|FCA comments on BBLS
The FCA has updated its statement on the Coronavirus Business Interruption Loan Scheme (CBILS) to include further details on the launch of the new Bounce Back Loan Scheme (BBLS), addressing in particular the relationship between its rules and the schemes, and the prevention of financial crime.
The FCA also published a letter from Christopher Woolard, FCA Interim Chief Executive, to Caroline Wayman, Chief Ombudsman and Chief Executive of the Financial Ombudsmen Service (FOS), outlining the new regulatory arrangements for the BBLS, the new approaches to creditworthiness assessments under the CBILS, and how FOS will approach complaints arising from lending under these schemes.
Clarity around accessing restricted savings
The FCA updated its Covid-19 information for firms webpage to include a new section on accessing restricted savings. The FCA confirms that if a customer requests to withdraw funds, it would expect firms to:
- Pay due regard to the interests of their customers and treat them fairly
- Communicate in a way that is clear, fair and not misleading
- Consider the needs of vulnerable customers in their actions or communications.
Access to premises shouldn’t void policies, says FCA
The FCA has confirmed that, where access is required as part of the terms of a policy, it expects insurers to take account of a customer’s temporary change in how they access those premises, and treat their customers fairly. The new guidance says insurers shouldn’t void policies or reduce potential claims as a result.
FCA pilots digital sandbox
With the aim of providing enhanced regulatory support to firms looking for innovative ways to tackle the challenges posed by Covid-19, the FCA will accelerate its plans to pilot a ‘digital sandbox’. The FCA welcomes initial expressions of interest in how they might assist in the development of the sandbox. Applications will open later in summer 2020.
Position limits for certain commodity derivatives published
The FCA has published updated position limits for certain commodity derivative contracts traded on UK trading venues. These limits are published in advance of the publication of ESMA Opinions on the limits. These limits may change in light of an ESMA opinion, or in the event that the FCA decide it is necessary.
Money laundering and terrorist financing under the spotlight
The Financial Action Task Force (FATF) published a paper identifying challenges, good practices, and policy responses to new Money Laundering and Terrorist Financing threats and vulnerabilities arising from Covid-19. Recommended actions include:
- Domestic coordination to assess the impact of COVID-19 on anti-money laundering and countering the financing of terrorism (AML/CFT) risks and systems
- Strengthened communication with the private sector
- Encouraging the full use of a risk-based approach to customer due diligence
- Supporting electronic and digital payment options.
Standards of lending to support BBLS
The Lending Standards Board (LSB) published an update for firms offering products under CBILS and BBLS on how the Standards of Lending Practice for business customers effect the requirements of BBLS and take account of the changes to CBILS announced on 27 April. LSB recognises that, by participating in the Government schemes, firms may not be able to apply in full effect all provisions within the Standards as certain aspects of the products have been determined by Government and firms will have a limited role in the design and review of the products.
More FCA flexibility around SMCR
The FCA has published a modification by consent relating to the Senior Managers and Certification Regime (SMCR). It extends the maximum period firms can arrange cover for a senior manager without being approved, from 12 weeks to 36 weeks, in a consecutive 12-month period. The FCA is also allowing firms to allocate an absent senior manager’s prescribed responsibilities to the individual covering the role.
FCA expectations on financial crime systems and controls
On its new webpage, the FCA set outs its expectations of firms’ financial crime systems and controls during Covid-19, taking into account specific operational challenges and the need to reprioritise or delay some activities.
The FCA explains what it will consider when determining whether such delays are reasonable. Any delays should be clearly risk assessed and documented through appropriate governance procedures, and the regulator should be informed.
