Financial Services Regulation and Compliance - Banking Nov 2020
Speech – Ed Sibley: Small and medium-sized enterprises play a vital role in the Irish economy and will be central to Ireland’s economic recovery
Speaking at a webinar organised by the Small Firms Association, Deputy Governor of the Central Bank of Ireland (CBI) Ed Sibley observed that COVID-19 had placed many small and medium enterprises (SMEs) under significant financial strain.
Sibley commented that although system-wide payment breaks had provided important immediate relief to SME borrowers in the early stages of the pandemic, the CBI now expects lenders to work with borrowers to assess the impacts of COVID-19 on current and future cash flows and to provide interim supports where those impacts are considered temporary and more permanent solutions where the debt servicing capacity has been materially reduced.
Central Bank updates webpage on prudential regulatory flexibility measures for credit institutions
The CBI has updated its webpage on prudential regulatory flexibility measures for credit institutions which it directly supervises.
The updated page includes the CBI's updated expectations for such credit institutions on:
- the postponement of deadlines for remedial actions/measures
- pillar 3 disclosures
- additional data requests
The updated page also contains updated details of the CBI's approach to:
- relief measures regarding capital and liquidity requirements
- relief measures regarding banks' leverage ratio
EBA publishes revised draft technical standards and guidelines for global systemically important institutions
The EBA has published its revised final draft regulatory technical standards (RTS) on the indicators of global systemic importance and a revised set of guidelines on disclosure for such entities. The revised draft RTS contain a new trading volume indicator and include insurance activities in the indicators-based measurement approach. The guidelines on disclosure for global systemically important institutions have also been updated to reflect the revised Basel framework.
Speech – Elizabeth McCaul: the power of perception: COVID-19 and lessons in governance
Speaking at a webinar in Rome, Elizabeth McCaul, member of the ECB's supervisory board discussed a range of issues, including the ECB's supervisory response to COVID-19, the potential impact of the pandemic on banks and the importance of governance in banks' responses to the crisis.
McCaul noted that while the full impact of COVID-19 on the European banking sector will take some years to fully materialise, the ECB projects that balance sheets and asset quality of banks will be seriously impaired. McCaul expressed the view that the suitability of a bank's board members and the effectiveness of its credit risk governance would ultimately determine the success of its responses to the impacts of the pandemic.
EBA encourages financial institutions to put the required focus on consumers’ interests when applying Product Oversight and Governance Arrangements
The EBA has published its second report on the implementation by financial institutions of the EBA guidelines on product oversight and governance (POG) arrangements. The report recommends that financial institutions ensure that the interests, objectives and characteristics of consumers are taken into account when applying POG arrangements, in order to avoid consumer detriment.
European Commission publishes report on Consumer Credit Directive
The European Commission (the Commission) has published a report on the effectiveness of Directive 2008/48/EC on credit agreements for consumers (the Directive). The report follows an evaluation conducted by the Commission into the effectiveness, efficiency, coherence and relevance of the Directive, which included a public consultation in 2019.
The report concludes that the Directive has been partially effective in ensuring high standards of consumer protection and in fostering the development of a single market for credit. The report also notes that rapid digitalisation, product innovation and changes in consumer preferences pose challenges to the legal framework created by the Directive. The report indicates that these matters will be considered in a proposed revision of the Directive which will take place in the second quarter of 2021 as part of the revised 2020 Commission Work Programme.
New launch date for the implementation of the Single Collateral Management Rulebook for Europe (SCoRE)
The ECB has decided to reschedule the implementation of Single Collateral Management Rulebook for Europe (SCoRE) Standards from November 2022 to November 2023. The move is a response to concerns expressed by market participants that the current adverse environment would hamper preparations.
The EBA reminds financial institutions of the need for readiness in view of the Brexit transition period ending on 31 December 2020
The EBA has issued a reminder to financial institutions affected by the end of the transition period to finalise their contingency plans in accordance with conditions agreed with relevant competent authorities before 31 December 2020. The EBA has also reminded institutions to ensure they communicate with customers regarding their preparations for the end of the transition period and any potential impacts that these preparations may have for customers.
