Banking and finance regulatory news, October 2020 # 3 | Hogan Lovells

Recent regulatory developments focussing on banking and finance. Includes updates relating to Brexit, CRR, HM Treasury call for evidence on access to cash and PRA Dear CEO letter on zero or negative BoE Bank Rate.

Contents

• CRD V: Draft Financial Holding Companies (Approval etc) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020
• BRRD II: Draft Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020
• Access to cash: HM Treasury launches call for evidence
• Brexit: FCA views on closures of EU-resident customers’ UK bank accounts
• Zero or negative BoE Bank Rate: PRA Dear CEO letter on banks’ operational readiness
• CRR: PRA PS22/20 on treatment of model limitations in banks’ internal models for counterparty credit risk
• CRR: PRA CP16/20 on approach to overseas IRB models for credit risk
• CRR: PRA slides on IRB models for residential mortgage exposures
• CRR: Corrigendum to Regulation amending CRR on statutory prudential backstop for NPLs
• CRR: EBA final draft RTS on prudential treatment of software assets
• Climate-related financial risk initiatives: BCBS speech

CRD V: Draft Financial Holding Companies (Approval etc) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020

HM Treasury has published a draft version of the Financial Holding Companies (Approval etc) and Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) (EU Exit) Regulations 2020, together with an explanatory memorandum.

The draft Regulations implement, in part, the CRD V Directive in the UK and address deficiencies in retained EU law arising from the withdrawal of the UK from the EU. They are made under paragraph 1(1) of Schedule 7 to, the European Union (Withdrawal) Act 2018 (EUWA). The UK is required to transpose the CRD V Directive by 28 December 2020.

The Regulations will mostly come into force on 29 December 2020.

Separately, HM Treasury has published its response to its consultation on updating the UK’s prudential regime before the end of the Brexit transition period.

BRRD II: Draft Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020

HM Treasury has published a draft version of the Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020, together with a draft explanatory memorandum. The Regulations transpose the Bank Recovery and Resolution Directive (BRRD) II. They also correct deficiencies arising in retained EU law to ensure the UK maintains a fully functioning regulatory and legal framework following the end of the transition period. The Regulations are made under section 8(1) of, and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018 (EUWA).

Parts 1 to 3 and Chapter 3 of Part 4 come into force on 28 December 2020. Part 4 (apart from Chapter 3) comes into force on IP completion day. Part 5 comes into force on 28 December 2020, but ceases to have effect on IP completion day.

HM Treasury has also published the response to its June 2020 consultation on the transposition of the Bank Recovery and Resolution Directive (BRRD) II. It explains the government’s approach, including that in the draft statutory instrument.

The government intends to transpose the new Article 44a of BRRD II, using FCA rules, and the new Article 71a, by including the new pre-resolution moratorium power within the definition of “crisis management measure” in the Banking Act 2009, which means no changes of substance are required to the UK Prudential Regulation Authority’s (PRA) stay rules.

The government does not intend to implement the BRRD II requirements that do not need to be complied with by firms until after the end of the transition period, in particular Article 1(17) which revises the framework for minimum requirement for own funds and eligible liabilities (MREL).

The government intends to include sunset clauses in its secondary legislation transposing BRRD II for the following provisions, which will cease to have effect in the UK from 1 January 2021:

• article 1(6), which concerns the maximum distributable amount relating to the MREL (M-MDA);
• article 1(12), which inserts a new Article 33a in the BRRD to introduce a pre-resolution moratorium power;
• article 1(20), which introduces Article 48(7) of BRRD, making changes to priority of debts in insolvency;
• article 1(21), which updates Article 55 of BRRD on the contractual recognition of bail-in (CROB). The existing PRA CROB rules will be revoked from 28 December 2020 for the remainder of the transition period and new PRA CROB rules will have effect from 1 January 2021. The PRA will conduct a public consultation on changes to its CROB rules; and
• article 1(30), which amends the existing in-resolution…