Posted on: November 30, 2021
Investment Firms Prudential Regime (IFPR) Final Policy Statement
The Financial Conduct Authority issued the third policy statement (21-17) concerning the introduction of the UK IFPR, effective from 1 January 2022.
It is understood that the new regulation (applicable to investment firms that are regulated only by the Financial Conduct Authority and authorised under MifiD) will have its first report reference date as 31 March 2022. The relevant reporting templates will be included in WIRES® from mid / late January 2022.
Bank of England Taxonomy 3.5.0
The final version of this taxonomy was issued by the Bank of England in November. This taxonomy includes the changes for the UK’s Leverage Ratio reporting templates which will replace the EBA’s format. The new templates are in PRA Policy Statement 21-21. Changes to WIRES® will be made so that the updated reporting requirements for Leverage are available from mid / late January 2022. Whistlebrook understands that the first report reference date for the new reporting will be 31st March 2022.
Whistlebrook’s understanding of the various milestones associated with the changes being introduced to leverage reporting and to the related UK Leverage Ratio framework is as follows.
|Effective Dates for all the changes confirmed in PRA Policy Statement 21-21
|Firms not subject to the UK Leverage Ratio Framework will be expected to maintain a minimum leverage ratio of 3.25%
|Reporting – new UK leverage ratio templates introduced for all firms to submit. First report reference date is 31 March 2022.
|Reporting – Firms subject to the framework before 1 January 2022 will start reporting data including those identified as ‘LREQ firms’, in the UK leverage ratio templates (also all other relevant fields)
|Reporting – Firms subject to the framework before 1 January 2022 will provide the averages (except for daily securities financing transaction exposures) in their leverage ratio submissions.
|Exposure – Exclusion of central bank reserves such that matching is extended from ‘deposits’ to all ‘liabilities’
|Disclosure (revised Key Metrics and new Leverage Ratio) templates for use from the accounting year ended in 2022.
|Threshold to determine if subject to the framework extended to include firms with non-UK assets of £10billion or more (averaged over the 3 accounting year ends prior to 1 Jan 2023).
|Reporting – all LREQ firms (subject to the framework under either threshold) will report daily averages on securities financing transaction exposures
|Reporting – Firms new to the framework on or after 1 January 2022 will provide the averages and populate the for ‘LREQ firms’ cell as well as the general ones.
|Level of Consolidation – The UK Leverage Ratio Framework is extended to individual firms that are not CRR consolidation entities or the parent of a ring fenced bank sub group.
The PRA advised that the method of submission of the branch return is to be changed to an XML file for upload to the BEEDS system. The first affected reporting will be for report reference 30th June 2022 and due within 30 business days. The necessary amendments to WIRES® will be closer to the aforementioned date.
From 1 January 2022, UK CRR2 becomes effective under European Banking Authority taxonomy 3.0. This taxonomy is already included in the 6.1 version of WIRES®.
Credit Risk IRB Approach
With effect from 1st January 2022, the materiality thresholds associated with the definition of exposures in default, are applicable. The relevant PRA policy statement is 7-19.
The definition (applicable from the aforementioned date) of exposures in default is widened such that other factors (beyond past due a material amount) are to be considered e.g. bankruptcy of the borrower, repayment unlikely without realisation of collateral, loss of income, call of a guarantee, etc. Further details are in EBA GL 2016-07.
Finally, under the IRB approach to credit risk, UK residential mortgages except those in default, will be subject to a weighted average risk weight floor of 10% This floor is effective from 1 Jan 2022. Further details are in PRA policy statement 16-21
Non-performing Loan Securitisations
The PRA issued policy statement 24-21 in late October 2021. Where a firm holds a tranche of a non-performing loan securitisation, except where external ratings are used, the risk weight floor required is 100%. This capital treatment is effective from 1 January 2022.
The revised plan communicated by the Bank of England is that firms may choose to be on-boarded from March 2022. Data being reported in April will be for March. The changes are represented by the Bank’s taxonomy 1.2.0. This taxonomy is planned to be included in WIRES®, due for release by the end of 2021.
It is still understood that an interface to be provided by the Bank, that will allow direct submissions to BEEDS, is not expected until late summer of 2022.
It was advised in the FCA Financial Regulatory Initiatives Grid prior to November’s version, that a consultation paper on Basel 3.1 (expected before the end of 2021) has been delayed until the second half of 2022.
This regulatory update is Whistlebrook’s understanding of the position as at 29th November 2021.