Key Regulatory Topics: Weekly Update 5-11 Nov 2021
12 November 2021
Consumer / Retail
Further FCA policy statement and final rules on regulation of pre-paid funeral plans
On 5 November, the FCA published a second policy statement and set out more final rules for the regulation of the pre-paid funeral plans market following its July consultation paper. This policy statement sets out provisions to: (i) minimise harm to consumers from the failure of a regulated funeral plan provider and protect their interests if the firm becomes insolvent; (ii) ensure an orderly resolution if regulated funeral plan providers fail; (iii) ensure a transfer of contracts to another provider wherever possible; (iv) enable the FSCS to arrange continuity of funeral plan contracts or pay appropriate compensation if it declares the regulated funeral plan provider ‘in default’; and (v) manage any undue impact on FSCS levy-payers. The FCA states that in general, respondents did not raise significant objections to the consultation proposals. Instead, many of the responses asked questions about how the proposals to handle the existing contracts of an authorised plan provider that fails would work in practice. These questions covered issues around appropriate trust structure to ensure payments could be made to the correct beneficiaries, funding arrangements, and impacts on customers holding plans with a failed provider. The FCA has therefore made the rules as consulted on, subject to minor corrections and amendments to provide clarity that do not alter its policy intentions or the outcomes the rules are intended to deliver. The rules are dependent on the Government’s proposed funeral plans legislation. The FCA intends for these to come into force on the same date and has set them out in a draft instrument.
Fees / Levies
FSCS announces latest 2021/22 levy of £717m
On 11 November, the FSCS published its latest ‘Outlook’ update for November, which confirms the total levy forecast for 2021/22 as £717m, lower than the £833m forecast in May. The FSCS explain that this is due to failures that were expected in 2021/22 from the retail pool not materialising. The FSCS will also not be calling for a supplementary levy to cover any additional costs. The FSCS have also forecasted the 2022/23 levy at £900m.
Please see the Other Developments section for the BCBS’ updates on its ongoing work regarding climate-related financial risks, cryptoassets, the G-SIB assessment methodology and disclosure standards.
HMT and BoE announce next steps on exploration of a UK CBDC
On 9 November, HMT and the BoE announced the next steps on the exploration of a UK CBDC: (i) ‘research and exploration’ phase - in 2022, HMT and the BoE will launch a consultation, which will set out their assessment of the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a UK CBDC. It will evaluate the main issues at hand, consider the high level design features, possible benefits and implications for users and businesses, and considerations for further work; (ii) ‘development phase’ – the authorities will decide, in accordance with the findings of the 2022 consultation whether they are content to move to the next phase, which will span several years. A technical specification would follow the consultation explaining the proposed conceptual architecture for any CBDC. This could involve in-depth testing of the optimal design for, and feasibility of, a UK CBDC; and (iii) launch of a CBDC – HMT and the BoE state that if the results of this ‘development’ phase conclude that the case for CBDC is made, and that it is operationally and technologically robust, then the earliest date for launch of a UK CBDC would be in the second half of the decade.
Corrigendum for Cross-border Distribution Regulation ITS published in OJ
On 11 November, Corrigendum to Commission Implementing Regulation (EU) 2021/955 laying down implementing technical standards for the application of Regulation (EU) 2019/1156 with regard to the forms, templates, procedures and technical arrangements for the publications and notifications of marketing rules, fees and charges, and specifying the information to be communicated for the creation and maintenance of the central database on cross-border marketing of AIFs and UCITS, as well as the forms, templates and procedures for the communication of such information, was published in the OJ. The corrigendum replaces Article 1 on the publication of national provisions concerning market requirements and the third disclaimer in Annex 1 with new text.
