MIL Publishing Engine 1

Source: European Banking Authority

The European Banking Authority (EBA) today launched a public consultation on its draft Regulatory Technical Standards (RTS) clarifying and enhancing the conditions for assessing material model changes (MMC) and extensions following a review of the related Delegated Regulation. This review aimed to align the existing RTS with the amendments brought in by the Capital Requirements Regulation (CRR 3), and to introduce amendments to enhance the supervisory effectiveness of the approval process for model changes. The consultation runs until 10 March 2025. 

Under the CRR, institutions shall apply for approval from their competent authorities prior to implementing material extensions and changes to their internal approaches. As such, the CRR differentiates between material extensions or material changes, which are subject to approval, and other extensions or changes, which are only subject to notification. The Delegated Regulation on MMC specifies the conditions for assessing material model changes and extensions.

The EBA has performed a review of the Delegated Regulation on MMC leveraging on 10 years of supervisory experience and is proposing several enhancements in these RTS. These updates will align the standards with the CRR3, for example by removing references to the IRB approach for equity exposures. In addition, they will enhance the supervisory effectiveness of the approval process of model changes and also clarify several aspects related to the scope of the RTS. The proposed amendments focus mainly on the qualitative criteria for the material changes related to the definition of default, the validation framework, and the modelling approaches used for slotting exposures and purchased receivables. The qualitative criteria for material extensions are also amended. Finally, the updated RTS introduce clarifications on the calculation of the quantitative backstop criteria.

Consultation process

Responses 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 10 March 2025.

A public hearing will take place via conference call on 15 January 2025 from 15:00 to 16:00 CET. The deadline for registration is the 10 January 25, 16:00 CET.

All contributions received will be published after the consultation closes, unless requested otherwise.

Legal basis and next steps

These draft RTS have been developed according to Article 143(5) of Regulation (EU) 2024/1623 (CRR3), which mandates the EBA to specify the conditions for assessing the materiality of the use of an existing rating system for other additional exposures not already covered by that rating system and changes to rating systems under the internal ratings-based approach (IRB) Approach.

The mandate in Article 143(5) of Regulation (EU) 2024/1623 is very similar to the mandate in Article 143(5) of Regulation (EU) No 575/2013, which constitutes the legal basis for the existing Delegated Regulation.

As part of the next steps, the EBA is conducting a review to identify any potential unnecessary regulatory constraints on competent authorities and institutions leading to delays in the implementation of model changes by institutions. This may include the interaction of the RTS on MMC with the RTS on the assessment methodology for competent authorities used to approve material model changes in accordance with Articles 144(2), 173(3) and 180(3) of Regulation (EU) 2024/1623.

Source: European Banking Authority

The European Banking Authority (EBA) today published its final draft Regulatory Technical Standards (RTS) on the method for identifying the main risk driver and determining whether a transaction represents a long or a short position. 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 proposed general method to identify the main risk drivers hinges on sensitivities defined under the market risk standardised approach (FRTB-SA) or on add-ons defined under the standardised approach for counterparty credit risk (SA-CCR). For the determination of the direction of the positions, the methodology is aligned with the one set out in the RTS on SA-CCR.

A simplified method has also been included, covering relatively simple instruments, such as fixed-rate bonds, floating-rate notes, stocks, forwards, futures, simple swaps and plain vanilla options.

Legal basis and background

These draft RTS have been developed according to Article 94(10) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), as amended by the revised Capital Requirements Regulation (CRR3), which mandates the EBA to specify the method for identifying the main risk driver of a position and for determining whether a transaction represents a long or a short position as referred to in Art. 94(3), 273a(3) and 325a(2). In developing these draft RTS, the EBA has taken into consideration 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, developed for the RTS on SA-CCR in accordance with Art. 279a(3), point (b), of the CRR.

The CRR includes some derogations for the calculation of the capital requirements for market and counterparty credit risks, for small trading book business, derivative business or business subject to market risk. The CRR3 specifies that the size of the business shall be equal to the absolute value of the aggregated long position, summed with the absolute value of the aggregated short position. A position can be considered as long or short depending on how movements in its main risk driver affect the market value.

