The following bodies have released their 2015 annual reports in the past week:
Each report contains a review of achievements from 2015 as well as looking forward to the objectives and challenges which will be relevant in the coming year.
On June 13, the European Banking Authority (EBA) released the final draft regulatory technical standards on assigning risk weights to specialized lending exposures under article 153(9) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR).
The Capital Requirements Directive requires the EBA to develop draft regulatory technical standards setting out how institutions should take into account financial strength, political and legal environment, transaction and/or asset characteristics, strength of the sponsor and developer, and security package in assessing risk weights to specialized lending exposures.
On June 2, 2016, the European Commission published a press release announcing that it had adopted a proposal for a Council decision on the position to be taken by the EU on the incorporation of the Regulations on the European Supervisory Authorities (ESAs), and some of the related Regulations and Directives, into the Agreement on the European Economic Area (EEA).
The acts to be incorporated into the EEA Agreement include the ESAs Regulations (EBA, EIOPA and ESMA Regulations), the European Systemic Risk Board Regulation, the Alternative Investment Fund Managers Directive and related Delegated Acts, the Short Selling Regulation and related delegated acts, the European Markets Infrastructure Regulation (‘EMIR’) and the Credit Ratings Agency Regulations.
This is an important step towards the extension of the European System of Financial Supervision (ESFS) to the EEA EFTA countries: Norway, Iceland and Liechtenstein. The Commission explained that incorporating these acts into the EEA Agreement would ensure strong and co-ordinated financial supervision throughout the EEA.
On May 17, 2016, the European Banking Authority published a decision confirming that the unsolicited credit assessments of certain external credit assessment institutions (“ECIAs”) do not differ in quality from their solicited credit assessments with regard to the Capital Requirements Regulation (Regulation 575/2013).
The published decision annexes 22 ECIAs and confirms that in respect of those listed, the quality of the unsolicited credit assessments does not differ from the solicited credit assessments.
The decision will enter into force 20 days after publication in the Official Journal of the EU.
On May 4, 2016, the EBA published a discussion paper on innovative uses of consumer data by financial institutions, in line with its mandate to monitor financial innovation. The EBA report notes that although general provisions apply to financial institutions regarding secrecy, conduct and data protection, which impose restrictions on the use of consumer data, EU legislation specific to the financial sector contains few requirements that address the use of consumer data by financial institutions.
In recent years, some financial institutions have started using consumer data in innovative ways across the EBA’s regulatory remit (that is, mortgages, personal loans, payment accounts, payment services, and electronic money). The paper identifies risks and benefits for consumers and financial institutions of such uses, as well as for financial integrity in general. Feedback received on this discussion paper will inform the EBA’s decision on which, if any, further actions may be required to mitigate the risks arising from this innovation, while also allowing market participants to harness its benefits.
On May 3, 2016, the European Banking Authority (EBA) issued an opinion to the European Commission supporting the Commission’s proposed amendment to the historical look-back approach (HLBA) methodology used in the draft Regulatory Technical Standards (RTS) on additional collateral outflows.
The amendment by the EBA followed a request by the European Commission that the draft RTS be amended so that the calculation of the additional collateral outflows was based on the HLBA for market valuation changes developed by the Basel Committee on Banking Supervision (BCBS). The BCBS’s HLBA focuses on the largest net difference in collateral posted instead of the largest gross difference which had been the focus of the EBA’s approach. In December 2015, the Commission had raised concerns that the EBA’s HLBA approach could have a significant impact on credit institutions and international derivative markets. Therefore, it decided not to adopt the draft RTS as it had been submitted by the EBA, but signalled it was open to endorsing an amended draft RTS based on the BCBS’s HLBA approach.
On March 30, the European Banking Authority (“EBA”) published aggregated data on high earners earning €1 million or more per financial year.
The EBA has analyzed the data provided to it for the year 2014 and compared it to the 2013 data. The main results of its analysis are:
The report forms part of the work that the EBA does with the European Commission to review the effectiveness of remuneration provisions. Report.
The Joint Committee of the European Supervisory Authorities (EBA, EIOPA, ESMA) (“ESAs“) has published final draft Regulatory Technical Standards (“RTS“) outlining the framework of the European Market Infrastructure Regulation (EMIR). The RTS cover the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared OTC derivatives. They also specify the criteria concerning intragroup exemptions and the definitions of practical and legal impediments to the prompt transfer of funds between counterparties.
The draft RTS prescribe that, for OTC derivatives not cleared by a Central Counterparty, counterparties have to exchange both initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards. The draft RTS outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts. The draft RTS also lay down the operational procedures relating to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange, as well as the procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.
The European Banking Authority (“EBA“) has published its final draft Implementing Technical Standards (“ITS“) amending the Commission’s Implementing Regulation (EU) No. 680/2014 on supervisory reporting. The EBA is required to develop ITS specifying supervisory reporting in the areas of own funds, financial information, losses stemming from lending collateralized by immovable property, large exposures, leverage ratio, liquidity ratios, asset encumbrance, additional liquidity monitoring metrics and supervisory benchmarking.
The final ITS include minor changes to templates and instructions which reflect some of the answers published in the EBA’s Single Rulebook Q&A, align with disclosure requirements for capital buffers and correct legal references and other clerical errors. The amendments are expected to be applicable for reporting from December 2016.
On March 2, the European Banking Authority (“EBA”) published its report of its ninth Basel III monitoring exercise, particularly on the impact of the fully implemented Capital Requirements Directive and the Capital Requirements Regulation (CRDIV-CRR).
The exercise allowed the gathering of aggregate results on capital and liquidity ratios for banks in the European Union and the report summarizes the results using data as of June 30, 2015.
The results showed a further improvement of European banks’ capital positions with only a small number of banks suffering from potential capital shortfalls.
The exercise monitored the leverage ratio, as defined in EU legislation, for the first time and indicated that the leverage ratio is a binding regulatory constraint for a significant number of institutions in the sample.
The results showed that there has been an increase in banks’ liquidity coverage ratio over time, which the EBA attributed to structural adjustments and a recalibration of the liquidity coverage ratio framework, which was published in January 2013. Report.
