective from two years after CRR II is implemented.

Exposures to SMEs (Article 501)

The limit of the balance upon which the SME supporting factor of 0.7619 can be applied, is to be increased from €1.5million to €2.5million. In addition, where a balance exceeds €2.5million, the excess will be able to be reduced by 15%.

Retail Exposures (Article 123)

Where an exposure is serviced directly from salary or pension (i.e. repayment amounts are deducted by the employer or pension provider), it will be possible to risk weight the former at 35% (subject to various conditions).

Exposures to Infrastructure Entities (Article 501a)

Corporate or specialist lending to such entities (specifically created for a particular project), will be able to have the total risk exposure amount reduced by 25%.

Large Exposures (Article 390 and 392)

The upper limit and the definition of a large exposure are to be changed from being based on ‘Eligible’ to Tier 1 capital.

Additional Liquidity Monitoring Metrics (Article 415)

The metrics to be provided by ‘small and non-complex’ firms will be detailed in documentation from the EBA (expected 28 June 2020). ‘Small and non-complex’ firms must satisfy various qualification conditions, two of which are an average (over the previous four years) level of assets of less than or equal to €5billion and classed as ‘simplified obligations’.

Net Stable Funding Ratio (Article 428b)

A minimum ratio amount will be 100% and applicable (to all firms) over a one year time horizon. It is understood that the requirement will apply at total and significant currency levels.

Interest Rate Risk in the Banking Book (Article 84)

Documentation will be made available by 28 June 2020 and detail the standardised methods that can be used to measure interest rate risk.

Taxonomy 2.9

The European Banking Authority has issued taxonomy 2.9. Full details of this taxonomy can be found in the following links:

https://eba.europa.eu/-/eba-publishes-amended-technical-standards-on-supervisory-and-resolution-reporting-for-eu-institutions-and-the-corresponding-dpm-and-xbrl-taxonomy-2-9

https://eba.europa.eu/risk-analysis-and-data/reporting-frameworks/reporting-framework-2.9

The taxonomy is to have a phased introduction as required by the regulator. All changes will be included in Wires releases 5.5 and 5.6. These releases are currently planned to be available in October 2019 and January 2020 respectively.

Firms will be required to upgrade to each release in order that future data updates are correctly captured.

Effective from Report Reference Date Return
31/12/2019 Resolution Z Templates
31/03/2020 COREP exc. LCR
31/03/2020 PRA101 to PRA103
30/04/2020 Additional Liquidity Monitoring Metrics
30/04/2020 Liquidity Coverage (LCR)
30/06/2020 FINREP

Of particular importance in this taxonomy is the change to the severity of validation rules. The EBA requires that validation rules no longer be categorised as ‘Blocking’, ‘Non-Blocking’ or ‘Warning’. From the various dates shown above, validation rules will be either ‘Warning’ or ‘Error’. All those classed as ‘Error’ must be satisfied in order for a submission to be accepted by the EBA.

Resolution Z Templates

There are a few changes to validation rules, but the main alteration is to the severity of them. There is also a schema change associated with these templates.

COREP

C 12.00 and C 13.00 will be replaced by a new template C 13.01. There is also another form being introduced for securitisations, C 14.01.

FINREP

There are twenty new FINREP templates being introduced.  Fourteen out of the twenty will not be required from ‘small and non-complex’ firms that have a ratio of Gross Carrying Amount of Non-Performing Loans / Gross Carrying Amount of Loans and Advances of less than 5%.

‘Small and non-complex’ is defined in CRR II (Article 4 point 145) and includes institutions with assets of €5bn or less.

PRA101 to PRA103 – Forecast Capital+

Changes to the layouts are to be made for the revised securitisation framework. It is understood that the changes will be finalised in July. Source – PRA Consultation Paper 19-18.

Additional Liquidity Monitoring Metrics

There is minor change through the addition of a column in C 67.00 that is to contain a unique row identifier.

COREP Liquidity Coverage

Template C 75.01 will replace C 75.00 (collateral swaps) and new form C 77.00 is being introduced for use in making a submissions at a consolidated level. There are also layout changes to the other LCR templates.

Reporting of inflows and outflows associated with securities financing transactions and collateral swaps are being revised.

Regulation 2019-630

An EU Official Journal was issued on 17th April 2019 and has introduced a required deduction from Common Equity Tier 1 capital. This deduction is in respect of perceived insufficient coverage of potential losses from non-performing exposures. It is understood that the requirement is applicable to exposures with an original start date of 26th April 2019 or later.

FCA Reporting REP020

Account Servicing Payment Service Providers that allow access to payment accounts via a ‘dedicated interface’ will be required to provide daily performance data every calendar quarter. Nil returns are required. For the first submission, only data from 14 to 30 September will be needed.

Further details are in the FCA handbook SUP 16 Annex 46BG. The form will be available in WIRES®.