Insights

In this issue:

• Clarifications by CBM on the moratorium measure
• EBA clarifies the use of flexibility in relation to COVID-19
• FCA statement on PSD 2 and strong customer authentication
• EBA issues draft technical standards on market risk reporting

Clarifications by CBM on the moratorium measure

Further to the issuance of the Central Bank Directive No. 18, which directive imposes on credit institutions a six-month moratorium period with respect to the certain facilities, the Central Bank of Malta has followed up on the matter by publishing supplementing guidelines to banks on the treatment of accrued interest during the moratorium period.

The regulator has clarified that during the moratorium period, no interest is to be compounded or capitalised, but instead it will be accrued. In a nutshell, no additional interest will be due, but instead, the interest which is accrued during the moratorium period will still be due, but will be suspended and become payable at a later stage of the loan term. The institution and the borrower may agree to spread the accrued interest equally and on a straight-line basis across the remaining term of the loan, unless the arrangements for the repayment of the deferred interest due are agreed upon between them.

EBA clarifies the use of flexibility in relation to COVID-19

The supranational regulator, the European Banking Authority (EBA) has issued additional guidelines to shed light as to how additional flexibility will influence supervisory methodologies with respect to inter alia SREP, ICT risk, market exposure, and securitisation. While calling for more attention by regulators and institutions with regards to the main risks in these areas, the authority is also suggesting amending its standards on prudent valuation (such as the use of a 66% aggregation factor to be applied until the 31 December 2020) to alleviate the shock triggered by the market volatility which was sparked by the pandemic.

Delayed reporting for FRTB-SA figures is also being proposed as one of the measures to be introduced by the EBA considering the intensified operational toil on credit institutions, particularly in the context of reporting. Of key importance is the EBA’s emphasis on the digital operational resilience, wherein the authority is hammering home how imperative it is for institutions to have suitable ICT capacity and security risk management.

The EBA emphasises the importance of digital operational resilience. In this respect, the EBA calls on institutions to ensure business continuity, adequate ICT capacity, and security risk management. The new EBA ICT and security risk management guidelines will guide financial institutions and supervisors to focus on priority areas.

EBA guidelines

FCA statement on PSD 2 and strong customer authentication

In light of the COVID-19 outbreak, the UK financial regulator is extending the implementing deadline on strong customer authentication (SCA) for e-commerce by an additional six months so as to alleviate possible shocks to the industry. Furthermore, the Financial Conduct Authority (FCA) is anticipating the industry coordinator, UK Finance, to deliberate with all stakeholders and reach consensus with the FCA on the phased implementation plan. The new deadline in the UK is now the 14 September 2021.

FCA Statement

EBA issues draft technical standards on market risk reporting

The EBA has today issued the final draft of the implementing technical standards on specific reporting obligations with respect to market risk which inter alia launched through novel reporting requirements (which will also become part of version 3.1 of the EBA reporting framework), the elements of the Fundamental Review of the Trading Book (FRTB) into the EU prudential framework. The new requirements which are expected to apply from September 2021 include without limitation a summary template and a thresholds template, the former of which reflects, and which will be complemented with the own funds requirements under the MKR-ASA and alternative standardised approach for market risk.