14 April 2020

European Regulatory Updates 2.0

As the pandemic accelerates, European regulators continue to shore up what they can of the financial system by relaxing, clarifying and delaying new rules and requirements.  Below we set out a brief survey of those regulatory actions from 31st March 2020.

To read our survey of regulatory actions from 25 March, please click here

Basel Committee on Banking Supervision and International Organization of Securities Commissions

3 April 2020:  The staged phase-in of global initial margin requirements for non-centrally cleared derivatives has been postponed by one year meaning that firms with an aggregate average notional amount of uncleared derivatives exceeding EUR 50bn will be subject from 1 September 2021 and firms exceeding EUR 8bn will be subject from 1 September 2022.  On 8 April, the UK’s FCA welcomed these deferrals.

European Securities and Markets Authority

2 April 2020:  ESMA has updated its Risk Assessment dashboard in light of COVID-19 with macroeconomic and political and event risk drivers moving into the very high risk category.

31 March 2020:  ESMA has encouraged national regulators not to prioritise supervisory action against execution venues and firms that are unable to publish best execution reports required under MiFID II according to the relevant requirements and generally to apply a risk-based approach to their enforcement of these deadlines.

27 March 2020:  ESMA has decided to continue to require the application of transparency calculations for equity instruments from 1 April 2020.  Unlike new tick-size requirements (which have been delayed) ESMA did not consider that new IT systems were required for equity instruments, as market participants have gone through this transparency exercise on a number of occasions in the past.  

European Banking Authority

2 April 2020:  The EBA has issued Guidelines on legislative and non-legislative moratoria on loan repayments by corporations and individuals.  The Guidelines clarify which legislative and non-legislative moratoria do not trigger the classification of the loan being in forbearance.  In all other cases, the requirement to do a case-by-case classification is still in place, and the EBA stresses the need for institutions to continue to identify those situations when obligors’ financial difficulties are longer-term and to classify them accordingly.  

31 March 2020:  The EBA has confirmed that national authorities should assess the extent to which allowing delayed submissions of supervisory reporting data is justified.  At the time of the EBA’s statement, this delay is only being contemplated for submissions due between March and the end of May 2020 and should allow up to one additional month for submission.  This concession does not include information on the liquidity coverage ratio, additional monitoring metrics, reporting for resolution planning purposes or other data sets identified locally as a priority.  The EBA is also encouraging flexibility over Pillar 3 reports but institutions that are going to report late should inform their regulators why they need the extra time and give an estimated publication date.  

Financial Conduct Authority

8 April 2020:  The FCA has set out a package of temporary policy measures for companies and their shareholders and prospective shareholders in order to provide certainty in a capital raising situation.  Measures include encouraging ‘soft pre-emption’, allowing shorter form prospectuses, and temporarily modifying requirements for working capital statements to deal with corona-virus related assumptions.

6 April 2020:  The FCA has set out its expectations regarding funds.  They have agreed that annual and half-yearly fund reports can be delayed for two and one month respectively, clarified that whether virtual general meetings can be held depends on the terms of the fund’s particular documentation, clarified that compliance with limits on VaR (value at risk) should already be dealt with and firms should handle issues appropriately, and confirmed that the FCA will accept electronic signatures.  

3 April 2020:  The FCA has set out their expectations around the application of the Senior Managers and Certification Regime.  The FCA will not require firms to submit updated Statements of Responsibilities if the change is made to cover direct responses to the pandemic and is expected to be temporary, but to the extent responsibilities that are reallocated this should be documented internally.  In addition, the FCA has adjusted the period that firms can appoint an individual to cover for a Senior Manager on an emergency basis without being approved from 12 weeks to 36 weeks.  The FCA also discusses its approach to furloughed Senior Managers.

2 April 2020:  The FCA has published draft guidance on how firms should deal with customers facing temporary payment difficulties in relation to credit cards, other revolving credit, personal loans and overdrafts.  Measures include payment deferrals of up to three months, accepting lower monthly payments, reviewing interest rates in order to ensure that customers are being treated fairly, and interest free overdrafts.  The guidance comes into force 9 April 2020.

Prudential Regulation Authority

3 April 2020:  In conjunction with the FCA, the PRA has published a statement on its expectations of firms in relation to the Senior Managers and Certification Regime (see above).

2 April 2020:  The PRA has published a statement in response to the EBA’s statement on supervisory reporting and Pillar 3 disclosures.  The PRA will accept delayed submission for certain regulatory reporting due before 31 May 2020 and for certain other PRA-owned regulatory reporting.  The PRA is also to continue to allow branches to use the old Branch Return and confirmed its flexibility around Pillar 3 disclosures.  

2 April 2020:  The PRA and HM Treasury jointly released a statement welcoming the announcement on 27 March that the implementation of Basel 3.1 standards will be delayed by one year.  Basel 3.1 (or Basel IV) primarily addresses banks’ use of internal models under the Internal Ratings-Based Approach.

31 March 2020:  Sam Woods (Deputy Governor and CEO) has written to the UK’s seven most systemically important banks to ask them to cancel payments of any outstanding 2019 dividends and not to pay any cash bonuses to senior staff.

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