EBA

EBA Consults on Fee Terminology and Disclosure Documents under Payment Accounts Directive

 

Pursuant to the Payment Accounts Directive (2014/92/EU) (PAD), on September 22, 2016, the European Banking Authority (EBA) published a consultation paper on draft technical standards on fee terminology and disclosure documents under the directive.

The EBA will be holding a public hearing at its premises on 21 November 2016 and the consultation process closes on December 22, 2016.

Following the consultation the EBA set out the following three draft technical standards:

  • Draft regulatory technical standards (RTS) setting out the standardized terminology for services that are common to at least a majority of member states (required under Article 3(4) of the PAD).
  • Draft implementing technical standards (ITS) relating to the standardization of presentation format on the fee information document (FID) and its common symbol (required under Article 4(6) of the PAD).
  • Draft ITS relating to a standardized presentation format of the statement of fees (SoF) and its common symbol (required under Article 5(4) of the PAD).

The draft technical standards aim to standardize eight terms for services that are to be used by payment service providers (PSPs), as well as providing consumer-friendly definitions of these terms in all EU official languages. The EBA identified the terminology based on the national provisional lists that member states have developed in line with the EBA’s March 2015 guidelines on standardized fee terminology (see Legal update, EBA final report and guidelines on national provisional lists of the most representative services linked to a payment account and subject to a fee).

PSPs will have to use the proposed standardized terminology in the pre-contractual FID and the post-contractual SoF disclosure documents.

European Commission Adopts Implementing Regulation on ITS for Reporting Results of Internal Approach Calculations under Article 78(2) CRD IV Directive

 

On September 19, 2016, the European Commission adopted an Implementing Regulation implementing technical standards (ITS) for templates, definitions and IT solutions to be used by institutions when reporting the results of their internal approach calculations to the European Banking Authority (EBA) and to competent authorities under the CRD IV Directive (2013/36/EU).

The Implementing Regulation is based on the draft ITS submitted by the EBA to the Commission in March 2015 to which the EBA published an opinion agreeing to the Commission’s amendments to the ITS in May 2016. Once the Implementing Regulation has been published in the Official Journal of the EU (OJ) it will enter into force on the 20th day following its publication.

EBA Amends Implementing Technical Standards on Benchmarking of Internal Approaches under CRD IV

On August 4, 2016, the European Banking Authority (EBA) published and submitted to the EU Commission an amended version of its Implementing Technical Standards (ITS) on benchmarking of internal approaches under Article 78(8) of the CRD IV Directive (which can be found in a zip file on the EBA’s website).

The EBA has amended the ITS for the purposes of running the 2017 benchmarking exercise. The amended ITS will assist competent authorities in their 2017 assessment of internal approaches both for credit risk, and for market risk. In a related press release, the EBA explains that, given the type of changes introduced in the instructions and templates, the relevant annexes are replaced in whole so that there is a consolidated version of the updated ITS package.

The EBA plans to annually update the ITS and to maintain them on a regular basis to ensure the success and quality of future benchmarking exercises.

EBA Publishes Report on Leverage Ratio Requirements under Article 511 of the CRR

On August 3, 2016, the European Banking Authority (EBA) published a report on the leverage ratio (LR) requirements under the Capital Requirements Regulation (CRR).

The EBA report recommends the introduction of a minimum LR requirement in the EU to mitigate the risk of excessive leverage, which is in line with the discussions held by the Group of Central Bank Governors and Heads of Supervision (GHOS) – the governing body of the Basel Committee on Banking Supervision (BCBS) – in January 2016.

The analysis suggests that the potential impact of introducing a LR requirement of 3 percent on the provision of financing by credit institutions would be relatively moderate, while, overall, it should lead to more stable credit institutions. Similarly, on the basis of econometric analysis, it has been estimated that risk taking should not be strongly affected. The EBA considers that the introduction of a 3 percent LR should lead to more stable credit institutions overall and the combined application of a risk-based ratio and a LR requirement will reduce the overall cyclicality of capital requirements.

The EBA also assessed the exposure of different categories of credit institutions to the risk of excessive leverage (REL) concluding that the results do not give a strong indication of differences in the degree of exposure to REL across different types of credit institutions. However, global systemically important institutions (GSIIs) show a higher exposure to REL and therefore a higher LR requirement may be warranted.

