European Banking Authority (EBA)

Basel III Monitoring Exercise Report Published

 

The European Banking Authority (“EBA“) published a report on September 12, 2017, which outlined the results of a monitoring exercise on Basel III and the impact of the CRD IV Directive and Capital Requirements Regulation.

The report includes analysis of a number of statistics, including capital ratios, liquidity coverage ratios and the impact of phase-in arrangements. Over 200 banks were analyzed in the report.

In general, the EBA found that there was an improvement of capital positions in European banks, evidenced by an increase in total average common equity tier 1 ratio, average liquidity coverage ratio and net stable funding ratio.

The full report is available here.

European Commission Implementing Regulation Amending Implementing Regulation 2016/2070 Published in the OJ

 

The European Commission Implementing Regulation amending Implementing Regulation 2016/2070 in relation to benchmarking portfolios and reporting instructions under the CRD IV Directive (2013/36/EU) (Regulation 2017/1486) was published in the Official Journal of the EU (“OJ“) on August 31, 2017.

The Implementing Regulation 2016/2070 sets out the reporting requirements required from institutions and was published in the OJ in December 2016. The European Banking Authority (“EBA“) and other competent authorities use the information reported to assess the quality of the institutions’ internal approaches under Article 78 of CRD IV.

Pursuant to Article 78(1) of CRD IV, institutions must submit the calculations of their internal approaches at least once a year. Given that the reporting requirements evolve over time in line with the changing focus of the competent authorities’ assessments and EBA Reports, the Commission considered it necessary to amend Annexes I to VI to Implementing Regulation 2016/2070.

The amendments to Implementing Regulation 2016/2070 are limited, and as such, there was no public consultation. The Implementing Regulation will enter into force on September 20, 2017.

EBA Launches Supplementary Data Collection on Revision of Investment Firm Prudential Framework

 

On July 6, 2017, the European Banking Authority (“EBA“) published a press release announcing the launch of a supplementary data collection relating to its proposals for a revised prudential framework for investment firms. It also published a template for investment firms authorized under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID) with instructions.

This exercise follows up on the first data collection launched on July 15, 2016, and the discussion paper published by the EBA on November 4, 2016, in which the EBA consulted on its proposals for developing a new prudential framework.

The EBA notes that, following feedback to the discussion paper, it has improved its initiation proposals concerning primarily the calculation of capital requirements based on risk proxies (known as “K-factors“) under the following three types of risk: (i) risk to customers (RtC), risk to market (RtM) and risk to firm (RtF). It has decided to undertake a supplementary data collection to allow for a complete calibration of all the relevant aspects of the new prudential regime and a final impact assessment of its proposal on regulatory capital requirements. The data collection has been designed to reduce that burden by limiting the number of variables requested to the minimum necessary to accomplish the intended purpose.

The deadline for firms to submit completed templates to the relevant national competent authorities is August 3, 2017.

EBA Final Guidelines on ICT Risk Assessment Under Supervisory Review and Evaluation Process

 

On May 11, 2017, the EBA published a report (EBA/GL/2017/05) containing its final guidelines on information and communication technology (“ICT“) risk assessment under the supervisory review and evaluation process (“SREP“) required under the CRD IV Directive (2013/36/EU).

The guidelines are addressed to competent authorities and aim at promoting common procedures and methodologies for the assessment of ICT risk. They should be read in conjunction with the EBA SREP Guidelines, which continue to remain applicable as appropriate.

The guidelines are contained in section 3 of the report and are structured around three main parts:

  1. the general provisions for applying the guidelines (Title 1);
  2. the assessment of the institution’s ICT governance and strategy (Title II); and
  3. the assessment of ICT risk and the controls in place in the context of risks to capital (Title III), which reflects the same structure as the EBA SREP Guidelines on the assessment of operational risk.

Competent authorities should consider the principle of proportionality when applying the guidelines. The depth and detail of the ICT risk assessment should be proportionate to the size, structure and operational environment of the institution, together with the nature, scale and complexity of its activities.

The guidelines are to be translated into the official EU languages and published on the EBA website. They will be in effect on January 1, 2018.

EBA Amends ITS on Benchmarking of Internal Approaches for 2018 Benchmarking Exercise

 

On May 4, 2017, the European Banking Authority (“EBA“) published an amended version of its implementing technical standards (“ITS“) on benchmarking of internal approaches under Article 78(8) of the CRD IV Directive (2013/36/EU) (EBA ITS 2017 02).

