Author: Selwyn Manning

Source: European Banking Authority

The European Banking Authority (EBA) published today its amended Guidelines on arrears and foreclosure following the changes introduced in the Mortgage Credit Directive (MCD).

The EBA assessed the impact of the recent revision of Article 28(1) of the MCD and concluded that, in order to adhere to the principle that EBA Guidelines must not repeat, amend or contradict requirements set out in Level 1 legislation, the EBA Guidelines on arrears and foreclosure needed to be amended.

Guideline 4 on ‘resolution process’ has therefor been removed from the EBA Guidelines on arrears and foreclosure, as its content is now embedded in binding Union Law. The aggregate requirements set out in the MCD and the EBA Guidelines have remained unchanged.

Background and legal basis

The EBA issued its Guidelines on arrears and foreclosure (EBA/GL/2015/12) in 2015 to support the transposition of the provisions of Article 28 on arrears and foreclosure of Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (MCD). The EBA Guidelines became applicable on the same day as the MCD itself on 21 March 2016.

In December 2021, Directive (EU) 2021/2167 on credit servicers and credit purchasers (Credit Servicers Directive – CSD), regulating the sale, purchase, and servicing of non-performing loans (NPLs) entered into force. The CSD introduced, inter alia, amendments to Article 28(1) MCD on arrears and foreclosure by replacing the existing wording with a near verbatim wording of Guideline 4 of the EBA Guidelines on arrears and foreclosure, which covers the resolution process between creditor and borrower. The amended Level 1 text became applicable at the end of December 2023.

The amended Guidelines will apply within two months of the publication of the translated versions.

Source: European Banking Authority

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) today published joint guidelines on the suitability of members of the management body, and on the assessment of shareholders and members with qualifying holdings for issuers of asset reference tokens (ARTs) and crypto-asset service providers (CASPs), under the Markets in Crypto Assets regulation (MiCAR).

These two sets of guidelines are part of the EBA and ESMA‘s ongoing efforts to foster a transparent, secure, and well-regulated crypto-assets market, and complement the recently published governance package.

The first set of guidelines covers the presence of suitable management bodies within issuers of ARTs and CASPs, contributing to increase the trust in the financial system. Having robust governance arrangements in place will foster confidence in those assets and services, supporting the development of a healthy crypto-asset ecosystem.

It provides common criteria to assess the knowledge, skills, experience, reputation, honesty and integrity of members of the management body, as well as if they can commit sufficient time to perform their duties to ensure a sound management of these entities.

The second set of guidelines concerns the assessment of the suitability of shareholders or members with direct or indirect qualifying holdings in a supervised entity. This assessment is a key aspect of the gatekeeping function exercised by supervisory authorities, considering the significant influence that these persons may exercise on the management of the supervised entity.

It equips competent authorities with a common methodology to assess the suitability of the shareholders and members with direct or indirect qualifying holdings for the purpose of granting authorisation as issuers of ARTs or as CASPs, and for carrying out the prudential assessment of proposed acquisitions.

Background and legal basis

Regulation (EU) 2023/1114 on Markets in Crypto-assets (MiCAR) establishes a regime for the regulation and supervision of crypto-asset issuance and crypto-asset service provision in the European Union (EU). It came into force on 29 June 2023, and the provisions relating to ARTs will be applicable from 30 June 2024.

EBA and ESMA have received two joint mandates under MiCAR to issue respectively (i) guidelines on the assessment of the suitability of the members of the management body of issuers of ARTs and of the shareholders and members, whether direct or indirect, that have qualifying holdings in issuers of ARTs in accordance with Article 21(3), and (ii) guidelines on the assessment of the suitability of the members of the management body of the CASP and of the shareholders or members, whether direct or indirect, that have qualifying holdings in the CASP in accordance with Article 63(11).

In addition, EBA and ESMA have consider also appropriate to integrate part of such mandate with own initiative Guidelines under Article 16 of their respective founding Regulation, to clarify the circumstances giving rise to a qualifying holdings, i.e acting in concert, significant influence, indirect shareholders and decision to acquire and clarifying the methodology to assess the suitability, in accordance with Article 42(1), points (a) to (e) and  Article 84(1), points (a) to (e) of MiCAR, of a proposed acquirer of qualifying holdings in an issuer of ARTs authorised under Article 21 of that Regulation or in a CASP authorised under Article 62 of that Regulation, respectively.

Source: European Banking Authority

The European Banking Authority (EBA) today published an Opinion addressed to Consob, the Italian Securities Commission, in response to the Competent Authority’s notification of its decision to grant the permission referred to in Article 26e(10) of the Securitisation Regulation, which specifies the eligibility criteria for high-quality collateral for on-balance-sheet securitisations to qualify as Simple, Transparent, and Standardised (STS).

