Financial Services Regulation and Compliance - Banking June 2020
Financial Services Regulation and Compliance - Banking June 2020
Central Bank of Ireland publishes first financial stability review of 2020
The Central Bank of Ireland (CBI) published its first financial stability review (FSR) of 2020 on 16 June. The review found that the macro-financial outlook has waned significantly due to the COVID-19 pandemic, and is intimately linked to it. Fiscal, monetary, micro and macro prudential actions are working to alleviate the economic shock of COVID-19, with the end goal of enabling the financial system to support households and businesses. Both groups have already benefitted from the payment breaks afforded to borrowers.
Moving forward, businesses will require access to liquidity and potentially to solvency supports to prevent permanent economic damage. These tough conditions put pressure on banks' financial positions, but good policy and action means they are better placed to absorb the shock than before. CBI Governor Gabriel Makhlouf issued a statement to coincide with the release of the FSR, detailed below.
Governor Gabriel Makhlouf comments on Central Bank of Ireland's Financial Stability Review of 2020
Commenting on the FSR, Governor Makhlouf stated that the findings of the FSR and the risks facing the Irish economy underline the importance of having a resilient financial system. He identified three key points to take away from the FSR in light of the wider economic conditions:
the nature of the COVID-19 pandemic presents both immediate and long term challenges, and poses significant risk to households, businesses, the public finances and the financial sector
we are more financially resilient now than we were a decade ago in terms of being able to handle the crisis
fiscal, monetary and prudential policy decisions were necessary to mitigate the immediate shock, and Ireland remains sensitive to global developments in the short and long term
EBA publishes report on convergence of supervisory practices in 2019
On 29 May 2020, the EBA published its report on convergence of supervisory practices in 2019. According to the report, the key topics for supervisory attention identified in the EBA 2019 convergence plan – internal governance, ICT risk and operational resilience, non-performing exposures, and benchmarking of internal models – have been largely implemented in supervisory work across the EU. The report is part of the EBA's work to foster and promote supervisory convergence across the EU in order to bring about strong supervisory standards and a common supervisory culture.
One of the core elements covered in the report is the practical application of the Single Rulebook by competent authorities in their supervisory activities. The report also provides an update on the policy developments and training activities supporting supervisory convergence. The report also incorporates for the first time information on convergence in supervisory colleges that previously used to be included in a separate report.
The report incorporates the EBA's 2020 convergence plan. Five key topics have been identified for supervisory attention for 2020:
ICT risk and operational resilience
loan origination standards
capital and liability management
money laundering and terrorism financing risk and other conduct risk for prudential supervisors
EBA consults on draft amended regulatory technical standards on own funds and eligible liabilities
The EBA has published a consultation paper on the draft amended regulatory technical standards (RTS) on own funds and eligible liabilities. The draft RTS align existing provisions to changes introduced in the revised Capital Requirements Regulation in the area of own funds, in particular provisions relating to the regime of supervisory prior permission for the reduction of own funds and market making. The draft amended RST also specify some of the newly introduced criteria for eligible liabilities instruments derived from the own funds regime.
The consultation is open until 31 August 2020.
European Payments Council consults on the SEPA Request-to-Pay Scheme Rulebook
On 2 June 2020, the European Payments Council launched a 90-day public consultation on the draft rulebook it developed for its new SEPA Request-to-Pay (SRTP) scheme. The SRTP scheme covers the set of operating rules and technical elements (including messages) that allow a payee (creditor) to request the initiation of a payment from a payer in a wide range of physical or online use cases. It is envisaged that the scheme will evolve further over time to support more elaborated functionalities.
The consultation is open until 30 August 2020.
EBA publishes opinion on obstacles to the provision of third party provider services under the RTS on strong customer authentication (SCA) and common and secure communication (CSC)
On 4 June 2020 the EBA published the above opinion which clarifies when mandatory redirection is an obstacle to the provision of third party provider services and the authentication procedures account servicing payment service providers (ASPSPs) interfaces are required to support. The opinion clarifies the position in relation to obstacles in the market, such as requiring multiple SCAs and the manual entry of IBAN in the ASPSPs’ domain. Furthermore, requiring re-authentication every 90 days for account information services in accordance with the RTS on SCA and CSC is not an obstacle.
