Joint Committee of the European Supervisory Authorities

The ESAs Published a Joint Committee Report on Cross-Sector Risks Facing EU Financial System

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On April 20, 2017, the Joint Committee of the European Supervisory Authorities (the “ESAs“) published its April 2017 report on risks and vulnerabilities in the EU financial system.

The ESA highlights the following main risks to the financial system:

The banking sector is being affected by high levels of non-performing loans (“NPLs“), high litigation costs, overcapacity and lack of focus in strategies to return to sustained profitability. Addressing low profitability challenges includes increasing supervisory action, making progress in structural reforms and improving the efficiency of secondary markets. Insurers face substantial challenges arising from prolonged low interest rates, and the fund industry’s rates of returns are subdued and remain mostly negative.

Increased asset price volatility and liquidity concerns have heightened risks relating to adequate valuation of asset prices. This has been exacerbated by political uncertainties.

Interconnectedness adds to financial sector risks. This includes concentration risk caused by highly correlated equity price movements for insurers and banks and high exposures of EU insurers to EU banks. Interconnectedness with the wider financial system is also increasing.

Cyber risk appears as a major risk and is on the rise. Currently, denial-of-service attacks, data theft or manipulation, malicious software, misinformation and false identification are the most relevant forms. Operational risks related to ICT risks also appear to be on the rise across the financial sector. The ESAs are responding to cyber and IT-related risks by, for example, drafting guidelines on ICT risk assessment for supervisors, assessing cybersecurity capabilities of central counterparties and assessing the potential accumulation of risk for insurers deriving from newly developed cybersecurity coverages.

Joint Committee of ESAs Final RTS on Key Information Documents for PRIIPs

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The Joint Committee of the European Supervisory Authorities (ESAs) published its final draft regulatory technical standards (RTS) on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The draft RTS include a mandatory template, which includes certain mandatory texts and details of the layout to use, a methodology for the assignment of each PRIIP to one of the seven classes in the summary risk indicator, and the requirements relating to the presentation of costs.

An accompanying press release states that the proposed KIDs provide retail investors, for the first time across the EU, with simple and comparable information on PRIIPs. It is intended that the three page document will increase the transparency and comparability of information about the risks, performance and costs of PRIIPs.

The draft RTS have been submitted to the European Commission for endorsement and will enter into force on December 31, 2016.

ESAs’ Joint Committee Publishes Report on Risks and Vulnerabilities in the EU Financial System

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On September 22, the Joint Committee of the European Supervisory Authorities (ESAs) published its bi-annual report on the risks and vulnerabilities in the EU financial system. The report considers those risks that have worsened or emerged since the ESAs’ previous report, which was published in March and focused on a range of risks including weak economic growth, high levels of private and public debt, and the effects of persistently low interest rates and fragmentation.  Report.

ESA Publishes Second Report on Risks Facing the EU Financial System

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On September 5, the Joint Committee of the European Supervisory Authorities (ESAs) published its second twice yearly report on the vulnerabilities of the financial system of the EU.

The report identifies a variety of cross-sector risks and builds upon the findings of the first report published in March 2013.  The report notes that a determined reaction from political sources and the European System of Financial Supervision (including the ESAs) are required to counter these threats.  It notes that despite measures being adopted, including the entry into force of the CRD IV legislative package, the risks identified in the first report continue to threaten the EU’s financial system, along with other ensuing events such as:

  • Concerns over the volatility of longer-term interest rates, together with the future direction of interest rates and the current prevalence of low interest rates;
  • Concerns over the risk of bail-in in future bank resolutions following the bail-out of Cypriot banks, which included a bail-in of deposits of more than the EUR100,000 deposit guarantee limit; and
  • Cyber attacks on the online and mobile banking services of several banks in April and June 2013.