Author: Selwyn Manning

Source: European Banking Authority

The European Banking Authority (EBA) today published the report on the application of gender-neutral remuneration policies by institutions and investment firms. The report is based on the information collected from institutions, investment firms and competent authorities.

The report shows that the industry faces no major hurdles in adopting and implementing gender-neutral remuneration policies, but that some entities still have not yet adopted remuneration policies that explicitly contain measures that ensure that remuneration is awarded gender neutrally and that this aspect is monitored over time.

While the review focusses on the principle of equal pay, it also looked at the gender pay gap and the monitoring of indicators in the area of equal opportunities and equal pay. Despite some progress made by the industry, it has been observed that a gender pay-gap persists and that monitoring and transparency on those topics could be further improved. The persistence of a gender pay gap indicates that further work is needed to ensure ‘equal opportunities’ and that there are biases that require further attention.

The EBA emphasises the importance of the consistent implementation of gender-neutral remuneration policies across all financial institutions.

Legal basis and next steps

The EBA issued Guidelines on gender-neutral remuneration policies for institutions and investment firms on 31 December 2021 and 30 April 2022 respectively.

Article 74(3) of Directive 2013/36/EU and Article 26(4) of Directive (EU) 2019/2034 provide mandates to the EBA to issue a report within 2 years of the date of publication of the Guidelines based on the information collected by the competent authorities on the application of gender-neutral remuneration policies by institutions and investment firms.

The EBA submits the report in parallel to its publication to the European Commission and stands ready to provide further input of the work of the Commission in this area and will take into account this report when updating its Guidelines on sound and gender-neutral remuneration policies.

Source: European Banking Authority

The European Banking Authority (EBA) today published a consultation paper amending the Implementing Regulation on the joint decision process for internal model authorisation under the Capital Requirements Regulation (CRR). The revised Implementing Technical Standards (ITS) incorporate changes to the EU legal framework, including the reduced scope of application for internal models under CRR III and the updated framework on the general functioning of supervisory colleges. This draft amending ITS are part of the first phase of the EBA roadmap for implementing the EU Banking Package. This consultation runs until 16 October 2024.

The existing ITS establish the process to help competent authorities work together while performing their assessments and preparing their contributions to the joint decision on institutions’ application to use internal models for prudential purpose, including: a) possible involvement of third-country supervisory authorities, b) specification on the procedure for assessing the completeness of application, c) planning of the joint decision process and, more generally, the cooperation between home-host authorities.

The novelty of the draft amending ITS is mainly related to the overall revised scope for internal model set out in the CRR III, where the possibility to apply these approaches is no longer in place for operational risk. Therefore, the references to the Advanced Measurement Approach (AMA) have been removed from the scope of the revised ITS. Additionally, the draft amending ITS reflect the updated references to the ITS and Regulatory Technical Standards (RTS) on the functioning of supervisory colleges.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the “send your comments” button on the consultation page.

All contributions will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 16 October 2024.

A public hearing on this consultation will take place on 18 September 2024 from 14:00 to 15:00 CET. Deadline for registration is 13 September at 18:00 CET.

Legal basis and background

This draft ITS have been developed in accordance with Article 20(8) of the Regulation (EU) 575/2013 (CRR), as amended by the Regulation (EU) 2024/1623 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor (CRR III).

Source: European Banking Authority

• The draft Guidelines aim to ensure a common supervisory approach on the data requests with consistent and pre-defined templates across Member States.
• The draft Guidelines will enhance supervisory convergence and ensure a level playing field in the Single Market.

The European Banking Authority (EBA) today launched a consultation on draft Guidelines on reporting requirements to assist competent authorities and the EBA in performing their duties under the Markets in Crypto-assets Regulation (MiCAR). These Guidelines should ensure that Competent Authorities have sufficient comparable information to supervise compliance of issuers with MiCAR requirements and provide the EBA with the information necessary to conduct the significance assessment under MiCAR. The consultation runs until 15 October 2024.

