European Banking Authority (EBA)

European Banking Authority Publishes Final Guidelines on Bail-in

 

On April 5, 2017, the European Banking Authority published three sets of guidelines in relation to the Bank Recovery and Resolution Directive, and in particular, bail-in. The guidelines looked at: a) the interrelationship between the Bank Recovery and Resolution Directive sequence of write-down and conversion and the Capital Requirements Regulation; b) the rate of conversion of debt to equity in bail-in; and c) the treatment of shareholders in bail-in or the write-down and conversion of capital instruments. The guidelines give greater clarification on the area of bail-in and are intended to complement existing regulation and guidance. The guidelines and related press release, are available here.

European Commission Publishes Inception Impact Assessment on New Prudential Framework for Investment Firms

 

The European Commission has published an inception impact assessment on its review of the appropriate treatment for investment firms.

The impact assessment relates to the Commission’s review of the prudential framework for investment firms, as required by Articles 293(2), 498(2), 508(2) and 508(3) of the Capital Requirements Regulation (“CRR“) (Regulation 575/2013). In November 2016, the European Banking Authority (“EBA“) published a discussion paper on a new prudential framework, with the aim of submitting an opinion and report to the European Commission by June 30, 2017.

The impact assessment provides an overview of the background to the initiative and the European Commission’s ongoing work. The European Commission states that, in light of the EBA’s consultation on the prudential framework, it does not intend to launch its own public consultation. It is, however, carrying out a consultation with industry stakeholders on the proposal. In particular, it intends to liaise with the industry on aspects of the proposal, such as the calibration and impact of any changes to the regime and foreseeable potential costs.

The European Commission states that the bulk of any new rules will take the form of a Regulation. This will be accompanied by a Directive covering elements that need to take the form of a directive for legal reasons, such as organizational and authorization requirements and corporate governance.

The impact assessment indicates that the European Commission will adopt a legislative proposal in the fourth quarter of 2017.

The European Commission is seeking feedback on the impact assessment. The European Commission’s website on impact assessments states that the deadline for comments is April 19, 2017.

European Banking Authority Publishes Report on Liquidity Coverage Ratio Disclosure

 

On March 8, 2017, the European Banking Authority (“EBA“) issued a report that considered the disclosure requirements in relation to the liquidity coverage ratio.

As it stands, European regulation specifies the liquidity coverage ratio for credit institutions, with the goal of maintaining a buffer against stressed situations and acting as an important tool in the assessment of risk management.

The guidelines that have been published harmonize and specify the necessary disclosures applicable to credit institutions. The final guidelines are available here.

European Commission Issues Call for Advice on Own Fund Requirements for Market Risk

On April 22, 2016, the European Banking Authority published a call for advice it had received from the European Commission regarding revisions to the own fund requirement for market risk as part of the CRR review.

The call for advice sets out that the EC is undertaking a review of the Capital Requirements Regulation and is considering the impact of implementing the agreed Basel Committee on Banking Supervision framework detailed in the document “Minimum capital requirements for market risk.” The EC notes that to date there has been no EU-specific assessment of the convenience and impact of updating these rules in the ways proposed by the BCBS.

EBA Publishes Final Report on Provision of Information in Summary or Collective Form

On April 19, 2016, the European Banking Authority published its final report providing guidelines on the provision of information in summary or collective form for the purposes of Article 84(3) of Directive 2014/59/EU. This relates to general rules in relation to professional secrecy and confidentiality requirements when dealing with confidential information.

The report includes a summary of responses to the consultation and the EBA’s own summarized analysis.

EBA Publishes Formula for Calculating MCD Benchmark Rate

The EBA has published its final report setting out the formula that creditors will be required to use when calculating the benchmark rate under Annex II to the Mortgage Credit Directive (2014/17/EU).

Under certain circumstances the Mortgage Credit Directive requires creditors to use a benchmark rate specified by the EBA for the illustrative examples in the European Standardized Information Sheet (ESIS) for variable rate mortgages (specifically, the annual percentage rate of charge (APRC) and the maximum installment amount). This is intended to help consumers compare the characteristics of credit products.

Instead of publishing a specific pan-European rate the EBA has produced a formula for calculating the appropriate rate which takes into account national circumstances. The EBA formula includes an underlying rate specific to each member state (that is, the European Central Bank (ECB) rate for Eurozone countries and the national central bank rate for non-Eurozone countries). This means that each member state will have a bespoke EBA benchmark rate that will remain up to date over time. The EBA rate will only apply where no national rate has been set.

