Covid-19 loan schemes to boost small businesses
HM Treasury has made changes to business interruption loan schemes. In particular:
- Businesses will be able to borrow between £2,000 and £50,000 and access the cash within days
- Loans will be interest free for the first 12 months, and businesses can apply online through a short and simple form
Firms will be able to apply for these loans through a network of accredited lenders from Monday 4 May. The government will be working with lenders to fast-track these applications where possible and agree a low standardised level of interest for the remaining period of the loan.
The PRA also published a statement in response, which sets out its observations on whether the guarantees provided by the government are eligible for recognition as unfunded credit risk mitigation (CRM) under the Capital Requirement Regulation (‘the CRR’).
The PRA expect lenders to use their judgement on what information is required to make credit decisions. Lenders are reminded that they should consider the range of information available to them including (but not limited to):
- The performance of the business prior to the Covid-19 outbreak;
- A view of how the loan will be repaid in due course, relying on judgement in the absence of financial forecast information
- The general prospects for the sector in which the business operates once the effects of the pandemic have receded.
Meanwhile, the FCA also published a statement explaining that if firms comply with the relevant requirements of CBILS as announced today, the FCA does not expect them to comply with CONC 5.2A.4-34 where the lending is regulated. CONC 5.2A contains rules and guidance on carrying out a reasonable assessment of a customer’s creditworthiness before taking the process forward. But firms must continue to carry out creditworthiness assessments in line with the whole of CONC 5.2A on all other regulated lending.
The FCA intend to give further clarity on the BBL scheme when it is formally launched.
The fair treatment of corporate customers preparing to raise equity finance
In a recently published Dear CEO letter, the FCA set out its expectations around the fair treatment of corporate customers preparing to raise equity finance.
There have been instances where banks may have used their lending relationship to exert pressure on corporate clients to secure roles on equity mandates that the issuer would not otherwise appoint them to.
The FCA will be looking into this further, but want any practice of this nature to cease immediately. Firms are reminded of their obligation to treat customers fairly as well as the requirements under SMCR.
New EU Commission banking package to support economy
The EU Commission has adopted a banking package to facilitate bank lending and help mitigate the economic impact of COVID-19. It includes an Interpretative Communication on the application of the EU’s accounting and prudential frameworks which encourages banks and supervisory bodies to apply the rules more flexibly.
The package also proposes the following amendments to the Capital Requirements Regulation:
- Adapting the timeline of the application of international accounting standards on banks’ capital;
- Treating public guarantees granted during the crisis more favourably;
- Postponing the date of application of the leverage ratio buffer; and
- Modifying the way of excluding certain exposures from the calculation of the leverage ratio.
In addition, the Commission proposed advancing the date of application of several agreed measures that incentivise banks to finance employees, SMEs and infrastructure projects.
Trade associations call for pragmatic approach to NFCs- reporting
A group of trade associations, including the International Swaps and Derivatives Association (ISDA) and the Association for Financial Markets in Europe (AFME), published a letter to ESMA regarding the EMIR Refit requirement for financial counterparties (FCs) to report on behalf of non-financial counterparties that are not subject to the clearing obligation (NFCs-).
The trade associations ask ESMA to state an expectation that NCAs should not prioritise supervisory actions in relation to the requirement and should generally apply their risk-based supervisory powers in day-to-day enforcement of this requirement in a proportionate manner until 21 November 2020.
Timeline for LIBOR transition still stands
The FCA confirmed that firms cannot rely on LIBOR being published after the end of 2021.
The Chair of the RFRWG, the FCA and the Bank of England will continue to work with members of the RFRWG and international counterparts to assess the evolving impact of Coronavirus on firms’ LIBOR transition efforts, and provide further updates in due course.
However, HMRC has announced that the deadline for responses to its consultation on the taxation impacts arising from the withdrawal of LIBOR has been extended from 28 May to 28 August 2020.