Issuers of asset-referenced tokens (ARTs) and certain e-money tokens (EMTs) are required to report specific information defined under Article 22 MiCAR. These data provisions by the issuers are not enough to allow competent authorities and the EBA to discharge their supervisory tasks and the significance assessment tasks under MiCAR.

The EBA has identified these data gaps and is consulting on draft Guidelines specifying common templates and instructions for issuers to provide the EBA and competent authorities with the necessary information to cover these gaps. In addition, these Guidelines include common templates and instructions that issuers should use to collect the data they need from the relevant Crypto-Asset Service Providers (CASPs).

Consultation process

Comments on the consultation paper can be sent by clicking on the “send your comments” button on the EBA’s consultation page. The deadline for the submission of comments is 11 October 2024.

The EBA will hold a virtual public hearing on this consultation paper on 20 September 2024 from 10:30 to 12:00 CET. The EBA invites interested stakeholders to register using this link by 18 September 2024 at 16:00 CET. The dial-in details will be communicated to those who have registered for the meeting.

All contributions received will be published following the end of the consultation, unless requested otherwise.

Legal basis and background

MiCAR regulates the offering to the public and admission to trading of ARTs, EMTs and other type of crypto-assets, as well as the provision of crypto-asset services in the EU. MiCAR sets out a wide range of regulatory requirements, including authorisations, conduct and prudential requirements for issuers of ARTs and EMTs, and mandates the issuers of certain tokens to report certain data points to the CAs under Article 22 MiCAR.

These draft Guidelines specify the content and uniform formats for the submission of information used by competent authorities when exercising their supervisory powers under Article 94(1)(a) and Titles III and IV of the Regulation (EU) 2023/1114 and by the EBA when exercising its supervisory powers under Article 122 of that Regulation.

These draft Guidelines are developed pursuant to Article 16 of Regulation (EU) No 1093/2010. In accordance with Article 16(3) of Regulation (EU) No 1093/2010, competent authorities and financial institutions must make every effort to comply with the Guidelines.

They are addressed to competent authorities as defined in Article 3(1) point (35) of Regulation (EU) 2023/1114 and to issuers of ARTs and issuers of EMTs.

Source: European Banking Authority

The European Banking Authority (EBA) today published a Report on the stacking orders of capital, leverage and MREL/TLAC requirements and related capital buffers, as well as on reflections about management buffers practices in the European Union (EU). The Report describes the role of regulatory stacks, both going and gone concern, with a focus on micro-prudential elements. It also summarises the differences between the EU, the UK and US frameworks. The Report highlights institutions’ practices on management buffers. Further work of the EBA will include efforts to continue to clarify, where necessary, the interaction between the different stacks.

The work conducted on stacking orders aims at better understanding the interaction between the regulatory stacks and in relation to which stacks management buffers are usually set by institutions. The Report describes all regulatory stacks that are relevant for understanding an institution’s capital headroom above the requirements. It also presents a high-level overview of the EU framework of currently applicable regulation, together with a description of some other non-EU frameworks.

The analysis of institutions’ practices on management buffers highlights that many institutions do not have a very clear definition of management buffers, but nearly all of them set a target on the basis of at least one stack. Institutions tend to compare the management buffer to the highest reference point in the relevant regulatory stack on which they have defined a management buffer.

Most institutions set a management buffer target based on the risk-based CET1 ratio. For this ratio, as of December 2022, the management buffer target was on average 2.4 percentage points above the Pillar 2 Guidance (P2G). Many institutions also set targets based on the risk-based Tier 1 and Total capital ratios, the leverage ratio, and the risk-based MREL ratio.

A broad set of factors influence the determination of management buffers. Internal considerations include the ability to manage unexpected risks and to develop strategic and business opportunities. External considerations include expectations from supervisors and regulators or from other stakeholders. In terms of perceived usability of management buffers, most institutions considered management buffers to be more usable than the capital held to meet the Combined Buffer Requirement (CBR).

