Financial Services Regulation and Compliance - Banking October 2022
Financial Services Regulation and Compliance - Banking October 2022
CBI announced targeted changes to mortgages measures framework
On 19 October 2022, the CBI published the conclusion of the mortgage measures framework review and announced a number of targeted changes to the measures. The rule changes will take effect in January 2023 and include:
First-time buyers will be able to borrow up to four times their gross income.
Second and subsequent buyers will continue to be able to borrow up to 3.5 times their gross income.
Loan-to-value (LTV) for first-time buyers will remain at 90%. LTV for second and subsequent buyers will increase to 90%. LTV for buy-to-let buyers will remain at 70%.
Lenders will continue to be able to lend a certain amount above these limits, in line with their own credit policies.
A number of changes were also made to the criteria for being a first time buyer (FTB). A 'fresh start' borrower who is divorced or separated or has undergone bankruptcy or insolvency may be considered a FTB where they no longer have an interest in the previous property. FTBs who get a top-up loan or re-mortgage with an increase in the principal may be considered 'first time', provided the property remains their primary home.
CBI publish financial stability note on account migration
On 26 October 2022, the CBI published its financial stability note (the note) looking at consumer switching, and specifically the potential barriers to consumer engagement, through the lens of behavioural economics. Banks are expected to prioritise consumer interests and take measures to ensure that consumers are enabled to switch. The note highlights the importance of implanting clear communication strategies, processes and supports for customers.
EBA publishes its report on its analysis of the EU dependence on non-EU banks and of EU banks' dependence on funding in foreign currency
On 3 October 2022, the EBA published a report on the reliance of the EU financial sector on counterparties, operators, and financing originating from outside the EU single market. The first part of the Report focuses on the role of non-EU entities in the EU banking sector. Findings from 21 June 2021 showed that these entities had a market share of 12.2% of total banking assets, 11.4% of loans, 6.6% of debt securities and 31.4% derivatives.
Concerning the use of EU banks of services provided by non-EU operators, 20% of EU banks’ total fees and commissions' expenses were credited to operators residing outside of the EU. Payment services, clearing and settlement and custody services are among the most common types of activities that EU banks source from non-EU operators.
As of June 2021, 19% of EU banks’ total funding was denominated in significant foreign currencies.
EBA updates on the monitoring of total loss-absorbing capacity and minimum requirement for own funds and eligible liabilities instruments
On 7 October 2022, the EBA published an updated TLAC/MREL monitoring report. Following the first TLAC-MREL monitoring report, the EBA observed that its recommendations have been, overall, well implemented. However, it has identified the need for a few new notable provisions to be recommended and for some others to be avoided. This report provides policy views based on TLAC/MREL instruments assessed up to February 2022 with a view to continue strengthening the quality of the instruments and to have more standardised information across the EU.
The EBA has observed convergence and standardisation in terms of legal drafting of the notes and programmes, deriving also from the actual implementation of the EBA recommendations from the first TLAC/MREL monitoring report and the ESG recommendations in the latest AT1 monitoring report.
EBA issues an opinion in response to the European Commission’s proposed amendments to the EBA final draft technical standards on Pillar 3 disclosures on ESG risks
On 17 October 2022, the EBA published an opinion on changes proposed by the European Commission to how the banking book taxonomy alignment ratio (BTAR) should be disclosed by institutions. The EBA recognised the importance of proportionality and, therefore, although favouring the original wording requesting institutions to disclose this information on a best effort basis, the EBA accepted the amendments proposed by the European Commission. The EBA also highlights that the aim of the BTAR is to prevent an asymmetric treatment of exposures towards counterparties which may raise similar levels of riskiness to the institution and emphasises the importance that institutions make every effort to disclose this ratio and to collect the relevant information from their counterparties.
Basel Committee reports on Basel III implementation progress
On 4 October 2022, the Basel Committee on Banking Supervision issued its progress update on the adoption of the Basel regulatory framework. The update summary and monitoring dashboard set out the jurisdictional adoption status of the Basel III standards as of end-September 2022. It covers the Basel III post-crisis reforms published by the committee in December 2017 and the finalised minimum capital requirements for market risk of January 2019. These reforms are due to take effect from 1 January 2023, as announced by the Governors and Heads of Supervision in March 2020.
