The speed read

  • European short selling bans come to an end
  • European Council on providing financial assistance
  • ESMA highlights impact of pandemic on the half-yearly financial reports
  • FCA respond to inquiry into economic impact of Covid-19
  • FCA remind firms of responsibilities
  • New Corporate Insolvency and Governance Bill
  • European Parliament to review CRR Amending Regulation
  • FCA consults on draft guidance on mortgage payment holidays
  • FCA consults on additional guidance for payments firms
  • Regulatory capital and IFRS 9 requirements around payment holidays
  • The impact of loan schemes on business banking dispute resolution

European short selling bans come to an end

Announcements have been made by national authorities of the expiration or early termination of the restrictions on short selling and similar transactions in Austria, Belgium, France, Greece, Spain, and Italy.

There are currently no prohibitions or restrictions in place in the UK.

 

European Council on providing financial assistance

The EU Council has decided to provide up to EUR 3 billion of macro-financial assistance to ten enlargement and neighbourhood countries to help them cope with the economic fallout of the pandemic. Financial assistance will be provided in the form of loans and is intended to help these jurisdictions cover their immediate financing needs which have increased as a result of the Covid-19 outbreak.

 

ESMA highlights impact of pandemic on the half-yearly financial reports 

The European Securities and Markets Authority (ESMA) issued a public statement addressing the implications of the pandemic for the half-yearly financial reports of listed issuers. The statement provides recommendations on areas of focus identified by ESMA and highlights:

  • The importance of providing relevant and reliable information, which may require issuers to make use of the time allowed by national law to publish half-yearly financial reports while not unduly delaying the timing of publication.
  • The importance of updating the information included in the latest annual accounts to adequately inform stakeholders of the impacts of COVID-19, in particular in relation to significant uncertainties and risks, going concern, impairment of non-financial assets and presentation in the statement of profit or loss.
  • The need for entity-specific information on the past and expected future impact of COVID-19 on the strategic orientation and targets, operations, and performance of issuers as well as any mitigating actions put in place to address the effects of the pandemic.

 

FCA respond to inquiry into economic impact of Covid-19

The House of Commons Treasury Committee (TSC) has published a letter from Christopher Woolard, FCA Interim Chief Executive, responding to questions on the FCA’s support for borrowers and small and medium-sized enterprises (SMEs), raised as part of the TSC’s ongoing inquiry into the economic impact of COVID-19. The letter addresses, among other things:

  • The impact of the rules providing temporary financial relief on credit ratings of customers affected by COVID-19 and prevention of future financial difficulties
  • What will be needed after the initial three-month period of temporary financial relief
  • Whether interventions to date have been sufficient to ensure the fair treatment and protection of vulnerable customers.

 

FCA remind firms of responsibilities

The FCA expect firms to provide strong support and service to customers during this period. They should be clear and transparent and provide support as consumers and small businesses face challenges at this time.

The FCA also expect firms to manage their financial resilience and actively manage their liquidity. Firms should report to the FCA immediately if they believe they will be in difficulty.

Coronavirus is causing unprecedented levels of uncertainty in financial markets and there has been a surge in retail investor activity and new accounts being opened. Against this backdrop, firms are reminded of their MiFID II conduct of business obligations. ESMA has published a statement around the risks this poses to retail investors. If you are a retail investment firm experiencing unusual increases in new client onboarding, please read the statement.

 

New Corporate Insolvency and Governance Bill

The Corporate Insolvency and Governance Bill 2019-21 has been introduced to the House of Commons and given its First Reading on 20 May 2020. The Bill makes provision about companies and other entities in financial difficulty and introduces temporary changes to the law relating to the governance and regulation of companies and other entities. Members of Parliament (MPs) will next consider all stages of the Bill on 3 June.

European Parliament to review CRR Amending Regulation

The European Parliament updated its procedure file on the Regulation amending the Capital Requirements Regulation (CRR) and CRR II in response to the COVID-19 pandemic 2020/0066(COD) (CRR Amending Regulation). The first reading of the CRR Amending Regulation is expected to take place at the plenary session on 18 June 2020.

 

FCA consults on draft guidance on mortgage payment holidays

The FCA published updated draft guidance for mortgage lenders, mortgage administrators, home purchase providers and home purchase administrators. The proposals in the guidance outline the options that firms will be required to provide to customers coming to an end of a payment holiday, as well as to those who are yet to request one.

For customers yet to request a payment holiday, the time to apply for one would be extended until 31 October 2020. For those who are still experiencing temporary payment difficulties due to COVID-19, firms are expected to continue to offer support, which could include extending a payment holiday by a further three months.

Feedback is requested by 26 May 2020. The final guidance will come into force shortly after.

Alongside the updated draft guidance, the FCA has published a webpage containing draft information for consumers on dealing with financial difficulties during COVID-19.

The current announcement relates only to mortgages; the FCA intends to update the guidance on consumer credit products in due course.

 

FCA consults on additional guidance for payments firms

The FCA published for consultation additional temporary guidance to help strengthen payments firms’ prudential risk management and arrangements for safeguarding customers’ funds in light of COVID-19. The proposed guidance will provide additional direction for firms to meet their safeguarding requirements and it also outlines the FCA’s expectation of firms to put in place more robust plans for winding down, so that customer funds are returned in a timely manner.

Feedback is requested by 5 June 2020, with the final guidance to be published at the end of June. Following the consultation, the FCA plans to publish a letter to CEOs of payment services providers (PSPs) which will include the finalised guidance. 

 

Regulatory capital and IFRS 9 requirements around payment holidays

The PRA published a statement which provides further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended in the context of COVID-19. The statement notes that the first payment deferrals are now coming to an end and refers to the FCA’s updated draft guidance on how lenders should treat mortgage borrowers at the end of the initial deferral period.

In summary, the PRA considers that eligibility for, and use of, COVID-19 related payment deferrals or extensions to those deferrals granted in accordance with the FCA’s proposed guidance would not automatically result in a loan: (i) being regarded as having suffered a significant increase in credit risk (‘SICR’) or being credit-impaired for expected credit loss accounting (ECL) purposes, or (ii) triggering a default under the Capital Requirements Regulation (CRR).

The statement is consistent with the FCA guidance by focusing on mortgage products, however the PRA expects its guidance to also be broadly relevant to similar government-endorsed schemes, and similar measures by lenders, to respond to the impact of COVID-19. The PRA will publish further detail when the FCA has finalised its guidance.

 

The impact of loan schemes on business banking dispute resolution

The Business Banking Resolution Service (BBRS) published a report on the impact of COVID-19 loan schemes on business banking dispute resolution. The report focuses on small and medium sized businesses’ (SMEs) experiences with the Government’s financial aid schemes and the potential economic consequences and challenges arising from them.

 

 

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