Financial Services Regulation and Compliance - Banking Feb 2020

Domestic

The Importance of Diversity in the Financial Services Sector - Director General Derville Rowland

The Director General of the Central Bank, Derville Rowland, delivered a speech at the European Financial Forum 30% Club lunch focusing on the importance of diversity in the financial sector. The Director General highlighted the fact that women are underrepresented in senior management and called for greater diversity in leadership in regulated entities.

Central banks and public policy: stability in an interconnected world - Central Bank Deputy Governor Sharon Donnery

The Deputy Governor of the Central Bank, Sharon Donnery, delivered a speech on 31 January 2020 at the Warwick Economics Summit. Deputy Governor Donnery discussed the role of central banks in forming public policy focusing specifically the topic of stability and how price stability and financial stability is maintained through public policy. Deputy Governor Donnery also discussed some of the future changes and challenges that will have to be considered by policy makers, such as climate change, technological change, and growth in market-based finance. As a final message, Deputy Governor Donnery stressed the importance of cross-border cooperation to form a collective response to these issues.

European

ECB launches public consultation on its guide to assessment methodology for counterparty credit risk

The European Central Bank (ECB) has published a guide which aims to harmonise how internal counterparty credit risk (CCR) models are supervised and to increase transparency surrounding the methodologies used by the ECB in assessing these models. The guide describes the methodology of the ECB in assessing how banks calculate their exposure to CCR and outlines how the ECB will assess the advanced methods used by banks to calculate the own funds required to account for the risks related to credit valuation adjustments. The consultation is open until 18 March 2020.

European Commission adopts revised supervisory reporting standards

The European Commission has adopted an Implementing Act amending Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions as required under the Capital Requirements Regulation 2013. The Implementing Act makes certain changes to supervisory reporting requirements concerning Common Reporting (COREP) and Financial Reporting (FINREP).

EBA puts forward proposals to improve the current DGSD legal framework

The European Banking Authority (EBA) has published its third and final Opinion (following earlier opinions on the DGSD in August 2019 and October 2019) on the implementation of the Deposit Guarantee Schemes Directive (DGSD) in the EU, which focuses on the funding of deposit guarantee schemes (DGS) and the uses of DGS funds. The EBA sets out a number of proposed changes to the EU's DGS framework that aim to increase financial stability and enhance depositor protection. The Opinion seeks to provide detail on funding sources and further clarity in relation to what funds qualify towards DGS's available financial means. The Opinion recommends that the European Commission provide further consideration to the impact of the General Court ruling in the Tercas case (a case concerning the parameters surrounding the use of DSG funds for the purposes of preventing the failure of credit institutions). The Opinion also recommended that the European Commission consider introducing into EU law a mechanism whereby the assets of failed credit institutions are sold to repay depositors.

EBA consults on Guidelines on the appropriate subsets of exposures in the application of the systemic risk buffer

The EBA has launched a consultation on its draft guidelines on the appropriate subsets of exposures in the application of the systemic risk buffer. The draft guidelines aim to achieve harmony across the EU in this area by putting in place a common framework on the design of the appropriate subsets of sectoral exposures to which a systemic risk buffer may be applied in line with the Capital Requirements Directive. The consultation runs until 12 May 2020.

ECB seeks feedback on amendments to the Regulation on monetary financial institution (MFI) balance sheet statistics

The ECB is reviewing the Regulation on MFI balance sheet statistics with the aim of keeping the ECB’s statistics fit for purpose. A draft Regulation has been published which proposes to amend the Regulation on MFI balance sheet statics by bringing the various definitions, requirements and reporting derogations into line with other statistical datasets. It further amends the Regulation by including additional statistical requirements which serve to analyse monetary and credit developments. The public consultation on the draft regulation is open until 13 March 2020.

EBA shows banks’ progress in planning for failure but encourages them to issue eligible debt instruments

The EBA has published its first quantitative Report on minimum requirements for own funds and eligible liabilities (MREL) under a new methodology. The report finds that authorities have made progress in agreeing resolution strategies since the introduction of BRRD in 2014, with 222 European banks representing 80% of total assets now covered by a resolution strategy other than liquidation. Although 105 out of the 222 sample of banks met their MREL requirements, the rest did not (117 banks out of 222 exhibit an MREL shortfall reaching €178b) and thus, the report advises banks with a shortfall to take advantage of the positive market condition and issue MREL eligible debt in order to close out their shortfall.

Chair of ECB Supervisory Board calls for greater transparency in prudential supervision

The Chair of the Supervisory Board of the ECB, Andrea Enria, gave a speech at the European Banking Institute Global Annual Conference on Banking Regulation in which he made the case for increased transparency in banking supervision. Mr. Enria argued that increased transparency helps to make the market more efficient, more stable, and increases market discipline on bank managers, creating an underpinning of trust. Mr. Enria said that he would be in favour of publishing Pillar 2 Guidance (PG2) outcomes, though noted that this remains controversial, and called for an open date on more transparency with PG2. He said that the idea behind supervisors sharing information with market participants on how they think banks are doing it to help markets form independent and unbiased views, not to steer or upset markets. Finally, Mr. Enria said that he plans to tighten the ECB's internal quality assurance and consistency checks to ensure a level playing field across banks within the banking union.

For more information on this topic please contact any member of A&L Goodbody's Financial Regulation team.

Date published: 6 March 2020