EBA publishes methodology for the 2021 EU-wide stress test
The EBA has published the final methodology, draft templates and template guidance for the 2021 EU-wide stress test. The methodology and templates include some targeted changes to the postponed 2020 exercise, such as the treatment of moratoria and public guarantees arising out of the COVID-19 pandemic.
The stress test will be launched in January 2021 with the results to be published by 31 July 2021.
EBA announces timing for publication of 2020 EU-wide transparency exercise and Risk Assessment Report
The EBA has announced that its 2020 Risk Assessment Report and transparency exercise with bank by bank data will be released on Friday 11 December at 18:00 CET.
Speech - Jose Manuel Campa: corporate governance challenges within the financial sector
Jose Manuel Campa, chairperson of the EBA, has delivered a speech on corporate governance challenges existing in the financial sector. Campa noted that sound governance arrangements have become increasingly important as institutions adapt their business models to the fast changing environment, particularly with regard to environmental, social and governance risks, the development of new financial technologies and the challenges posed by the COVID-19 pandemic. Campa pointed out that the EBA has a clear mandate to harmonise governance standards in credit institutions under the Capital Requirements Regulation.
Campa also touched on the importance of diversity, commenting that not only is diversity in a management body desirable, but that it should be present at all levels of an organisation. In addition, Campa referred to anti-money laundering policy, noting that the EBA had received an enhanced legal mandate to lead, coordinate and monitor the EU's efforts in fighting financial crime across the financial sector.
EBA publishes report on benchmarking of national insolvency frameworks across the EU
The EBA has published a report which benchmarks the national insolvency frameworks across all EU Member States. The report introduces a set of benchmarks for bank loan recovery and identifies areas of divergence between national insolvency regimes. The benchmarks in the report are calculated by asset class for recovery rates, time to recovery and judicial cost to recovery.
EBA publishes report on the unwind mechanism of the liquidity coverage ratio
The EBA has published a report on the effects of the unwind mechanism of the liquidity coverage ratio over the period from the end of 2016 to the first quarter of 2020. The report concludes that there is no evidence that the unwind mechanism has a detrimental impact on the business and risk profile of credit institutions. The report also analyses certain possible modifications to the unwind mechanism and the potential impacts of such modifications.
EBA publishes assessment of the use of COVID-19 moratoria and public guarantees across EU banking sector
The EBA has published its first assessment of the use of COVID-19-related payment moratoria and public guarantees across the EU banking sector.
The key findings of the assessment were:
- the use of moratoria was particularly widespread among SMEs and commercial real estate businesses
- many banks reported that loans subject to moratoria represented a significant share of their total loans
- public guarantees were used to a lesser extent, but still had an impact by allowing banks to provide new lending to businesses impacted by the pandemic
The EBA indicates in the assessment that it will be closely monitoring the evolution of moratoria and public guarantee schemes in subsequent financial quarters.
The EBA calls on the European Commission to harmonise the significant risk transfer assessment in securitisation
The EBA has published a report on significant risk transfer (SRT) in securitisation transactions. The report includes a set of detailed recommendations to the European Commission on the harmonisation of practices and processes applicable to the SRT assessment.
The recommendations are made in the following areas:
- assessment of structural features of securitisation transactions
- application of the SRT quantitative tests
- supervisory process for assessing SRT in individual transactions
The EBA's recommendations are designed to enhance the efficiency, consistency and the predictability of SRT assessment in the current securitisation framework.
EBA updates Capital Requirements Directive single rulebook Q&A
The EBA has updated its single rulebook questions and answers under Directive 2013/36/EU (CRD). The updated Q&A provides responses to two questions on the application of Article 78 of CRD relating to the weighted average of the credit conversion factor and the calculation of probability of default.
ECB publishes final guide on climate-related and environmental risks for banks
The ECB has published its final guide on climate-related and environmental risks. The purpose of the guide is to explain how the ECB expects banks to prudently manage and transparently disclose such risks under current rules.
In early 2021, the ECB will require banks to conduct a self-assessment in light of the expectations outlined in the guide and to draw up an action plans based on the self-assessment. In 2022, the ECB will conduct a full supervisory review of banks' practices and take follow up measures, where necessary. The ECB will also conduct its next supervisory stress test in 2022 on climate-related risks.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.
Date published: 4 December 2020