August 2021 Regulation Update

OSCA Replacement by BEEDS

The Bank of England’s taxonomy 1.2 is now expected to be published during the first week of September. This taxonomy introduces changes to Bank of England statistical reporting, but does not require any additional data to be reported. It is Whistlebrook’s understanding that a BEEDS interface, allowing system to system transmission will not be provided by the Bank until late August 2022. Therefore as all firms will be submitting to BEEDS by the end of quarter two of 2022, there will be a need for manual upload of some submissions until the interface is live.

 

Bank of England Taxonomy 3.4.0

The Bank issued the final version of its taxonomy 3.4 on 2 August 2021. This taxonomy is effective from 1 January 2022 and has changes to PRA Forecast Capital+ and Profit or Loss templates. The changes are being made to align the forms to revised COREP layouts under EBA taxonomy 3.0, also starting on the same date. The next release of Wires will contain the new taxonomy.

 

Basel 3.1

The FCA is to issue a consultation paper on Basel 3.1. The consultation may influence how Basel 3.1 is implemented. As at the time of writing, Whistlebrook understands that the effective date will still be 1 January 2023 and that the contents are as detailed in the framework of December 2017.

 

Exposures in Default

Evidence of being classed as in default is to be expanded with effect from 1 January 2022. Whistlebrook understands that being past due a ‘material’ amount for more than 90 days will continue to be an indication of an exposure being in default. In addition to that, other signals should be considered and these include, but are not limited to, bankruptcy (a request of a lender or of the borrower), repayment being unlikely without realisation of provided collateral and a significant loss of income. Further details are EBA Guidelines 2016-07.

 

Materiality thresholds:

The 90 days past definition referred to a ‘material’ amount. Materiality was defined in PRA policy statement 7-19. For firms that use only the standardised approach (SA) to credit risk, these thresholds were effective from 31 December 2020. Firms that do not apply only SA, are required to implement the thresholds from 1 January 2022.

 

UK CRR 2 Counterparty Credit Risk

One of the changes that will be effective under UK CRR2 is the approach to measuring counterparty credit risk (CCR). Existing standardised methods (including Mark to Market) are to be replaced. Along with the replacement is implementation of eleven new CCR COREP templates. The new methods (broadly the same in the EU) will reduce the discretion that can be applied under existing ways, resulting in differences across jurisdictions. Useful references are PRA consultation paper 5-21, policy statement 17-21 and EU OJ 2019-150.

 

UK CRR2 Roundtable

Whistlebrook will be holding a virtual event where its clients will have the opportunity to discuss the changes being introduced by UK CRR2. This event will be held in mid to late September.

This regulatory update is Whistlebrook’s understanding of the position as at 24th August 2021.