Coronavirus buys industry more time to implement strong customer authentication
Firms will have an extra six months to implement strong customer authentication (SCA) for e-commerce, the FCA has said. The deadline has moved from 14 March 2021 to 14 September 2021.
The FCA expects UK Finance, as coordinator for the industry, to discuss the detailed phased implementation plan and critical path with all stakeholders and agree it with the FCA as soon as possible. In the meantime, firms should continue with the necessary preparatory activities such as robust end-to-end testing.
Demands for clarity on BI insurance cover
Businesses who are facing uncertainty over their business interruption (BI) insurance claims will get more clarity as the FCA seeks a court declaration. The FCA hopes this will resolve some key contractual uncertainties as quickly as possible.
Supporting customers in temporary financial difficulty
The FCA has published a consultation on proposed guidance around its expectations of firms when dealing with customers of general insurance (GI) and pure protection contracts who may be experiencing temporary financial difficulty as a result of COVID-19.
Actions which the FCA will expect firms to take include:
- Re-assessing the risk profile of the consumer
- Considering whether there are other products which would better meet the customer’s needs and revising the cover accordingly
- Working with consumers to avoid the need for cancellation of necessary cover such as considering payment deferral
- In addition to waiving cancellation fees, waiving any fees associated with adjusting a qualifying customer’s policy.
Feedback on the proposed guidance is requested by 5 May 2020, and the FCA aims to implement the measures by 13 May 2020.
FCA proposed guidance on insurance and product value
In proposed guidance, the FCA has confirmed its expectation that firms that are manufacturers or product providers should consider whether and how COVID-19 may have materially affected the value of their insurance products. It is also proposed that firms should complete a review of their product lines and decide on any resulting action within six months of the guidance being finalised.
Feedback on the proposed guidance is requested by 15 May 2020, and the FCA aims to bring the measures into force by the end of May 2020.
Timeframe for contacting mortgage prisoners extended
The FCA has extended the window during which it expects firms to contact “mortgage prisoners” about switching options by three months, to 1 December 2020.
The FCA also published a letter addressed to mortgage lenders and administrators managing closed mortgage books. It asks firms with customers who took out mortgages with higher risk characteristics before the financial crisis to review the interest rates as a matter of urgency to ensure customers are being treated fairly.
Find out about delayed activities and regulatory change
The FCA has published a new webpage which brings together information on the activities and regulatory changes which it has delayed in order to enable firms to focus on supporting their customers. The FCA has also scaled back its programme of routine business interactions, especially through meetings so that it only contacts firms on business-critical requests and responses to the current situation.
FSMA Statutory Instrument
The Financial Services and Markets Act (FSMA) 2000 (Regulated Activities) (Coronavirus) (Amendment) Order 2020 (and explanatory memorandum) has been laid before Parliament.
This instrument is being made in order to remove from the scope of consumer credit regulatory regime loans of £25,000 or less that are made by commercial lenders to sole traders, unincorporated associations and partnerships of fewer than four people under the Bounce Back Loan Scheme (BBLS).
Temporary reduction to LISA charges
As a measure to assist individuals who want to access their Lifetime ISA (LISA) funds early, HM Treasury (HMT) has announced a temporary reduction in the withdrawal charge to 20% between 6 March 2020 and 5 April 2021 (inclusive). This will mean account holders will only have to pay back any government bonus they have received, but will not pay the additional withdrawal charge of 5%.
How has the insurance sector responded to Covid-19?
The House of Commons Treasury Committee (TSC) published a letter from Huw Evans, Director General of the Association of British Insurers (ABI), responding to the TSC’s request for further information on the insurance industry’s response to COVID-19. Mr Evans outlines the steps taken so far, including: pledges on home, motor and travel insurance to help and support customers; significant pay-outs on travel insurance; ensuring drivers are not penalised following suspension of vehicle MOT testing; providing cover for cancellation of events and school trips; and supporting the NHS and key workers with the use of the private health sector. At the conclusion of the letter, Mr Evans advises that he will address the issue of business interruption cover in a more formal reply at a later date.