EBA clarify the status of several disclosure guidelines and ensures continuous transparency of credit quality of exposures by all types of credit institutions
The EBA are repealing three implementing technical standards (ITS) disclosure guidelines and emending the scope of applications of the guidelines on Pillar 3 disclosures of non-performing and forborne exposures. The EBA amending guidelines adjust the scope of application of the guidelines on disclosure of non-performing and forborne exposures (EBA/GL/2018/10) to clarify that these guidelines will continue to apply to listed small and non-complex institutions and to other medium-sized institutions that are non-listed. The amending guidelines will apply from 31 December 2022. The amending guidelines do not introduce any new requirements and only clarify the application of the existing EBA guidelines to make sure that the affected institutions continue disclosing the information as they have been doing since 2019.
EBA publish conclusion of peer review of how competent authorities supervise institutions' ICT risk management and have implemented the EBA guidelines on SREP
On 17 October, the EBA published their analysis, suggesting that the competent authorities across the EU have applied a risk-based approach to the supervision of ICT risk management. The EBA has not identified any significant concerns regarding the supervisory practices but makes some general recommendations for further improvements. The peer review did not raise significant concerns regarding the supervisory practices on ICT risk management, but the EBA makes a number of general recommendations to further strengthen supervisory practices. The peer review also includes recommendations to the EBA to incorporate a number of identified good practices into the guidelines on ICT risk assessment under the SREP when the latter will be reviewed in the future.
EBA publish opinion on the European Commission's amendments relating to the final draft implementing technical standards (ITS) on prudential disclosures on ESG risks in accordance with Article 449a CRR
On 17 October 2022, the EBA delivered an opinion, accepting the two substantive changes proposed by the Commission to enhance proportionality. The Commission has proposed amendments to emphasise:
that institutions ‘may’ choose to disclose this information, instead of being required to do it on a 'a best effort basis'
that the collection of the information from the counterparties will be on a ‘voluntary basis’, including that institutions need to inform the counterparties about the voluntary nature of this request of information
The EBA had insisted that institutions should make every effort to collect and disclose the very relevant information reflected in the BTAR, but accepts the amendments proposed by the European Commission, recognising the importance of proportionality.
EBA publishes final standards and guidelines on interest rate risk arising from non-trading book activities
On 20 October 2022, the EBA published a final set of guidelines and two final draft regulatory technical standards (RTS) specifying technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions. These regulatory products complete the on-boarding into EU law of the Basel standards on IRRBB and are of crucial importance given the current interest rate environment. The guidelines on IRRBB and credit spread risk arising from non-trading book activities (CSRBB) will replace the current guidelines on technical aspects of the management of interest rate risk arising from non-trading activities under the supervisory review process (SREP) published in 2018. These guidelines will apply from 30 June 2023, except for the part on CSRBB, which will apply from 31 December 2023.
Regulation (EU) 2022/2036 (the ‘daisy chain’ regulation which introduces targeted adjustments to improve the resolvability of banks) has been published in the Official Journal of the European Commission
The 'daisy chain' regulation has been formally adopted by co-legislators on 19 October 2022. This introduces amendments to Regulation (EU) No 575/2013 and Directive 2014/59/EU concerning the prudential treatment of global systemically important institution groups with a multiple point of entry resolution strategy and a methodology for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities. The Act was published in the Official Journal on 26 October 2022. This Regulation amends the EU's bank resolution framework by:
incorporating a dedicated treatment for the indirect subscription of instruments eligible for internal minimum requirement for own funds and eligible liabilities (MREL)
further aligning the treatment of global systemically important institution (G-SII) groups with a multiple point of entry (MPE) resolution strategy with the treatment outlined in the Financial Stability Board's (FSB) international total loss-absorbing capacity term sheet (the TLAC standard)
The amendments to the CRR relating to the indirect subscription of internal MREL eligible instruments within resolution groups will apply from 1 January 2024. The remaining provisions CRR-related provisions of the regulation will apply from 14 November 2022.
The consequential changes to Articles 45d(4) and 45h(2) of the BRRD relating to the indirect subscription of internal MREL eligible instruments within resolution groups must be implemented by Member States by 15 November 2023. The other amendments to the BRRD will apply from 14 November 2022.
The EBA sets examination programme priorities for prudential supervisors for 2023
On 27 October 2022, the EBA published the European Supervisory Programme (ESEP) for 2023 which identities key topics for supervisory attention across the EU. The key topics include:
macroeconomic and geopolitical risks
operational and financial resilience
transition risks towards sustainability and digitalisation
money-laundering and terrorist financing (ML/TF) risks in the supervisory review and evaluation process (SREP) and internal controls/governance
The EBA also published the European Resolution Examination Program (EREP), which is a similar initiative in the resolution domain. While the two examination programmes are independent, they are part of a coordinated initiative to enhance convergence in the EU.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.