The decision will be translated into the official EU languages, and will be published on the EBA website and in the Official Journal of the European Union (OJ). The EBA formula will apply 20 days after its publication in the OJ, but can be used by creditors before this date.

EBA Publishes Final Draft Technical Standards and Guidelines on Methodology and Disclosure for G-SIIs

The European Banking Authority (EBA) has published final draft technical standards and revised guidelines on the further specification of the indicators of global systemic importance and their disclosure. The guidelines have been developed according to Directive 2013/36/EU (the Capital Requirements Directive, CRD IV) and in line with international standards. CRD IV requires G-SIIs to hold higher capital levels in order to contain the risks they pose to the financial system and the impact that their potential failure may have on sovereign finance and taxpayers (so-called “too big to fall”). The draft revised Guidelines stipulate that not only G-SIIs, but also other large institutions with an overall exposure of more than €200 billion and which are potentially systemically relevant, will be subject to the same disclosure requirement as the G-SIIs.

The revision was prompted by a new data template and some minor changes introduced by the Basel Committee on Banking Supervision (BCBS) in January 2015 for the identification of global systemically important banks (G-SIBs). The list of EU G-SIBs identified by the BCBS and the global systematically important institutions (G-SIIs) identified by Member States’ authorities are identical.

The final draft technical standards and revised draft guidelines are set out in three reports (revised technical standards (RTS) report, implementing technical standards (ITS) report, and draft guidelines report). The final RTS and ITS will be presented to the European Commission for endorsement, following which the RTS will be subject to scrutiny by the European Parliament and the Council of the EU before publication in the Official Journal of the EU.

EBA Publishes Reports, Guidelines and Draft RTS in Relation to the CRR

The European Banking Authority (“EBA”) has published the following documents in connection with the Capital Requirements Regulation (Regulation 575/2013) (“CRR”):

  1. Final guidelines on limits on exposures to shadow banking entities that carry out banking activities outside a regulated framework under Article 395. The guidelines introduce an approach that will allow EU institutions to set limits for their exposures to shadow banking entities as part of their internal processes. They are informed by a report on the exposures of a sample of EU institutions to shadow banking entities and the impact of setting limits. The guidelines will apply from 1 January 2017. Together with the report, they will assist the European Commission in its work on its upcoming report on the appropriateness and impact of imposing limits on exposures to shadow banking entities;
  2. consultation paper on draft regulatory technical standards (“RTS”) specifying the assessment methodology on the use of internal models for market risk, under Article 363(4)(c) of the CRR;
  3. legislative proposal to extend certain exemptions for commodity dealers (COM(2015) 648);
  4. report on the impact assessment and calibration of the net stable funding ratio (“NSFR”) required under the CRR. The EBA recommends the introduction of an NSFR in the EU to ensure an appropriate stable funding structure relating to the degree of asset illiquidity, as the way of properly mitigating funding risk in banks.

Meanwhile, the text of the European Commission Implementing Regulation ((EU) 2015/2344) laying down implementing technical standards with regard to currencies with constraints on the availability of liquid assets in accordance with the CRR was published in the Official Journal of the EU.

EBA Publishes Draft RTS in Relation to the BRRD

The EBA has published the following draft RTS in connection with the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD):

  1. Final draft RTS on the valuation of derivatives under Article 49(4);
  2. A document setting out final draft RTS and guidelines on the business reorganization plans to be submitted where a resolution authority decides to apply the bail-in tool under the BRRD; and
  3. Final draft RTS on the information that should be contained in the detailed records of financial contracts required in support of the power to impose a stay on claims by creditors under Article 71. The final draft RTS also specify the circumstances in which the requirement to maintain detailed records will be imposed.

EBA Final Draft RTS on Prudential Requirements for CSDS

On December 16, the EBA published its final report setting out draft RTS on prudential requirements for central securities depositories (“CSDs”) under the Regulation on improving securities settlement and regulating CSDs (Regulation 909/2014) (“CSDR”). The final draft RTS relate to:

  1. The capital requirements for CSDs (required under Article 47);
  2. The additional risk-based capital surcharge reflecting the risks resulting from ancillary banking services (required under Article 54); and
  3. Details of the frameworks and tools for the monitoring, the measuring and management, the reporting and the public disclosure of credit and liquidity risks (required under Article 59).