ECON adopts draft reports on use of KIDs under PRIIPs and UCITS
On 10 November, ECON updated its webpages on draft legislation in relation to the use of key information documents: (i) on 25 October, ECON adopted a draft report on the proposal for a draft Regulation amending the PRIIPs Regulation (1286/2014) as regards the extension of the transitional arrangement for management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS; and (ii) on 29 October, ECON adopted a draft report on the proposal for a Directive amending the UCITS Directive (2009/65/EC) as regards the use of key information documents (KIDs) by UCITS' management companies. The procedure files for each proposal state that they will be considered by the EP’s plenary session on 22-25 November. The draft reports set out suggested amendments to the proposed legislation.
Markets and markets infrastructure
Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2021
On 11 November, the Financial Services (Gibraltar) (EU Exit) Regulations 2021 were published together with an explanatory memorandum. The instrument extends by 12 months until 31 December 2022, the transitional arrangements under Parts 2 and 3 of the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019, which enable specified categories of Gibraltar-based firms to provide financial services in the UK and facilitate the access by similar types of UK-based firms to Gibraltar’s financial services market. The memorandum explains that once the Gibraltar Authorisation Regime is implemented, for which HMT is currently preparing the secondary legislation, the temporary arrangements will be repealed.
BoE letter to FMIs on profit distributions
On 11 November, the BoE published a letter sent to FMIs to announce that it has reviewed its expectations from June 2020 in relation to distributions of profits. The BoE no longer expects FMIs to discuss with them in advance of making a distribution to shareholders.
ESMA final draft technical standards on crowdfunding
On 10 November, ESMA published a final report on 8 draft regulatory technical standards and 4 draft implementing technical standards under the European Crowdfunding Service Providers Regulation (ECSPR). The report sets out ESMA’s feedback statements relating to the 9 draft technical standards that it has consulted on and presents ESMA’s analysis on the 3 other standards, which it considered to be too limited in scope for a full public consultation. The 12 standards in the report cover all investor protection aspects under the ECSPR, namely: (i) complaints handling; (ii) conflict of interest; (iii) business continuity plan; (iv) authorisation; (v) information on default rate; (vi) entry knowledge test and simulation of the ability to bear loss; (vii) key investment information sheet; (viii) cooperation between competent authorities; (ix) reporting; (x) notification to ESMA of national provisions concerning marketing requirements; (xi) cooperation between competent authorities; and (xii) cooperation between competent authorities and ESMA. ESMA states that the draft technical standards have been amended and improved based on the feedback received during the consultation. As the ECSPR entered into force on 10 November, ESMA decided to deliver on all its technical mandates simultaneously in order to provide indicative guidance to competent authorities and stakeholders. The draft technical standards are submitted to the EC for adoption. The EC shall decide whether to adopt the technical standards within 3 months.
EC proposes extension to equivalence decision for UK CCPs
On 10 November, the EC published a statement by Commissioner for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuinness on the EC’s way forward for central clearing. In order to address possible short-term financial stability risk, linked to an abrupt interruption in access to clearing services, Ms McGuinness states that the EC will soon propose an extension of equivalence for UK-based CCPs. Ms McGuinness states however that the EC remains of the view that over-reliance on UK-based CCPs for some clearing activities is a source of financial stability risk in the medium term and will in 2022 propose measures to make EU-based CCPs more attractive to market participants, taking into account the results of the assessment currently being undertaken by ESMA on the systemic importance of UK-based CCPs. Ms McGuinness envisages two pillars as their basis: (i) building domestic capacity - in this context, the EC will explore ways to enhance liquidity in EU CCPs and to expand the range of clearing solutions on offer from EU infrastructures; and (ii) supervision – to strengthen the EU's supervisory framework for CCPs, including a stronger role for EU-level supervision.