The EBA has assessed the evidence provided by the Consob, namely the current classification of Italian credit institutions and the composition of the Italian synthetic securitisation market. On the basis of the evidence provided, the EBA is of the opinion that due to the objective impediments related to the credit quality step (CQS) assigned to Italy, the use of a partial waiver to allow collateral in the form of cash on deposit with the originator, or one of its affiliates, qualifying for CQS 3 is justified.

Legal basis, background, and next steps

The EBA’s competence to deliver this Opinion is based on Article 29(1)(a) of Regulation (EU) No 1093/2010. In accordance with the process set forth in Decision of the European Banking Authority EBA/DC/462 , the Opinion has been adopted.

Article 26e(10) of the Securitisation Regulation (EU) No 2017/2402 specifies that the credit protection provided in on-balance-sheet securitisations must meet high-quality collateral standards. By way of derogation, if certain conditions are met, the originator may use high-quality collateral in the form of cash on deposit with the originator or its affiliates, provided they qualify for at least CQS 2. Competent authorities may, under specific conditions and after consulting the EBA, permit collateral in the form of cash on deposit with the originator or its affiliates if they qualify for CQS 3.

Consob will regularly review the conditions of the waiver and appropriate measures will be taken if the impediments cease to exist.

Source: European Banking Authority

The European Banking Authority (EBA) today published an updated Report on the monitoring of Additional Tier 1 (AT1), Tier 2 and total loss absorbing capacity (TLAC) as well as the minimum requirement for own funds and eligible liabilities (MREL) instruments of European Union (EU) institutions. Today’s update provides new guidance on the prudential valuation of non-CET1 instruments and on other aspects related to the terms and conditions of the issuances.

This Report builds upon the 2023 update with substantial amendments made. In particular, the EBA clarifies that the prudential valuation of capital instruments should reflect their actual loss absorbency capacity, meaning that such instruments should be measured on the basis of the amount of Common Equity Tier One (CET1) capital that would be generated in the event of a write-down or conversion, being the carrying amount with no adjustment.

In addition, the Report addresses the approaches followed by some institutions to timely reflect from a prudential perspective FX effects on AT1 instruments classified as equity and stresses the need to ensure a consistent application over time when these approaches are used.

The Report also specifies the conditions under which different loss absorbency mechanisms (conversion and write-down) and trigger levels can operate simultaneously within the same institution, with the need in particular to fully adhere to the EBA existing guidance and AT1 standardised templates.

Other aspects covered in the Report include clarifications and recommendations on the redemption of own funds and eligible liabilities instruments, on early redemption clauses, and on the need to include contractual bail-in recognition clauses in own funds instruments issued under English law.

Going forward, the EBA will continue to monitor the quality of the AT1, Tier 2 and TLAC/MREL instruments and stands ready to provide additional guidance where necessary.

Legal basis and background

In accordance with Article 80 of the CRR on the continuing review of the quality of own funds, ‘the EBA shall monitor the quality of own funds and eligible liabilities instruments issued by institutions across the Union and shall notify the Commission immediately where there is significant evidence that those instruments do not meet the respective eligibility criteria set out in this Regulation’.

Source: European Banking Authority

The European Banking Authority (EBA) welcomes the entry into force of the new EU framework that will transform how Europe tackles money laundering and terrorist financing. The EBA is proud to be paving the way for the establishment of the new anti-money laundering and countering the financing of terrorism authority (AMLA) and is committed to facilitating a smooth transition, and making the EU a hostile place for financial crime.

Since 2020, the EBA has been leading, coordinating and monitoring the EU financial sector’s fight against money laundering (ML) and terrorist financing (TF). The new legislative framework marks a significant step forward in the EU’s fight against financial crime, with a harmonised and single AML/CFT rulebook, and the establishment of AMLA, a dedicated EU anti-money laundering authority.

The EBA will retain its AML/CFT powers and mandates until December 2025 to minimise disruption and provide continuity, and it will also continue working closely with AMLA going forward. In particular, after transferring the powers that are specific to AML/CFT to AMLA, the EBA will remain responsible for addressing ML/TF risk across its prudential remit.

Since its inception, the EBA has been working to ensure that financial institutions and their supervisors apply effective AML/CFT controls wherever they operate in the EU, providing a solid foundation for the new regime. The European Commission has asked the EBA to provide its technical advice on important aspects of the future EU AML/CFT framework to ensure that AMLA can begin to operate efficiently and effectively as of its establishment.