The report also flags that while the Basel LR standard fits well with the EU banking sector, the same cannot be said for all business models covered by other EU prudential regulations. For example, the EBA recommends that central counterparties (CCPs) and central securities depositaries (CSDs) be exempted. The report describes the characteristics of various specialized business models, such as public development banks, concluding that there is little room for differentiating the LR without opening the door to cases of circumvention of the basic principles of the LR. The report did not find evidence to exempt certain credit institutions from being subject to compliance with the LR minimum requirement of 3 percent on the basis of their limited size. However, the EBA will explore in more detail a reduced frequency and granularity of reporting requirements in the case of smaller credit institutions in future updates of the implementing technical standards (ITS) on LR reporting.

The Commission is required to submit a report on the impact and effectiveness of the LR, and potential legislative proposals, to the European Parliament and the Council of the EU by December 31, 2016.

EBA Publishes Final Draft RTS on Separation of Payment Card Schemes and Processing Entities under IFR

On July 28, 2016 the EBA published final draft regulatory technical standards (RTS) relating to the separation of payment card schemes and payment processing entities under the Interchange Fee Regulation ((EU) 2015/751) (IFR) (EBA/RTS/2016/05).

The final draft RTS have been developed under Article 7(6) of the IFR. Under this article the EBA must specify the requirements with which payment card schemes and processing entities have to comply in order to guarantee the independence of their accounting, organizational and decision-making processes. The accompanying press release highlights that the aim of the final draft RTS is to facilitate greater competition among processing services providers, which is in line with the general objective of the IFR to create a single market for card payments across the EU.

Under the final draft RTS payment card schemes and processing entities are required to:

  • have accounting processes in place to produce annual information related to separated profit and loss accounts reviewed by an independent and certified auditor;
  • have separate workspaces; and
  • ensure the independence of senior management, management bodies and staff.

The final draft RTS will now be submitted to the European Commission for endorsement.

EBA Publishes Final Draft RTS on Criteria for Preferential Treatment in Cross-Border Intra-Group Financial Support under LCR

On July 27, 2016, the EBA published a report containing final draft regulatory technical standards (RTS) on the specification of the additional objective criteria for preferential treatment in cross-border intra-group financial support in the calculation of the liquidity coverage requirement (LCR) under the Capital Requirements Regulation (Regulation 575/2013) (CRR) (EBA/RTS/2016/04).

The CRR permits a preferential treatment in the calculation of the LCR for intra-group liquidity flows. The Commission Delegated Regulation on the LCR ((EU) 2015/61) (LCR Delegated Regulation) specifies additional objective criteria for this preferential treatment for flows in the context of credit and liquidity facilities within a group or an institutional protection scheme (IPS) Articles 422(10) and 425(6) of the CRR mandate the EBA to develop RTS to further specify these additional objective criteria.

Under the final draft RTS:

  • a low liquidity risk profile of the liquidity provider and receiver required in the LCR Delegated Regulation will be determined on the basis of its compliance with the LCR and the Pillar 2 requirements, as well as on the basis of the outcome of the latest supervisory review and evaluation process (SREP);
  • credit institutions’ management bodies will be required to submit a written and reasoned legal opinion certifying that the credit or liquidity line in the LCR Delegated Regulation is a committed line legally and practically available at any time. The line is also subject to other requirements such as currency denomination or maturity date, to reinforce its appropriateness for the application of the preferential treatment; and
  • The LCR Delegated Regulation requires that the liquidity risk profile of the liquidity receiver be taken into account in the liquidity risk management plans of the liquidity provider. Under the RTS, the liquidity provider must monitor and oversee the liquidity position of the receiver on a daily basis. The contingency funding plan of the liquidity provider must ensure that, from this monitoring, the liquidity support to the receiver is guaranteed, even in times of stress.

The final draft RTS will now be submitted to the European Commission for endorsement.

EBA Final Draft RTS on Assessment Methodology for Internal Ratings-Based Approach

The European Banking Authority (EBA) has published final draft regulatory technical standards (RTS) on the specification of the assessment methodology for competent authorities regarding compliance of an institution with the requirements to use the internal ratings-based (IRB) approach in accordance with Articles 144(2), 173(3) and 180(3)(b) of the Capital Requirements Regulation (Regulation 575/2013) (CRR).

