Posted on: May 18, 2023

Contingent Leverage

The Prudential Regulation Authority issued its policy statement 5-23, in which it revised the effective date of contingent leverage ratio reporting. The first report reference date will be 30 June 2024. Frequency of reporting will be six monthly. Only firms that are classed as ‘LREQ’ will be required to report data. The thresholds to be an ‘LREQ’ firm are UK retail deposits of at least £50bn or non-UK assets (averaged over 3 accounting year ends prior to 1 Jan 2023 and rolling thereafter) of £10bn or above.

Whistlebrook understands that contingent leverage refers to positions mainly in securities financing transactions (including ‘netted repos’ where cash receivable and payable are netted) and collateral swaps.

The risk in a stress is that these transactions are far less available or not as favourable. In that situation, higher cash variation margin may be required. Also, entities could need to seek alternatives to these transaction types. In both cases, it may mean higher exposure amounts and lower leverage.

For ICAAP purposes, all firms engaged in such trades are required to consider this risk.

Financial Resilience Return (FIN073)

The Financial Conduct Authority confirmed in its policy statement 23-3 that a Financial Resilience return will be introduced for solo regulated firms, only. The related consultation paper is 22-19. The plan is for the regulatory return to replace information that is being collected from Financial Resilience surveys.

UK Green Taxonomy

Whistlebrook understands that the UK Government is to publish a consultation paper on the taxonomy in Autumn 2023. It is expected that there will be reporting and disclosure requirements, both of which are likely to be voluntary for the first two years. The taxonomy is anticipated to identify which economic activities are considered to be ‘green’. That classification will undoubtedly influence the strategies of financial services firms, going forward.

WIRES Future Releases

Planned Time of Release Content
30 June 23 ·         WIRESPLUS on the Cloud and enhancements

·         Fixes
September / October ·         BASEL 3.1 taxonomy (dependent on the regulator making this available)

·         Any changes for the Transitional Capital Regime

·         Fixes

This regulatory update is Whistlebrook’s understanding of the position as at 18th May 2023.