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Source: European Banking Authority

The European Banking Authority (EBA) today published the European Supervisory Examination Programme (ESEP) for 2025, which identifies key topics for heightened supervisory attention across the European Union. The ESEP is aimed at driving supervisory convergence by providing competent authorities with a single set of priorities for implementation in 2025.

In selecting the key topics for the 2025 ESEP, the EBA has followed a process of engagement and consultation with the EU competent authorities, while input from its risk analysis work and key policy developments has been fundamental. The topics identified as key for 2025 include:

• testing and adjusting to increasing economic and financial uncertainties, informed by a series of intertwined dynamics that intensify volatility in global markets and drive structural changes in the geopolitical landscape, impacting risks attached to financial activities;
• digital challenges, in particular ICT risk management and building operational resilience towards the digital transformation, informed by the general increase of ICT/cyber risk, the upcoming implementation of the DORA framework for all EU financial entities, and the persisting challenges in the design and execution of banks’ digital transformation strategies; and
• transitioning towards Basel III and the EU banking package implementation by ensuring institutions’ information systems and capital planning are able to support the revised prudential metrics and corresponding robustness.

Competent authorities are expected to reflect these topics in their priority setting and implement them in their day-to-day supervisory activities to ensure that the concerted efforts of supervisors lead to the appropriate identification, assessment and management of the relevant risks across the European Union.

The EBA will follow up on how these key topics are embedded in competent authorities’ priorities for 2025, and how they form part of their supervisory activities throughout the year. The observations collected will feed into the overall conclusions on the degree of convergence of supervisory practices.

Note to the editors

The ESEP is one of the key elements of the EBA`s supervisory convergence toolkit which aims at delivering the EBA`s supervisory convergence mandate as required by the EBA`s founding regulation and by Article 107 of the CRD specifically in the context of the supervisory review.

The 2025 ESEP complements competent authorities` core prudential supervisory activities and does not aim to provide an overarching and comprehensive supervisory examination programme, as that should be developed by competent authorities taking into account the ESEP, the structure and specific vulnerabilities of the banking system under their remit and the idiosyncratic dimensions of the individual bank or banking group they supervise, including cross-border considerations, where relevant.

Source: European Banking Authority

The European Banking Authority (EBA) today published its annual Report on convergence of supervisory practices for 2023. The EBA confirms that the key topics identified for supervisory attention in 2023 were adequately included by most competent authorities, but there is still disparity in the implementation of risk areas like ESG and data aggregation capabilities in the supervisory processes. Regarding the convergence of supervisory practices in the context of Pillar 2 and liquidity measures, the analysis shows that there is still room for further consistency in the identification and treatment of risks covered by Pillar 2 requirements across the EU. Lastly, the EBA’s monitoring of supervisory colleges has confirmed that the annual college cycle is functioning well.

The four key topics identified for supervisory attention in the 2023 European Supervisory Examination Programme (ESEP), namely 1) macroeconomic and geopolitical risks, 2) operational and financial resilience, 3) transition risks and 4) money laundering/terrorism financing (ML/TF) risks in the Supervisory Review and Evaluation Process (SREP) and internal controls and governance, were adequately included by most competent authorities in their supervisory priorities for 2023.

Macroeconomic and geopolitical risks were a key area for competent authorities’ attention, in the context of the continuing Russian aggression in Ukraine, the rise in interest rate and persistent high inflation in most Member States in 2023.

The resilience of institutions on an operational and financial level was assessed in its multiple elements by competent authorities in the context of the SREP. Although the risks analysed were on average deemed stable, there were concerns related to information security management and the implementation of the IFRS 9 standard by institutions. On data aggregation capabilities, a few competent authorities are still in the process of incorporating this element into their supervisory work.

Transitions related to digitalisation and ESG were given supervisory attention by most competent authorities, who have stepped up their attention in the past year, although a small minority are still working on including ESG risk in their supervisory approach.

The final key topic, the assessment of ML/TF risks in the SREP and related internal governance, was assessed in the context of the sanctions against Russia and Belarus. Most of the authorities have included the ML/TF risks in the SREP assessment and noted that institutions have strengthened internal controls and governance to implement and monitor the sanctions.   

While a certain dispersion of supervisory decision-making is consistent with the need to take into account local market specificities and idiosyncratic situations, the EBA’s analysis shows that there is still room for further consistency in the identification and treatment of risks covered by Pillar 2 requirements across the EU. The Pillar 2 Guidance framework has notably improved since the last survey of EBA in 2021, with nearly all authorities having a methodology in place, often in line with the updated SREP Guidelines.

