Author: Selwyn Manning

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The EBA responds to the European Commission’s Call for Advice on significance criteria and supervisory fees under the Markets in Crypto-Assets Regulation

Source: European Banking Authority

The European Banking Authority (EBA) today published its response to the European Commission’s Call for Advice  on two EC delegated acts under the Markets in Crypto-assets Regulation (MiCAR) relating to the criteria for determining the significance of asset-referenced tokens (ARTs) and electronic money tokens (EMTs) and to the supervisory fees that may be charged by the EBA to issuers of significant ARTs and significant EMTs.

The EBA proposes a set of core and ancillary indicators for each significance criterion within the scope of the Call for Advice:  financial sector interconnectedness, and activities on an international scale. Such indicators cover diverse elements of interconnectedness (e.g. direct and indirect between the issuer and the financial system, direct between the token and the financial system, or direct between the issuer and other ART/EMT issuers) and international scale (e.g. all types of transactions, or transactions where the token is used as means of exchange) and take account of data availabilities.

Regarding the supervisory fees, the EBA proposes criteria for allocating costs between issuers, as defined in MiCAR, and ensures that all costs it will incur in the performance of its supervisory tasks, including the establishment of supervisory colleges and in the context of any delegation of tasks to national competent authorities, can be charged to issuers of significant ARTs and significant EMTs in accordance with the full cost-recovery approach foreseen in MiCAR.

Background

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 and EMTs will be applicable from 30 June 2024.

Among the activities within the scope of MiCAR are the activities of offering to the public or seeking admission to trading of ARTs and EMTs and issuing such tokens. Supervision tasks are conferred on the EBA for ARTs and EMTs that are determined by the EBA to be significant. Additionally, the EBA is mandated to develop 17 technical standards and guidelines under MiCAR to further specify the requirements for ARTs and EMTs, and an additional 3 mandates jointly with ESMA (and, in one case, also with EIOPA).

In December 2022, the European Commission issued to the EBA a Call for Advice in relation to two of its delegated acts under MiCAR, specifically on: (i) certain criteria for the classification of asset-referenced tokens (ARTs) and electronic money tokens (EMTs) as significant (Article 43(11)), and (ii) the supervisory fees to be charged by the EBA to issuers of significant ARTs and EMTs (Article 137(3)). The Call for Advice was received by the EBA on the same date as the joint-ESAs’ Call for Advice on specific delegated acts under DORA, and was issued with the same deadline: 30 September 2023.

The EBA is empowered to issue opinions upon a request from the European Parliament, the Council or the European Commission, or at the Authority’s own initiative on all issues related to its area of competence (Article 16a(1) of the EBA’s Founding Regulation).

To inform the response, the EBA held two public workshops (17 May and 24 July), followed by written procedures enabling workshop participants to provide additional inputs, and has engaged bilaterally with the Financial Stability Board (FSB), the European Commission, the European Central Bank (ECB), the European Systemic Risk Board (ESRB) and the staff of the European Securities and Markets Authority (ESMA) . The response has also been informed by discussions in the context of the EBA’s network on crypto-assets and, as regards the fees element, in coordination with the preparatory work to the response to the DORA Call for Advice.

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ESAs analyse the extent of voluntary disclosure of principal adverse impacts under the SFDR

Source: European Banking Authority

ESAs analyse the extent of voluntary disclosure of principal adverse impacts under the SFDR

28 September 2023

The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) today published their second annual Report on the extent of voluntary disclosure of principal adverse impacts under the Article 18 of the Sustainable Finance Disclosure Regulation (SFDR).

Similar to the approach adopted for 2022 Report, the ESAs launched a survey of National Competent Authorities to assess the current state of entity-level and product-level voluntary principal adverse impact (PAI) disclosures under the SFDR, and have developed a preliminary, indicative and non-exhaustive overview of good practices and areas that need improvement.

Highlights:

  • The results show an overall improvement compared to the previous year, although there is still significant variation in the extent of compliance with the requirements and in the quality of the disclosures both across financial market participants and jurisdictions.
  • Disclosures appear easier to find on websites compared to the previous year.
  • When financial market participants do not consider principal adverse impacts, they should better explain the reasons for not doing so.
  • Even though they are encouraged to do so under the SFDR, financial market participants are generally not disclosing to what extent their investments align with the Paris Agreement.
  • Voluntary disclosures of PAI consideration by financial products will be further analysed in future reports.

The 2023 Report also includes a set of recommendations for the European Commission to consider ahead of the next comprehensive assessment of the SFDR.

Background

Principal Adverse Impacts (PAI) are the most significant negative impacts of investments on the environment and people. When a financial market participant considers principal adverse impacts, it means that it should seek to reduce the negative impact of the companies they invest in.

