As a result of the unprecedented Covid-19 outbreak, The Bank of England (BoE) and Prudential Regulation Authority (PRA) have announced several measures seeking to reduce potential operational stresses on both PRA-regulated firms and Bank-regulated financial market infrastructures to allow them to continue providing crucial functions essential for the economy.
The key objectives of the new measures are to provide increased flexibility to these firms as well as to maintain stability in a time of uncertainty for the financial market.
In keeping with recent blogs from other supervisory bodies, such as the Financial Conduct Authority, this blog aims to keep our clients abreast of key updates during this crisis.
What are the measures?
There is some level of relaxation from the Bank of England for the eight major banks and building societies. The Bank of England have cancelled the 2020 annual stress test, in line with the 11 March 2020 measures. The main purpose of this is to allow these entities to focus on continuing to provide credit to UK households and businesses.
Changes to the Biennial Exploratory Scenario (BES) timetable
Originally the bank had planned to publish the results of the 2019 BES on liquidity around mid-2020. This exercise has been indefinitely paused to provide some breathing space for core treasury staff members at banks.
The bank will instead take stock of the discussions emerging from the discussion paper published on the 2021 BES financial risks from climate change on 18 December 2019. This bank will assess the evolving situation in order to determine actions going forward for the exercise in the summer.
Statement on IFRS 9 and Covid-19
The Bank of England and PRA acknowledge the ‘’very high levels of uncertainty’’ around the potential impact that Covid-19 will pose to the economy.
As such, the difficulties around forecasting and reporting credit impairments are addressed. The PRA has advised that, if firms believe they are able to report on the impact of this crisis, it should reflect the temporary nature of the economic shock and take into consideration relief measures such as mortgage holidays.
Additionally, the PRA reminds the Bank to continue its examination into the potential interaction of Covid-19 with IFRS9. This is to include discussions with relevant bodies both at a domestic and international level.
Postponement of the joint Bank/FCA survey into open-ended funds
Non-critical on-site visits, data requests and deadlines issued from the Bank of England and PRA will be reviewed and postponed where appropriate. This is to include, for example, pausing the skilled persons Section 166 reviews to the reliability of banks’ regulatory returns.
In addition, the first meeting of the newly created Regulatory Initiatives Forum (RIF) will take place in early April 2020. The forum will look to assist regulators in managing operational demand on firms. Following the meeting the RIF plan to publish a Regulatory Initiatives Grid which will give provide a ‘’co-ordinated future work plan’’ as soon as possible, considering the current crisis.
Further, the government has announced that it will introduce legislation enabling the implementation of Basel 3.1 in the UK. UK regulators will play a central role in designing and implementing the subsequent requirements for firms. The difficulties in adhering to the Basel timetable are acknowledged and coordination with international authorities is being undertaken to ensure successful implementation.
Consistent approaches will be the objective
Although Covid-19 has presented a range of complex challenges for the industry, the Bank of England has taken an active approach in maintaining some much-needed stability for regulators, banks and firms. We can anticipate further guidance from the Bank of England later this week, with the aim of ‘’assisting firms to adopt consistent approaches in the face of prevailing uncertainty’’.
Our objective as a firm during these unprecedented times is to commit to closely following regulatory updates and keeping our clients abreast of these changes, as and when they happen.