Source: Government of the Netherlands

News item | 06-12-2024 | 11:00

In the most recent Competitiveness Council the EU ministers agreed that a 25% reduction in regulatory burden should indeed be a common target for the new European Commission. The Netherlands therefore endorses the initiative of new EU Commissioner Virkkunen to analyze whether the digital rulebook is fit for purpose and identify whether the digital acquis reflects the needs of SMEs. As far as the Netherlands is concerned, preferably within the first 100 days of the new Commission.

Minister Dirk Beljaarts (Economic Affairs): “A comprehensive rulebook regarding the EU digital internal market is important to all entrepreneurs. To achieve growth opportunities, to promote fair digital competition and to improve and enhance consumer protection. Now that the regulatory framework touches all dimensions of the digital economy, the coming period should be used to take stock and take action.”

The minister continues: “SMEs that do digital business, for example, often do not know where to start and have no legal capacity either. So how do you know which digital rulebook applies to you and what that means for your business? We need to determine if it’s fit for purpose and tackle regulatory burden. And if there are inconsistencies or overlaps in the digital acquis, the removal of these can be addressed at EU level.”

The nine EU member states, including the Netherlands, are calling on the European Commission to invest in targeted panel discussions with digital SMEs to identify disproportionate burdens. But also to gather examples of legal definitions of often used terms in the digital acquis such as: ‘platform’, ‘data’ and ‘systemic risk’. And to consider using AI through large language models to identify areas for consolidation and simplification in the digital rulebook.

Example: a cybersecurity company

An EU cybersecurity entrepreneur is increasingly applying artificial intelligence (AI) technology – which they develop themselves – in their product and selling it to telecom companies, banks and governments within the EU. As a result, within a few years, they will have to comply for example with the regulatory framework for privacy protection (GDPR), AI Act, cybersecurity directives, the Data Act but also the sectoral rules that apply to their customer.

Source: European Banking Authority

The European Banking Authority (EBA) today launched a public consultation on draft Regulatory Technical Standards (RTS) specifying the criteria according to which crypto-asset service providers (CASPs) should appoint a central contact point to ensure compliance with local anti-money laundering and countering the financing of terrorism (AML/CFT) obligations of the host Member State. This consultation runs until 4 February 2025.

CASPs can provide services in other Member States through establishments other than branches. Once established, CASPs have to comply with local AML/CFT obligations, even if their establishments are not ‘obliged entities’ themselves. This can make the AML/CFT supervision of services provided through these establishments difficult.

To address this, the draft RTS sets out the criteria for determining the circumstances in which the appointment of a central contact point is appropriate, as well as the functions of those central contact points. Since the same considerations apply to electronic money issuers (EMI) and payment service providers (PSPs) as they do to CASPs, the EBA proposes to retain the structure and approach set out in Commission Delegated Regulation (EU) 2018/1108 and extend existing provisions to CASPs (leaving the provisions that apply to EMIs and PSPs unchanged), while also introducing new provisions for CASPs where this is necessary in light of their business model and operation.

Consultation process

Comments to the consultation paper can be sent by clicking on the “send your comments” button on the EBA’s consultation page. The deadline for the submission of comments is 4 February 2025.

The EBA will hold a virtual public hearing on the consultation paper on 16 January 2024 from 15:00 to 17:00 Paris time. The EBA invites interested stakeholders to register using this link by 3 January 2023 at 16:00 CET. The dial-in details will be communicated to those who have registered for the meeting.

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

Legal basis, background

Article 45(10) of Directive (EU) 2015/849 requires the EBA to develop RTS setting out the criteria for determining the circumstances in which the appointment of a central contact point is appropriate, and the functions of the central contact points.

A first version of such draft regulatory standards was issued in 2017. This Commission Delegated Regulation (EU) 2018/1108 was published in the Official Journal of the EU in 2018. The scope was limited to EMIs and PSPs.

Regulation (EU) 2023/1113 on information accompanying transfers of funds and certain crypto-assets applies from 30 December 2024. It amends Directive (EU) 2015/849, inter alia by extending its scope to crypto-asset service providers. Consequently, Article 45(9) of this Directive extends provisions that Member States may require EMIs and PSPs established on their territory in forms other than a branch, and whose head office is situated in another Member State, to appoint a CCP point in their territory to CASPs. This means that the EBA has to update the Commission Delegated Regulation (EU) 2018/1108.

Source: European Banking Authority

• The reporting framework for investment firms is amended to comply with the Capital Requirements Regulation (CRR3) and to align with the changes included in the Implementing Technical Standards (ITS) on supervisory reporting for credit institutions.
• The amendments cover supervisory reporting requirements on counterparty credit risk, market risk (K-NPR) and credit valuation adjustment (CVA) risk.