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ESAs publish Report on the landscape of ICT third-party providers in the EU

Source: European Banking Authority

The three European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) have today published an indicative overview of information and communication technology (ICT) third-party providers (TTP) as part of their preparations for the Digital Operational Resilience Act (DORA). The analysis aims to map the provision of ICT services by TPPs to financial entities in the European Union and to support the ESAs’ policy making process in light of the European Commission’s call for advice to further specify the criteria for critical ICT TPPs and to determine oversight fees.

The data collection exercise on which the Report is based was the first of its kind, covering ICT-related contractual arrangements for entities across the financial sector. Overall, the exercise has identified around 15,000 ICT TPPs directly serving financial sector entities across the EU. It has found that the most frequently used ICT TPPs support critical or important functions for their clients in a wide range of services. In addition, most critical services were classified as non-substitutable by financial institutions.

The data collection exercise has also revealed some valuable lessons for the implementation of DORA. For instance, it has underlined the importance of ensuring that financial entities provide unique identifiers in the data submitted and the need to develop an appropriate ICT services taxonomy.

Legal basis and background

The ESAs, with the support of their respective competent authorities, agreed to carry out a data collection exercise on a sample of financial entities as part of their preparations for DORA.  The results of the analysis are based on information provided on a best-effort basis by a broad sample of financial entities across the EU financial sector.

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The EBA second mandatory exercise on Basel III full implementation shows a significantly reduced impact on EU banks with shortfalls nearly fully absorbed

Source: European Banking Authority

The EBA second mandatory exercise on Basel III full implementation shows a significantly reduced impact on EU banks with shortfalls nearly fully absorbed

26 September 2023

The European Banking Authority (EBA) today published its second mandatory Basel III Monitoring Report which assesses the impact that Basel III full implementation will have on EU banks in 2028. According to this assessment — which uses a sample of 157 banks for the point-in-time analysis — in terms of minimum Tier 1 capital the impact has significantly decreased in relation to the previous reference date of December 2021. In terms of estimated capital shortfall, the impact of the reform has been nearly fully absorbed.

At EUR 0.6 billion of additional Tier 1 capital required for the entire EU banking sector, the estimated capital shortfall to comply with the Basel III reform has been practically eliminated. The overall impact includes the economic impact of the Covid-19 pandemic that had materialised up until December 2022, the reference date of this Report.  A separate Annex to the Report also includes the impact of the proposals for the EU implementation of Basel III under the revised Capital Requirements Regulation (CRR3). 

Overview of the results

Overall, the results of the mandatory Basel III capital monitoring exercise show that European banks’ minimum Tier 1 capital requirement would increase by 9.0% at the full implementation date in 2028.  The main contributing factors are the output floor and credit risk.  The overall minimum Tier 1 capital requirement for large and internationally active banks (Group 1) would increase by 10.0%. The requirements for the global systemically important institutions (G-SIIs, subset of Group 1) and for Group 2 banks would increase by 16.0% and 3.6%, respectively.

Note to the editors

  • The results have been visualised in a dynamic way. To facilitate the navigation, here is the full list of results for the different groups of banks that you can find in the interactive graphs. 
  • The impact shown in the point-in-time analysis of 2nd annual mandatory exercise report is not directly comparable to the one in the 1st annual mandatory exercise. Thus, when comparing the results over time, Table 6 of the Basel III Monitoring Report should be considered.
  • The Basel III Monitoring Report assesses the impact on EU banks of the final revisions to the frameworks of credit risk (split into four sub-categories), operational risk and the leverage ratio. In addition, the introduction of the aggregate output floor is also considered. The report further quantifies the impact of the new standards for market risk (FRTB) and credit valuation adjustments (CVA).
  • The Basel III Monitoring Report shows the results separately for Group 1 and Group 2 banks. Group 1 banks are those with Tier 1 capital more than EUR 3 billion, and they are internationally active. All other banks are categorised as Group 2 banks.
  • The Basel III Monitoring Report shows the results separately for three broad business models, ‘universal’ which is a business model offering most of the banking services, ‘retail-oriented’, which focuses on retail clientele and ‘corporate-oriented and other’ which incorporates the remaining institutions.
  • Together with the Report, an interactive tool showing the main results is made available for analytical purposes. The official figures and conclusions are the ones presented in the public Basel III Monitoring Report. Therefore, any interpretation based on the data provided within the visualisation tool must be done with caution. 
  • The annex showing the impact of the implementation of the proposed EU specific adjustments provides an assessment of the impact of the Basel III framework including additional implementation features that are included in the EU Commission legislative proposals on the implementation of Basel III in the EU. The annex shows the impact results applying two different sets of capital requirements. The first scenario includes the same set of buffers as the main Basel III report. The second scenario additionally includes the Pillar 2 requirements and all EU capital buffers.

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