Author: Selwyn Manning

Source: European Banking Authority

The European Banking Authority (EBA) today published a follow-up to the EBA 2021 peer review report on the application of the Joint ESAs Guidelines on the prudential assessment of the acquisition of qualifying holdings. The review assesses the adequacy and effectiveness of the actions undertaken by the competent authorities subject to the previous review and finds good progress in remedying the deficiencies identified in 2021.

The follow-up report focuses on the 17 competent authorities assessed as having at least one supervisory benchmark which was not ‘fully applied’ in the 2021 Report.

All 17 CAs were found to have responded to the assessment of the initial peer review seriously and most have adopted measures to remedy the deficiencies identified. Particular improvements were identified in the areas of assessment of the financial soundness of proposed acquirers and of suspicions of money laundering/terrorist financing issues.

Legal basis and background

The follow-up report has been developed in accordance with Article 23 of the EBA Decision of 28.04.2020 establishing a framework for Ad-Hoc Peer Review Committees (EBA/DC/2020/326) providing that a follow-up review has to be carried out two years after the conclusion of the initial peer review in order to assess if any progress has been made by the CAs to remedy the deficiencies previously identified.

The peer review has been performed by an ad hoc Peer Review Committee made up of EBA and competent authorities’ staff in accordance with the EBA peer review work plan for 2023-2024 and following the process in Article 30 of the EBA Regulation and EBA peer review methodology.

The initial 2021 Report assessed implementation of the common procedures and assessment methodology for acquisition or increase of direct or indirect qualifying holdings in a credit institution (CI) under the Capital Requirements Directive (CRD). The report covered 30 competent authorities (CAs): all 27 of the EU Member States, the ECB-SSM and 2 EEA countries. 

Source: European Banking Authority

The Joint Board of Appeal (“the Board”) of the European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) unanimously decided to dismiss the appeal brought by Dubai Commodities Clearing Corporation (“DCCC”) against the European Securities and Markets Authority (“ESMA”) and to therefore confirm the ESMA decision to withdraw its recognition.

The application was brought in relation to ESMA’s Decision, adopted under Article 25p of Regulation (EU) No 648/2012 (EMIR), to withdraw the recognition of DCCC as a Tier 1 third-country central counterparty (CCP). The decision is a consequence of the United Arab Emirates (UAE) being included by the European Commission on the list of high-risk third countries presenting strategic deficiencies in their national anti-money laundering and counter financing of terrorism (“AML/CFT”) regime, provided for in the Commission Delegated Regulation (EU) 2016/1675.

The Board had decided to suspend the ESMA decision in October 2023 until the outcome of the appeal is concluded. With today’s publication, the suspension has expired and the ESMA decision has become fully operational.

Source: Government of the Netherlands

News item | 06-02-2024 | 12:50

The Netherlands stands behind Ukraine

The Netherlands will continue to support Ukraine so that it can defend itself against Russian aggression. We are actively collaborating with fellow EU and NATO member states and with other like-minded partner countries. Working in concert with as many countries as possible, our aim is to show that this aggression has consequences for Russia, and that the Netherlands stands for freedom and cooperation and rejects the ideology of ‘might is right’.

How will the additional €50 billion support package be used?

The EU has compiled an additional support package for Ukraine worth €50 billion for the period from 2024 to 2027. The package is primarily intended to ensure that Ukraine’s economy and society can continue to function. Funds may be used for recovery and reconstruction, but also to cover wages for hospital staff and civil servants, for example.

A portion may also be spent on reforms that Ukraine needs to carry out in support of its bid for EU membership. Of the total package, €33 billion consists of long-term, low-interest loans. The remaining €17 billion comprises grants to which all 27 EU member states will contribute proportionally.

The EU reached agreement on the support package during the European Council meeting of Thursday 1 February 2024.

How is the Netherlands supporting Ukraine?

The Netherlands is providing weapons, training, equipment and other materials that Ukrainian troops need in order to defend their country. See an overview of military support (in Dutch).

The Netherlands is also providing funds for humanitarian aid, reconstruction, medicines and other goods, support for victims of the war and investigation of violations of international humanitarian law. See an overview of non-military support. The largest portion of this financial support, including the new package, is provided via the EU.