Next steps

The work will inform other EBA regulatory products, such as the one stemming from the mandate on the interplay between the output floor and Pillar 2 (Art 104a(7) CRD6), and prepare the ground for the update of the supervisory review and evaluation process (SREP) Guidelines following the EU Banking Package (CRR3 and CRD6) implementation.

Legal basis and background

Under the current EU framework, an institution may be subject to up to ten different stacks resulting from requirements or expectations in terms of own funds and eligible liabilities:  three own funds ratios, the leverage ratio and the ratios for Total Loss Absorbing Capacity (TLAC), Minimum Requirement for Own Funds and Eligible Liabilities (MREL) and subordinated MREL stacks, considering that each TLAC and MREL stack has a risk-based and leverage-based version.

In its response to the European Commission’s Call for Advice on the review of the macroprudential framework, the EBA explained that a more comprehensive evaluation should be performed before considering further substantial changes to the framework.

Source: European Banking Authority

The three European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) today published a consultation paper on Guidelines under Markets in Crypto-assets Regulation (MiCAR), establishing templates for explanations and legal opinions regarding the classification of crypto-assets along with a standardised test to foster a common approach to classification.

To support market participants and supervisors in adopting a convergent approach to the classification of crypto-assets, the Guidelines propose a standardised test, as well as templates for explanations and legal opinions that provide descriptions of the regulatory classification of crypto-assets in the following cases:

• Asset-referenced tokens (ARTs): The white paper for the issuance of ARTs, which contains comprehensive information about the crypto asset, must be accompanied by a legal opinion that explains the classification of the crypto asset – in particular, the fact it is not an EMT nor a crypto-asset that could be considered excluded from the scope of MiCAR
• Crypto-assets that are not ARTs or EMTs under MiCAR: The white paper for the crypto-asset must be accompanied by an explanation of the classification of the crypto asset – in particular, the fact it is not an EMT, ART or crypto-asset excluded from the scope of MiCAR.

Next Steps

Comments to the consultation paper can be sent by clicking on the “send your comments” button on the  consultation page. The deadline for the submission of comments is 12 October 2024.

The ESAs will hold a virtual public hearing on the consultation paper on Monday 23 September 2024 from 10:00 to 12:00 CEST and invite interested stakeholders to register using this link by 19 September 2024 at 16:00 CEST. The dial-in details will be communicated in due course to those who have registered for the meeting.

All contributions received will be published following the end of the consultation, unless requested otherwise.

Legal basis and background

The draft Guidelines have been developed in accordance with Article 97(1) of the Regulation on Markets in Crypto-assets (MiCAR) (Regulation (EU) 2023/1114) which requires the ESAs, by 30 December 2024, to jointly issue Guidelines in accordance with Article 16 of the ESA Founding Regulations (Regulation (EU) No 1093/2010, Regulation 1094/2010, Regulation 1095/2010) to specify the content and form of the explanation accompanying the crypto-asset white paper referred to in Article 8(4), and the legal opinions on the qualification of asset-referenced tokens (ARTs) referred to in Article 17(1), point (b)(ii), and Article 18(2), point (e) of MiCAR. The Guidelines are required to include a template for the explanation and the opinion and a standardised test for the classification of crypto-assets. This is the only joint-ESA policy mandate under MiCAR.

MiCAR establishes regimes for regulating the issuance, offering to the public, and admission to trading of electronic money tokens (EMTs), asset-referenced tokens (ARTs), and other crypto-assets. The Regulation also establishes a framework for crypto-asset service provision.

Source: European Banking Authority

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published today a joint report following their workshop on the use of behavioural insights by supervisory authorities in their day-to-day oversight and policy work.

The report provides a high-level overview of the main topics discussed during the workshop held on 14 and 15 February 2024 for national supervisors and other competent authorities, where participants explored the added value of behavioural insights in their work by exchanging their experiences and discussing the challenges they face. The report includes a catalogue of various studies carried out at both the European and national levels on the use of behavioural insights in supervisory and policy work.

Behavioural insights are instrumental in helping financial markets deliver better products and services to consumers while also mitigating potential detriments they might face. Leveraging behavioural science and evidence-based practices when designing and implementing policies can further strengthen supervision and improve outcomes for consumers.