The final draft ITS are contained in a zip file that has been added to the EBA’s dedicated webpage on regulatory technical standards (RTS) and ITS on benchmarking portfolios. They are intended for use by the EBA and competent authorities in their 2018 assessment of internal approaches for credit and market risk. The ITS have been amended to reflect updates to the Single Rulebook. They also reflect updates to the benchmarking portfolios that were necessary to facilitate the 2018 benchmarking exercise for both credit and market risk so that they remain relevant for supervisors.

The amendments are expected to apply to the submission of initial market valuation data in November 2017 and of other market and credit risk data in April 2018. The EBA has submitted the updated ITS to the European Commission, but the Commission has not yet adopted them.

The EBA aims to annually update the ITS to ensure future benchmarking exercises are relevant and successful.

European Banking Authority Publishes Final Guidelines on Bail-in

 

On April 5, 2017, the European Banking Authority published three sets of guidelines in relation to the Bank Recovery and Resolution Directive, and in particular, bail-in. The guidelines looked at: a) the interrelationship between the Bank Recovery and Resolution Directive sequence of write-down and conversion and the Capital Requirements Regulation; b) the rate of conversion of debt to equity in bail-in; and c) the treatment of shareholders in bail-in or the write-down and conversion of capital instruments. The guidelines give greater clarification on the area of bail-in and are intended to complement existing regulation and guidance. The guidelines and related press release, are available here.

European Commission Publishes Inception Impact Assessment on New Prudential Framework for Investment Firms

 

The European Commission has published an inception impact assessment on its review of the appropriate treatment for investment firms.

The impact assessment relates to the Commission’s review of the prudential framework for investment firms, as required by Articles 293(2), 498(2), 508(2) and 508(3) of the Capital Requirements Regulation (“CRR“) (Regulation 575/2013). In November 2016, the European Banking Authority (“EBA“) published a discussion paper on a new prudential framework, with the aim of submitting an opinion and report to the European Commission by June 30, 2017.

The impact assessment provides an overview of the background to the initiative and the European Commission’s ongoing work. The European Commission states that, in light of the EBA’s consultation on the prudential framework, it does not intend to launch its own public consultation. It is, however, carrying out a consultation with industry stakeholders on the proposal. In particular, it intends to liaise with the industry on aspects of the proposal, such as the calibration and impact of any changes to the regime and foreseeable potential costs.

The European Commission states that the bulk of any new rules will take the form of a Regulation. This will be accompanied by a Directive covering elements that need to take the form of a directive for legal reasons, such as organizational and authorization requirements and corporate governance.

The impact assessment indicates that the European Commission will adopt a legislative proposal in the fourth quarter of 2017.

The European Commission is seeking feedback on the impact assessment. The European Commission’s website on impact assessments states that the deadline for comments is April 19, 2017.

European Banking Authority Publishes Report on Liquidity Coverage Ratio Disclosure

 

On March 8, 2017, the European Banking Authority (“EBA“) issued a report that considered the disclosure requirements in relation to the liquidity coverage ratio.

As it stands, European regulation specifies the liquidity coverage ratio for credit institutions, with the goal of maintaining a buffer against stressed situations and acting as an important tool in the assessment of risk management.

The guidelines that have been published harmonize and specify the necessary disclosures applicable to credit institutions. The final guidelines are available here.

European Commission Issues Call for Advice on Own Fund Requirements for Market Risk

On April 22, 2016, the European Banking Authority published a call for advice it had received from the European Commission regarding revisions to the own fund requirement for market risk as part of the CRR review.

The call for advice sets out that the EC is undertaking a review of the Capital Requirements Regulation and is considering the impact of implementing the agreed Basel Committee on Banking Supervision framework detailed in the document “Minimum capital requirements for market risk.” The EC notes that to date there has been no EU-specific assessment of the convenience and impact of updating these rules in the ways proposed by the BCBS.

EBA Publishes Final Report on Provision of Information in Summary or Collective Form

On April 19, 2016, the European Banking Authority published its final report providing guidelines on the provision of information in summary or collective form for the purposes of Article 84(3) of Directive 2014/59/EU. This relates to general rules in relation to professional secrecy and confidentiality requirements when dealing with confidential information.

The report includes a summary of responses to the consultation and the EBA’s own summarized analysis.