On 2 December 2020, the European Banking Authority (EBA) decided to reactivate its Guidelines on legislative and non-legislative moratoria. This reactivation will ensure that loans, which had previously not benefitted from payment moratoria, can now also benefit from them. This decision was taken after closely monitoring the developments of the COVID-19 pandemic and, in particular, the impact of the second COVID-19 wave. The EBA has introduced two new constraints to ensure that the support provided by the moratoria is limited to bridging liquidity shortages triggered by new lockdowns and that there are no operational restraints on the continued availability of credit:
The Guidelines will apply until 31 March 2021.
The Federal Reserve Board welcomed and supported the release of a proposal and supervisory statements that would enable a clear end date for the USD LIBOR and would promote the safety and soundness of the financial system. The announcements by regulators in the United States, United Kingdom and by the benchmark administrator for LIBOR together lay out a path forward in which banks should stop writing new USD LIBOR contracts by the end of 2021, while most legacy contracts will be able to mature before LIBOR stops. The proposal from LIBOR’s administrator, ICE Benchmark Administration Limited, will consult in early December on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on 31 December 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on 30 June 2023.
De Nederlandsche Bank (DNB) has updated its “Supervisory Strategy 2021-2024”, detailing priorities in the areas of technological innovation, sustainability and financial crime. Priorities with respect to technological innovation are mostly focussed on data quality and use of ML/AI techniques both by banks and DNB. The sustainability priorities focus on having banks embed climate change risk into their policies and risk management.
On 27 November 2020, the ECB published its final guide on climate-related and environmental risks following a public consultation. The guide explains how banks are expected to prudently manage these risks and how to transparently disclose them. The ECB will follow up with banks in two steps. In early 2021 banks will be asked to conduct a self-assessment regarding the supervisory expectations outlined in the guide and to draw up action plans. The ECB will benchmark the banks’ self-assessments and plans to challenge them in the supervisory dialogue. In 2022, the ECB will perform a full supervisory review of banks’ practices and, if necessary, take follow-up measures.
The Financial Stability Board (FSB) published a document on climate change that examines the potential implications of climate change for financial stability. The document investigates how climate-related risks might be transmitted across, and might be amplified by, the financial system. It additionally outlines next steps for the FSB on this topic.
Finally, DNB indicated on 30 November 2020 that, starting next year, climate- and environmental related risks will become a standard part of client assessments at banks, insurers and pension funds.
Please contact Pieter Klaassen for more information on climate risk.
On 3 December 2020, the EBA published final draft Regulatory Technical Standards (RTS) on how institutions are to calculate the own funds requirements for foreign-exchange (FX) and commodity risks stemming from banking book positions under the FRTB standardised (SA) and internal model approaches (IMA). The final draft RTS specify that institutions can use either the last available accounting value or the last available fair value as a basis for calculating the own funds requirements for non-trading book positions subject to FX risk. Although institutions are not expected to perform a full revaluation of non-trading book positions attracting FX risk, the draft RTS require them to update the FX component of those positions. The frequency at which such updates must be performed is monthly for institutions using the SA and daily for those using the IMA.
Please contact Erik Vijlbrief for more information on FX risk.