Authorities have been increasing the frequency of the monitoring of liquidity and funding risk in recent years. While the current framework is generally satisfactory, there are targeted areas where it could be improved, particularly in reporting frequency and deposit origination.

The implementation of EU Banking Package (Capital Requirements Regulation and Capital Requirements Directive – CRR III / CRD VI) and the subsequent review of the SREP Guidelines are expected to increase the convergence in the implementation of the framework, helping authorities to achieve greater consistency in the supervisory outcome in the context of setting Pillar 2 requirements.

The EBA’s monitoring of supervisory colleges has confirmed that the annual college cycle is functioning well. While the consolidating supervisors prepare and facilitate the college meetings well, information sharing could still be enhanced, in particular information on early warning signs, potential risks and vulnerabilities. Joint supervisory activities are sometimes limited to the organisation of the annual college meeting, failing to explore further opportunities of joint work, especially in light of uncertain times where collective approaches enhance robustness.

The EBA peer reviews and benchmarking exercises provided further support for supervisory convergence and for addressing deficiencies identified as raising prudential concerns. Targeted policy developments support and promote further convergence in prudential supervision.

Note to the editors and next steps

According to Article 1(5)(g) and 29 of its founding Regulation, the EBA shall contribute to enhancing supervisory convergence across the European Union and it shall play an active role in building a common supervisory culture and ensuring the consistent application of the Single Rulebook.

Particularly in the context of the SREP, the EBA shall annually report to the European Parliament and the Council on the degree of convergence of the application of the SREP and supervisory measures as mandated by Article 107 of the Capital Requirements Directive (CRD).

Source: European Banking Authority

The European Banking Authority (EBA) today published a statement for the attention of persons issuing to the public, offering to the public, or seeking admission to trading of asset-referenced tokens (ARTs) and e-money tokens (EMTs) and for consumers. The EBA also sets out key topics for supervisory attention across the European Union for issuers of ARTs/EMTs in 2024/2025. Both documents are intended to promote the timely and consistent application of MiCAR. 

The regime for ARTs and EMTs established by the Regulation on Markets in Crypto-assets Regulation (MiCAR) has now entered into application. In this light, the EBA reminds persons who are issuing, or intend to issue, to the public, to offer to the public, or to seek admission to trading ARTs and EMTs of the new requirements under MiCAR, and draws attention to the technical standards and guidelines available on its website.

The EBA draws attention to factors consumers can check before deciding whether to acquire an ART, EMT or other type of crypto-asset and reminds consumers of the risks of acquiring crypto-assets that have not be issued in accordance with the applicable provisions of MiCAR.

As MiCAR brings into the scope of regulation ART/EMT activities, the EBA , with the aim of driving supervisory convergence, shares with the competent authorities a single set of supervisory priorities for implementation in 2024/2025 in four areas:

• internal governance and risk management;
• financial resilience (including, where applicable, own funds requirements and reserve of assets);
• technology risk management; and 
• financial crime risk management.

A high level of holder protection and financial stability remain as overarching objectives to consider for all priority areas.

Background and next steps

The EBA has been actively engaging with industry to encourage a ‘compliance by design’ approach pending the application of MiCAR (see in particular the EBA’s July 2023 transition phase statement), and is continuing these actions with a view to ensuring prompt compliance with the ART and EMT regime that entered into application on 30 June 2024.

Additionally, the EBA has been actively engaging with competent authorities further to its mandate to promote supervisory convergence, in order to build a common supervisory culture and consistent supervisory practices regarding ART and EMT issuance activities. The goal is to ensure effective supervision under MiCAR and to promote the best practices that are being adopted by supervisors.

The EBA will continue promoting cooperation and coordination between competent authorities and strives to promote high standards of holder protection in the context of ART and EMT activities and other activities within the EBA‘s scope of action.

The EBA’s technical standards and guidelines under MiCAR are available here.

