On 26 March:
- FCA, while confirming its intention to be flexible to allow firms to keep operating, noted that they should also be planning ahead and ensuring sound management of their financial resources. It says buffers are there to be used, and firms should consider how they can use Government schemes. Ultimately, firms that feel they may not be able to meet their capital requirements or debts as they fall due should contact their supervisor, and those that need to exit the market should plan how to do so in an orderly way;
- PRA has written to CEOs setting out its expectations in respect of consistent and robust IFRS 9 accounting and the regulatory definition of default; treatment of borrowers who breach covenants due to Covid-19 and the regulatory capital treatment of IFRS 9. PRA warns firms that the reduction in current activity will rebound sharply when social distancing measures are lifted. So it is of critical importance that firms take proper decisions about forward-looking expected credit loss estimates using robust and supportable assumptions. While it stresses it is for firms to make their own decisions, it has provided some guidance. The letter also advises that reasons for defaults should be carefully assessed and that covenant breaches or waivers relating to modifications of audit reports because of Covid-19 should not automatically trigger a default under CRR. It also reminds banks that the regulatory capital impact of ECL is being phased in over time, and firms should continue to make use of the transitional arrangements. PRA is thinking about what it might do to ensure greater consistency in application of IFRS 9 and regulatory measures to respond to Covid-19.