The final draft RTS provide a mapping of the minimum IRB requirements as laid down in Chapter 3, Title II, Part Three of the CRR, into fourteen chapters. Each chapter starts with a brief description of the assessment criteria to be used by competent authorities relating to verification requests and of the methods to be used by competent authorities in this context.  Under the IRB approach, institutions determine their own funds requirements for credit risk, taking into account their own estimates of risk parameters.  Competent authorities may, under the CRR, permit institutions to use the IRB approach, provided that the relevant conditions set out in the CRR are met.

The draft RTS are available here and will now be submitted to the European Commission for endorsement.

EBA Publishes Interim Report on MREL

The European Banking Authority (EBA) has published an interim report on the minimum requirement for own funds and eligible liabilities (MREL). Under the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) the EBA is required to submit a report to the European Commission on the implementation of MREL by October 31, 2016.  This report will assist the Commission in its work on a legislative proposal on the harmonized application of MREL as well as a legislative proposal to review MREL and implement the total loss absorbing capacity standard in the EU.

The EBA’s interim report is intended to provide input into the Commission’s deliberations ahead of the preparations of the EBA’s final report and contains a number of provisional recommendations. Preliminary quantitative findings on the financing capacity and needs of EU banking groups are also available in the interim report, although these are subject to several methodological caveats.  In the absence of MREL decisions for institutions to date, and given the limited information related to the resolution authorities’ MREL policy approach, the EBA was required to make assumptions on the likely scope and calibration of MREL.  These assumptions are by definition different from the actual levels of MREL which will ultimately be determined by resolution authorities in relation to each institution and group.

The interim report is available here.

European Commission Calls for Further Technical Advice from EBA on Prudential Regime for Investment Firms under CRD IV

On July 6, 2016, the EBA published a call for advice, dated June 13, 2016, that it has received from the European Commission relating to the prudential requirements applicable to investment firms under the Capital Requirements Regulation (Regulation 575/2013) (“CRR”) and the CRD IV Directive (2016/36/EU) (together referred to as CRD IV).

The EBA already provided advice on this matter to the Commission in December 2015, in which it broadly concluded that the current prudential regime for investment purposes is not adequate. To better inform the Commission’s decision, it is seeking further technical advice from the EBA on the details of the high level recommendations set out in the December 2015 advice. It has asked the EBA to provide advice on the following:

  • the criteria and thresholds for each of the three proposed classes of investment firm;
  • the design and calibration of all relevant aspects of a new prudential regime for the three proposed classes of investment firm;
  • the application of the CRD IV remuneration requirements to the different proposed classes of investment firm, and if whether the proposed new classes would affect the applicability of the CRD IV corporate governance rules; and
  • any other issues or inconsistencies the EU competent authorities have identified in implementing the rules relating to investment firms.

The EBA is to consult with ESMA when preparing its advice. The deadline for preparing the advice on the analysis relating to class one investment firms is September 31, 2016. The EBA must prepare its final report on the substantive content and calibration of the proposed regimes for the different classes of investment firms to the Commission by June 30, 2017.

EBA Clarifies Use of 2016 EU-Wide Stress Test Results in SREP Process

On July 1, 2016, the EBA published additional information on how the results of the EU-wide stress test will inform the Supervisory Review and Evaluation Process (“SREP”).

The focus of the update is to explain how additional capital guidance can be used to cover potential shortfalls in own funds based on the outcomes of supervisory stress tests. Although capital guidance does not constitute any form of minimum capital requirement, institutions are expected to incorporate it in their risk management frameworks. Competent authorities should also monitor its fulfillment.

The 2016 EU-wide stress test does not contain a pass fail threshold and instead is designed to be used as a crucial piece of information for SREP in 2016. The results will allow competent authorities to assess banks’ abilities to meet applicable minimum and additional own funds requirements under stressed scenarios based on a common methodology and assumptions. If competent authorities identify capital shortfalls leading to potential breaches of applicable own funds requirements revealed by the stress tests, they can employ the capital guidance to address their concerns.

The results of the EU-wide stress test, which was launched by the EBA in February 2016, are expected to be published in the early part of the third quarter of 2016.