EBA final draft RTS on individual portfolio management by crowdfunding service providers
On 9 November, the EBA published its final report on draft regulatory technical standards (RTS) on individual portfolio management of loans offered by crowdfunding service providers. Article 6(7) of the European Crowdfunding Service Providers Regulation (ECSPR) mandates the EBA to submit draft RTS to specify information that must be provided to investors to ensure they are appropriately informed about the risks they are exposed to when they invest in individual portfolio management of loans. The draft RTS: (i) require providers to show that the measurement techniques employed for risk assessments are based on a sufficient number of elements and are appropriate to the complexity and level of the risks underlying: (a) the single projects; (b) the portfolio; and (c) the project owners; (ii) set out the information that crowdfunding platforms must disclose in relation to several key characteristics of each loan included in a certain portfolio; and (iii) specify the policies that the crowdfunding platform needs to have in place in relation to contingency funds, should it decide to have one to compensate investors. These policies aim to ensure that contingency funds have appropriate governance arrangements and procedures in place with respect to the collection of fees and disbursement of refunds. The draft RTS will be submitted to the EC for endorsement after which they will be subject to scrutiny by the EP and the Council before being published in the OJ.
Council of the EU adopts Directive on credit services and credit purchasers
On 9 November, the Council of the EU published the provisional version of the press document stating the outcomes of its council meeting from the same day. The document sets out which items were debated and approved. It confirms that the Council has adopted the Directive on credit servicers and credit purchasers and amending Directives 2008/48/EC (Consumer Credit Directive) and 2014/17/EU (Mortgage Credit Directive).
FMSB, BoE and FCA sign tri-party MoU
On 9 November, the FMSB, the BoE and the FCA signed a tri-party MoU. The MoU sets out a high-level framework formalising the continuing cooperation between the FMSB, the BoE and the FCA in relation to the delivery of FMSB’s primary objectives as recommended in the Fair and Effective Markets Review Final Report. The BoE and the FCA support the primary objectives of the FMSB, which are to promote fair and effective global wholesale fixed income, currencies and commodities markets; to produce clear guidance on how business should be conducted to eliminate or mitigate vulnerabilities; and to promulgate such guidance as widely as possible globally and obtain commitments for its use.
BoE consults on approaches to tiering and comparable compliance of incoming CCPs
On 8 November, the BoE began consulting on its approach to tiering non-UK CCPs based on the level of systemic risk they could pose to UK financial stability. Currently non-UK CCPs can provide services in the UK under a temporary recognition regime, but in order to continue to provide services in the UK after this regime expires, they will need to be recognised by the BoE under the on-shored EMIR. Under the BoE’s proposals, incoming CCPs will be assessed to establish if they might pose systemic risks to the UK against the following indicators: (i) whether the incoming CCP held at least £10bn of UK clearing member initial margin; (ii) whether the incoming CCP held at least £1bn of UK clearing member default fund contributions; or (iii) if the incoming CCP has an interoperability arrangement in place with a UK CCP. The BoE will undertake a more detailed assessment of systemic importance for CCPs meeting one or more of these indicators. Incoming CCPs that are assessed as not systemically important under this triage assessment will be classified as Tier 1 CCPs. For the others, the BoE will conduct a proportionality test and then apply one of two different levels of informed reliance assessment to consider how much it can rely on their home regulation and supervision. Where the expectations of this assessment are not met, the CCPs will usually be classified as Tier 2. A Tier 2 CCP is required to meet specific UK standards under on-shored EMIR and can be subject to direct supervision by the BoE. The BoE is also consulting on its approach to a request by a Tier 2 CCP (under Article EMIR 25a(1)) that the BoE assess whether it may be deemed to satisfy compliance with certain EMIR requirements (Article 16, Title IV and Title V) through its compliance with the applicable home regime and taking into account the provisions of the regulations made under Article 25(6). Where comparable compliance has been granted, the BoE proposes to defer to home authorities rather than engaging in independent direct regulation or supervision of those specific areas. The BoE proposes that the implementation date for the final policy will be 1 July 2022. The deadline for comments on both consultations is 25 February 2022. The BoE has also published a speech given by Christina Segal-Knowles, Executive Director, Financial Market Infrastructure Directorate on the consultations.