Source: European Banking Authority

The European Banking Authority (EBA) today published a technical package for version 3.4 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 amendments to the reporting and disclosure technical standards on minimum requirement for own funds and eligible liabilities and total loss absorbing capacity (MREL/TLAC), as well as some minor corrections to the technical package on the interest rate risk in the banking book (IRRBB). The DPM Query Tool has also been updated to reflect the current release.  

Source: European Banking Authority

The EBA consults on draft technical standards on residual risk add-on hedges under the Fundamental Review of the Trading Book 
The European Banking Authority (EBA) today launched a public consultation on its draft Regulatory Technical Standards (RTS) on the conditions for determining whether an instrument attracting residual risk acts as a hedge. These RTS are part of the Phase 1 deliverables of the EBA roadmap on the implementation of the EU banking package in the area of market risk. The consultation runs until 3 May 2024.

One of the pillars of the standardised approach (SA) under the new fundamental review of the trading book (FRTB) framework is the residual risk add-on (RRAO).

The Capital Requirements Regulation (CRR3) introduces a provision in the RRAO framework allowing the exemption from the RRAO charge for instruments bearing residual risks that are taken to hedge instruments bearing residual risks too. The CRR3 also includes a mandate for the EBA to develop RTS specifying when an instrument qualifies as a hedge for the purpose of the exemption and when not. 

The RTS proposed for consultation require institutions to identify whether the RRAO charge for which the institution seeks the exemption relates to a risk factor that is not shocked in the SbM (i.e. non-SbM risk factor), or if it is down to other reasons. 

When the RRAO relates exclusively to a non-SbM risk factor, the RTS envisage conditions to verify that, as a result of the hedge, the sensitivity towards the non-SbM risk factor is significantly reduced. 

On the other hand, where the RRAO charge is due to other reasons than the presence of a non-SbM risk factor, the RTS allow the hedging instrument to be recognised as hedge, and as such, exempted from the RRAO charge, only if it completely offsets the RRAO risk stemming from the hedged instruments.

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 3 May 2024.

The public hearing on these draft RTS will take place via conference call on 6 March 2024 from 15.00 to 16.00 CET. The EBA invites interested stakeholders to register using this link by 4 March 2024 at 16:00 CET.

Legal basis and background

The draft RTS on the FRTB have been developed according to Article 325(u)(6) of Regulation (EU) No 575/2013 (CRR), as amended by the CRR3, which mandates the EBA to specify criteria to identify positions attracting residual risk that act as a hedge. 
 

Source: European Banking Authority

The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) today published a Report setting out the results of a stocktake of BigTech direct financial services provision in the EU. The Report identifies the types of financial services currently carried out by BigTechs in the EU pursuant to EU licences and highlights inherent opportunities, risks, regulatory and supervisory challenges. The ESAs will continue to strengthen the monitoring of the relevance of BigTech in the EU financial services sector, including via the establishment of a new monitoring matrix.  

In 2023 the ESAs, via the European Forum for Innovation Facilitators (EFIF), conducted a cross-sectoral stocktake of BigTech subsidiaries providing financial services in the European Union (EU) as a follow-up to the ESAs’ 2022 response to the European Commission’s Call for Advice on Digital Finance.

The stocktake showed that BigTech subsidiary companies currently licenced to provide financial services pursuant to EU law mainly provide services in the payments, e-money and insurance sectors and, in limited cases, the banking sector. However, the ESAs have yet to observe their presence in the market for securities services. 

To further strengthen the cross-sectoral mapping of BigTechs’ presence and relevance to the EU’s financial sector, the ESAs propose to set-up a data mapping tool within the EFIF. This tool is intended to provide a framework that supervisors from the National Competent Authorities would be able to use to monitor on an ongoing and dynamic basis the BigTech companies’ direct and indirect relevance to the EU financial sector.

The ESA will also continue the cross-disciplinary exchanges in the setting of the EFIF to further foster the exchange of information between EFIF members and other relevant financial and non-financial sector authorities involved in the monitoring of BigTechs’ activities (e.g., data protection and consumer protection authorities).

Background

For the purpose of this Report, BigTechs are large technology companies with extensive customer networks, which include firms with core businesses in social media, internet search, software, online retail and telecoms.