Source: European Banking Authority

The European Banking Authority (EBA) has today published for informal consultation its draft methodology, templates, and guidance for the 2025 EU-wide stress test. This step marks the beginning of the dialogue with the banking industry and builds upon the methodology used in the 2023 exercise, with improvements reflecting new insights and regulatory changes. Some important changes are introduced, notably the integration of the upcoming Capital Requirements Regulation (CRR3), set to be implemented on January 1, 2025. It also considers the Commission’s announcement to postpone the application date of the fundamental review of the trading book (FRTB). Other enhancements include the centralisation of net interest income (NII) projections and advancements in the market risk methodology to increase risk sensitivity. 68 banks from the EU and Norway, including 54 from the euro area, will participate in the exercise, thus covering 75% of the EU banking sector. The expanded geographical reach and incorporation of proportionality features aim to boost efficiency while ensuring the relevance and transparency of the results.

This forward-looking exercise will assess the resilience of EU banks in the face of adverse economic conditions, providing essential data for the 2025 Supervisory Review and Evaluation Process (SREP). The EBA will maintain a primarily constrained bottom-up approach, complemented by supervisory top-down models that will offer net fee and commission income projections, as well as the newly centralised NII projections to the participating banks. The methodology will further leverage on the breakdown of credit risk by sector of economic activity.

The introduction of CRR3 into the methodology means that risk exposure amount (REA) will need to be restated for the risk areas, while the output floor will be computed on the total REA. Considering the Commission’s announcement to postpone the implementation of the CRR3 market risk rules (FRTB) until January 1, 2026, the EBA has adjusted the draft methodology to align with the current market risk REA regulations, effective as of the start date of the exercise. The EBA remains prepared to update this methodology to accommodate any further information or changes following the adoption of Commissions’ Delegated Act.

Proportionality will be emphasised for smaller and less complex banks to promote efficiency and transparency. Instead of a single capital threshold, banks will be evaluated against the relevant supervisory capital ratios within a static balance sheet assumption. The results from the stress test will play a crucial role in informing the SREP, thereby influencing decisions on bank capital resources and future capital planning.

The EBA has also focused on aligning the process with the needs of banks and supervisors by considering adjustments to submission dates and the banks’ FAQ process, to accommodate the transition to CRR3.

The EBA expects to publish the final methodology at the end of 2024, launch the exercise in January 2025 and release the results by the end of July 2025.

Notes for editors

1. The EU-wide stress test is designed to provide a common analytical approach to evaluate the stability of EU banks and the wider banking system when subjected to economic stress, challenging their capital adequacy.
2. The 2025 EU-wide stress test is coordinated by the EBA, working in conjunction with the European Systemic Risk Board (ESRB), Competent Authorities, including the Single Supervisory Mechanism (SSM), and the European Central Bank (ECB). The EBA’s Board of Supervisors will finalise scenarios, methodologies, quality assurance practices, templates, and guidelines, in coordination with the ESRB and ECB who will develop the adverse macroeconomic scenario and associated risk parameters.
3. The preliminary methodology and templates are now open for informal discussion with banks, allowing for input that will be considered in finalising these documents.
4. Annex I of the methodological note contains a preliminary list of institutions included in the sample. To account for potential exclusions prior to the launch of the exercise, three euro area banks have been provisionally added to the sample. If no changes to the sample occur by mid-December, these banks will be automatically excluded.

Source: European Banking Authority

The European Banking Authority (EBA) issued today new Guidelines on the so-called ‘travel rule’, i.e. the information that should accompany transfers of funds and certain crypto assets. This rule will help tackle the abuse of  such transfers for money laundering and terrorist financing purposes.

The Guidelines specify which information should accompany a transfer of funds or crypto assets and also list the steps that payment service providers (PSPs), intermediary PSPs (IPSPs), crypto-asset service providers (CASPs) and intermediary CASPs (ICASPs) should take to detect missing or incomplete information, and what they should do if a transfer of funds or a transfer of crypto-assets lacks the required information.

The objective is to establish a consistent and effective approach to implementing the travel rule across the EU that allows relevant authorities to fully trace such transfers where this is necessary to prevent, detect or investigate money laundering and terrorist financing.

Background

In June 2023, Regulation (EU) 2023/1113 entered into force. The Regulation recasts Regulation (EU) 2015/847 and brings the EU’s legal framework in line with the Financial Action Task Force (FATF)’s standards by extending the obligation to include information about the originator and beneficiary to CASPs – the so-called ‘travel rule’. It also amends Directive (EU) 2015/849 to subject CASPs, which are authorized in accordance with the Regulation (EU) 2023/1114 to the same AML/CFT requirements and AML/CFT supervision as credit and financial institutions.

