The COVID-19 virus (corona) leads globally to substantial concerns and has huge impact on the daily business. In many nations a (semi or total) lockdown situation has been implemented or is expected in due course. The current situation impacts financial institutions and their clients substantially. Our RSM-team on Governance, Risk & Compliance keeps an eye on all developments in the financial markets as well as in the field of financial supervisory. We aim to keep you informed about the upcoming developments from a financial regulatory perspective, also bearing the practical consequences in mind.
Measures of DNB in reaction to COVID-19 outbreak
DNB has published on the 20th of March that it fully supports the measures as communicated by ECB . With these measures, banks will continue serving the economy by financing households which currently are experiencing difficulties due to the COVID-19 outbreak. The buffers built up over the last past years are created to provide more room in situations as the current one. DNB states to be open for discussion how institutions can make use of this flexibility. The buffers of the three largest banks of the Netherlands have been lowered already (ING, Rabobank and ABN-AMRO). DNB also decided to temporarily postpone the introduction of a floor for mortgage loan risk weighting. Implementation will be postponed for as long as necessary. Furthermore, DNB may allow on a case-by-case basis some flexibility of the asset encumbrance limits, provided that this is well argued by the institution.
Klaas Knot, President of DNB: with appropriate measures, a quick economic recovery is possible
Due to the COVID-19 outbreak, The Netherlands is facing a strong economic decline. During the press conference of DNB for the presentation of DNB’s annual report over 2019, Klaas Knot explained that with appropriate measures, a quick economic recovery is possible. The measures of the Dutch government have resulted in the closing of big parts of the Dutch economy. With supporting measures, the Dutch government is aiming at helping these companies to survive this economic tough period. The ‘intelligent lock-down’ measures regarding the closing of the economy are only temporary and are intended to curb the rapid spread of the COVID-19 virus. According to Knot, the depth of the economic recession will depend on the duration of the COVID-19 situation. Furthermore, Knot expressed not to be concerned about the financial position of the Dutch banks. Over the past years, banks have been building up serious buffers for similar situations. Also, DNB has taken measures to compensate the banks. DNB expects the banks to have sufficient financial capacity to support the Dutch economy with credit granting.
AFM postpones requests of data up until 1st of June 2020
Due to the impact of the coronavirus on society and more specific on financial institutions, AFM decided to postpone large data enquiries to financial institutions until 1st of June, 2020. There are nevertheless a few exceptions: the investigations of redemption-free mortgages, compliance with Anti Money Laundering and Terrorist Financing Act (Wwft) and the Market Monitor Advisors and Mediators (MMAB) will not be postponed. AFM will, however, take into account the current corona-related circumstances for financial institutions. AFM expects that financial institutions will continue to comply with applicable laws and regulations, despite the exceptional situation.
The Dutch Data Protection Authority (Autoriteit Persoonsgegevens – AP) enables organisations to delay their responses to questions of AP if necessary, due to COVID-19 outbreak
The Dutch Data Protection Authority have published to grant organisations and companies more time to respond to their questionnaires. The organisations and companies can make use of this option, if they need full focus on controlling the consequences of corona virus. However, the supervisors of the Authority will act immediately in case the privacy is at danger.
Deferral of implementation Basel III announced by Governors and Heads of Supervision
The oversight body of Basil III, the group of Central Bank Governors and Heads of Supervision (GHOS), has announced that the implementation of Basel III will be postponed. The new measures endorsed by GHOS enable banks to increase their operational capacity to respond to COVID-19. With these measures, banks can commit their full resources to respond on the economic impact of the COVID-19 outbreak. Banks can provide critical services to the real economy and make sure that the banking systems remain financially and operationally resilient.
The measures of GHOS include the following timeline of the implementation of Basel III:
- Implementation date of Basil III standards finalized in December 2017 will be postponed by one year, to 1st of January 2023. The accompanying transitional arrangement for the output floor is extended to 1st of January 2028.
- The implementation date of the revised market framework finalized in January 2019 is postponed by one year to 1st of January 2023.
- The implementation date of the revised Pillar 3 disclosure requirements finalized in December 2018 is postponed by one year to 1st of January 2023.