Please see the Other Developments section for the BCBS’ updates on its ongoing work regarding climate-related financial risks, cryptoassets, the G-SIB assessment methodology and disclosure standards and the EBA guidelines specifying a common assessment methodology for granting authorisation as a credit institution.
EBA discussion paper on machine learning for IRB models
On 11 November, the EBA published a discussion paper on machine learning (ML) used in the context of internal ratings-based (IRB) models to calculate regulatory capital for credit risk, which aims to set supervisory expectations on how new sophisticated machine learning models can coexist with and adhere to the CRR when used in the context of IRB models. The EBA notes that, in the context of credit risk, ML models might be useful to improve predictive power and are not new to internal models used for credit approval processes, but they have not been incorporated into institutions’ IRB models as rapidly as in other areas. The main pivotal challenge comes from their complexity which leads, at least for the more complex ones, to challenges: (i) in interpreting their results; (ii) ensuring their adequate understanding by the management functions; and (iii) justifying their results to supervisors. The discussion paper aims at discussing the relevance of possible obstacles to the implementation of ML models in the IRB model space based on some practical issues. Practical issues that are referred to on the use of data, explainability and other challenges are generally not new to IRB models, but may be exacerbated when using ML models and, therefore, may lead to specific challenges. The EBA is considering whether to provide a set of principle-based recommendations, which should ensure an appropriate use of such techniques by institutions in the context of IRB models. The deadline for comments is 11 February 2022.
Corrigendum for CRR II published in OJ
On 11 November, Corrigendum to CRR II amending the CRR as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and EMIR. The corrigendum amends provisions in CRR II relating to, among other things, reforms concerning qualifying additional tier 1 and tier 2 capital and own funds, index holdings of capital instruments and liabilities, sub-consolidation in case of entities in third countries, global systemically important institutions, counterparty credit risk and market risk.
BCBS finalises revisions to market risk disclosure requirements and voluntary disclosure of sovereign exposures
On 11 November, BCBS published revisions to its market risk disclosure requirements to reflect changes to the minimum capital requirements for market risk published in January 2019. The revised market risk disclosure requirements come into effect on 1 January 2023. Among other changes the revised standard introduces: (i) a "traffic light" approach for capital requirements as a consequence of the outcome of the profit and loss attribution test for banks using the internal models approach; and (ii) the simplified standardised approach as an alternative way of calculating capital requirements for market risk. BCBS has also finalised standards for the voluntary disclosure of sovereign exposures. These final standards comprise three templates covering disclosure of sovereign exposures and risk-weighted assets by: (a) jurisdictional breakdown; (b) currency breakdown; and (c) according to the accounting classification of the exposures. The implementation of these templates is only mandatory when required by national supervisors. The definitions used in the templates are consistent with the Basel Framework to be effective as of 1 January 2023.
EBA draft ITS on requirements on institutions’ Pillar 3 disclosure of interest rate risk exposures
On 10 November, the EBA published its first draft implementing standards (ITS) on Pillar 3 disclosure of institutions’ exposures to interest rate risk on positions not held in the trading book (IRRBB). Article 448 of the CRR requires institutions to disclose, as from 28 June, quantitative and qualitative information on the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of their non-trading book activities. The ITS put forward templates for the disclosure of information on institutions’ IRRBB risk management objective and policy, institutions’ internal assumptions for the calculation of their IRRBB exposure values, and the impact of changes in interest rates on institutions’ economic value of equity and net interest income, with the objective to implement the Article 448 disclosure requirements. The standards will amend the ITS on institutions’ public disclosures (Implementing Regulation (EU) No 637/2021), in line with the strategic objective of developing a single and comprehensive Pillar 3 package that should facilitate implementation by institutions and further promote market discipline. In addition, given the ongoing EBA work on the policy framework for IRRBB, the standards also include transitional provisions that should facilitate institutions’ disclosures while the policy framework is being finalised. The disclosure requirements apply to large institutions and to other institutions except those that are not listed, in accordance with the provisions of Articles 433a and 433c of the CRR. Given the application of the disclosure requirements of Article 448 CRR from June 2021, the EBA also provides clarity on what institutions should disclose until the disclosure requirements start to apply. The final draft ITS were submitted to the EC for adoption.
