EBA

ESA Issues ESMA and EBA Consultation for Securities and Banking Complaints Handling

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On November 6, the Joint Committee of the European Supervisory Authorities (ESAs) issued a consultation paper by the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) concerning draft guidance for the handling of complaints in the securities and banking industries. This guidance aims to:

  • clarify expectations on firms’ procedures for complaints handling;
  • give guidance on the provision of information to complainants and the procedures for answering complaints;
  • harmonize the complaint handling arrangements of firms in order to help protect consumers; and
  • set a minimum level of supervision for firms’ complaint handling arrangements on an EU-wide basis.

The guidance applies to investment firms, UCITS management companies and UCITS investment companies that have not designated a management company, AIFMs providing MiFID services, credit institutions and e-money institutions.

The deadline for responses to the consultation is February 7, 2014, with the final report scheduled to be published in the first quarter of 2014.  Consultation Paper.

EBA Publishes First Risk Dashboard of EU Banking Sector

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On October 29, the European Banking Authority (EBA) published its first risk dashboard, summarizing the main risks and vulnerabilities in the EU banking sector.

It is based on data from the second quarter of 2013 and takes into consideration the evolution of a set of key risk indicators from 56 EU banks that the EBA has been collecting, on a quarterly basis, since 2009.

The accompanying press release states that after the past two years of repair, the overall conditions of EU banks have improved.  In particular, data in the EBA dashboard illustrates that capital positions have been significantly strengthened and that funding conditions have recovered.  Risk Dashboard.  Press Release.

European Authorities Propose to Take Control of Libor from London

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On June 6, the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published their final report setting out principles for benchmark-setting processes in the EU (ESMA/2013/659).  The final report is divided into seven sections: General framework for benchmark setting; Principles for benchmark administrators; Principles for benchmark submitters; Principles for benchmark calculation agents; Principles for benchmark publishers; Principles for benchmark users and Principles for the continuity of benchmarks.

  • The inter-bank lending rate, Libor, is one benchmark that will be affected by this report.
  • Libor is the inter-bank offered rate currently set in London and is meant to reflect the average rate that banks pay to lend to each other.

The report follows the Libor scandal which emerged in June 2012 when UK and US authorities fined Barclays £290m for fixing the key inter-bank interest rate. Since then, Swiss bank UBS and Royal Bank of Scotland have been given fines of £940m and £390m, respectively.  Final Report.

European Banking Authority Consults on Material Risk Takers for Remuneration Purposes

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On May 21, the European Banking Authority (EBA) took into account the results of a 2012 survey and published a consultation on draft regulatory technical standards on criteria identifying categories of staff whose professional activities have a material impact on a financial institution’s risk profile under the proposed CRD IV Directive.  The draft standards are required under Article 90(2) of the proposed Directive and set out an identification process, as well as standard qualitative and quantitative criteria for characterizing material risk takers.

Comments can be made on the consultation paper until August 21, and the draft standards are due for submission to the European Commission by the end of March 2014.  Consultation Paper.

European Banking Authority: Development of Recovery Plans

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On January 23, the European Banking Authority (EBA) published its formal recommendation regarding the development of recovery plans for certain EU banks.  The recommendation comes in advance of the proposed Recovery and Resolution Directive, which will task the EBA with the development and co-ordination of recovery and resolution plans.  By providing guidance to ensure a coordinated recovery approach across the EU, it is hoped that Europe’s banks and economies will be in a collectively stronger position to resolve adverse financial circumstances.  The recommendation identifies a group of 39 banks which should be asked to present group recovery plans to their respective competent authorities by December 31, 2013.  It also suggests that these plans should be drafted in accordance with Annex 2 of the recommendation, which sets out a template comprising the following three sections:

    • a general overview and summary of the recovery plan;
    • core details of the recovery plan, including a list of available options should a crisis situation arise and an assessment of their impact and execution; and
    • follow-up measures to be taken once the core of the recovery plan is in place.

EBA Report on Impact of CRD IV Proposals on Smes

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The amendments to the Capital Requirements Directive (CRD) proposed in CRD IV will require credit institutions to introduce a ‘capital conservation buffer’ of 2.5% of risk-weighted assets (in addition to the current 8% requirement).  This will be phased in from 2016 to 2019, and there are concerns that it could have a negative impact on the level of bank lending available to SMEs.   

On October 22, the European Banking Authority (EBA) published a report on the assessment of two proposals to mitigate these concerns.  The proposals analysed were:

  • a reduction of the current risk weights (RWs) of SME lending by one third; and
  • an increase from EUR 1 million to EUR 5 million on the regulatory thresholds for SMEs.  

In its report, the EBA cautions against the proposed altering of the RWs or the threshold for SME retail exposures.  However, it does advise that alternative measures to provide the same capital alleviation could be considered, such as the introduction of a supporting discount which would not act on RWs, but would be applied at the end of the process of capital calculation.  The EBA considers that these measures should be applied only to SME exposures and not to the whole retail exposure class.

EBA Publishes Opinion on Green Paper on Shadow Banking

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On July 17, the European Banking Authority (EBA) published its opinion on the European Commission’s green paper on shadow banking. Opinion. The opinion focuses on several key areas, including the following:

  • The definition of shadow banking- The EBA agrees with the definition of shadow banking proposed in the Financial Stability Board’s recommendations in April 2011. Recommendations.
  • Functional approach – The EBA recognised that shadow banking has beneficial effects on the financing of the real economy and can help to foster growth. However, there are functional risks which need to be properly regulated. The EBA classifies these risks as liquidity and maturity transformations, interconnectivity and excessive leveraged positions set up by shadow entities or instruments.
  • Large exposures – The EBA believes that the large exposures regime should act as a backstop regime to “shadow activities” and tackle the risk of interconnectivity by ensuring that interconnections are duly identified.
  • Regulatory arbitrage – The EBA stands ready to prevent regulatory arbitrage and assess the need for regulation ability. The risks of regulatory arbitrage could increase as a response to the overhaul of the ongoing requirements under Basel III.

EBA Report on Risks and Vulnerabilities of the EU Banking System

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On the July 12, the European Banking Authority (“EBA”) published its first annual report on the risks and vulnerabilities of the EU banking system in 2011.

The report states that the situation in mid-2012 remains extremely fragile, with increasing uncertainty on asset quality, funding capacity and concerns over possible extreme events. Banks and supervisors are considering putting emergency actions in place. The report also highlights sovereign risk and funding and liquidity risk as significant risks in the short term. Annual Report.

EU Commission to Publish Proposals for a European Bank Recovery and Resolution Framework on 6 June 2012

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The European Commission has published an agenda which, inter alia, states that it will present its legislative initiative for a new European framework for bank recovery and resolution on 6 June 2012. Agenda.

According to the agenda, key elements of the proposal are:

– The framework will primarily be based on preventing and reducing the risk of failure. The powers of the European supervisory authorities (ESAs) will be expanded so that they can intervene at an early stage before problems in a bank become critical and its financial situation deteriorates irreparably.

– The proposal will ensure that national authorities and the European Banking Authority (EBA) have the appropriate co-ordination tools to ensure coherent procedures. This is particularly important in the context of cross-border banking groups.

– The framework will provide for credible resolution tools when a bank is no longer viable and allowing it to go bankrupt would be disruptive for essential financial services and overall stability. These tools will include bail-in measures (the power to convert or write down the debt of failing banks).

– To be effective, sufficient funds should be available to finance resolution, for example to issue guarantees or provide short term loans to help a newly set up bridge bank to operate. Such funds would only serve to ensure the continuity of critical functions and not to bail out troubled institutions.