ECB

ECB Speech on European Retail Payments Developments

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On February 15, 2018, the European Central Bank (“ECB“) published a speech by Yves Mersch, ECB executive board member, on European retail payments markets developments. The speech is available here.

In the speech, Mr. Mersch calls on the payment industry to develop end-user solutions that will allow consumers and businesses to enjoy the benefits of instant payments in any payment situation, in addition to cash. Issues considered by Mr. Mersch include:

  • Instant payments. Among other things, Mr. Mersch notes that the TARGET instant payment settlement (“TIPS“) service is scheduled to go live in November 2018.
  • Point-of-sale-payments. Mr. Mersch calls on the payment industry to develop instant point-of-sale solutions that provide merchants with immediate and final payment, with funds credited to their accounts with finality, like cash.
  • E-commerce. The ERPB’s work to reach an agreement on the necessary technical, operational business elements to ensure the pan-European provision of innovative and competitive payment initiation services is expected to be concluded by June 2018.
  • Security. Mr. Mersch notes that the regulatory technical standards supplementing the revised Payment Services Directive on strong customer authentication and common and secure communication calls on payment service providers will probably not be applicable until September 2019 at the earliest.

He calls on payment service providers to comply with these regulatory technical standards before they apply, even though they will not be legally required to do so.

ECB Amends Eligibility Criteria for Unsecured Bank Bonds

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On October 5, 2016, the European Central Bank (“ECB”) stated that it will be making changes to its collateral framework by revising the collateral eligibility criteria and risk control measures in relation to senior unsecured debt instruments issued by credit institutions or investment firms (unsecured bank bonds or UBBs).

Under the current rules, UBBs will, except for these new changes, become ineligible on January 1, 2017. The ECB’s revisions to its collateral framework are aimed at temporarily maintaining the eligibility of UBBs (including the eligibility of statutorily subordinated UBBs that are not also contractually subordinated), beyond January 1, 2017.

Furthermore, UBBs will also be subject to additional risk control measures to remain eligible. The ECB has decided to reduce, as of January 1, 2017, the usage limit for uncovered bank bonds from 5% to 2.5%. The reduction will not apply where:

  • the value of such assets is equal to or less than €50 million (net of any applicable haircut); or
  • such assets are guaranteed (by a public sector entity that has the right to levy taxes) by way of a guarantee that complies with the provisions of Article 114 of the ECB Guideline on the implementation of the Eurosystem monetary policy framework.

The changes are expected to come into effect from January 1, 2017.

Addendum to ECB Guide on Harmonizing Options and Discretions Available in Union Law

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On August 10, 2016, the European Central Bank (ECB) published an addendum to its guide on options and discretions (O&Ds) available in Union law.

The addendum complements the guide and ECB Regulation that were published in March 2016. It lays down the ECB’s approach to the exercise of eight O&Ds provided for in the Capital Requirements Regulation (Regulation 575/2013) (CRR) and the CRD IV Directive (2013/36/EU). The objective is to provide coherence, effectiveness and transparency regarding the supervisory policy that will be applied in the supervisory assessment of applications from significant supervised entities within the scope of the single supervisory mechanism (SSM).

A press release also published on August 10, highlights that the publication of the addendum signals the end of the consultation process. A consolidated version of the guide, including the addendum and the approach for the recognition of institutional protection schemes, is to be published on the ECB’s website later in 2016.

ECB Guide on Approach for the Recognition of Institutions Protection Schemes

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On July 12, 2016 the European Central Bank published a guide on the approach for the recognition of institutional protection schemes for prudential purposes. The report aims to ensure coherence, effectiveness and transparency in the processes of assessing IPSs in accordance with Regulation 575/2013 of the European Parliament and of the Council (the Capital Requirements Regulation).

An IPS is a contractual or statutory liability arrangement which protects its member institutions and ensures that they have the liquidity and solvency needed to avoid bankruptcy where necessary.

The guide sets out how the ECB will assess the compliance of IPSs and their member institutions with the conditions laid down in the CRR.

ECB Publishes Public Consultation

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The European Central Bank (“ECB”) has published a Public Consultation on a draft Addendum to the ECB Guide on options and discretions available in Union law.

The consultation document sets out the ECB’s approach to the exercise of options and discretions provided for in Regulation 575/2013 (on prudential requirements for credit institutions and investment firms) and Directive 2013/36/EU (on access to the activity of credit institutions and the prudential supervision of credit institutions and investments firms).

This publication is the second phase of the ECB’s project on options and discretions.

ECB Offers Opinion on Proposed Regulation to Establish a European Deposit Insurance Scheme

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On April 20, 2016, the European Central Bank (ECB) published an opinion on a proposal for a regulation amending Regulation (EU) No. 8.6/2014 in order to establish a European Deposit Insurance Scheme (EDIS).

