G-SIIs

EBA Publishes Final Draft Technical Standards and Guidelines on Methodology and Disclosure for G-SIIs

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The European Banking Authority (EBA) has published final draft technical standards and revised guidelines on the further specification of the indicators of global systemic importance and their disclosure. The guidelines have been developed according to Directive 2013/36/EU (the Capital Requirements Directive, CRD IV) and in line with international standards. CRD IV requires G-SIIs to hold higher capital levels in order to contain the risks they pose to the financial system and the impact that their potential failure may have on sovereign finance and taxpayers (so-called “too big to fall”). The draft revised Guidelines stipulate that not only G-SIIs, but also other large institutions with an overall exposure of more than €200 billion and which are potentially systemically relevant, will be subject to the same disclosure requirement as the G-SIIs.

The revision was prompted by a new data template and some minor changes introduced by the Basel Committee on Banking Supervision (BCBS) in January 2015 for the identification of global systemically important banks (G-SIBs). The list of EU G-SIBs identified by the BCBS and the global systematically important institutions (G-SIIs) identified by Member States’ authorities are identical.

The final draft technical standards and revised draft guidelines are set out in three reports (revised technical standards (RTS) report, implementing technical standards (ITS) report, and draft guidelines report). The final RTS and ITS will be presented to the European Commission for endorsement, following which the RTS will be subject to scrutiny by the European Parliament and the Council of the EU before publication in the Official Journal of the EU.

EBA Releases Key Information on EU G-SIIs

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On July 28, the European Banking Authority (EBA) published a chart setting out the key metrics used to identify global systemically important institutions (G-SIIs) in the EU. The chart contains information on the size, interconnectedness, substitutability, complexity and cross-jurisdictional activity of the 37 EU institutions whose leverage ratio exposure measure exceeded EUR 200 billion in 2014. Under the CRD IV Directive, additional capital buffers apply to firms that are systemically important. Identification of G-SIIs is the responsibility of national competent authorities and took place for the first time in January 2015.

ESRB Reports on EMIR

The European Systemic Risk Board (ESRB) has published two reports relating to EMIR (the Regulation on OTC derivative transactions, central counterparties and trade repositories) to assist the European Commission in fulfilling its obligation under Article 85 of EMIR to review and provide a report on the Regulation.

1.  Margining Requirements

The ESRB explains in its report that although Article 85 of EMIR refers specifically to margining requirements, given the significant economic features in common between margins and the determination of haircuts, the report also considers haircut requirements and focuses on margins and haircut settings for central counterparties (CCPs), as the regulatory technical standards on bilateral margin requirements have not yet been endorsed. The ESRB proposes a further review of EMIR in 2018, specifically on the use of margining and haircuts to address and prevent systemic risks.

2.  Issues to be considered other than efficiency of margining requirements

In its second report, the ESRB recommends that the Commission considers the following additional topics when preparing its report to the European Parliament and Council of the EU:

  • A swift process for the removal or suspension of mandatory clearing obligations.
  • The evaluation of systemic risks for mandatory clearing purposes.
  • Replenishment of default funds and the skin-in-the-game design.
  • Transparency requirements consistent with guidance developed at the international level.
  • Publication of a list of approved interoperability arrangements by the European Securities and Markets Authority (ESMA).
  • Access to trade repository data.

ESMA Consults on Draft RTS under ELTIF Regulation

On July 31, the European Securities and Markets Authority (ESMA) published a consultation paper on draft regulatory technical standards (RTS) under the Regulation on European Long-Term Investment Funds (ELTIF Regulation).

In accordance with the ELTIF Regulation, ESMA is consulting on draft RTS to determine the criteria for establishing the following:

  • Circumstances in which the use of financial derivative instruments solely serves hedging purposes.
  • Circumstances in which the life of an ELTIF is considered sufficient in length.
  • Criteria to be used for certain elements of the itemised schedule for the orderly disposal of the ELTIF assets.
  • Costs disclosure.
  • Facilities available to retail investors.

The deadline for responses to the consultation is October 14, 2015.