HMT consults on future regulatory framework review proposals for reform
On 9 November, HMT set out its response to feedback to its first consultation on the future regulatory framework (FRF) review and began consulting on a number of proposals to take forwards its approach including: (i) the changes needed to the regulators’ statutory objectives and regulatory principles to ensure the government’s priorities for the sector are fully reflected across the breadth of the regulators’ responsibilities; (ii) the proposals for ensuring that accountability, scrutiny and engagement arrangements with HMT, Parliament, and stakeholders are appropriate given the regulators’ responsibilities; and (iii) the proposed approach to transferring responsibility for designing and implementing the direct requirements that apply to firms in certain areas of retained EU law to the regulators within a system established by government and Parliament. As well as asking for general feedback, HMT ask whether respondents agree, among other things: (a) with the government’s approach to add new growth and international competitiveness secondary objectives for the PRA and the FCA; (b) that the regulatory principle for sustainable growth should be updated to reference climate change and a net zero economy; (c) that the proposed power for HMT to require the regulators to review their rules offers an appropriate mechanism to review rules when necessary; (d) that the proposed requirement for regulators to publish and maintain frameworks for how the regulators review their rules provides improved transparency to stakeholders; and (e) with the government’s proposal to establish a new Designated Activities Regime to regulate certain activities outside the RAO. The deadline for comments is 9 February 2022.
PRA policy statement and response to occasional consultation paper 13/21
On 8 November, the PRA published its final policy and feedback to responses for occasional consultation paper 13/21. The policy changes are: (i) to amend the reporting requirements to support a better understanding of defined benefit pension schemes’ risk profiles, improve consistency, and ensure a level playing field for firms (Chapter 2); (ii) to amend the reporting requirements to delete a legacy template and to update rules and policy documents, to prepare for the expected discontinuation of LIBOR at the end of 2021 (Chapter 3); (iii) to amend the scope of Chapter 4 of the Definition of Capital Part of the PRA Rulebook, to refer to CRR (Capital Requirements Regulation) firms rather than UK banks (Chapter 4); (iv) to amend the method of submission, make minor formatting corrections to the Branch Return, and clarify the accompanying reporting guidance (Chapter 5); and (v) to correct and update a reference in Rule 2.4(5) in the Audit Committee Part of the PRA Rulebook, and to correct an error in SS1/16 ‘Written reports by external auditors to the PRA’. The PRA received no responses to its proposals relating to Chapters 4 and 6, and will therefore publish the policy as proposed. The PRA received no responses to its proposals relating to Chapter 3, but has amended the implementation date for the changes to the FSA017 instructions and MLAR guidance notes. The PRA has amended the draft policy for Chapters 2 and 5 in response to feedback. The implementation dates for the policy changes are: (a) Chapter 2: 1 December; (b) Chapter 3: 10 November for the deletion of FSA042, and 1 January 2022 for FSA017 instructions and MLAR guidance notes; (c) Chapters 4 and 6: 1 January 2022; and (d) Chapter 5: 31 May 2022.
EBA final draft RTS on assessment of appropriateness of risk weights and of minimum loss given default values
On 5 November, the EBA published its final draft regulatory technical standards (RTS) specifying the types of factors and conditions to be considered for the assessment of the appropriateness of risk weights and of minimum loss given default (LGD) values. The final draft RTS have been developed according to Articles 124 (4) and 164 (8) of the CRR as amended by CRR II.