Over the course of 2024 and in 2025, the EBA’s priorities in the area of AML/CFT will focus on the following aspects:

• a methodology for selecting financial institutions for direct EU-level AML/CFT supervision;
• a common risk assessment methodology;
• information necessary to carry out customer due diligence;
• criteria to determine the seriousness of a breach of AML/CFT provisions.

The EBA will be providing its advice to the Commission in October 2025.

Throughout the transition phase, the EBA will also support national competent authorities getting ready for AMLA and will coordinate with the European Commission’s AMLA taskforce, which will be responsible for the establishment and initial operations of AMLA.

Note to the editors

In 2024, the co-legislators agreed on a new AML/CFT package to strengthen the EU’s fight against financial crime.

The Regulation establishing AMLA (2024/1620), the Regulation establishing a single AML/CFT Rulebook (2024/1624) and the revision of the AML/CFT Directive (AMLD6 – 2024/1640) were published in the Official Journal of the European Union on the 19 of June.

Once established, AMLA will directly supervise the cross-border credit and financial institutions exposed to highest money laundering and terrorist financing (ML/TF) risk. It will also draft AML/CFT standards and guidelines, oversee AML/CFT supervisors, and coordinate Financial Intelligence Units (FIUs). In accordance with Article 103 and 108 of Regulation 2024/1620, the EBA will transfer its AML/CFT mandates, powers and resources to AMLA by the end of 2025.

Source: Government of the Netherlands

News item | 24-06-2024 | 14:15

With these sanctions the EU has taken an important step towards a safer cyber domain. Because alongside cyber espionage and cyber sabotage, for the first time the EU is now also tackling cybercriminals who cause serious damage to our society for the sake of financial gain. Not only will these criminals now have to suffer the personal consequences of their malicious behaviour, but individuals and entities that do business with them are also targeted. Through effective expertise and knowledge sharing between the Ministry of Foreign Affairs, the Public Prosecution Service and the police, the Netherlands has been able to make a unique and important contribution to sanctioning within the EU. The Netherlands hopes that this approach will also inspire other member states, so that the EU can be even more effective in fighting cybercrime.

As a result of the sanctions, these individuals’ assets in the EU will be frozen, they will no longer be able to enter the EU, and transactions with them will be prohibited. This means that it will be against the law for EU citizens and companies to cooperate and do business with these prominent cybercriminals, directly or indirectly. The purpose of these measures, aimed at both the individuals concerned and their clients, is to deter and combat cybercrime. These sanctions will also send a clear signal to states that provide safe havens to cybercriminals, allowing them to operate without impunity.

Under the cyber sanctions regime established in 2019, sanctions have been imposed on 14 individuals and four entities from Russia, China and North Korea since 2020. These individuals and entities are responsible for cyberattacks on such institutions as the Organisation for the Prohibition of Chemical Weapons (OPCW), the German Bundestag, banks and hospitals.

The sanctions regime currently explicitly targets individuals and entities, not states. The Netherlands considers it important that the EU also has the tools to take more effective action against states that exhibit malicious cyber behaviour. That’s why the Netherlands is working with other member states to explore how the EU’s cyber sanctions toolbox can be strengthened further.

Source: European Banking Authority

The European Banking Authority (EBA) today published its final draft amending Regulatory Technical Standards (RTS) on the standardised approach for counterparty credit risk (SA-CCR). This regulatory product is part of the new roadmap on the Banking Package.

The amendments to the Capital Requirements Regulation (CRR3) have expanded the EBA mandate to specify the formula to calculate the supervisory delta of options under the SA-CCR framework. Alongside the supervisory delta formula for interest rate options compatible with negative interest rates, the mandate now also requires the specification of the supervisory delta formula for commodity options compatible with negative commodity prices. Therefore, the existing RTS on SA-CCR have been amended to include the formula for commodity options.

Legal basis and background

The draft RTS on SA-CCR have been developed according to Article 277(5) and 279a(3) of the CRR, as amended by Regulation (EU) 2024/1623 (CRR3), which mandates the EBA to specify:

• the method for identifying transactions with only one material risk driver or with more than one material risk driver and for identifying the most material of those risk drivers;
• the formulas to calculate the supervisory delta of call and put options mapped to the interest rate or commodity risk categories compatible with negative interest rates or commodity prices, and the supervisory volatility suitable for those formulas;
• the method for determining whether a transaction is a long or short position in the primary risk driver or in the most material risk driver in the given risk category.