The Report published today was one of the EFIF’s work priorities for 2023, and extends the analysis conducted for the 2022 Joint ESAs Response to the European Commission 2021 Call for Advice on Digital Finance and related issues, which proposed recommendations in relation to the regulation and supervision of more fragmented or non-integrated value chains, platforms and bundling of various financial services, and risks of groups combining different activities. The EFIF provides a platform for supervisors to regularly share experiences from their engagement with firms through innovation facilitators, to exchange technological expertise, and to reach common views on the regulatory treatment of innovative products, services and business models.

The EFIF was established following the 2019 Joint ESAs report on regulatory sandboxes and innovation hubs which identified the need for greater coordination and cooperation between innovation facilitators to support the scaling up of FinTech across the EU single market. The findings of the report have been updated in the ESAs Report on Innovation Facilitators published in December 2023.

Members of the EFIF include representatives of each innovation hub and regulatory sandbox established by national and European supervisors within the EEA. The EFIF unites representatives from all 30 countries in the EEA, covering the banking/payments, insurance and securities/markets sectors.  More information about the EFIF can be found here.

For the purpose of this report, BigTechs are large technology companies with extensive customer networks, which include firms with core businesses in social media, internet search, software, online retail and telecoms.

Source: European Banking Authority

The European Banking Authority (EBA) today launched an industry survey to receive input from credit institutions on their methodologies to classify exposures to environmental, social and governance (ESG) risks, as well as on the accessibility and availability of ESG data for this purpose. The objective of the survey is to collect qualitative information on credit institutions’ current practices to inform the EBA’s work on the feasibility of introducing a standardised methodology to identify and qualify exposures to ESG risks. The deadline to respond to the industry survey is 29 March 2024.

Survey process

Institutions willing to take part in the survey should contact the EBA and express their interest via the address eba-esg-risks-classification@eba.europa.eu. These institutions will be granted access to the survey accordingly. While the file containing all questions is available on the EBA website for convenience, replies to the survey should be submitted directly to the EBA via the dedicated survey tool.

Participation in the survey is voluntary. However, the EBA strongly encourages credit institutions to take part in this important exercise. No confidential information will be disclosed and the findings will be presented anonymously at an aggregated level. The EBA reserves the right to follow-up bilaterally with institutions participating in the survey.

Background and next steps

As part of the revised banking package, the EBA will receive new mandates under Article 501c of amended Regulation (EU) No 575/2013 (see provisional agreement).

This survey is launched with a purpose to respond to points (a) and (b) of that article, which request the EBA to assess the following:

• availability and accessibility of relatable and consistent ESG data;
• feasibility of introducing a standardised methodology to identify and qualify exposures [subject to ESG risks], based on a common set of principles for ESG risk classification, using:
  • information on transition and physical risk indicators made available by sustainability disclosures reporting frameworks (EU and internationally);
  • guidance and conclusions coming from the supervisory stress-testing or scenario analysis of climate-related financial risks conducted by the EBA or the competent authorities;
  • relevant ESG score of the ECAI credit risks rating by a nominated ECAI, if appropriately reflecting the ESG risks.

The mandate complements the initial discussion and findings presented in the EBA Report on the role of environmental and social risks in the prudential framework published on 12 October 2023.

The EBA may organise an industry workshop with institutions participating in the survey for further dialogue on this topic and to exchange on the findings.

Source: European Banking Authority

The European Banking Authority (EBA) published today its heatmap following scrutiny of the interest rate risk in the banking book (IRRBB) standards implementation in the EU. The heatmap discloses policy aspects that will be subject to further scrutiny, and corresponding actions in the short to medium and long term.

With the publication of the regulatory package on IRRBB in October 2022, the EBA communicated its scrutiny plans for IRRBB to monitor the impact on institutions from increases in interest rates and developments regarding institutions’ ability to manage the risks. These scrutiny plans cover a wide range of different dimensions. Firstly, they include scrutiny of specific aspects of the EBA Guidelines on IRRBB, such as the 5-year repricing maturity cap of non-maturity deposits (NMDs). Secondly, they include a more general assessment of the management of interest rate risk from a prudential perspective, in particular, changes in the modelling assumptions and hedging strategies used by institutions. Finally, they encompass other aspects related to the impact of increases in interest rates on capital instrument valuations or other accounting or liquidity aspects, which interact strongly with IRRBB ones.