In particular, the final draft RTS provide technical specifications on the following aspects: (i) for those institutions applying the standardised approach, the key elements for the assessment of risk weighs are the loss experience and the loss expectation relating to exposures secured by immovable property within the respective Member State. The final draft RTS specify the types of factors that authorities should consider during the risk weight assessment on the basis of the loss experience of exposures secured by immovable property and forward-looking immovable property market developments; and (ii) for those institutions applying the internal ratings-based (IRB) approach to retail exposures secured by residential or commercial immovable property, the final draft RTS clarify the conditions to be considered when assessing the appropriateness of minimum LGD values. In their assessments, relevant authorities should consider whether minimum LGD values cover the sources of systemic risks beyond economic downturn considerations and idiosyncratic risks.
Recovery and Resolution
EBA revised guidelines on recovery plan indicators
On 9 November, the EBA revised its guidelines on recovery plan indicators under Article 9 of the BRRD. The guidelines, initially issued in 2015 established a common EU standard for developing the framework of recovery plan qualitative and quantitative indicators, while leaving some constrained flexibility to tailor a set of recovery plan indicators depending on institutions’ specificities. For each category of recovery plan indicators, the guidelines spell out specific indicators that should be included unless the institution justifies to the competent authorities that they are not relevant to its legal structure, risk profile, size and/or complexity (i.e. a rebuttable presumption). Most of the provisions of the existing guidelines remain unaltered apart from replacing or adding a few metrics to the minimum list of recovery plan indicators and updating the format of the existing text to the current legal template for EBA guidelines. The guidelines have also been expanded: (i) providing additional guidance on the calibration of thresholds of recovery indicators to ensure that recovery options are implemented early enough, so as to be effective. The guidelines also emphasise the importance of constant monitoring of recovery indicators and timely notification of their breaches to supervisors; and (ii) including three new additional recovery indicators to the minimum list of recovery indicators (MREL/TLAC, asset encumbrance and liquidity position). One of them (cost of wholesale funding) has also been removed. The guidelines on recovery plan indicators will apply from two months after their publication in all EU languages. The 2015 guidelines on recovery plan indicators will be repealed at the same time.
FMLC report on UK Bank ring-fencing legislation
On 9 November, the FMLC published a report on the UK’s legislative regime for ring-fenced banks. The FMLC has sought to identify legal uncertainties that have arisen with the implementation of the regime, explain their impact on market participants, and make recommendations on how each might be resolved. These relate to: (i) the definition of the ‘core services’; (ii) the meaning and ambit of ring-fencing transfer schemes; (iii) excluded activities not subject to the regime; (iv) the prohibition on incurring exposures to range of financial institutions and exceptions to it; (v) liquidity management for ring-fenced banks; (vi) the identification of the “account holder”; (vii) tax exposures; and (viii) the application of the regime to trade finance products. The FMLC refers to the appointment by HMT of an independent panel to review the operation of the legislation relating to ring-fencing. Should the review’s findings cause the Government to amend the bank ring-fencing legislative framework, the FMLC would urge that any such amendments also address the issues identified in this report.
Please see the Other Developments section for the BCBS’ updates on its ongoing work regarding climate-related financial risks, cryptoassets, the G-SIB assessment methodology and disclosure standards.
NGFS report on growing risk of climate-related litigation
On 5 November, the NGFS published a report to raise awareness of the growing source of risk – climate-related litigation. The report considers that understanding the risks arising from climate-related litigation is crucial for central banks and supervisory authorities, as the financial implications of such litigation in this area can be substantial. The report outlines general trends in climate-related litigation and proposes ways of addressing these risks. It has a section on climate-related litigation risk as a sub-category of physical and transition risks and also briefly discusses the direct exposure of financial institutions to climate-related litigation. It includes an overview of selected cases as well as the results of a survey that was conducted amongst NGFS members to gather information from the respective jurisdictions about climate-related litigation. The report’s conclusions include that: (i) it is clear that climate-related litigation is increasing across jurisdictions and is a fast-moving target. Climate-related cases are increasingly brought directly against financial institutions, and the NGFS considers it likely that these developments will continue in the coming years; (ii) supervisory authorities may not have, so far, fully recognised the impacts of such cases when assessing climate-related financial risks even though they constitute an important channel through which physical risks and transition risks may affect assets or counterparties of financial institutions. Therefore, the current trend of rising climate litigation requires a careful monitoring of these risks by supervisors and central banks. The NGFS consider that supervisors need to ensure that financial institutions supervised by them adequately manage financial and operational risks resulting from potential climate-related litigation against themselves as well as against institutions to which they are exposed.