Source: European Banking Authority

• Today’s publication of draft implementing technical standards is a key milestone in the implementation of the latest Basel III disclosure reforms laid down in the new Banking Package.
• The new ITS implement the CRR 3 disclosure requirements on output floor, credit risk, market risk, CVA risk, operational risk and a transitional disclosure on exposures to crypto-assets.
• The alignment of the disclosure requirements with the Basel III framework and its integration with supervisory reporting will promote comparability and consistency of the information.

The European Banking Authority (EBA) published today a final draft implementing technical standards (ITS) on public disclosures by institutions that implement the changes in the Pillar 3 disclosure framework introduced by the amending Regulation (EU) 2024/1623 (CRR 3). These ITS will ensure that market participants have sufficient comparable information to assess the risk profiles of institutions and understand compliance with CRR 3 requirements, further promoting market discipline.

The amending Regulation (EU) 2024/1623 (‘CRR 3’) introduced new and amended disclosure requirements stemming from the latest Basel III Pillar 3 reforms, and a mandate for the EBA to develop IT solutions, including templates and instructions, for the disclosure requirements laid down in the banking regulation. The new ITS implement the CRR 3 prudential disclosures by including new requirements on output floor, credit risk, market risk, CVA risk, operational risk and a transitional disclosure on exposures to crypto-assets. In addition, they aim to provide institutions with a comprehensive integrated set of uniform disclosure formats while promoting market discipline.

These ITS constitute the first Pillar 3 deliverable included in the EBA Roadmap on strengthening the prudential framework published in December 2023. Later in 2024, the EBA will complement these ITS with the CRR 3 disclosure requirements that are not directly linked to Basel III implementation, in particular   the extension of the disclosure requirements on ESG risks to all institutions in accordance with the proportionality principle, and new disclosure requirements on shadow banking.

Following the mandate for the EBA to develop IT solutions, these ITS are designed to repeal the Commission Implementing Regulation (EU) 2021/637, with a view to make the technical standards more user-friendly for institutions. The IT solutions according to which disclosures have to be provided, including templates and instructions, can be found on the EBA website.

When developing these ITS, the EBA has sought alignment and integration between the disclosure and reporting frameworks, to facilitate institutions’ compliance with both requirements, and an updated mapping tool between the revised disclosure templates and the reporting templates is expected to be published at the beginning of July, together with the new ITS on supervisory reporting for the CRR 3 implementation  published for consultation, together with these ITS, in December 2024. The EBA will later publish a technical package, including DPM, validation rules and taxonomy, that shall be used by large and other institutions to submit this information to the EBA Pillar 3 data hub.

Legal basis and background

Regulation (EU) No 575/2013 (‘the CRR’) as amended by Regulation (EU) 2024/1623 (‘CRR 3’) mandates the EBA, in articles 434a, to develop draft implementing technical standards to specify uniform disclosure formats, and IT solutions, including instructions, for disclosure requirements under Titles II and III of the CRR.

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

Following article 434a(1), new draft implementing technical standards have been developed that implement the CRR 3 changes to the Pillar 3 disclosure framework and replace the Commission Implementing Regulations (EU) 2021/637. The new ITS caters for possible developments related to the FRTB capital framework. 

Source: European Banking Authority

The European Banking Authority (EBA) today published its final draft Regulatory Technical Standards (RTS) on the conditions for assessing the materiality of model extensions and changes, as well as changes to the subset of modellable risk factors, applicable under the Fundamental Review of the Trading Book (FRTB) rules. With the submission of these final draft RTS to the European Commission, the EBA completes its roadmap on market and counterparty credit risk approaches published on 27 June 2019.

In line with the Capital Requirements Regulation (CRR), the final draft RTS differentiate between material extensions and changes under the internal models approach (IMA), to be approved by competent authorities (CA), and non-material extensions and changes, to be notified to CAs four weeks in advance. This last category is further divided into two sub-categories: extensions and changes notified with additional information, and extensions and changes with basic information.

For the categorisation of extensions and changes to the relevant categories and sub-categories, the final draft RTS set out a combination of qualitative and quantitative conditions. In particular, the quantitative conditions aim at assessing the effect of the extension or change on the IMA own funds requirements and on the relevant components of the FRTB IMA (Expected Shortfall, Stress Scenario Risk Measure and Default Risk Charge), before and after the planned extension or change. The final draft RTS also include guiding principles that institutions should follow in the categorisation process, provisions on the implementation of extensions and changes and documentation requirements.

Legal basis and background

These draft RTS have been developed according to Article 325az(8)(a) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), which mandates the EBA to specify the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors.

The CRR allows institutions to calculate their own funds requirements for market risk using the alternative IMA, provided that permission from CAs is granted. According to the CRR, material changes to the use of the IMA, the extension of the use of the IMA and material changes to the institution’s choice of the subset of the modellable risk factors require separate permission from competent authorities. All other extensions and changes to the use of the IMA require notification to the competent authorities.