The European Banking Authority (EBA) published today amendments to its final draft ITS on the supervisory reporting and disclosures of investment firms.

The ITS on investment firms reporting and disclosures foresee that investment firms could opt to report the same information – as set out in the COREP templates – as credit institutions. Formally, the alignment with the reporting by credit institutions was achieved by adding cross-references to the applicable ITS on Supervisory reporting by credit institutions. Following the amendments introduced in the CRR3, it was necessary to update the references included in the ITS for reporting of investment firms.

Next steps

In December 2024, the EBA will publish a technical package, which includes the data point modelling (DPM), validation rules and taxonomy, that shall be used by investment firms to submit this supervisory reporting information to supervisors.

Legal basis and background

The EBA has developed these draft ITS according to Article 54(3) and Article 49(2) of  the IFR – (EU) 2019/2033 –  which mandate the EBA to develop a reporting framework and a disclosure requirements for investment firms.

The Investment Firms Prudential Package consists of the Directive (EU) 2019/2034 and the Regulation (EU) 2019/2033, which were published in the Official Journal on 5 December 2019 and establish a new prudential framework for investment firms authorised under MIFID.

Source: European Banking Authority

The European Banking Authority (EBA) today published the autumn edition of its risk assessment report (RAR). The Report is accompanied by the publication of the 2024 EU-wide transparency exercise, which provides detailed information, in a comparable and accessible format, for 123 banks from 26 countries across the European Union (EU) and the European Economic Area (EEA).

Highlights of the EBA risk assessment:

• EU/EEA banks continue to operate in an environment of slow economic growth and downside risks due to geopolitical risk.
• Lending is picking up slowly, while banks’ asset quality marginally deteriorated.
• Direct exposures of the EU banking sectors towards geopolitical risky countries are limited yet second round risks can be material.
• Risks relevant to CRE sector and the interlinkages with non-bank financial intermediaries remain significant for the EU banking sector.
• Climate and physical risks should not be underestimated.
• EU/EEA banks maintained strong capital positions. CET1 headroom remains well above overall capital requirements (OCR) and Pillar 2 Guidance (P2G).
• Profitability remains high, yet its sustainability is challenging, EU/EEA banks’ valuation lags in relation to their global peers.
• Operational risks, particularly those associated with cyber threats, are increasing.
• EU/EEA banks resort to AI to foster efficiencies and General-Purpose AI (GPAI) is gaining traction. But their growing use is not without risks.

 

Documents

Risk Assessment Report – Autumn 2024 [digital]
 

Source: European Banking Authority

The European Banking Authority (EBA) today published an Opinion addressed to the Central Bank of Hungary following the Competent Authority’s notification of its decision to introduce a partial waiver of the provision under the Capital Requirements Regulation (CRR) in relation to the eligibility conditions for covered bonds to benefit from a risk weight preferential treatment. Given the significant potential concentration problem in Hungary, the EBA is of the opinion that the application of a partial waiver is adequately justified.

The EBA has assessed the evidence provided by the Central Bank of Hungary to support the measure, namely the current classification of Hungarian credit institutions in relation to the credit quality steps (CQSs) assigned, the current composition of the Hungarian covered bond market, and the type and nature of exposures to credit institutions that covered bonds regularly assume.

On the basis of the evidence provided, the EBA is of the opinion that Hungary has a significant potential concentration problem stemming from the application of the minimum CQS requirement of step 2for exposures to credit institutions in the form of derivative contracts to be used as eligible collateral. This would result in no Hungarian bank being eligible to act as derivative counterparty and, therefore, the partial waiver is adequately justified.

Legal basis and next steps

The EBA’s competence to deliver the Opinion is based on Article 29(1)(a) of Regulation (EU) No 1093/2010. In accordance with Article 14(5) of the Rules of Procedure of the EBA Board of Supervisors, the Opinion has been adopted.

Article 129(1)(c) of the Capital Requirements Regulation (CRR) specifies that covered bonds eligible for risk weight preferential treatment can be collateralised by exposures to credit institutions that qualify for credit quality step 1 and 2 (CQS1 and CQS 2). This requirement may be partly waived by a Competent Authority, after consulting the EBA, if significant potential concentration problems in the Member States concerned can be documented. The partial waiver allows for exposures to institutions that qualify for credit quality step 3 (CQS3) in the form of derivatives to be included in the cover assets.

