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Source: European Banking Authority

The European Banking Authority (EBA) published today its Dashboard on high earners for 2023. The analysis shows a slight increase in the number of individuals working for EU banks and decrease for investment firms who have received a remuneration of more than EUR 1 million. 

In 2023, the total number of high earners receiving a remuneration of more than EUR 1 million remained constant at 2 343, while that of high earners in credit institutions slightly increased by 5.21% (from 2 017 in 2022 to 2 122 in 2023), and of high earners in investment firms decreased by 32% (from 325 in 2022 to 221 in 2023). The drop in high earners reported by investment firms can be attributed to the less profitable financial year and lower market volatility.

The EBA’s analysis includes data on the gender distribution among high earners, highlighting the existence of a persistent gender imbalance within the financial sector, and particularly the highest paid positions.

The weighted average ratio of variable to fixed remuneration for all high earners of credit institutions increased to 87.8 %, while the average ratio dropped to 304.8% for high earners of investment firms, for which the limits to the ratio between the variable and the fixed remuneration under CRD do no longer apply as of 2021. 

Legal basis and next steps

This Report has been developed in accordance with Article 75(3) of Directive 2013/36/EU and Article 34 (4) of Directive (EU) 2019/2034, which mandates the EBA to collect information on the number of individuals per institution that are remunerated EUR one million or more per financial year (high earners) in pay brackets EUR one million, including the business area involved and the main elements of salary, bonus, long-term award and pension contribution.

The EBA will continue to publish data on high earners annually, to closely monitor and evaluate developments in this area. 

Source: European Banking Authority

The European Banking Authority (EBA) today published its Q3 2024 Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions.

• EU/EEA banks’ return on equity (RoE) increased slightly on a quarterly basis by 20bps to 11.1% (unchanged on a yearly basis). The increase was driven by the positive contribution of other operating income, and the decline in all major expense components. Net interest income and net trading income negatively contributed to the change in ROE.
• The net interest margin (NIM) is slightly declining from the historical peak in Q1 by 3 basis points to 1.66% (see Fig. 1). The cost of risk continued its decline, and it stands now at 47bps.After the modest recovery observed in the first half of the year, outstanding loans slightly decreased driven by lower loans to non-financial corporates (NFC; -1.6%), while loans towards households remained stable over the quarter.
• Asset quality remains stable, with the non-performing loan (NPL) ratio slightly increasing by 2bps to 1.88%. The share of Stage 2 loans stands at 9.2%, after it marginally decreased over the quarter (9.3% in June 2024) (see Fig. 2). Based on the results of the EBA’s recently conducted risk assessment questionnaire, nearly half of the banks expect a deterioration in asset quality over the next 6 to 12 months, particularly in the consumer credit, SME, and CRE sectors. The share is, however, lower than in previous surveys.
• On a fully loaded basis, EU/EEA banks’ common equity tier 1 (CET1) ratio slightly declined by10bps to 16.0% in the last quarter, remaining well above the requirements.
• The liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) both declined to 161.4% and 127.2%, respectively, but remain well above minimum requirements. The share of cash and reserves in the LCR further declined in favour of sovereign exposures (see Fig. 3).

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: EU/EEA banks’ net interest margin (NIM) slightly declining in Q3 from its previous peak [DOWNLOAD DATA]
• Slide 2: NPL volume and ratio marginally increased, stage 2 volume and ratio declined [DOWNLOAD DATA | STAGE TWO DATA]
• Slide 3: Share of cash and reserves in EU/EEA banks’ high quality liquid assets further declined [DOWNLOAD DATA]

The figures included in the Risk Dashboard are based on a sample of 164 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).

Source: European Banking Authority

The European Banking Authority (EBA) today published its final Guidelines on reporting requirements under the Markets in Crypto-assets Regulation (MiCAR) to ensure that Competent Authorities receive 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.

These Guidelines aim at closing the reporting data gaps identified by the EBA, enhancing supervisory convergence, facilitating a common supervisory approach across Member States as well as ensuring a level playing field in the Single Market. They will equip Competent Authorities with sufficient comparable information to supervise compliance of issuers with MiCAR requirements. Additionally, they will ensure that the EBA has the necessary information to conduct the annual significance assessment under MiCAR.