The deadline for competent authorities to report whether they comply with the Guidelines will be two months after the publication of the translations into the official EU languages. The amending Guidelines will apply from 30 December 2024.

The EBA also published Guidelines on risk-based AML/CFT supervisors of crypto-asset service providers (CASPs) and Guidelines crypto-asset service providers to effectively manage their exposure to ML/TF risks, and is currently finalising the work on Guidelines on internal policies, procedures and controls to comply with restrictive measures that apply to CASPs as well as other financial institutions.

Legal basis

Article 36 (first and second subparagraphs) of Regulation (EU) 2023/1113 and Article 19a(2) of Directive (EU) 2015/849 mandate the EBA to issue guidelines to competent authorities, PSPs and CASPs on: (a) the measures those providers should take to comply with certain articles of Regulation (EU) 2023/1113; (b) the technical aspects of the application of this Regulation to direct debits; and (c) the measures, including the criteria and means for identification and verification of the identity of the originator or beneficiary of a transfer made to or from a self-hosted address.

These Guidelines repeal with effect from 30 December 2024 the ‘Joint Guidelines under Article 25 of Regulation (EU) 2015/847 on the measures payment service providers should take to detect missing or incomplete information on the payer or the payee, and the procedures they should put in place to manage a transfer of funds lacking the required information’ (JC/GL/2017/16). 

Source: European Banking Authority

The event aims to unite thought leaders from consumer organisations, regulatory authorities, EU institutions, academia, and key market participants from across the European Union to discuss significant issues in consumer protection within financial services.

Discussions will focus on following themes: artificial intelligence in financial services, access to consumer centric products and services and sustainable finance (SFDR).

The Joint Consumer Day is hosted by the Central Bank of Hungary (MNB – Magyar Nemzeti Bank) during Hungary’s Presidency of the European Union, this year’s Consumer Protection Day will be held at the Lámfalussy Conference Centre in Budapest.

Registration

Interested stakeholders can register via this link no later than 2 September 2024.

Participants are encouraged to register early due to limited seating. The ESAs recommend in-person attendance to ensure optimal expert exchanges and networking opportunities.

For more information about the event, please visit the dedicated page. 

Source: European Banking Authority

The Joint Bank Reporting Committee (JBRC), jointly set up  by the European Banking Authority (EBA) and the European Central Bank (ECB), launched today a public call for expression of interest to set up the Reporting Contact Group (RCG). The RCG will bring together stakeholders with expertise on banks’ regulatory reporting with the aim to serve as a regular channel for cooperation and exchange of views and best practices with authorities. The call for expression of interest is open to candidates representing stakeholders across the European Economic Area (EEA). The deadline for application is 01 August 2024, 23:59 CET.

Application process

The applications must be submitted via the online form (password: RCGJuly2024 ) and be accompanied by a CV (preferably in Europass format).

Relevant documents for the application are available here.

Selection process and next steps

Details on the selection process can be found in the Call for interest  document.

The final decision on the composition of the RCG will be taken by the JBRC, aiming to ensure, to the extent possible, an appropriate reflection of diversity of the banking sector, geographical and gender balance and representation of stakeholders across the EEA.

Applicants will be informed accordingly on the status of their application and the composition of the RCG will be made available on the EBA and ECB websites. The JBRC will also appoint candidates to be included on a reserve list.

The first meeting of the RCG will be organised by the Chairpersons and Secretariat of the JBRC and it is expected to take place in September/October 2024.

Background information

• The JBRC was jointly set up by the European Banking Authority (EBA) and the European Central Bank (ECB) in a Memorandum of Understanding (MoU) signed on 18 March 2024. It was established as a follow up to the feasibility study carried out by the EBA in accordance with the provisions of Article 430c(2)(c) of Regulation (EU) No 575/2013 of the European Parliament and of the Council. The JBRC fosters collaboration among European institutions and bodies – including national authorities – that prepare and issue requirements on supervisory, resolution and/or statistical reporting in the area of banking and facilitates collaboration with the wider group of stakeholders in a transparent way.
• The RCG is a permanent substructure of the JBRC. It is established with the aim to serve as a regular channel for the cooperation and exchange of views and best practices between authorities and stakeholders with expertise on bank regulatory reporting and to collaborate closely with the JBRC, and in accordance with the Charter annexed to the Memorandum of Understanding.
• The RCG shall be composed of a maximum of 22 members that will be appointed by the JBRC. The members of the RCG shall have sufficient expertise and experience in supervisory, resolution and/or statistical reporting, or in areas relevant to the tasks and deliverables of the RCG such as data modelling and standardisation.The RCG members selected by the JBRC will be appointed for a term of three years, which can be renewed. 