EBA launches consultation paper on draft regulatory technical standards on the calculation of stress scenario risk measure under Art. 325bk(3) of CRR2
The EBA has launched a consultation on draft RTS on the capitalisation of non-modellable risk factors (NMRFs) for institutions using the new Internal Model Approach under the FRTB. These draft RTS are one of the key deliverables included in the roadmap for the new market and counterparty credit risk approaches published on 27 June 2019.
The draft RTS specify all technical details that are essential for determining the own funds requirements related to non-modellable risks. In particular, they set how institutions are to determine the stress scenario risk measure corresponding to a non-modellable risk factor.
The consultation is open until 4 September 2020.
EBA launches consultation on technical standards specifying the prudential treatment of software assets
On 9 June 2020 the EBA lunched a consultation on draft RTS which specify the methodology to be adopted by institutions for the purpose of the prudential treatment of software assets. The aim of the RTS is to achieve an appropriate balance between the need to maintain a certain margin of conservatism in the prudential treatment of software assets and their relevance from a business and economic perspective.
The consultation is open until 9 July 2020.
EBA publishes its final report on guidelines on loan origination and monitoring
On 29 May 2020, the EBA published its final report containing guidelines on loan origination and monitoring. The guidelines aim to improve institutions' practices and associated governance arrangements, processes and mechanisms in relation to credit granting so that institutions have robust standards for credit risk taking, management and monitoring, and that newly originated loans are of high credit quality. The guidelines also aim to ensure that consumer protection rules are aligned with and consumers are treated fairly.
Amongst other things, the guidelines:
clarify the internal governance and control framework for the credit-granting and credit decision-making process, building on the requirements of the EBA Guidelines on internal governance
specify requirements for the creditworthiness assessment of borrowers, differentiating between lending to consumers, micro and small enterprises and medium-sized and large enterprises, and set out the requirements for handling information and data for such assessments
set out supervisory expectations for the risk-based pricing of loans
provide guidance on the approaches to the valuation of immovable and movable property collateral at the point of credit granting, and the monitoring and review of the value of such collateral, based on the outcomes of the monitoring
specify the ongoing monitoring of credit risk and credit exposures, including regular credit reviews of borrowers
The guidelines apply from 30 June 2021.
EBA publishes revised standards to identify staff with a material impact on the institution’s risk profile
On 18 June 2020, the EBA published its final draft RTS on the criteria to identify all categories of staff whose professional activities have a material impact on an institution's risk profile (“risk takers”). A combination of qualitative and quantitative criteria are used in the risk identification process.
Criteria in the Capital Requirements Directive (CRD), along with those specified in the RTS will be used to identify risk takers. Any staff member who meets at least one criteria will be identified as having a material impact on the institution's risk. This ensures all risk takers are identified. There is greater application of proportionality in the RTS, and the definition of managerial responsibility has been revised taking into account that institutions of different sizes have different layers of hierarchical levels.
EBA publishes final revised technical standards to enhance quality and consistency of information for passport notifications
On 18 June 2020, the EBA published its final draft amending RTS and implementing technical standards (ITS) on passport notification. The aim of these new standards is to increase the consistency and quality of information provided by credit institutions notifying their home competent authorities of their intention to open a branch in another Member State.
The amendments focus on:
having credit institutions indicate, as accurately as possible, the intended start date of each activity for which a notification is submitted, rather than just the core business activities
increasing the detail of the information on the financial plan to be notified in case of establishment of a branch
providing additional information in case of termination of the branch
EBA extends deadline for the application of its guidelines on payment moratoria to 30 September
The application of the EBA's guidelines on legislative and non-legislative moratoria has been postponed to 30 September 2020. This is in light of the COVID-19 pandemic, and ensures adequate treatment for borrowers across the EU, given that COVID-19 is having varied impacts on each Member State.
