ECON Reports on Proposed Omnibus Directive and Proposed Regulation Amending ESRB Regulation


On January 14, the European Parliament’s Economic and Monetary Affairs Committee (“ECON“) published the following reports relating to the European Commission’s legislative proposals to reform the European System of Financial Supervision (“ESFS“):

  • Report on the amended text of the proposed Regulation amending the Regulation that established the European Systemic Risk Board (“ESRB“) (1092/2010) (ESRB Regulation) (2017/0232 (COD)).
  • Report on the amended text of the proposed Omnibus Directive (2017/0231 (COD)).

ECON voted to adopt these reports on January 10, 2018. It has not yet published the text of the adopted report on the proposed Omnibus Regulation (2017/0230 (COD)).

ESRB Recommendation Amending 2015 Recommendation on EU Macroprudential Policy Framework Published in OJ

On December 15, 2017, the Recommendation of the European Systemic Risk Board (“ESRB“) (ESRB/2017/4) (dated October 20, 2017) amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of, and voluntary reciprocity for, macroprudential policy measures was published in the Official Journal of the EU (OJ).

The recommendation states that the framework on the voluntary reciprocity for macroprudential measures set out in the 2015 recommendation should ensure that all exposure-based macroprudential policy measures activated in one member state are reciprocated in the other member states to the greatest extent possible. Relevant authorities in member states may exempt an individual firm with nonmaterial exposure from the application of the reciprocating measures. (the “De Minimis Principle“).

The 2015 recommendation provided no guidance on the threshold to be used by relevant authorities to determine the materiality of exposure. Consequently, where a relevant authority has exempted a firm with nonmaterial exposure, the authority has been able to adopt the threshold it considers appropriate, creating potential divergences in the application of the de minimis principle.

As a result, the 2017 recommendation amends the 2015 recommendation by stating that the relevant authority should propose a maximum materiality threshold at the firm level when requesting reciprocation.



European Systemic Risk Board (ESRB) Publishes Country-Specific Warning on Vulnerabilities in the Residential Real Estate Sector


On November 28, 2016, the European Systemic Risk Board (“ESRB“) published a report on vulnerabilities in the EU residential real estate sector, together with eight country-specific warnings and a Q&As document.

The warnings on medium-term vulnerabilities in the residential real estate sector are addressed to the relevant ministers in eight Member States: Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands, Sweden and the UK. The ESRB decided to issue the warnings following a forward-looking EU-wide assessment of vulnerabilities relating to residential real estate. These vulnerabilities may be a source of systemic risk to financial stability in the medium term. As a result, on September 22, 2016, the ESRB adopted warnings addressed to the eight member states and decided to make the warnings public. The member states were given a period of time to respond.

For the remaining member states, the ESRB has either not identified a build-up of any material vulnerabilities relating to the residential real estate sector, or such vulnerabilities have been identified but the current policy stance is sufficient to address them. The ESRB advises that the latter is the case for Estonia and Slovakia. It also advises that, for the UK, it has not assessed whether policies in place are appropriate and sufficient given the uncertain impact of the vote to leave the EU on the medium-term outlook for the UK housing market.

The ESRB has also published a recommendation on closing real estate data gaps (Recommendation ESRB/2016/14), which it adopted on October 31, 2016. The recommendation, which covers both the residential and commercial real estate sectors, aims to establish a more harmonized framework for monitoring developments in EU real estate markets. It provides a common set of indicators that national authorities are recommended to monitor in assessing risks originating from the real estate sector, along with working definitions of these indicators. The deadline for implementing the recommendation is the end of 2020. ESMA will monitor compliance with the recommendation via an “act of explain” mechanism. As follow-up work to the recommendation, the ESRB believes that a regular data collection on these indicators should take place at the EU level, and considers that the European Central Bank (ECB) is well placed to play a leading role in this.

ESRB Advises on EMIR

On August 29, the European Systemic Risk Board (ESRB) published advice to the European Securities and Markets Authority (ESMA) on the following two aspects of the draft regulatory technical standards (RTS) to be implemented pursuant to EMIR. Advice 1.  Advice 2

Use of over-the-counter (OTC) derivatives by non-financial counterparties

  • Legislators may wish to ensure that all corporations exposed to derivative activities at a given proportion of their overall balance sheet are treated equally, whatever their size.
  • The total amount of derivatives held by a non-financial corporation, irrespective of their intended use, should be appropriately reflected in the calculation of the clearing threshold.

Eligibility of collateral for central counterparties (CCPs)

  • Type of collateral used – CCPs should only accept securities that are listed and publicly traded.
  • The haircuts to apply to collateral – haircut practices should be designed in a way that minimises sudden and large increases in times of market stress.

Conditions under which commercial bank guarantees may be accepted as collateral – commercial bank guarantees should be subject to a limited use and lower concentration ratio than the one applicable to other eligible collateral.