Source: European Banking Authority

The European Banking Authority (EBA) today published its Q1 2024 quarterly Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions together with the Risk Assessment Questionnaire (RAQ) a bi-annual qualitative survey with banks’ expectations for future trends and developments. EU/EEA’s banks continue to benefit from wide interest margins improving further their profitability and capital position. However, credit risks have started materialising with an increase in non-performing loans during the first quarter. The majority of banks surveyed expect further asset quality deterioration in CRE, SMEs loans and consumer credit in the next 6-12 months. 

• Profitability remained resilient for EU/EEA banks in the first quarter of 2024 with a return on equity (RoE) of 10.6% (10.4% one year ago). Net interest margins further widened to 1.69% (+3bps QoQ). Amid monetary easing and rate cuts, banks expect that going forward, their interest income and overall profitability will be affected negatively.
• EU/EEA banks’ CET1 ratio remained at 15.9% in Q1 2024, almost unchanged compared to Q4 2023, and 20bp above Q1 2023. Strong organic capital growth in the last year offset increasing capital requirements (mainly due to higher countercyclical capital buffer (CCyB).
• Net stable funding ratio (NSFR) marginally increased to 127.2% while the liquidity coverage ratio (LCR) decreased over the quarter from 168.3% to 161.4%, moving back to the levels reported in Q3 2023. The latter’s composition has continued to change, with declining cash components and rising central government debt.
• EU/EEA banks  further reduced their outstanding loans to households and non-financial counterparties (NFCs), which are down by 0.2% QoQ, and driven by loans to SMEs (-0.8%) and mortgages (-0.3%). This was partly offset by growing consumer credit and commercial real estate related loans. An increasing share of banks surveyed showed their intention to increase their loan exposure across all segments, apart from commercial real estate.
• EU/EEA banks reported a notable increase in the non-performing loans (NPLs) by 2% QoQ, +EUR 7bn, with a ratio of 1.86%. The increase in NPLs was broad based, yet the biggest increase was reported for SME segment. Cost of risk of EU/EEA banks was also reported higher, at levels not seen since the pandemic in 2020. Although stage 2 allocation declined slightly, in Q1 2024 (9.4%), it remained near its highest level reported in Q4 2023 (9.6%).
• Relevance of operational risk has grown further. Risk of fraud has become the third most relevant driver of operational risk in the RAQ. Cyber risks and data security rank the highest among operational risks. Indications are that cyber-attacks have been on the rise, including successful ones, and that their sophistication is also increasing.

The potential introduction of central bank digital currencies (CBDCs) creates concerns to the banks mainly relating to rising operational expenses and funding costs, as well as declining fee income. More than the direct effects from non-bank financial institutions, the concerns of EU/EEA banks seem to be about possible indirect connections that may influence the banking sector.

Note to editors

Key indicators have been visualised in a dynamic way. To facilitate the navigation, here is the full list of key indicators that you can find in the graphs:

• Slide 1: Profitability of EU/EEA banks’ was still resilient in the first quarter of 2024, supported by further widening margins and lower DGS / resolution fund (RF) contributions [DOWNLOAD DATA]
• Slide 2: EU/EEA banks expect a slowdown in profits in the next 6-12 months amid interest rate cuts. In their assessment of central bank digital currencies (CBDCs) banks anticipate potential impact through costs and fee income [DOWNLOAD DATA]
• Slide 3: Capitalisation of EU/EEA banks remains solid as CET1 ratio, despite the slight decline, is reported close to its highest levels [DOWNLOAD DATA]
• Slide 4: EU/EEA banks’ reported ample liquidity, well above requirements. Share of cash in HQLA on a declining trend [DOWNLOAD DATA]
• Slide 5: Loan growth still subdued in the first quarter of the year. Banks expect loan growth to increase in the next 6-12 months [DOWNLOAD DATA]
• Slide 6: Asset quality deterioration gathers pace. Cost of risk rising but still at relatively lower levels [DOWNLOAD DATA]
• Slide 7: Operational risks are on the rise as cyber risks materialise with more successful cyber-attacks taking place [DOWNLOAD DATA]
• Slide 8: Majority of banks argue that direct links with non-bank financial intermediaries are of limited risks [DOWNLOAD DATA]

The figures included in the Risk Dashboard are based on a sample of 162 banks, covering more than 80% of the EU/EEA banking sector (by total assets), at the highest level of consolidation, while country aggregates also include large subsidiaries (the list of banks can be found here).