These Guidelines also include common templates and instructions that issuers should use to collect the data they need from the relevant Crypto-Asset Service Providers (CASPs), in line with the data sharing approach implemented by the Commission Implementing Regulation (EU) 2024/2902.

In addition, to support compliance by issuers of asset referenced tokens (ARTs) and e-money tokens (EMTs) with the requirements set by the Commission Implementing Regulation (EU) 2024/2902 and these Guidelines, the EBA also published a visual explainer providing guidance on which templates should be submitted by the different types of issuers.

Legal basis and background

MiCAR regulates the offering to the public and admission to trading of ARTs, EMTs and other types 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 Competent Authorities under Article 22 MiCAR.

These Guidelines are developed on an own initiative basis pursuant to Article 16 of the EBA Founding Regulation – (EU) No 1093/2010, providing the EBA with the power to issue guidelines addressed to competent authorities or financial institutions. 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 its final 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.

One of the pillars of the standardised approach/ sensitivity-based method (SA/SbM) under the new fundamental review of the trading book (FRTB) framework is the residual risk add-on (RRAO). The EU Banking Package introduces a provision in the RRAO framework allowing the exemption from the RRAO charge for those instruments bearing residual risks that are, in turn, used to hedge instruments bearing residual risks.

These RTS specify when an instrument qualifies as a hedge for the purpose of the exemption and when not. In particular, the RTS 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. a 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 aiming at assessing whether, as a result of the hedge, the sensitivity towards the non-SbM risk factor is reduced. Under this circumstance, constant-maturity spread plain vanilla options are  should fall.

A similar framework is applied to instruments referencing an exotic underlying in the form of dividend, future realised volatility or variance. On the other hand, where the RRAO charge is due to other reasons than the presence of a non-SbM risk factor, or an exotic underlying in the form of dividend, future realised volatility or variance, 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.

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. 

In light of the postponement of the FRTB (), it is worth noting that these RTS are still needed for the implementation of the CRR as of 1 January, given that the  FRTB-SA will apply for the purposes of the output floor calculation. The delivery of the RTS will, therefore, provide clarity on this aspect for the implementation of the EU Banking Package.

Source: European Banking Authority

The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) published today a summary report with the key findings from the 2024 Dry Run exercise on reporting the registers of information under the Digital Operational Resilience Act (DORA). The conclusions and lessons learnt as well as individual data quality feedback provided to financial entities during the exercise will aid preparations for the official reporting starting in 2025.

The quality of data observed in the registers submitted by almost 1,000 financial entities across the EU was in line with the ESAs’ expectations, considering the ‘best effort’ nature of the exercise. Of the registers analysed, 6.5% successfully passed all data quality checks, while 50% of the remaining registers failed less than 5 out of 116 data quality checks.

The ESAs are confident that the objective of having registers of sufficient quality in 2025 that would allow for the designation of critical third-party service providers (CTPPs) is not out of reach, subject to some additional efforts from the industry.

The key findings presented in the summary report and all supporting materials provided by the ESAs should be carefully considered by all industry stakeholders, including those financial entities that did not participate in the Dry Run exercise, as they will help them to be better prepared to report the registers in 2025.

Support to the industry

To support the Dry Run exercise and wider industry preparation, the ESAs provided numerous tools such as templates for the registers, a draft data point model, a draft reporting taxonomy, examples and instructions for filling data fields, and a tool for converting submissions into the required reporting format. Furthermore, the ESAs supported financial entities through a series of workshops, maintained and updated a ‘frequently asked questions’ document and responded to the individual queries through an email-based ‘hotline’.

The ESAs have applied data quality checks to all the registers that have been received and have shared individual feedback on the data quality issues with the competent authorities, which were in turn shared with the participating financial entities.

In November 2024, the ESAs also published a list of validation rules that will be used when analysing the registers of information in the official reporting in 2025 as well as the visual representation of the data model. These rules will be included in the updated technical reporting package (including updated data point model, taxonomy and validation rules), which will be published in the coming weeks. All preparatory materials are collated on the dedicated EBA webpage.

The ESAs are also continuing with the Dry Run workshops for the industry. The last workshop in the series will be held on 18 December, and will focus on the Dry Run summary report and the changes to the final ITS on the Registers of information.