EBA guidelines on granting authorisation to credit institutions
On 11 November, the EBA published guidelines to specify a common assessment methodology for granting authorisation as a credit institution. The guidelines have been drafted in accordance with Article 8(5) CRD. EBA intends for the guidelines to support competent authorities’ comprehensive understanding of the business model, the risk profile, the geographical distribution of the activities, and the viability and sustainability of the credit institution business undertaking, and that form the basis for the determination of the capital at authorisation and further prudential requirements. Similarly, the guidelines underscore the importance of the organisational structure, internal governance framework and control being commensurate with the business plan, so to ensure that the credit institution will be able to perform the targeted activities in a sound and prudent manner. The guidelines advocate for a risk-based approach and insist on the importance of consistency with the supervisory approaches applied in going concern situations. In addition, they consider the proportionality principle for all relevant assessment criteria and apply to both traditional and innovative business models and/or delivery mechanisms, as they are technology neutral. In the context of the assessment of the application for granting an authorisation, the final guidelines also include guidance on ML/TF risks and highlight the importance of cooperation with the AML supervisor and other public bodies, in accordance with the CRD.
BCBS updates on climate-related financial risks, cryptoassets, the G-SIB assessment methodology and disclosure standards
On 9 November the BCBS provided updates on its ongoing work regarding climate-related financial risks, cryptoassets, the G-SIB assessment methodology and disclosure standards: (i) Climate-related financial risks – BCBS is currently assessing and developing a suite of potential measures – spanning disclosure, supervisory and regulatory measures – to address climate-related financial risks to the global banking system and has agreed to consult later this month on a set of principles for the effective management and supervision of climate-related financial risks at internationally active banks. On disclosure measures, BCBS welcomed the establishment of the International Sustainability Standards Board, and is exploring the use of the Pillar 3 framework to promote a common disclosure baseline for climate-related financial risks; (ii) cryptoassets – BCBS has reviewed the comments received regarding its consultation on the prudential treatment of banks' cryptoasset exposures. Members reiterated the importance of developing a conservative risk-based global minimum standard to mitigate prospective risks from cryptoassets to the banking system, consistent with the general principles set out in the consultative document. BCBS will further specify a proposed prudential treatment, with a view to consulting by mid-2022; (iii) G-SIB assessment methodology – BCBS have agreed to proceed with its proposed approach to replacing the existing three-year review cycle of the methodology with a process of ongoing monitoring and review in order to ensure that it remains appropriate over time. This will include monitoring: (a) recent developments in techniques or new indicators that can be used for the assessment of systemic risk; (b) emerging evidence on the effectiveness of the G-SIB regime; and (c) structural changes that could impact the effectiveness of the regime. Only if this monitoring work reveals evidence of material unintended consequences or material deficiencies with respect to the framework's objectives will BCBS consider changes to the regime. In the near term, BCBS will review the implications of developments related to the European Banking Union for the G-SIB methodology; (iv) disclosure standards – BCBS have approved the final standards for Pillar 3 disclosures related to the revised market risk framework and a set of voluntary disclosures for banks' sovereign exposures. These will be published in the coming weeks; and (v) risks and vulnerabilities to the global banking system – BCBS are assessing: (1) the impact of the prolonged low interest rate environment and its evolving outlook on banks' profitability, business models and risk-taking behaviour; and (2) the supervisory and policy implications related to third- and fourth-party risk management and concentration risk, in coordination with other global standard-setting bodies and international forums.