As the measures to limit the spread of COVID-19 tighten, the financial services sector is responding rapidly to sure up operational resilience and promote stability.
Are you keeping up with the regulatory changes and do you have the agility to action them within a meaningful time frame, Paul Young asks?
Key workers to support operational resilience
With schools closed to all but the children of key workers, the FCA has published guidance to help identify who those people are within the financial sector. The FCA has defined key workers as those:
working at a dual-regulated, FCA solo-regulated, PSR regulated firm or a provider of financial market infrastructure
holding a position that is vital for the delivery of essential financial services, either directly to consumers or to support the wider market
Firms should identify those individuals as soon as possible and provide a signed letter to that effect to support parents.
Open to interpretation
There isn’t a hard-and-fast rule about this, and ultimately it is up to the firm to decide who is critical. But the FCA has framed it within the same criteria as operational resilience, namely identifying important services that, if disrupted, could cause economic harm or affect financial stability. Once these services are identified, key workers will be those who are essential to keeping them running. As with operational resilience, firms should identify essential outsourced services and work with their third parties to identify the key workers maintaining them, regardless of their sector. The FCA has recommended that responsibility for creating the key person list should sit with the CEO.
Key workers could include Senior Management Functions (SMFs), or other senior leadership, in addition to those who are vital to support essential services. A detailed list of other potential roles is available on the FCA’s website. Throughout this time, contingency is key and firms should also consider who can step in to support these roles, if someone is unavailable. This may be someone who has held the position previously or who works closely with them, although this does become more complicated with certified functions or SMFs.
The Covid Commercial Finance Facility (CCFF) and the Coronavirus Business Interruption Loan scheme (CBIL) are now both open for applications, as a quick overview:
Covid Commercial Finance Facility (CCFF)
CCFF is a joint measure from the Treasury and the Bank of England to help firms improve their liquidity over the next 12 months. Aimed at big business, the CCFF will buy commercial papers issued by firms making a material contribution to the UK economy. To be eligible, firms must have a significant presence in the UK, be a sizeable employer and have a strong customer base, or run a large number of sites. The organisation must have been in sound financial health on 1 March 2020, prior to the shock, and applications must be made through a bank.
Coronavirus Business Interruption Loan scheme (CBIL)
CBIL has been set up to support smaller businesses and is run by the British Business Bank. It will support small and medium enterprises with support worth up to £5 million for up to six years. This support will be in the form of loans, overdrafts, invoice finance and asset finance. The scheme has a total of 40 lenders, and the government has guaranteed an 80% repayment in the event of a default, capped per lender. There are no up-front costs and the government will pay the first 12 months' interest and fees from the lender.
These are part of the wider government package to provide lifelines to UK businesses during the current disruption.
Contingent Term Repo Facility (CRTF)
The Bank of England has also activated the CRTF, which is a liquidity insurance tool that allows businesses to borrow from the Bank of England, secured against collateral, for three months. These loans are designed to be a quick fix and to bridge the gap between the Term Funding Scheme with additional incentives for SMEs (TFSSMEs). The facility was created in 2014, to be activated in the event of potential or actual market stress and is available to banks and building societies who are part of the Discount Window Facility.
Stopping non-essential activity
Regulators such as the FCA, PRA and ECB have put non-essential activity on hold, allowing firms to focus on protecting financial stability and vulnerable customers. The Basel Committee of Banking Supervision (BCBS) has opted to do the same and has suspended consultations on all policy initiatives, as well as postponing reviews due in 2020 for its Regulatory Consistency Programme.
BCBS has also encouraged supervisory bodies to use the flexibility within the Basel III framework to meet the current challenges effectively, particularly in relation to releasing capital and liquidity buffers.
What should remain open?
The PRA, FCA and Bank of England have told bank branches and contact centres to stay open wherever possible. This is to reduce the impact of the current financial shock on vulnerable customers and maintain essential services. The regulators have re-iterated the importance of following NHS and government advice in order to protect staff and customers.
Statement on UK markets
Several European national competent authorities have banned short selling, but the FCA has opted not to, in order to protect hedged positions and promote liquidity. The FCA will, however, uphold bans for shares that fall under those authorities' jurisdiction.
The impact on reporting
The PRA has recognised the potential delay in reporting and has released new timescales for banks' annual returns for year ends after 31 December 2019 but before 1 April 2020. The following dates have been released:
national specific templates, internal model outputs and the standard formula (SF.01) return for approved internal models - will all be accepted up to eight weeks late
market risk sensitivities returns will be accepted up to four weeks late.
These are the latest deadlines for submission and the PRA have re-iterated that sooner is better.
The PRA has also released new timescales for harmonised reporting against Solvency II. These align with EIOPA’s recommendations, and are generally eight-week extensions for annual returns (against the same reporting windows as above), but there are notable exceptions that should be checked carefully on the PRA’s website. Quarterly returns for the solo and group-level quantitative reporting, and financial stability reporting will be accepted up to four weeks late.
Contact us for more information about regulatory updates during the COVID-19 outbreak.