The preparatory efforts should not stop with the completion of the Dry Run exercise. The individual data quality feedback provided to the financial entities should help them continue improving the quality of their data and ensure that the registers to be submitted in 2025 meet the regulatory requirements, are complete and provide all the necessary information for the designation of critical ICT third-party providers (CTPPs) by the ESAs.

Background

Since April 2024, the ESAs have been supporting the financial entities in their preparations for setting up and reporting the registers of information in relation to all contractual arrangements on the use of ICT services provided by the ICT third-party service providers (ICT TPPs). This mainly took the form of a dedicated Dry Run exercise that allowed for the testing of the reporting processes in an environment as close as possible to the upcoming first iteration of the official reporting in 2025, when the registers will be used by the ESAs for the purposes of designation of CTPPs to be under their oversight. 

Source: European Banking Authority

The European Banking Authority (EBA) today published a no action letter stating that competent authorities (CAs) should not prioritise any supervisory or enforcement action in relation to the processing of applications for initial margin (IM) model authorisation received as a result of the entry into force of EMIR 3. The no action letter, developed in cooperation with the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), applies until key deliverables mandated under EMIR 3 become applicable.

The no action letter sets a registration process for counterparties in scope of IM model authorisation, specifying in its annex the information that counterparties should include as part of any first application submitted to CAs after the entry into force of EMIR 3, as well as for subsequent yearly updates to such application. As per the no action letter, however, CAs should not prioritise the processing of such applications, until the draft RTS on Initial Margin Model Validation (IMMV) and the guidelines on application and authorisation process mandated under EMIR 3 come into application, as those regulatory deliverables are expected to specify key requirements for the application and authorisation process, as well as for the assessment of model changes, which are missing at the moment.

EMIR 3 requires, for the first time in the EU, that counterparties apply for authorisation to their CAs before using, or adopting a change to, a model for initial margin calculation. The application of validation and authorisation requirements for IM models may raise difficulties for CAs and counterparties immediately upon entry into force of EMIR 3. This situation will persist until the EBA has set up its central validation function and until the draft RTS on IMMV and the guidelines on application and authorisation process mandated under EMIR 3 are in place.

The no action letter is addressed to all CAs and is applicable to all counterparties falling within the scope of IM model authorisation under EMIR 3.

Legal basis and background

The legal basis for the EBA to issue that opinion is included in Article 9c of Regulation (EU) No 1093/2010[1] (EBA founding Regulation), which provides that the EBA may issue no-action letters, if it considers that the application of one of the relevant legislative acts is liable to raise significant issues, as provisions contained in such act may directly conflict with another relevant act, and if it has received relevant information and considers on the basis of that information that the application of the relevant provisions raises significant exceptional issues pertaining to market confidence, consumer, customer or investor protection, the orderly functioning and integrity of financial markets or commodity markets, or the stability of the whole or part of the financial system in the Union.

EMIR 3 was published on 4 December 2024 in the Official Journal of the European Union and will apply on 24 December 2024. Regulation (EU) 2024/2987 of the European Parliament and of the Council of 27 November 2024

Source: European Banking Authority

The European Banking Authority (EBA) today published its fourth Report on the functioning of anti-money laundering and countering the financing of terrorism (AML/CFT) colleges. The Report finds that competent authorities continued to improve the functioning of AML/CFT colleges in 2023. Nevertheless, further progress is needed especially in two key areas, namely: adjusting the functioning of AML/CFT colleges to the money laundering and terrorist financing (ML/TF) risks to which the underlying firm is exposed, and discussing the need for a common approach or joint action.

This Report sets out findings and observations from EBA staff’s monitoring of AML/CFT colleges in 2023, which suggest that, overall, competent authorities continued to improve the effectiveness of AML/CFT colleges. The EBA, nevertheless, identified two key areas in which the progress made by competent authorities was seen as insufficient, namely:

• Implementing the risk-based approach to the organisation of colleges.

The EBA found that the functioning of colleges (especially the frequency of meetings and form in which the information is exchanged) was not sufficiently adapted to the risks to which the firms were exposed and to their specificities. This meant that competent authorities could not allocate their resources in a sufficiently strategic manner.

• Ensuring that discussions on the need for a common approach are meaningful and systematic.