The Central Bank of Hungary will be monitoring the situation and on the basis of information that documents the concentration problem will assess the need for the waiver to be in place. If the concentration problem is no longer significant, the measure will be repealed.

Source: European Banking Authority

The European Banking Authority (EBA) today published its Q2 2024 quarterly Dashboard on minimum requirement for own funds and eligible liabilities (MREL), which discloses aggregated statistical information for 339 banks earmarked for resolution across the European Union and for which EBA has received data about both decision and resources. For the first time, the Dashboard also includes the list of entities covered. All banks meet their MREL requirements in line with the Bank Recovery and Resolution Directive (BRRD) deadline of 1 January 2024, with the exception of 21 banks, still in their transition period that report a shortfall. The amount of instruments becoming ineligible over the next year for the sample reached EUR 220bn, which appears manageable.

As of 30 June 2024, 318 banks out of a sample of 339 met their MREL target while 21 are still in their transition report a shortfall – this is down from 30 as at end 2024 on a comparable sample.  Furter details on the provision of transition period are provided in the latest EBA European Resolution Examination report. Their combined outstanding shortfall reached EUR6.1bn or 2.6% of their combined risk-weighted assets.

Banks in the sample reported EUR 220bn of MREL instruments that will become ineligible by the end of June 2025 due to their residual maturity falling below one year. These account for around 18.6% of MREL eligible instruments other than own funds which appears manageable.

Transfer strategies continue to be the preferred option in terms of number of decisions (61%), while bail-in is the favoured option in terms of RWAs covered (94%). This reflects the fact that transfer strategies are favoured for smaller banks, while bail-in is the preferred option for the larger ones.

More details on MREL roll over needs and the state of resolution planning will be included in the upcoming Autumn 2024 EBA Risk Assessment Report.

Note to the editors

This MREL dashboard also covers Q1in the statistical annex.

The EBA is mandated by the BRRD to monitor the setting of MREL by authorities and the build-up of related resources by institutions.

MREL is the requirement that ensures that relevant EU institutions have sufficient loss absorbing capacity to support the execution of the preferred resolution strategy in case of failure.

Banks having completed their transition period must disclose their MREL requirement and resources, the Dashboard includes a list of these entities, a list of entities is included in the dashboard.

The BRRD set 1 January 2024 as a deadline to meet MREL requirements except for those banks that recently changed resolution strategy, or those eligible for an extension in accordance with Art.45m of the BRRD. 

Source: European Banking Authority

To enhance the information exchange between supervisory authorities within the European Union, also across different parts of the financial sector, the ESAs have developed an ESAs F&P Information System. The Joint Guidelines clarify its use and how data can be exchanged.

The Joint Guidelines aim to ensure consistent and effective supervisory practices within the European System of Financial Supervision (ESFS) and facilitate information exchange between supervisors.

These Joint Guidelines apply to competent authorities within the ESFS and focus on two main areas:

1) use of the F&P Information System

2) information exchange and cooperation between the competent authorities when conducting fitness and propriety assessments.

Legal Basis and Background

The Joint Guidelines have been developed in accordance with Article 31(a) of the ESAs Founding Regulations, which mandate the ESAs to jointly establish a system for the exchange of information relevant to the assessment of the fitness and propriety of holders of qualifying holdings, directors and key function holders of financial institutions by competent authorities in accordance with the legislative acts referred to in Articles 1(2) of the ESAs Founding Regulations.

Fitness and propriety assessments of board members, key function holders and owners of qualifying holdings are key to contributing to the safe and sound management of financial institutions and are, therefore, fundamental to ensuring consumer and investor protection and trust in the EU financial sectors. They are a key supervisory tool for conducting ongoing supervision of the authorisation and governance processes of financial institutions and financial market participants.

Source: European Banking Authority

The European Banking Authority (EBA) published today an updated list of capital instruments that are classified as Common Equity Tier 1 (CET1).

Since the publication of the previous update in December 2022, the reference to the grandfathered instruments has been deleted as the grandfathering provisions under the Capital Requirements Regulation (CRR) came to an end on 31 December 2021. In addition, a few new instruments have been added and some others, no longer in use, have been deleted. Finally, the list reflects changes in relevant national legislative provisions.