Financial Services Regulation and Compliance - Banking Jan 2022
Financial Services Regulation and Compliance - Banking Jan 2022
CBI introduces revised Standard Financial Statement to assist borrowers in financial distress
On 5 January 2022, the CBI published a revised simplified Standard Financial Statement (SFS) to assist borrowers in financial distress following its review of the SFS. The revised SFS must be used by all regulated firms from 1 January 2022.
The SFS is used by regulated firms to gather information from distressed borrowers on their current financial situation. Once it is completed, their lender can assess whether it can offer a borrower an alternative repayment arrangement.
Protection of borrowers in financial difficulty is a key priority for the CBI. The existing regulatory framework provides a significant number of protections and supports for borrowers in or facing mortgage arrears. The CBI has reviewed, advocated for and strengthened these rules, when necessary, in order to ensure that the regulatory framework remains fit for purpose and continues to ensure the protection of consumers in their dealings with their financial institutions.
EBA publishes its Opinion on the scale and impact of de-risking in the EU
On 5 January 2022, the EBA published its opinion on the scale and impact of de-risking in the EU (the opinion). De-risking can be a legitimate risk management tool but it can also be a sign of ineffective money laundering (ML) and terrorist financing (TF) risk management, with at times severe consequences.
Following a consultation with relevant competent authorities and relevant stakeholders across the EU, the EBA found that de-risking has a detrimental impact on the achievement of the EU's objectives, in particular, in relation to fighting financial crime effectively and promoting financial inclusion, competition and stability.
The opinion identifies a number of steps competent authorities and the European Commission could take, in addition to the standing EBA guidance on managing ML/TF risks. In particular, the EBA encourages competent authorities to engage more actively with institutions that de-risk and with users of financial services that are particularly affected by de-risking, to raise awareness of their respective rights and responsibilities. The opinion complements the EBA ML/TF risk factors guidelines and the guidelines on risk-based supervision, both of which were revised and published in 2021.
EBA published guidelines for institutions and resolution authorities on improving bank's resolvability and consults on transferability
On 13 January 2022, the EBA published its final guidelines for institutions and resolution authorities on improving banks' resolvability (the guidelines). On the same day, the EBA launched a consultation paper on guidelines for institutions and resolution authorities on transferability of parts of or a whole bank in the context of resolution to complement the resolvability assessment for transfer strategies (the consultation).
The guidelines set out requirements to improve resolvability in the areas of operational continuity in resolution, access to financial market infrastructure, funding and liquidity in resolution, bail-in execution, business reorganisation and communication.
Institutions and authorities should comply with the guidelines in full by 1 January 2024. The guidelines should be seen as the minimum steps that institutions should take towards resolvability.
The consultation aims at assessing the feasibility and credibility of transfer strategies and encompasses requirements relating to the implementation of transfer tools when considered as the preferred or alternative strategies for institutions. The consultation is open to contributions until 15 April 2022.
EBA confirms the continued application of COVID-19 related reporting and disclosure requirements until further notice
Following the uncertainty over COVID-19 developments, the EBA confirmed the need to continue monitoring exposures and the credit quality of loans benefitting from various public support measures on 17 January 2022.
The guidelines on the reporting and disclosure of exposures subject to measures applied in response to the COVID‐19 crisis (EBA/GL/2020/07) applied from 2 June 2020. They established quarterly reporting frequency and semi-annual disclosure of exposures under payment moratoria as well as on exposures under COVD-19-related public guarantee schemes. The EBA's announcement confirmed that, unless instructed otherwise by their relevant competent authorities, credit institutions are expected to continue to report and disclose COVID-19 related data beyond December 2021. The EBA will continue to monitor developments and will consider repealing the guidelines in the future when the COVID-19 situation permits and credit outlook of loans under public support measures improves.
EBA publishes binding standards on Pillar 3 disclosures on ESG risks
On 24 January 2022, the EBA published its final draft implementing technical standards on Pillar 3 disclosures on Environmental, Social and Governance (ESG) risks. Disclosure of information on ESG risks is a vital tool to promote market discipline, allowing stakeholders to assess banks’ ESG related risks and sustainable finance strategy.
The EBA ESG Pillar 3 package will help to address shortcomings of institutions’ current ESG disclosures at EU level by setting mandatory and consistent disclosure requirements, including granular templates, tables and associated instructions.
ECB launches 2022 climate risk stress test
On 27 January 2022, the ECB launched a supervisory climate risk stress test to assess how prepared banks are for dealing with financial and economic shocks stemming from climate risk. The exercise will be conducted in the first half of 2022 after which the ECB will publish aggregate results.
The aim of the test is to identify vulnerabilities, best practices and challenges banks face when managing climate-related risk. The test is a learning exercise which consists of three distinct modules: (i) a questionnaire on banks’ climate stress test capabilities, (ii) a peer benchmark analysis to assess the sustainability of banks’ business models and their exposure to emission-intensive companies, and (iii) a bottom-up stress test. To ensure the proportionality of the exercise, smaller banks will not be asked to provide their own stress test projections.
From March 2022, banks will submit their climate risk stress test templates to the ECB for assessment. The supervisor will subsequently engage with the banks and provide feedback. The results will feed into the Supervisory Review and Evaluation Process (SREP) from a qualitative point of view. This means that the stress test could indirectly impact Pillar 2 requirements through the SREP scores, but will not directly impact capital through Pillar 2 guidance