The near-final Basel 3.1 rules on Credit Risk and Output Floor are expected on 12 September 2024. Ahead of this, we think there are several areas of the Bank of England’s proposals firms should be looking out for when the final policy is published. We discuss some of these below.
The new Credit Value Adjustment (CVA) risk framework methodologies for calculating capital requirements will comprise of the Alternative Approach, the Basis Approach and the Standardised Approach.
One of the centrepieces of the revised Basel proposals is the updated Output Floor. The main aim of the Output Floor is to bring greater alignment between the capital requirements for the credit risk Standardised and Internal Models approaches.
As financial services organisations increasingly focus on digital transformation, having the right expertise and skillsets is critical. However, it’s not simply a question of human capital. It requires developing a talent strategy that recognises the profound impact technology will have across the organisation.
The role of artificial intelligence (AI) in financial services continues to exercise C-suite minds. Not least, how to balance AI’s benefits to enhance the customer experience and improve back-office operations with the ethical challenges that AI presents.
The financial services sector is increasingly looking to technology to help tackle the rising levels of regulation they face.
Financial services organisations see digital transformation as a top priority. While the competitive landscape has been evolving following the arrival of digital-first challenger banks and fintech players, emerging technology and rising mobile service demands from tech-savvy consumers are now pushing traditional players to innovate, rethink business models and how to accelerate and scale their technology...
Optimism in the financial services sector is riding high. So why is the financial services sector so confident and what needs to happen to ensure growth aspirations remain on track?
Both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have highlighted Diversity and inclusion (D&I) as critical to their work on culture and governance. Benefits from D&I in the workplace include positive outcomes in risk management, good conduct, healthy working cultures and innovation.
In PS6/23 and SS1/23 – ‘Model risk management principles for banks’, the PRA outlines five Principles designed to support effective model risk management (MRM), the first of which relates to ‘model identification and model risk classification’.
The European Banking Authority (EBA) has published amendments outlining requirements for calculating Prudent Valuation Adjustments (PVA) on fair-valued financial instruments held by institutions.
With the introduction of the Strong & Simple (S&S) regime, UK banks will be predominantly categorised as under either the S&S regime or the Capital Requirement Regulation (CRR). For firms considering whether to apply to the S&S regime a thorough evaluation of the respective regulatory implications of either approach is required.
On November 27th, the Financial Conduct Authority (FCA) published a second and final report with further observations on how firms are implementing requirements on the Internal Capital Adequacy and Risk Assessment (ICARA) process and reporting under the Investment Firms Prudential Regime (IFPR).
Pending the release of the PRA’s Basel 3.1 final rules, our banking risk experts discuss the proposed changes to credit risk and output floor rules, as well as the near-final rules relating to market risk and operational risk.
The Prudential Regulatory Authority (PRA) has outlined its expectations for the preparation of regulatory returns in The Dear CEO Letter (DCEO), which focuses on the “Thematic findings on the reliability of regulatory reporting”. Dated the 10th of September 2021, the letter highlights the PRA’s expectations for banks to submit reliable and accurate regulatory returns, and for the regulatory reporting...
Banks are expected to have robust governance and controls processes for the production of their regulatory returns. In particular, the PRA outlined its expectation that banks should perform independent testing and validation of their regulatory returns to ensure they are reliable and accurate. With the PRA’s increasing focus on regulatory reporting demonstrated through SREP reviews and S166s reviews,...
The Prudential Regulation Authority (PRA) continues to emphasise the importance of the reliability and accuracy of regulatory data for banks and building societies. Data risk is named a main priority within the 2024 Dear CEO Letter and through the Transforming Data Collection initiative between the Bank of England and the Financial Conduct Authority.
The US unveiled its take on the BCBS Basel reforms on July 27th, 2023, calling it the “Basel III Endgame” (referred to as Basel 3.1 in the UK). This article outlines the key disparities between the US and UK approaches to implementing these reforms.
On 17 April 2024, the Bank of England (BoE) published an article with useful insights for financial institutions on using scenario analysis to measure climate-related financial risks.
In March, the Prudential Regulation Authority (PRA) published SS2/24 on solvent exit planning for non-systemic banks and building societies. This statement outlines the PRA’s expectations for non-systemic banks and building societies in the UK to prepare, as part of their business-as-usual (BAU) activities, for an orderly ‘solvent exit’. This requirement will come into force from 1 October 2025.