Information security still a priority for FCA
While Covid-19 has meant alternative ways of working are needed to enable business continuity, the FCA expects firms to prioritise information security and ensure that adequate controls are in place to manage cyber threats. Firm should:
- Be vigilant to the potential increase in security breaches or cyber-attacks
- Ensure that they continue to have appropriate governance and oversight arrangements in place
- Review the Covid-19 impact on their information and systems security defences
- Ensure that the general notification requirements are followed, and significant operational and cyber incidents are reported.
|MiFID II obligations during Covid-19
The European Securities and Markets Authority (ESMA) published a statement reminding firms about their MiFID II obligations during increased retail investor activity as a result of Covid-19. ESMA reminds firms of their obligation to act in accordance with the best interests of their clients, and points to the most relevant conduct of business obligations under MiFID II, namely product governance, information disclosure, suitability, and appropriateness.
Forward planning supported with new Grid
The Financial Services Regulatory Initiatives Forum has published the first regulatory initiatives Grid, setting out the regulatory pipeline and allowing firms to plan for new initiatives that may impact them operationally.
The Grid will run as an initial 12-month pilot and will be published at least twice a year.
PRA sets out its priorities in light of Covid-19
The PRA published a statement setting out further details of the PRA’s plans to help firms maintain their safety and soundness and deliver the critical functions they provide to the economy. The Prudential Regulation Committee and the Financial Policy Committee have agreed to re-prioritisation in the following areas of the PRA’s work:
- Climate change: the launch of the Climate Biennial Exploratory Scenario (BES) exercise will be postponed until at least mid-2021.
- LIBOR transition: full supervisory engagement on LIBOR will resume from 1 June 2020, including transition data reporting at the end of Q2.
- Insurance Stress Test (IST): the results of last year’s IST will not be published and the next IST will be postponed to 2022, with a view to seeking feedback from firms on the proposed design during Q4 2021.
- Stressed Value at Risk (SVAR): most firms will not be expected to update their SVAR 12-month period during the current period of financial market stress. Firms will be permitted to delay the review of the choice of historical data until December 2020, in line with EBA guidance.
In addition, the PRA and BoE have announced changes to the timing and requirements relating to the following resolution measures:
- Resolvability Assessment Framework: The dates for major UK banks and building societies to submit their first reports on their preparations for resolution and publicly disclose a summary of these reports have been extended by a year.
- Valuation in Resolution: The compliance deadline for the BoE’s Statement of Policy (SoP) on valuation capabilities to support resolvability has been extended to 1 April 2021.
- Resolution plan reporting: Firms will not be required to submit certain resolution pack information under Supervisory Statement SS19/13 until the end of 2022.
- Minimum Requirement for Own Funds and Eligible Liabilities (MREL): 2021 MRELs will reflect the PRA’s policy changes to Pillar 2A capital setting (see below). MRELs will be kept under review and market developments will be monitored. BoE intends to exercise its discretion with respect to the transition time firms are given to meet higher MRELs.
FCA extends reporting deadline under Payments Account Directive
The FCA has extended the reporting deadline under the Payment Accounts Regulations (SUP16.22). While reports for the period covering 1 March 2018 to 29 February 2020, would typically be expected by end April, the deadline is now 30 June 2020.
BoE and PRA delay implementation of operational resilience requirements
The BoE and PRA have delayed implementation of operational resilience requirements. In respect of impact tolerances for important business services and operational resilience for financial market infrastructures (FMIs), it is planned that firms and FMIs will not need to meet requirements resulting from the consultations before the end of 2021.
How has Covid-19 impacted the banking sector?
The Bank for International Settlements (BIS) published a bulletin about the impact of COVID-19 on the banking sector. BIS highlights the following key takeaways:
- Banks’ performance on equity and debt markets since the COVID-19 outbreak has been on a par with that experienced after the collapse of Lehman Brothers in 2008.
- During the initial phase, the market sell-off swept over all banks. Markets showed some differentiation by bank nationality, and credit default swap (CDS) spreads rose the most for the banks that had entered the crisis with the highest level of credit risk.
- The subsequent stabilisation, brought about by forceful policy measures since mid-March, has favoured banks with higher profitability and healthier balance sheets.