One of the main purposes of AML/CFT colleges is to allow competent authorities to identify common ML/TF risks and AML/CFT issues, and to coordinate the actions they take to address those risks and issues. The EBA found that few colleges had meaningful discussions on these aspects. As a result, competent authorities were rarely able to identify whether there were risks and/or issues that should be addressed in a coordinated manner.

The Report includes targeted recommendations to help competent authorities improve in these two key areas.

In addition, through its thematic monitoring of colleges, the EBA identified a number of ML/TF risks to which firms of the banking, payment and e-money sectors with a technology-oriented business model could be particularly exposed. The Report encourages competent authorities to take these risks into consideration when supervising such firms.

Legal basis and background

• Directive (EU) 2018/843 (AMLD) introduced an explicit requirement for competent authorities to cooperate with each other but did not provide a framework of how this cooperation should happen in practice.
• The ESAs Guidelines (JC 2019 81) on cooperation and information exchange between competent authorities supervising credit and financial institutions published in December 2019 provide details on how competent authorities should give effect to the cooperation requirements set out in AMLD, by establishing a framework for AML/CFT colleges.
• AML/CFT colleges are permanent structures that serve to enhance cooperation between different supervisors involved in the supervision of cross-border institutions. As of 31/12/2023, competent authorities reported 264 established colleges, 34 of which were set up in 2023.

Source: Government of the Netherlands

News item | 10-12-2024 | 10:00

A year of regulated sales

On 15 December 2023, regulated weed and hash sales began in Tilburg and Breda coffee shops. Since 17 June of this year, all coffee shops in all ten participating municipalities have been allowed to sell regulated products alongside tolerated products to consumers. After nearly a year of regulated supply, 70 of the total 75 participating coffee shops have sold regulated weed and hash.

Experimental phase

The next phase of the experiment is the experimental phase, which starts on 7 April 2025. From this date, coffee shops in the ten participating municipalities will only be allowed to sell regulated products. This phase is set to last four years in principle. With a final date in sight, growers now have clarity on when they can begin full production. This will allow the supply of regulated weed and hash to be further tailored to demand from coffee shop owners. The fifth, sixth and seventh growers are also expected to be ready to supply in April. This will benefit both the choice of coffee shops and the consistency of supply

Research

The ‘Closed Coffee Shop Chain Experiment’ aims to investigate whether it is possible to have a regulated chain producing, distributing and selling cannabis. A team of researchers, under the guidance of an independent Monitoring and Evaluation Committee, will also study the effects on public health, crime, safety and public nuisance. The research outcomes may contribute to decision-making on future cannabis policy in the Netherlands.

Source: European Banking Authority

The European Banking Authority (EBA) today published a Report on liquidity measures, which monitors and evaluates the liquidity coverage requirements currently in place in the EU. Between June 2023 and June 2024, EU banks’ liquidity coverage ratio (LCR) increased by 3 percentage points to reach 167%. Within that period, we observed changes in the composition of banks’ funding deposits while banks’ holdings of liquid assets steadily increased. EU banks’ average LCR in USD and in GBP improved during the period under review, to exceed 100% as of June 2024.

EU banks’ LCR buffers remain comfortably above the minimum requirement. In the second half of 2023 the average LCR increased sharply due to a marked decline in the net outflows (the denominator of the LCR) and a simultaneous increase of High-Quality Liquid Assets (HQLAs) (the nominator of the LCR). The observed decline in net outflows is mostly explained the shifting of retail deposits to categories that are exempted from the calculation of the outflows. This move reversed in the first half of 2024, when net outflows increased by more than HQLAs and the average LCR declined. The increase in net outflows is explained by a drop in deposits exempted from the calculation of outflows which was not fully offset by the increase in outflows from other categories.

The composition of EU banks’ liquidity buffer has changed in June 2024 compared to June 2023. The increase in Level 1 securities, mainly sovereign bonds, exceeded the decline in Level 1 cash and central bank reserves. As a result, HQLAs increased in the period from June 2023 to June 2024.

The reduction in Level 1 cash and central bank reserves occurred for all banks. However, banks in the euro area that repaid targeted longer-term refinancing operations (TLTRO) loans in the first half of 2024 reported sharper declines. These repayments resulted in a drop in the LCR by -4 percentage points for the affected banks on average, while banks with no such liabilities increased their LCR by 0.64 p.p. on average. At the end of June 2024, euro area banks reported EUR 197bn of remaining TLTRO balances.