The workshop and the subsequent report have been developed in accordance with the tasks defined in the Joint Committee Work Programme for 2024.

Source: European Banking Authority

• 178 banks identified as systemically important in 2023.
• The list aims to increase transparency in the EU.
• The assessment of systemic importance remains under the remit of the national competent or designated authorities.

The European Banking Authority (EBA) updated today the list of other systemically important institutions (O-SIIs) in the EU, which, together with global systemically important institutions (G-SIIs), are identified as systemically important by the relevant authorities according to harmonised criteria laid down in the EBA Guidelines. This list is based on year-end-2023 data and includes the overall score calculated according to the EBA Guidelines and the capital buffer rate that the relevant authorities have set for the identified O-SIIs. The list is available also in a user-friendly visualisation tool.

The EBA Guidelines define the size, importance, complexity and interconnectedness as the criteria to identify O-SIIs. They also provide flexibility to relevant authorities to apply their supervisory judgment when deciding to include other institutions, which might have not been automatically identified as O-SIIs. This approach ensures a comparable assessment of all financial institutions across the EU, whilst still not excluding those firms that may be deemed systemically important for one jurisdiction on the basis of certain specificities.

The list published today aims to increase transparency in the EU by providing an overview of OSIIs, including some key facts about the banks identified. 178 banks were identified as systemically important in 2023 (at the highest level of consolidation in each country) with buffer rates ranging from 0.25% to 3%, as shown in the chart below. Relevant authorities disclose further details on the underlying rationale and identification process for their respective jurisdictions. This additional information may be relevant to understand the specific features of each O-SII and to get some insight in terms of supervisory judgment, optional indicators used, buffer decisions and phase-in implementation dates. As underlined in the Capital Requirements Directive (CRD), the assessment of systemic importance necessary to identify O-SIIs remains under the remit of the national competent or designated authorities.

Source: European Banking Authority

• These technical standards are crucial as they allow supervisors to monitor institutions’ compliance with the Capital Requirements Regulation (CRR3) implementation of the latest Basel III reforms in the EU and will foster consistent and enhanced supervision.
• The new standards introduce or amend supervisory reporting requirements on output floor, credit risk, market risk, credit valuation adjustment (CVA) risk, operational risk, leverage ratio and a transitional supervisory reporting on exposures to crypto-assets.

The European Banking Authority (EBA) today published its final draft implementing technical standards (ITS) on supervisory reporting requirements implementing the changes necessary to keep the supervisory reporting framework relevant and meaningful and aligned with the amending CRR 3, which implements the latest Basel III reforms. These ITS will allow supervisors to have sufficient comparable information to monitor compliance by institutions with CRR 3 requirements, thus further promoting enhanced and consistent supervision.

These ITS update the EBA supervisory reporting framework by including new or amended CRR3 requirements on ion the output floor, credit risk, market risk, CVA risk, leverage ratio and on the transitional treatment of exposures to crypto-assets. On operational risk, these ITS include some minimum reporting requirements based on the consultation launched in February 2024, while the more extensive reporting requirements on this topic will be finalised by the end of this year, together new framework for the business indicator for operational risk that was consulted in parallel.

These ITS are the first supervisory reporting deliverable included in the EBA Roadmap on strengthening the prudential framework published in December 2023. The EBA will complement these ITS with the CRR 3 supervisory reporting requirements that are not directly linked to Basel III implementation in subsequent products.

To facilitate the preparation and use of Pillar 3 data, the EBA is also publishing:

Next steps

Following the mandate for the EBA to develop IT solutions, these ITS will eventually repeal the Commission’s Implementing Regulation (EU) 2021/451, with a view to making the technical standards more user-friendly for institutions. The IT solutions according to which supervisory reporting data has to be provided, including templates and instructions, can be found on the EBA website.

The EBA will publish during Q4 2024 a technical package, including the DPM, validation rules and taxonomy, that shall be used by institutions to submit this supervisory reporting information to supervisors.

