Analysis
COVID-19: Updates on regulatory and supervisory responses in Asia Pacific
Issue VI
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- Capital
- Liquidity
- Provisioning, Definition of Default and NPL-related measures
- Consultations / implementation timetables
- Others (reporting, stress testing, conduct, etc.)
This updates provides an overview of the regulatory and supervisory responses to COVID-19 in Asia Pacific from 22 May – 4 June.
Regulators in our region have responded in a number of ways and we have broken these categories up into five main categories, also used by the International Institute of Finance (IIF):
- Capital
- Liquidity
- Provisioning, definition of default and non-performing loans (NPL) related measures
- Consultations / implementation timetables
- Other (reporting, stress testing, conduct, etc.)
Asia has been managing the impact of COVID-19 for the best part of six months. As we reach the half-year mark and some economies begin to reopen, it is appropriate to reflect on the ‘new normal’ we find ourselves in. In the coming months, we will see stocktakes by firms, regulators, and their respective leaders as we begin to switch gears from crisis management to recovery. Across the world, supervisory responses have been largely aligned – either as immediate measures to restore stability in the short-term or a reprioritisation of supervisory programmes/agendas for the mid to long-term. In general, such measures tend to:
- Relax some prudential and conduct requirements
- Increase focus on operational resilience and liquidity risks, and scrutiny of conduct risk hotspots
- Reprioritise, delay or cancel some regulatory initiatives, including consultations
As we explored in our 2020 Asia Pacific Regulatory Outlook, regardless of the level of international consensus, there will always be a certain amount of nuance in approach within jurisdictions. With Asia Pacific leading the way out of physical and economic lockdown (or in some cases bypassing it all together), supervisors will be looking to one another for lessons learned. We may also begin to see how decisions taken by supervisors in London or New York have shaken out for firms and supervisors in Singapore or Hong Kong SAR, or vice versa. One caveat of course is that the severity of the pandemic, the nature and impact of supervisory interventions, as well as the pre-existing market and regulatory conditions have made each jurisdiction’s experience unique and will be important to bear in mind.
What regulatory measures have been taken thus far
Below we have compiled a brief comparative analysis of major themes of regulatory responses globally and how they are playing out in different jurisdictions.
Prudential requirements relaxed (or clarified) to ensure banks can maintain lending, including steps taken to preserve capital and increased scrutiny of liquidity and credit risk/expected loss
- Banks directed to use capital and liquidity buffers (although guidance differs across regions). CCyB reduced to 0% in UK and EU, and to 1% in HK; supplementary leverage ratio relaxed in US; NSFR relaxed for loans maturing in less than 6 months in SG.
- Treatment of loan forbearance under IFRS9 / CECL clarified; supervisory flexibility on classification of loans.
- Banks requested / required to reduce capital distributions; and (in the US) incorporate COVID scenarios in stress testing (i.e. CCAR).
- Heightened supervisory engagement and enhanced reporting requirements for liquidity across regions.
- Injection of liquidity by central banks around the world.
Certain wholesale conduct requirements modified and scrutiny of conduct risk hotspots enhanced
- Modification/clarification of some conduct requirements under MiFID II to reflect realities of remote work