The heatmap incorporates three sections, which describe: i) the regulatory framework for IRRBB in the EU; ii) the EBA scrutiny plans and the work undertaken to date; and iii) the main areas of scrutiny identified with the corresponding actions/timelines.

The EBA will continue its discussions with stakeholders on the various aspects identified in the heatmap while progressing on the work.

Heatmap following the EBA scrutiny on the IRRBB

Source: European Banking Authority

The European Banking Authority (EBA) today launched a public consultation on draft Guidelines on the management of Environmental, Social and Governance (ESG) risks. The draft Guidelines set out requirements for institutions for the identification, measurement, management and monitoring of ESG risks, including through plans aimed at addressing the risks arising from the transition towards an EU climate-neutral economy. The consultation runs until 18 April 2024.

Climate change, environmental degradation, social issues and other environmental, social and governance factors are posing considerable challenges for the economy that impact the financial sector. The risk profile and business model of institutions may be affected by ESG risks, in particular environmental risks through transition and physical risk drivers.

To ensure the safety and soundness of institutions in the short, medium and long term, the Guidelines set requirements for the internal processes and ESG risks management arrangements that institutions should have in place. As part of it, these Guidelines set out principles for the development and content of institutions’ plans in accordance with the Capital Requirement Directive (CRD6), with a view to monitoring and adequately addressing the financial risks stemming from ESG factors, including those arising from the adjustment process towards the objective of achieving climate neutrality in the EU by 2050.

Consultation process

Comments to the consultation paper can be sent by clicking on the “send your comments” on the EBA’s consultation page. The deadline for the submission of comments is 18 April 2024. The EBA will consider the feedback received to this consultation when finalising the guidelines.

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

The EBA will hold a virtual public hearing on the consultation paper on 28 February 2024 from 14:00 to 16:00 CET. The EBA invites interested stakeholders to register using this link by 21 February 2024 at 16:00 CET. The dial-in details will be communicated to those who have registered for the meeting. 

Legal basis and background

The draft Guidelines were developed in line with the EBA’s roadmap on sustainable finance and as part of the planned EBA actions in accordance with its roadmap on the implementation of the EU banking package. They address the mandate specified in letters a, b and c of Article 87(a)5 of the CRD. Letter d of that mandate referring to the criteria for setting specific climate-related scenarios will be addressed through a subsequent EBA work. 

Source: European Banking Authority

The European Banking Authority (EBA) today published a consultation paper amending the Implementing Regulation on the benchmarking of credit risk, market risk and IFRS9 models for the 2025 exercise. The most significant change is in the market risk framework, where the EBA is proposing brand new templates for the collection of the internal model approach (IMA) risk measures under the fundamental review of the trading book (FRTB). For credit risk only minor changes are being proposed. This consultation runs until 27 March 2024.

The EBA benchmarking exercise is the basis for both the supervisory assessment and the horizontal analysis of the outcome of internal models. It ensures consistent monitoring of the variability of own funds requirements resulting from the application of internal models as well as of the impact of the several different supervisory and regulatory measures, which influence the capital requirements and solvency ratios in the EU. In this regard, this consultation paper updates the information to be collected in the 2025 exercise.

As regards the market risk benchmarking, the most important change is the provision of new templates, together with instructions, for the collection of the IMA FRTB risk measures (expected shortfall, default risk charge, and stress scenario risk measure. The EBA is also suggesting to reshape market portfolio and to expand the validation portfolios for the Alternative Standardised Approach. 

For the credit risk benchmarking, the EBA is proposing only very minor changes. In particular, the aim is to clarify the mandatory nature (if applicable) of reporting the probability of default and the loss given default risk parameters concerning the Margin of Conservatism, regulatory add-on, and downturn component. Lastly, these changes also clarify the use of internal model IDs used with the Competent Authorities. 

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 received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 27 March 2024.

A public hearing on this consultation will take place on 28 February 2024 from 15:00 to 16:00 CET. Deadline for registration is 26 February at 16:00 CET.

Legal basis

This draft ITS have been developed in accordance with article 78 of the Capital Requirements Directive (CRD), which requires the EBA to specify the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercises. These are used by competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements.