EBA

Third European Commission Progress Report on Reducing NPLs in EU

On November 28, the European Commission published a communication setting out its third progress report (COM(2018) 766 final) in reducing non-performing loans (“NPLs“) and further risk reduction in the banking union.

There is an overall trend of improvement, with NPLs declining to an average of 3.4% which is approaching pre-crisis levels, due to action taken by member states and market players. However, there are high NPL ratios still in some member states.

The Commission has delivered all elements of the Council’s July 2017 NPLs action plan. However, it needs to be fully implemented by all actors in order to address the challenge of high NPLs, both in terms of reducing existing stocks to sustainable levels and preventing future accumulation. In particular, the Commission calls on the European Parliament and the Council of the EU to swiftly agree on the banking risk reduction package and all the elements of the legislative proposals to tackle NPLs.

A staff working document (SWD(2018) 472 final) was produced at the Council’s request and following collaboration with the European Central Bank (“ECB“) and the European Banking Association (“EBA“). The document, which is stated to not represent the views of the Commission, the ECB or the EBA, consider the set-up of an EU NPL electronic marketplace platform where banks and investors could trade NPLs to help stimulate development of the secondary market.

EBA Revises Recommendation on Equivalence of Confidentiality Regimes of Non-EU Authorities

On November 8, the European Banking Authority (“EBA“) published a final report on recommendations on the equivalence of confidentiality regimes (EBA/REC/2018/03).

In the report, the EBA makes amendments to its recommendation on the equivalence of confidentiality regimes (EBA/REC/2015/01), which was originally published in April 2015. The purpose of the recommendation is to provide guidance for competent authorities on the equivalence of the confidentiality regime applicable to a particular third-country supervisory authority, whose participation in a given college is to be determined under Article 116(6) of the CRD IV Directive (2013/36/EU).

The EBA has added the following third-country authorities to the recommendation, following assessments of the professional secrecy and confidentiality frameworks under which they operate:

  1. The Abu Dhabi Global Market (“ADGM“) Financial Services Regulation Authority;
  2. The Republic of South Kora Financial Supervisory Service;
  3. The National Bank of Moldova;
  4. The Hong Kong Securities and Futures Commission (“SFC“).

The final report does not state the application date of the recommendations made in it.

Political Agreement Reached on Relocation of EBA

 

On October 17, the Council of the EU published a press release announcing that it and the European Parliament have reached political agreement on the proposed Regulation on the relocation of the European Banking Authority (“EBA“) (2017/0326 (COD)). The press release can be found here.

The Regulation amends Article 7 of the EBA Regulation (Regulation 1093/2010) to state that the EBA will have its seat in Paris. The European Commission adopted the legislative proposal for the Regulation in November 2017.

The Council and the Parliament presumably reached agreement on the version of the text of the Regulation (13175/18) published by the Council on October 16 that was stated to be the confirmation of the final compromise text.

The next steps will be for the Regulation to be submitted to the Parliament for a vote at first reading and to the Council for final adoption. The Regulation will apply from March 30, 2019.

EBA Opinion and Draft Guidelines on Implementation of Delegated Regulation Setting Out RTS on SCA and CSC Under PSD2

 

On June 13, 2018, the European Banking Association (“EBA“) published a consultation paper (EBA/CP/2018/09) on draft guidelines on the conditions to be met to benefit from an exemption from contingency measures under Article 33(6) of Delegated Regulation (EU) 2018/389, which sets out regulatory technical standards (“RTS“) on strong customer authentication (“SCA“) and common and secure communication (“CSC“) under the revised Payment Services Directive ((EU) 2015/2366) (“PSD2“).

Alongside the consultation paper, the EBA has published an opinion (EBA-Op-2018-04) on implementation of the RTS on SCA and CSC. Both the draft guidelines and the opinion are designed to clarify a number of issues identified by market participants relating to the RTS on SCA and CSC, which will apply from 14 September 2019.

The draft guidelines propose a pragmatic and consistent approach to the four conditions that an account servicing payment service provider (“ASPSP“) must meet if it wishes to benefit from an exemption from the fallback option envisaged under Article 33(6) of the Delegated Regulation. The EBA considers that the draft guidelines provide clarity for all parties involved (that is, ASPSPs, national competent authorities (“NCAs“) and the EBA) on the information to be considered to determine whether an exemption request meets the Article 33(6) conditions. In particular, the guidelines will enable NCAs to carry out a quick assessment of exemption requests, especially during the time when the bulk of these requests are received.

The EBA plans to hold a public hearing to discuss the draft guidelines on 25 July 2018. Comments can be made on the draft guidelines until 13 August 2018.

The opinion focuses on implementation of the RTS. It sets out the EBA’s views in “pressing” areas identified by the market and NCAs, including on exemptions to SCA, consent, the scope of data sharing, and requirements for application programming interfaces (“APIs“) and dedicated interfaces to take into account. Although the opinion is addressed to NCAs, given the supervisory expectations it is conveying, the EBA advises it should prove useful for PSPs, among others.

In the opinion, the EBA explains that it will provide further clarification on interpretation of the RTS on SCA and CSC through its online interactive single rulebook and Q&A tool. The tool will be extended to PSD2-related queries by the end of June 2018.

EC Sends Letter to the EBA on RTS Regarding Customer Authentication Under the Revised Payment Services Directive ((EU) 2015/2366) (“PSD2”)

The European Banking Authority (“EBA“) has published a letter (dated February 13, 2018) from Olivier Guersent (European Commission Director-General, DG FISMA) to Andrea Enria (EBA Chairman) that relates to the regulatory technical standards (“RTS“) on strong customer authentication (“SCA“) as well as common and secured communication under PSD2.

The letter is broad but, inter alia, states the following:

  • The Commission has amended the ‘final’ version of the RTS, and these amendments took on board concerns that were raised by the EBA and member state officials;
  • The Commission would welcome the participation of the EBA in group meetings that will evaluate application programming interface (API) standards;
  • Neither the EBA nor the Commission can reasonably anticipate all the problems with APIs, nor can they specify in the RTS how these should be addressed. As such, the EBA and the Commission will rely on relevant market players to develop APIs that work for all sides (i.e., third-party providers, banks and payment service users); and
  • The prior differences discussed between the EBA and the Commission with regards to the RTS were about processes rather than other more substantive matters. The extent to which any of these processes might be burdensome for the EBA and relevant national authorities depends on the behavior of market players.

To see the letter, please click here.

EBA Finalizes 2018 EU-Wide Stress Test Timeline

 

On October 30, 2017, the EBA published a press release on the 2018 EU-wide stress test timeline.

The EBA intends to follow the following timetable:

  • November 2017. The EBA to publish the final methodology.
  • End of 2017. The EBA to circulate final templates and guidance to participating banks by this date.
  • January 2018. Launch of the 2018 EU-wide stress test. The EBA will publish the macroeconomic scenario at the time of the launch.
  • Early June 2018. First submission of results to the EBA.
  • Mid-July 2018. Second submission of results to the EBA.
  • Late October 2018. Final submission of results to the EBA.
  • November 2, 2018. The EBA to publish results of the stress test.

The EBA has decided to extend the overall timeline for the stress test to take into account the challenges that the implementation of IFRS 9 poses regarding the availability of starting point data in early 2018.

ESAs Publish 2016 Annual Reports

 

On June 15, 2017, ESMA, EIOPA and the EBA (the European Supervisory Authorities (“ESAs“)) each published their annual reports outlining the relevant ESA’s objectives, activities and key achievements in 2016.

ESMA’s annual report summarizes the work carried out by ESMA in 2016 under each of the following activities:

  • Assessing risks to investors, markets and financial stability.
  • Creating a single rule book.
  • Promoting supervisory convergence.
  • Supervising credit rating agencies and trade repositories.

The EBA’s annual report outlines the EBA’s work in 2016, which included:

  • Completing the single rule book applicable to the EU banking sector.
  • Supporting the finalization of the Basel III package of measures and its implementation in the EU.
  • Enhancing its monitoring of different aspects of the single rule book, including on own funds, remuneration practices and significant risk transfers in securitizations.
  • Improving its role in monitoring and assessing key risks in the banking sector across the EU.
  • Monitoring financial innovation and contributing to secure and efficient retail payments in the EU.

EIOPA’s annual report outlines the EIOPA’s work associated with the implementation of the Solvency II Directive (2009/138/EC) on January 1, 2016, such as the secure collection and storage of data. Other areas of work included:

  • The calculation and publication of risk-free rates on a monthly basis.
  • An EU-wide insurance stress test.
  • The development of a macro-prudential approach to the low interest rate environment in Solvency II.

Advice to the European Commission on a number of issues, including the development of a pan-European personal pension product and, within the context of the Joint Committee of the ESAs, on the key information documents for packaged retail and insurance-based investment products.

EBA Publishes Final Guidelines on Credit Institutions’ Credit Risk Management Practices and Accounting for Expected Credit Losses

 

On May 12, 2017, the EBA published its final guidelines on credit institutions’ credit risk management practices and accounting for expected credit losses. The aim of the guidelines is to ensure sound credit risk management practices associated with the implementation and ongoing application of the accounting for expected credit losses. They are part of the EBA’s work on the implementation of IFRS 9 and its interaction with prudential requirements, and they build on the guidance published by the Basel Committee on the same matter.

Several credit institutions in the EU apply the IFRS standards, which require the measurement of impairment loss provisions to be based on an expected credit loss accounting model (IFRS 9) rather than on an incurred loss accounting model (IAS 39). The EBA welcomes this approach on credit loss provisioning, as it should also contribute to addressing the G20’s concerns about the issue of the ‘too little, too late’ recognition of credit losses, and improve the accounting recognition of credit losses by incorporating a broader range of credit information.

The guidelines set out strong credit risk management practices for credit institutions associated with the implementation and on-going application of the accounting for expected credit losses. They note that high-quality and consistent application of the accounting standards is the foundation for the effective and consistent application of the regulatory capital standards.