Source: European Banking Authority

The European Banking Authority (EBA) today published the spring edition of its risk assessment report (RAR). The report covers the EBA’s common risk assessment as well as the analysis of banks’ asset encumbrance and funding plan data, which had previously been published in two separate reports. It also includes specific chapters dedicated to EU/EEA banks’ Commercial Real Estate (CRE) exposures and EU/EEA banks’ interconnections with non-bank financial intermediaries (NBFIs). 

Highlights of the EBA risk assessment:

• EU/EEA banks face elevated geopolitical risks coupled with economic and interest rate uncertainty.
• Banks plan to gradually increase their loan exposures. Non-performing loan (NPL) ratios increased for all segments.
• EU/EEA banks have more than EUR 1.4tn in CRE loans.
• EU/EEA banks plan to significantly increase long-term market-based funding. Banks increased the availability of collateral, which can, for instance, be used for funding purposes going forward.
• CET1 headroom above overall capital requirements (OCR) and Pillar 2 Guidance (P2G) has remained at comfortable levels.
• EU/EEA banks’ profitability increased amid a rise in net interest income (NII). Going forward, the rise in NII is expected to stop.
• The relevance of operational risk has grown further. There has been a rise in cyber-attacks, including successful ones.
• NBFI activity has increased in the EU/EEA and worldwide over the past decade.

Notes to editors

This Risk Assessment Report is published for the first time as a digital publication to make data more accessible.  Users can view data tables, download the figures as images and the underlying data in CSV or Excel format provided that the source data comes from the EBA.

Related content

Risk assessment report (digital)

Risk reports and other thematic work

Source: European Banking Authority

The European Banking Authority (EBA) today published its Q4 2023 quarterly dashboard on minimum requirement for own funds and eligible liabilities (MREL), which discloses aggregated statistical information for 333 EU/EEA banks earmarked for resolution. All banks are meeting their MREL requirements in line with the Bank Recovery and Resolution (BRRD) deadline of 1 January 2024, except for 3 banks that reported technical shortfalls against this deadline. 23 banks have been granted a deadline extension. The amount of instruments coming to maturity over the next year for the sample reached EUR 207bn. 

• As of 31 December 2024, 307 banks out of a sample of 333 were meeting their MREL target.
• 3 banks reported a technical shortfall of EUR 226mn or 0.6% of their combined risk weighted assets (RWA), 0.07% of the total RWA of the sample – the shortfalls are understood to be resolved since then.
• 23 banks have been granted a transition period beyond 1 January 2024. Their combined outstanding shortfall reached EUR8.0bn or 1.6% of their combined RWAs or 0.1% of the total RWAs in of the sample.
• Banks in the sample reported EUR 207bn of MREL instruments becoming ineligible by the end of 2024 for maturity reasons. Those represent around 18.1% of MREL eligible instruments other than own funds.
• The number of banks earmarked for resolution has increased over the past year with 352 external MREL decisions received by the EBA in force as of 1 May 2024, against 309 as of 1 May 2023. This increase is essentially driven by small banks moving from liquidation to resolution.
• Transfer strategies continue to be the preferred option in terms of number of decisions (55%), while bail-in is the favoured option in terms of RWAs covered (94%).

Notes to the editors

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.

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

The European Banking Authority (EBA) published its final draft Regulatory Technical Standards (RTS) clarifying the extraordinary circumstances for continuing the use of internal models and disregarding certain overshootings in accordance with the Fundamental Review of the Trading book (FRTB) framework

Under the Capital Requirements Regulation (CRR), competent authorities may permit institutions to derogate from certain requirements for the use of internal models in accordance with the FRTB, or apply a softer version of those requirements, under extraordinary circumstances.

The occurrence of extraordinary circumstances will be determined by the EBA, which must issue an opinion to that effect. The RTS published today set out the conditions and indicators that the EBA shall use to determine whether extraordinary circumstances have occurred.

Legal basis

The draft RTS have been developed in accordance with Article 325az(10) of Regulation (EU) No 575/2013, as amended by Regulation (EU) 2024/1623 (‘CRR3’).