The ECB notes that an EDIS is a necessary third pillar to complete the Banking Union, having established a Single Supervisory Mechanism and the Single Resolution Mechanism and overall welcomes the system proposed. However, the opinion notes risks in terms of scope and governance of the scheme.

The opinion appends a technical working document containing drafting proposals as proposed amendments to the text released by the European Commission.

ECB Publishes Opinion on Proposed Regulation Extending Exemptions for Commodity Dealers under CRR

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On March 4, the European Central Bank (“ECB”) published an opinion on the European Commission’s legislative proposal for a Regulation amending the Capital Requirements Regulation (CRR) to extend certain exemptions for commodity dealers. The opinion is a response to a request made by the Council of the European Union on January 12, 2016.

The ECB stated that it had not identified any concrete indications of systemic risk created by commodity dealers that would make it strictly necessary to remove the exemption for requirements concerning large exposures and own funds that apply at present. The EBA explained that given commodity dealers active in Europe are generally less leveraged and have more resilient capital structures than banks. However, the ECB regards a detailed impact analysis as a necessary step in terms of taking the most appropriate decision regarding the removal or the temporary extension of the exemption. In particular, consideration should be given to level playing-field issues relative to credit institutions which trade in commodities.

The ECB believes that the exemption should be of a temporary nature given the European Commission is expected to present a proposal for a comprehensive review of the prudential regulation of investment firms.  Opinion.

ECB Publishes the Response of the Eurosystem to the European Commission’s Call for Evidence on the EU Regulatory Framework for Financial Services

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On February 4, the European Central Bank (“ECB“) published a response of the ECB and the national central banks of member states of the eurozone (Eurosystem) to the European Commission’s call for evidence on the EU regulatory framework for financial services.

The Eurosystem’s response makes the following remarks:

  • the financial crisis led to much-needed and far-reaching reform of the European regulatory framework and a redesign of its supervisory architecture;
  • the regulatory framework for banks is largely in place, but a few important initiatives on the regulatory agenda for banks and the non-bank sector still need to be finished;
  • initiatives to support the financing of the economy should maintain the robustness of the regulatory framework which resulted from the post-crisis reforms;
  • reaping long-term benefits implies both assuming temporary costs that emerge in the transitional period and complementing regulation with measures to correct any unintended long-term impacts that are identified;
  • it is important to ensure that regulations are able to preserve financial stability, while leaving sufficient room for markets to develop and fully play their role in the economy; and
  • the European exercise should take into account ongoing initiatives at the international level.

The Eurosystem’s response aims to provide evidence from recent impact studies of the effects of the new regulatory framework and to highlight areas where possible improvements could be made, including: (i) rules affecting the ability of the economy to finance itself and to grow; (ii) unnecessary regulatory burdens; (iii) interactions of individual rules, as well as inconsistencies and gaps in the existing regulations; and (iv) rules giving rise to unintended consequences.  Response.

ECB Publishes Its SSM Supervisory Priorities for 2016

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On January 6, the European Central Bank (“ECB”) published a paper setting out its supervisory priorities in relation to the banks it supervises under the Single Supervisory Mechanism (“SSM”).

The ECB’s supervisory priorities under the SSM are:

  • business model and profitability risk;
  • credit risk;
  • capital adequacy;
  • risk governance and data quality; and
  • liquidity.

The priorities are not an exhaustive list but are meant to provide an essential tool to coordinate supervisory actions across banks in an appropriately harmonized, proportionate and efficient way, thereby contributing to a level playing field and a stronger supervisory impact. Paper.

ECB Launches Landmark €1.1 Trillion Quantitative Easing Program

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The ECB announced on Thursday that it would start its purchase of sovereign bonds on March 9 to support an accelerating economic recovery in the Eurozone, and would continue to do so until there was a “sustained adjustment in the path of inflation”. It is expected that this scheme will push GDP expansion to 1.5% this year, 1.9% in 2016, and 2.1% in 2017, compared with December projections of 1% and 1.5% for 2015 and 2016 respectively, and will also drive inflation back up to 1.8% by the end of 2017.

The announcement has already had an impact on the bond market, as buyers drove the yield on Italy’s 10-year benchmark down to a new record low of 1.34%, and the German equivalent to 0.34%. Some analysts have argued that the program could further distort the bond market where the shorter-term debt of several countries already has negative yields. However, ECB President Mario Draghi said that the ECB would continue to buy bonds provided the yields were above the central bank’s deposit rate of minus 0.2% (in effect limiting the price the ECB would pay for government debt).