April 2020 Regulation Update

FINREP

Changes to FINREP under EBA taxonomy 2.9 will become effective from report reference date 30th June 2020 or later, where a firm’s financial year does not commence on 1 January. As part of the taxonomy, the EBA is introducing additional non-performing loans templates (F 23 to F 26 and F 47). Firms that report FINREP under the Capital Requirements Regulation (CRR) will be required to complete these new forms, where they do not satisfy all the conditions to be classed as ‘small and non-complex’.

The PRA is also implementing requirements on firms to submit these new templates at both Individual and UK Consolidated levels. The following table summarises the reporting that Whistlebrook understands each regulator is expecting from firms.

Regulator – PRA   Regulator – EBA
Applicable to:

·         Firms reporting FINREP (from 2018) as required by the PRA and

·         Institutions subject to FINREP under CRR

Applicable to:

·         Firms subject to FINREP under CRR

NPL templates 23.01, 23.02, 23.03, 24.01, 24.02, 24.03, 25.01, 25.02, 25.03, 26 and 47 NPL templates 23.01 to 23.06; 24.01 to 24.03; 25.01 to 25.03, 26 and 47
Thresholds:

Firms that have both (in the two preceding quarters) assets greater than £5billion and a non-performing loans (NPL) ratio above 5%.

 

Report required at Individual and UK Consolidated.

  Thresholds:

Firms that are not classed as ‘small and non-complex’. **

 

 

Report required at Consolidated.

     
First report reference date – 30 June 2020 (dependent on a firm’s financial year)   First report reference date – 30 June 2020 (dependent on a firm’s financial year)

 

The NPL ratio is Gross Carrying Amount of NPLs  as a percentage of Gross Carrying Amount of Loans and Advances.

Further information can be found in PRA consultation paper 19-18 and policy statement 16-19 (https://www.bankofengland.co.uk/prudential-regulation/publication/2018/regulatory-reporting-eba-taxonomy-29).

The following link has information on the EBA requirements – https://eba.europa.eu/eba-amends-implementing-technical-standards-on-supervisory-reporting-with-regard-to-financial-information-finrep-.

All the FINREP template changes, including the new ones, will be in the next release of WIRES®. However, please note that if you require the new FINREP templates then there will be an additional charge to be agreed. Once that has happened you will be issued with an additional WIRES® key, which once applied will make the new templates appear for use in your WIRES® system. Please contact your Whistlebrook sales contact or email enquiries@whistlebrook.co.uk to request a quotation for the new FINREP templates.

**At a high level, ‘small and non-complex’ used by the EBA, means:

  • Assets averaged over the last four years are equal to or less than €5bn and
  • The firm is not one of the three largest (based on asset size) in the country and
  • Deemed to be ‘simplified obligation’ (were it to fail, there would not be a significant impact on the economy) type firm and
  • Internal models are not used and
  • Non-performing loans (NPLs) are considered immaterial i.e. Gross Carrying Amount of NPLs  as a percentage of Gross Carrying Amount of Loans and Advances, is less than 5%

Other conditions apply to the location of counterparties and size of derivatives. Further details are in CRR2 Official Journal 2019-150.

Regulatory Template Changes

PSD001

A revised version of PSD001 has been issued by the FCA. That version is to be used for the return with report reference date of 31 March 2020 and beyond. The template in Wires has been updated to include two new mortgage characteristic types in the dropdowns on 14A to 14E.

COVID 19

Regulatory Reporting Delay

In response to the effects of COVID 19, it was announced that a one month delay to submission of certain regulatory returns due by 31 May 2020, will be permitted. COREP Liquidity Coverage and Additional Liquidity Monitoring Metrics are excluded from the arrangement.

Moratorium, Loss Provision and Exposure Classification

Various regulators have been keen to emphasise that a moratorium applied generally and not just to specific borrowers, cannot be used as a reason to reclassify an exposure as being in default or subject to forbearance. The EBA made the point that with all the uncertainty being caused by COVID 19, it is vital that firms do not apply a mechanical approach to calculating expected credit loss allowance under IFRS 9.

Materiality Thresholds and Default

Thresholds that define materiality in the definition of default i.e. ‘… days past due a material amount…’, were to be applied from 31 December 2020. It has been advised that the application of these thresholds must now be done by 1 January 2022.

PRA policy statement 7-19 has details of the thresholds.

Basel III

Whistlebrook understands that Basel III was to be effective from 1 January 2022. The implementation date has been pushed back by twelve months.

Countercyclical Capital Buffer (ccb)

During March, the ccb rate was reduced to 0% for UK exposures. If required, WIRES® Plus users can amend the rate within the Wires system.

Breathing Space Problem Debt

The UK government intends to introduce a policy effective from 1 January 2021, that will allow individuals with problem debt, to register with a debt advisory service. The purpose of that is to agree a debt management plan and obtain a moratorium covering 60 days. During that time, the following will not be required:

  • Loan repayments
  • Interest accrual
  • Payment of fees by the borrower
  • Interest capitalisation

Assuming the policy is implemented, then there will be implications such as effects on interest recognition and provisions.

Investment firms – New Regulatory Regime

A new regime will apply for non-systemically important investment firms and be effective from 26 June 2021. Whistlebrook understands that firms that fall into the following categories will continue to be under the Capital Requirements Regulation (CRR):

  • Part of a banking group
  • “Deal on their own account“ (understood to be trading options, futures, buying / selling on the cash market for hedge purposes, placements, etc)
  • Deemed to be systemically important
  • Offer portfolio management / investment advice and not classed as a Collective Investment Undertaking and with an asset size at least €15billion.

Full details of the new regime are in Official Journals 2019-2033 and 2019-2034.

Whistlebrook understands that this regulation will apply until any changes following the UK’s withdrawal from the EU, are made.