EBA clarifies its measures to mitigate the impact of COVID-19 on the EU banking sector
The EBA has provided further guidance on how to use flexibility in supervisory reporting, clarified its expectations with respect to dividend and remuneration policies and recalled necessary measures to prevent money laundering and terrorist financing. The EBA restates and extends its call on institutions to refrain from paying dividends or purchasing its own shares, fur the purpose of the shareholder renumeration. EBA also states that institutions should assess their renumeration policies in line with the risks arising from this economic situation. Furthermore, EBA calls for flexibility on reporting dates, regarding the remittance dates between March end the end of May. EBA emphasizes that the prevention of money laundering and terrorist financing remains crucial. EBA calls on authorities to support ongoing efforts of financial institutions by exchanging information on merging money laundering and terrorist financing risks, setting clear regulatory expectations and making flexible use of supervisory tools. Read the full article of EBA here.
EBA further specifies the application of the prudential framework with respect to the COVID-19 measures to banks and consumers
EBA calls for flexibility and pragmatism with respect to the application of the prudential framework. In case of debt moratoria, no automatic classification nor IFRS9 status will take place. EBA emphasizes the importance of adequate risk measurement and expects that institutions prioritize individual assessments of obligors’ likeliness to pay when possible. Furthermore, the protection of consumers remains a priority and financial institutions should ensure full disclosure. Also, institutions are obliged to act in the interest of customers, without hidden charges or automatic impact on credit ratings. Lastly, due to the current circumstances contactless payments should be stepped up to the maximum threshold allowed under EU-law. The full article can be read on the website of EBA.
ESMA recommends national authorities to apply forbearance powers towards issuers who need delay of publication of financial reports
ESMA calls for flexible reporting rules for the year 2019. Normally, companies are obliged to make their financial reporting available ultimately on the 30th of April. Given the current circumstances, ESMA suggests that the rules should be applied flexibly and states that the national regulators may allow a postponement.
ESMA recommends national authorities to apply forbearance powers towards issuers who need to delay the publication of their financial reports under the Transparency Directive. Due to the COVID-19 pandemic, auditors are facing challenges in preparing the audit of accounts in time. ESMA advises issuers to keep their investors informed of the expected publication date. The full statement of ESMA 'Actions to mitigate the impact of COVID-19 on the EU financial markets regarding publication deadlines under the Transparency Directive' can be read on their website.
ESMA clarifies statement regarding SFTR backloading
In our newsletter of 23rd of March we referred to the postponement of reporting obligations regarding Securities Finance Transactions (SFT), with respect to backloading. According to ESMA, they respect that SFT reporting implementation is heavily impacted by the COVID-19 pandemic. ESMA expects that competent authorities do not prioritize their supervisory actions to counterparties responsible for their reporting obligations pursuant to SFTR/MIFIR, regarding SFTs concluded between 13th of April 2020 and 13th of July 2020. In reaction to this clarification, AFM will not aim its supervisory activities on the SFT who are within the scope of the backloading obligation. The full public statement of ESMA about SFTR can be read on their website.
ESMA has extended all consultations response dates with a closing date on or after March 16th
Given the impact of COVID-19 and in order to ensure that input to consultations is not altered, ESMA decided to extend all closing dates for consultations responses, closing on or after March 16th .
ECB publishes answers on FAQs with regard to supervisory measures in reaction to the COVID-19 outbreak
The ECB has published its answers on FAQs (Frequently Asked Questions) with regard to the supervisory measures in reaction to the COVID-19 outbreak. The subjects of the FAQs are relief measures regarding asset quality deterioration and non-performing loans, relief measures regarding the operational aspects of banking supervision, relief measures regarding capital and liquidity requirements and other clarifications.
CEAOB (Committee of European Auditing Oversight Bodies) emphasizes the importance of the quality of the audit
The remaining attention with respect to business continuity is of great importance for the quality of audits, due to the COVID-19 outbreak. Read the full article of AFM about the statement of CEAOB.
In case you have any further questions regarding this article, please feel free to contact Herman Annink, Songul Balaban, Jaap van Dijk or Marlène Jans of the Governance, Risk & Compliance-team of RSM.