October 2020 Regulation Update

Treatment of Software Assets (COREP)

In COREP form CA 01.00, Common Equity Tier 1 (CET1) capital includes a full deduction of software  within ‘Other Intangible Assets’. The EBA had issued a consultation paper CP 2020-11 proposing a change to that deduction. Regulatory technical standards 2020-07 were published by the EBA in October and specified the final treatment to be applied, once published in an EU Official Journal.

Whistlebrook understands that the amount to be deducted in the derivation of CET1 will be the positive difference in accumulated amortisation (i.e. prudential less accounting). The prudential amortisation is to be based on the lower of three years and the term over which the accounting amortisation is based.

The carrying amount of the asset reduced by the deduction to CET1, will be risk weighted at 100%.

European Banking Authority Taxonomy 3.0

Capital Requirements Regulation (CRR2) will introduce changes through the implementation of EBA taxonomy 3.0, with effect from 28 June 2021. There will be revisions to regulatory reporting, more especially COREP. Forms impacted in WIRES® will be updated to be in line with the regulator’s requirements.

The new taxonomy includes reporting of counterparty credit risk exposures according to the revised standard methods (Original Exposure Method, Standardised and Simplified Standardised). The new standardised approach methods that may be used are in Articles 274, 281 and 282 of Official Journal 2019-876.

There is also to be reporting of the Prudential Backstop for non-performing exposures and the replacement of existing templates for Net Stable Funding. Finally, new MREL forms are being introduced and are understood to be applicable to firms classed as ‘non-simplified obligations’ only.

WIRES® clients will require a licence to use the new Counterparty Credit Risk and Prudential Backstop COREP templates.

Internal Ratings Based Approach and UK Mortgage Risk Weights

In PRA consultation paper 10-20, the regulator proposed to address the issue of the low credit risk weights used by internal models on UK mortgage exposures. If implemented, the proposal will mean minima:

  1. a) Risk weight of 7% on each exposure
  2. b) Weighted average risk weight of 10%

Breathing Space

New UK legislation will be effective from 4 May 2021 and introduce a ‘breathing space’ for debtors with problem debt. Whistlebrook understands that an arrears amount can be placed into a moratorium for sixty days. During that time:

  • Interest cannot be accrued on the arrears only
  • Fees relating to the arrears must not be charged
  • Enforcement actions specific to the moratorium debt only, will not be possible
  • All other obligations must continue to be met. Therefore it is understood that normal monthly loan payments can be expected to continue during the breathing space.

For mortgages, the arrears are those which the firm has not yet added to the balance and the borrower has not paid as at the date of application for the moratorium.

Even after the moratorium, it will not be possible to accrue interest on the arrears for the sixty days period.

The legislation applies to debtors resident in England and Wales.

Further details are available in https://www.legislation.gov.uk/ukdsi/2020/9780348211733/part/1

PRA110 Cash Flow Mismatch

Changes to this regulatory template are to be consulted on by the PRA in quarter one of 2021.

FCA move to RegData

The FCA’s new data collection platform, RegData, is now ready for use. Firms will be moving to it gradually. The move affects the Gabriel portal only and will not impact direct submissions from WIRES®. Whistlebrook is still waiting for the FCA to publish technical documentation regarding changes to direct submissions. Once this information is available Whistlebrook will publish an announcement and update WIRES® accordingly.

This regulatory update is Whistlebrook’s understanding of the position as at 23rd October 2020.