Legal basis and background

Regulation (EU) No 575/2013 (‘the CRR’) as amended by Regulation (EU) 2024/1623 (‘CRR 3’) mandates the EBA, in article 430(7), to develop draft implementing technical standards to specify uniform reporting formats, and IT solutions, including instructions, for supervisory reporting requirements of institutions.

The CRR 3 implements the latest Basel 3 reforms, which strengthen the EU institutions’ prudential framework, including also the related new and amended supervisory reporting requirements for institutions.

Following article 430(7), new draft ITS have been developed that implement changes to the supervisory reporting framework necessary following the CRR3 and replace the Commission Implementing Regulations (EU) 2021/451. The new ITS take into account the delay in the application of the FRTB capital framework.

When developing these ITS, the EBA has sought alignment and integration between the reporting and disclosure frameworks, to facilitate institutions’ compliance with both requirements.

Source: European Banking Authority

The European Banking Authority (EBA) today published a technical package for version 3.5 of its reporting framework.

This package provides the standard specifications that include the validation rules, the Data Point Model (DPM) and the XBRL taxonomies to support the following reporting obligations:

• amendments to the technical standards on specific reporting requirements for the Fundamental Review of the Trading Book (FRTB);
• diversity benchmarking Guidelines;
• the cross-sectoral technical standards on the standard templates for the purposes of the register of information in relation to all contractual arrangements on the use of ICT services provided by ICT third-party service providers under the Digital Operational Resilience Act (DORA);
• the amendments to the reporting and disclosure technical standards on minimum requirements for own funds and eligible liabilities and total loss-absorbing capacity (MREL/TLAC), following the final changes introduced by the co-legislators in the level 1 text.

This technical package includes a version of the data dictionary contents in the new format of DPM2.0  (for informational purposes only) and adopts the new XBRL architecture.

The  DPM Query Tool has also been updated to reflect the current release. 

Background and next steps

The amendments to the FRTB reporting will be applicable only from the date of application of the FRTB framework, following the Commission announcement on 18 June of its intention to postpone the application of the FRTB by a year (to 1 January 2026).

The technical package for DORA reporting on CTPPs has been developed based on the final draft technical standards published and submitted to the Commission by the three ESAs in January 2024. Any possible amendments to the technical standards during their adoption by the Commission with an impact on the technical package will be reflected by the EBA in subsequent releases.

Source: European Banking Authority

The European Banking Authority (EBA) launched today a consultation on draft Regulatory Technical Standards (RTS) to specify the conditions and the criteria to assess whether the credit valuation adjustment (CVA) risk exposures arising from fair-valued securities financing transactions are material, as well as the frequency of that assessment. The concept of materiality set out in the draft RTS will determine whether fair-valued securities financing transactions can be exempted from own funds requirements for CVA risk. The consultation runs until 8 October 2024.

The draft RTS propose to use a quantitative threshold approach to determine the materiality of CVA risk exposures arising from fair-valued securities financing transactions. In particular, the draft RTS set out a ratio that quantifies the amount of CVA risk arising from fair-valued securities financing transactions relative to the CVA risk of transactions within the scope of own funds requirements for CVA risk. To ensure consistency with the regular calculation and reporting cycle of own funds requirements by institutions, the draft RTS propose to do the assessment on a quarterly basis.

Consultation process

​Comments to this consultation can be sent to the EBA by clicking on the “Send your comments” button on the consultation page. Please note that the deadline for the submission of comments is 8 October 2024. All contributions received will be published following the close of the consultation, unless requested otherwise.

​A public hearing on these draft RTS will take place via conference call on 4 September 2024 from 15:00 to 16:00 CET. The EBA invites interested stakeholders to register using this link by 30 August 2024, 16:00 CET.

​Legal basis and background

​Article 382(6) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), mandates the EBA to develop draft RTS to specify the conditions and the criteria that institutions are to use to assess whether the CVA risk exposures arising from fair-valued securities financing transactions are material, as well as the frequency of that assessment.