Greg Kilminster
Head of Product - Content
BoE letter regarding PE financing
The UK’s Prudential Regulation Authority (PRA) has written to risk officers to inform them of the PRA’s thematic review into risk management practices in private equity PE related financing activities.
Noting that assets under management within the PE sector are now around $8 trillion, authors Rebecca Jackson (Executive Director, Authorisations, Regulatory Technology, and International Supervision) and Charlotte Gerken (Executive Director, UK Deposit Takers Supervision) remind banks that their risk management approach needs to be “sufficiently comprehensive and robust to control changes to the size and composition of their overall exposures”.
The annex to the letter includes the PRA’s main findings from the thematic review and stresses firms should put a “high priority” on addressing any shortfalls in their risk management approach to PE.
The annex stresses that the PRA expects banks to:
- Systematically flag all transaction and exposure data, together with relevant collateral pledges, relating to the PE sector in trade capture and risk management systems, enabling risk managers to identify and consolidate relevant counterparty and credit risk exposure information.
- Have credit due diligence procedures and management information processes in place which recognise and measure the presence of overlapping credit exposures, collateral pledges, and financial claims across all PE related activities.
- Evaluate the potential for higher than previously observed default and loss correlations in periods of stress.
- Conduct routine stress testing of exposures to the PE sector as a whole, as well as PE exposures linked to individual financial sponsors.
- Inform their boards of the aggregate exposures linked to the PE sector and consider the overall business strategy of the group in relation to consolidated PE linked activities.
The letter adds that plans to address any gaps identified from reviewing the annex requirements must be in place by 30 August 2024.
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G7 Cyber Expert Group conducts cross-border coordination exercise in the financial sector
The G7 Cyber Expert Group (CEG) recently completed a cross-border coordination exercise to prepare for a widespread cyber incident that could impact the financial system.
The primary goal of the exercise was to enhance the ability of G7 financial authorities to effectively communicate and coordinate their responses to manage a crisis in the event of a significant cross-border cyber attack on the financial sector.
The exercise involved 23 financial authorities, including ministries of finance, central banks, bank supervisors, market authorities, and representatives from the private industry.
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RBA releases report on interlinking fast payment systems for cross-border payments
The Reserve Bank of Australia (RBA) has released a report assessing the benefits and challenges associated with interlinking fast payment systems for cross-border payments.
The RBA prepared the report after collaborating with industry participants to analyse the issues associated with linking fast payment systems from an Australian perspective.
The report does not assess the case for interlinking Australia’s fast payment system, the New Payments Platform, with other national fast payment systems. Instead, it summarises the study’s findings and shares the RBA’s analysis to contribute to the growing international discussion on fast payment system interlinking.
In the report, the RBA assesses the potential benefits of interlinking and discusses how an interlinking arrangement could be designed most effectively to realise these benefits. The report also discusses various challenges in establishing interlinking arrangements.
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APRA proposes enhancements to quarterly insurance statistical publications
The Australian Prudential Regulation Authority (APRA) has released a consultation proposing enhancements to the content and presentation of its quarterly insurance statistical publications.
Some context
The implementation of the Australian Accounting Standards Board (AASB17) collections and the revised private health insurance (PHI) capital framework has resulted in significant changes in the reporting framework for insurers. These changes have impacted the data presented in the quarterly insurance publications, which are based on now-superseded reporting standards.
Key takeaways
Considering the changes, APRA is revising the data presented in the impacted quarterly insurance publications to reflect the new reporting framework. This also include a shift to a dynamic data visualisation approach featuring data tables and charts, a modernisation of the traditional static data tables APRA has used in the past. These changes aim to better align APRA’s publication approach to stakeholder needs.
Specifically, APRA is seeking feedback on the proposed content and presentation of the:
- Quarterly general insurance performance statistics
- Quarterly life insurance performance statistics
- Quarterly private health insurance statistics
Next steps
The deadline for feedback is 22 May 2024.
Following the consultation period, APRA will finalise its response and release the first edition of the enhanced quarterly publications in June 2024. The first edition will cover data for the reporting periods of September 2023, December 2023, and March 2024. Enhancements to all other insurance publications, including insurance data confidentiality, will be part of a separate consultation later this year.
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FTC bans noncompete agreements
The Federal Trade Commission (FTC) has issued a final rule that aims to promote competition by banning noncompete agreements nationwide.
Under the new rule, most workers will no longer be obligated to abide by existing noncompete agreements. However, it’s important to note that existing noncompete agreements for senior executives will still be enforceable. Employers are strictly prohibited from entering into or attempting to enforce any new noncompete agreements, even for senior executives. Additionally, employers are required to inform workers (excluding senior executives) who are currently bound by a noncompete agreement that the agreement will no longer be enforceable against them.
The final rule will become effective 120 days after it is published in the Federal Register. Once the rule is in effect, individuals can report any suspected rule violation to the Bureau of Competition.
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Hong Kong speech on the insurance industry
Introduction
In a speech at the Hong Kong Federation of Insurers (HKFI) Annual Reception, Christopher Hui, Secretary for Financial Services and the Treasury, discussed Hong Kong's insurance sector.
Global appeal
Hong Kong remains a leading global insurance centre with 160 authorised insurers, including seven of the world's top 10 companies. As of last year, the city's total gross premiums amounted to HK$549.7 billion (US$70.5 billion), demonstrating the sector's dynamic growth and resilience.
National strategy
Aligning with the National 14th Five-Year Plan, Hui noted Hong Kong’s focus on strengthening its role as an international financial centre and a global risk management hub. He added that the "Dual Circulation" strategy under the "one country, two systems" principle positions Hong Kong both as a participant in domestic circulation and a facilitator in international circulation, enhancing global connectivity.
Development roadmap
Hui summarised some aspects of the 2022 Development Roadmap for the insurance sector in Hong Kong, which outlines the government's vision and mission to enhance the city's competitive edge in the global insurance market. These measures include:
- halving the profits tax rate for specific insurance businesses,
- expanding the scope of risks insurable by captive insurers, and
- enhancing the legal framework for group-wide supervision.
Insurance-linked securities (ILS)
Significant advancements have been made in the ILS sector since the establishment of a dedicated regulatory regime and pilot grant scheme in 2021. Hong Kong has facilitated the issuance of four catastrophe bonds totalling US$560 million, aiming to provide safeguards against financial repercussions of natural disasters. Efforts are underway, said Hui, to attract more issuing institutions and professional talent to foster the ILS ecosystem.
Regulatory enhancements
To ensure the sustainability and resilience of the insurance sector, Hong Kong has enacted amendments for implementing a risk-based capital regime. Hui added that detailed requirements will be prescribed later in 2024 year to strengthen the financial soundness of insurers and align with international regulatory standards. Hui also noted that legislation is currently being prepared for the consultation conclusions on establishing a policyholders' protection scheme which were published in December 2023 to strengthen policyholder protection in case of insurer insolvency.
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