As it has been the case in previous years, EU banks continue to hold lower liquidity buffers in foreign currencies. The LCR in US dollar improved during the period of review from June 2023 to June 2024. Over the same period, the LCR in GBP also improved for the total sample (but declined for the common sample of banks reporting positions in GBP at all reference dates). The ability of banks to access the market for currency swaps may become constrained during periods of stress. Therefore, banks and competent authorities need to pay attention to any shortfalls in foreign currency LCRs to avoid unforeseen liquidity mismatches during volatile market conditions.

Finally, the Report also includes an assessment of the impact of the LCR on the banks’ lending activities. It also assesses the effect of deposits exempted from the calculation of the outflows on banks’ LCR, the impact of TLTRO repayments made between June 2023 and June 2024 on the liquidity profile of euro area banks, and the impact of the ongoing reduction of central bank liquidity on central bank assets and exposures over time.

Note to the editors

1. This Report has been drafted in accordance with Article 509(1) of the Capital Requirements Regulation (CRR).
2. Article 412(1) of the Capital Requirements Regulation (CRR) foresees the possibility of monetising liquid assets during times of stress (resulting in an LCR below 100%), as maintaining the LCR at 100% under such circumstances could produce undue negative effects on the credit institution and other market participants.
3. The CRR does not foresee a minimum requirement for LCR in foreign currencies. However, article 8(6) of the LCR Delegated Regulation requires banks to ensure that the currency denomination of their liquid assets is consistent with the distribution by currency of their net liquidity outflows. The same article also includes a discretion to competent authorities to require credit institutions to restrict currency mismatches by setting limits on the proportion of net liquidity outflows in a currency that can be met during a stress period and by holding liquid assets not denominated in that currency.
4. The results of the Report on liquidity measures are presented separately for G-SIIs, O-SIIs and “other banks” (non G-SIIs or O-SIIs). Some figures are presented by country.

Source: European Banking Authority

The European Banking Authority (EBA) today published the findings from its fourth and final round of reviews of competent authorities’ approaches to tackling money laundering and terrorist financing (ML/TF) risks in the banking sector. With this round, the EBA has now assessed all competent authorities that are responsible for the AML/CFT supervision in thirty EU/EEA member states.

The EBA’s findings indicate that anti-money laundering and counter terrorism financing (AML/CFT) supervisors have taken important steps to implement a risk-based approach to AML/CFT and, since the first round of reviews in 2018, the EBA has seen significant developments in competent authorities’ approaches to supervision. The Report highlights good practices, for example in relation to cooperation and risk assessments, which reflect the positive changes in supervisory approaches.

Nonetheless, the EBA continued to find weaknesses in competent authorities’ risk assessment methodologies and enforcement processes not being fully effective or deterrent. Additionally, the EBA found divergent approaches in the way prudential supervisors consider and address ML/TF risks. In the absence of AML/CFT colleges, cooperation was limited, and it was still lacking with tax authorities. The EBA, therefore, recommended actions tailored to each competent authority to support their approach.

Overall, while the EBA continued to identify issues and shortcoming in this last round of reviews, the progress made since the first round suggests that the effectiveness of AML/CFT supervision will facilitate the effective implementation of the new AML/CFT package. This is the result of the actions taken by competent authorities following the EBA’s recommendations.

Legal basis, background and next steps

The EBA’s implementation reviews have been conducted in accordance with Articles 1, 8(1), 9a and 29(1) and (2) of the EBA Regulation, which confers on the EBA a duty to ensure effective and consistent supervisory practices, to contribute to the consistent and effective application of Union law and to contribute to preventing the use of the EU’s financial system for ML/TF purposes. To this effect, the EBA can carry out peer reviews and investigate potential breaches of Union law, and it can take other measures such as staff- led implementation reviews to assess NCAs’ responses to specific compliance challenges.

The EBA assessed all competent authorities that are responsible for the AML/CFT supervision in thirty EU/EEA MS.

The EBA will conduct a final review in 2025 of all the actions taken by competent authorities to take stock of the current state of AML/CFT supervision of banks and publish a final report as part of the EBA’s handover to AMLA.