Does the perceived reduction in risk amongst European banks hint at early signs of optimism for the sector? Throughout 2023, we observed a global economic slowdown, ongoing geopolitical tensions, and the rapid rise of new technologies. As we analyse the year-end results of the 26 largest banks in Europe, what do these figures reveal about expected credit losses and how these institutions manage persistent...
Recent modifications to the banking surcharge rules and the UK corporation tax main rate mean larger banks now face a combined tax rate of 28%, while many moderately sized banks may drop out of banking surcharge due to the increased £100m surcharge allowance available from 1 April 2023.
Overall, firms weathered the initial turmoil of the Covid-19 pandemic reasonably well thanks to a combination of deployment of technology to provide flexibility in remote working, and, in the case of banks, balance sheets which have been substantially bolstered in the aftermath of the financial crisis.
On Wednesday 20 July 2022, the government released draft legislation for the Finance Bill for 2022 and the results of consultations. We were expecting more draft legislation but there are some HMRC recommendations that cannot currently be signed off by ministers until we have a more stable government.
08 December 2021 This article delves into the interest deductions for foreign banks operating in the UK, outlining the background of the Capital Attribution Tax Adjustment, the five critical steps involved, and some helpful FAQs.
Peering into the crystal ball, we wonder - how much corporate tax banks in the UK are going to have to pay after 1 April 2023? On that day, marking the first rate rise since 1974, the corporation tax rate goes up, from its current rate of 19% to the new rate of 25%.
This edition of our newsletter summarises a selection of developments from the UK and Europe and provides key updates on matters we have discussed throughout 2023.
There was a flurry of regulatory activity in the lead-up to the festive period. Final Basel 3.1 for Market Risk, Credit Risk, CVA and Counterparty Risk were published. The PRA also finalised its disclosure and liquidity requirements for the Strong and Simple regime. There were also significant publications relating to Diversity & Inclusion and the Remuneration regime.
The regulatory environment for UK banks continues to be incredibly fast paced, exemplified by the developments in Q3 2023.
A recent report from Immunefi suggested that cyberattacks targeting cryptoassets increased by 150% in Q3 2023 when compared to the same period in 2022.
In December 2020, the FCA detailed some of their proposals for the Investment Firm Prudential Regime (IFPR), which will come into effect in January 2022.
The Bank of England (the Bank) shared its latest thinking on climate-related risks and regulatory capital frameworks in a report released on March 13, 2023. The report elaborates on six key findings and identifies areas for future research and discussion. However, the Bank does not introduce any policy changes in response to the report. Instead, it suggests further analysis is needed before introducing...
The Climate Financial Risk Forum (CFRF) has shared a non-regulatory practitioner’s guide for banks and building societies on how to use scenario analysis to assess the financial impact of climate change and inform their strategy and business decisions.
The 2008 Global Financial Crisis revealed that major banks were in fact ‘too big to fail’. They had grown so large and complex that they needed state support given the unfathomable economic consequences of their collapse. As a result, financial regulators have introduced robust prudential measures to try to prevent such a crisis from happening again. A critical element of these post-crisis reforms...
The Bank of England formally engaged with the international financial community to discuss the role of regulatory capital in the management of climate risks.
The Prudential Regulation Authority (PRA) has distributed a Dear CEO letter to all international banks and deposit takers active in the UK. This letter is to ensure there is a continuous focus guided by the PRA’s supervision and highlight the PRA’s planned work for next year; and should be read in conjunction with the feedback from individual PSM letters.
For many years, the PRA has been applying a proportional approach to both regulating and supervising smaller banks, but there is a marked difference as supervision has been more pronounced.
On 13 January 2022, the Payment Services Regulator (PSR) published its first formal strategy. The implementation of this five-year strategy will materially impact Payment Service Providers (PSPs) through increased focus on accessibility, protection, and competition.
The end of 2021 saw the PRA deliver on its warning in the September 2021 ‘Dear CEO’ letter, that they would take a tough stance on banks and building societies that fail to meet expectations around reliable regulatory reporting.
On 1 January 2022, the PRA’s Policy Statement PS22/21 'Implementation of Basel Standards' took effect.
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