EBA publishes final draft comprehensive ITS on institutions' Pillar 3 disclosures and revised final draft ITS on supervisory reporting (Framework 3.0)
On 24 June 2020, the EBA published the draft ITS on institutions Pillar 3 disclosures (Disclosure ITS) and revised final ITS on supervisory reporting (Reporting ITS) which implement changes introduced under the revised Capital Requirements Regulation (CRR2) and the Prudential Backstop Regulation. The ITS are designed to replace the Commission's Implementing Regulation (EU) No 680/2014. Both ITS promote increased market discipline through greater public disclosures for stakeholders and ensure reporting requirements continue to align with risk assessments required by Supervisory Authorities.
The Disclosure ITS provide a single set of standards that consolidates previous regulations and incorporates all prudential disclosures. This will improve institutions' ability to implement them and provide clarity for other interested parties. The ITS disclosures will ensure that market participants have necessary and comparable information to assess institutions' risk profiles, in line with the Basel Committee’s Pillar 3 standards and with the increased standardisation of institutions' public disclosures. The CRR2 definitions for ‘small and less complex institutions’ and ‘large institutions’ support proportionality of Pillar 3 disclosures. The ITS also include thresholds to trigger additional disclosures for large banks based on their risk profiles.
The Reporting ITS reflect changes introduced by CRR2 and the Prudential Backstop Regulation. It includes new reporting requirements on counterparty credit risk and net stable funding ratio, non-performing exposures minimum coverage and changes to different areas of reporting, including own funds, credit risk, large exposures, leverage ratio, FINREP and G-SII indicators.
The first disclosure and reporting reference date is 30 June 2021.
New Eurosystem repo facility to provide euro liquidity to non-euro area central banks
On 25 June 2020, the ECB announced its intention to set up a new backstop facility, the "Eurosystem repo facility for central banks" (EUREP). EUREP will provide cautionary euro repo lines to central banks outside the euro area, addressing possible liquidity needs in case of market dysfunction arising from COVID-19. The ECB released a set of FAQs on the same day as the announcement to cover any queries parties may have about EUREP.
EUREP will be available until the end of June 2021.
ECB publishes Consolidated Banking Data for year end-December 2019
On 25 June 2020, the ECB published the Consolidated Banking Data for end-December 2019.
Among the findings were:
total assets of credit institutions headquartered in the EU increased by 4.0%, from €32.7tn in December 2018 to €34.0tn in December 2019
the non-performing loans ratio dropped by 0.42 percentage points to 2.8% in December 2019
The data collected for the publication refer to 367 banking groups and 2,760 standalone credit institutions operating in the EU, covering nearly 100% of the EU banking sector balance sheet.
EBA launches discussion on further enhancing supervisory powers of competent authorities
On 26 June 2020, the EBA published a discussion paper aimed at identifying ways to improve the Bank Recovery and Resolution Directive (BRRD) framework on early intervention measures. The objective is to enhance crisis management tools available to competent authorities in addition to well-established and widely used supervisory powers laid down in the CRD and in the Single Supervisory Mechanism Regulation (SSMR).
The deadline for submission of comments is 25 September 2020.
EBA issues guidelines to address gaps in reporting data and public information in the context of COVID-19
On 2 June 2020, the EBA published guidelines to address data gaps in supervisory reporting as a result of COVID-19. The guidelines aim to allow supervisors and the public to better understand institutions' risk profiles and asset quality, given that their figures have been distorted by the many protective measures adopted to limit the economic fallout from COVID-19. The first disclosure reference date is 30 June 2020.
SRB launches 2019 Annual Report
On 30 June 2020, the Single Resolution Board (SRB) published its 2019 Annual Report.
Its work during the year included:
strengthening and updating resolution plans for the banks under its remit based on the most recent MREL policy, while also incorporating the first provisions of the Banking Package
preparing to align the resolution planning cycle with the calendar year as of 2020
delivering the "Expectations for Banks" document, which builds on the Resolution Planning Manual and is a useful guide for banks to determine how they should make themselves resolvable in various domains