FinReg Europe is a monthly overview of essential banking regulation news, published on the first Tuesday of every month.

TOP NEWS

➤ The UK's Prudential Regulatory Authority (PRA) on Sept. 12 unveiled amended rules for the implementation of the Basel III capital standards by domestic financial institutions, easing some key requirements and postponing the start of the framework's adoption by six months to Jan. 1, 2026.

The PRA lowered capital requirements for banks' exposures to small- and medium-sized enterprises (SMEs) and infrastructure projects, as well as for their trade finance-related activities. The watchdog has also simplified how residential properties would be valued under the new framework to improve risk sensitivity in banks' mortgage valuations. Higher risk sensitivity could reduce the risk-weighted assets attached to the mortgage book and, with that, reduce the capital the bank would be required to hold against that book.

The adjusted rules will have a smaller impact on major UK banks, resulting in a less-than 1% aggregate increase in Tier 1 capital requirements as of the end of the phase-in period in January 2030, versus a 3.2% aggregate increase the PRA previously estimated.

The impact is also smaller compared to other jurisdictions. Under the US Basel III endgame reproposal announced on Sept. 10, global systemically important banks (G-SIBs) would face a 9% increase in Tier 1 capital requirements at full Basel III implementation and other large banks would face a 3% to 4% increase. In the EU, the increase is estimated at 16% for G-SIBs and 10% for other large and internationally active banks, according to the European Banking Authority (EBA).

➤ The three European Supervisory Authorities — the EBA, the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) — warned financial institutions of potential "material financial stability and operational risks" that could arise from the ongoing high economic and geopolitical uncertainties. Financial institutions and their supervisors should stay vigilant and be prepared to face the impact of continued high interest rates, inflation and market volatility, the authorities said in their Autumn 2024 Joint Committee Report released Sept. 10.

"Amid ongoing geopolitical developments, such as the Russian aggression against Ukraine, the war in the Middle East and elections in the European Union and the United States, there is potential for sudden shifts in the economic outlook and market expectations," the authorities said. The materialization of credit risk remains a concern in this environment, which underscores the need for financial institutions to maintain "adequate provisioning levels" and "prudent and up-to-date collateral valuation," they said.

➤ A long-awaited update on Basel III endgame provides a bit of capital clarity

The revamped set of capital rules in the Federal Reserve's planned Basel III endgame reproposal should be more palatable for the banking industry.

➤ US, UK Basel III revisions pose implementation challenges for big banks

Lenders now face less stringent capital requirements than initially proposed but various revisions to the rules and adoption timelines may pose challenges for banks operating across major jurisdictions.

➤ ECB warns of flaws in banks' commercial real estate valuations

The European Central Bank raised concerns about how banks are valuing their commercial real estate loans, noting that many reported inaccurate figures due to misapplication of market value definitions.

➤ Swiss central bank makes changes on remuneration of sight deposits

The Swiss National Bank is reducing the threshold factor for remunerating sight deposits of banks, effectively reducing the amount of money it pays to lenders for parking cash with it.

Regulatory action

– UK-based banks must gather data to better understand the links between inflation, interest rates and credit losses to ensure their risk models are enhanced to better predict and capture loan losses, David Bailey, the Bank of England's executive director for prudential policy, said in a Sept. 27 letter to bank CFOs.

– The Bank of England will soon release a consultation paper detailing the circumstances under which UK banks can do "unfunded" significant risk transfers, which are common in the EU, Bloomberg News reported Sept. 27, citing insiders. The move is part of a broader post-Brexit revamp of securitization rules.

– The European Central Bank (ECB) plans to review counterparty credit risks arising from EU banks' links to non-bank financial institutions in a new "health check" to run in addition to the EU-wide stress test in 2025, Reuters reported Sept. 26, citing ECB top supervisor Claudia Buch. The collapse of US hedge fund Archegos and the UK pension fund sector challenges in recent years have highlighted the dangers non-banks could pose, Buch said.

– The UK Payment Systems Regulator announced Sept. 25 it had lowered the maximum reimbursement amount banks and payment firms would be required to pay victims of Authorised Push Payment (APP) scams to £85,000 from the initially proposed £415,000. The decision was based on feedback received from consultations that ran between Sept. 4 and Sept. 18. The Bank of England has also approved the new reimbursement limit, in effect from Oct. 7, for fraud cases related to the Clearing House Automated Payment System (CHAPS), the PSR said.

– The UK Financial Conduct Authority (FCA) has extended until April 2025 the deadline for firms to meet "naming and shaming" rules under a wider set of regulations against greenwashing. Nevertheless, firms should aim to comply with the rules as soon as possible without waiting until the new deadline, the regulator said in a Sept. 9 statement.

Fines & cautions

– The ECB has started issuing fines to EU banks that fail to meet its expectations on climate risk disclosure and management, Irene Heemskerk, head of the ECB's climate change center, told Reuters. Some banks have already received penalty notices for not meeting requirements, Heemskerk said at a Reuters Newsmaker event Sept. 24.

– In a soon-to-be published report, the ECB is set to reveal data showing that EU banks are still underestimating climate risks in their mortgage books, central bank board member Frank Elderson said in a Sept. 23 speech. While the ECB found mortgages in high climate risk areas are more expensive than those in safer regions, the climate-related risk is still underpriced by the average bank, Elderson said.

– The UK's FCA has called on banks to re-assess the level of interest they pay on deposits in a shifting rate environment. While banks have increasingly passed on higher interest rates to depositors there is still room for improvement in the way they assess the value offered by their savings products, the regulator said Sept. 18. "We expect firms to improve these assessments, having considered our feedback, and will take appropriate action where this is not the case," the FCA said.

– Swiss market watchdog FINMA has confiscated CHF12.7 million in "unlawfully generated profits" from Mirabaud & Cie SA after finding that it had "seriously violated" financial market law and breached its anti-money laundering obligations, the authority said Sept. 17. FINMA launched a probe after suspecting misconduct linked to a now-deceased unidentified businessman who was accused of tax evasion, concluding that Mirabaud had inadequately reviewed the background of its client relationships and transactions.

– Belgium's Financial Services and Markets Authority (FSMA) said Sept. 5 it had agreed a €1 million settlement with Belfius Bank SA/NV which had sold savings certificates without an approved prospectus for two months in 2023. This is the second FSMA settlement with Belfius for a similar offense after the bank paid €300,000 in June 2021 for neglecting to request FSMA's approval for an advertising campaign for a new investment fund among other things, the regulator said.

– Germany's financial regulator Bafin said Sept. 6 that it had found deficiencies in Grenke Bank AG's money laundering controls and ordered the bank to remedy the failings within 12 months. Bafin identified lacks in Grenke Bank's risk analysis and risk assessment of business relationships and transactions.

– The UK's FCA on Sept. 4 urged banks to review their approach to account access and closures to ensure customers are not being denied access without good reason. The regulator has found no evidence of accounts being closed due to lawfully expressed political opinions.