Financial Services Regulation and Compliance - Banking Sept 2020
Financial Services Regulation and Compliance - Banking Sept 2020
€2bn COVID-19 credit guarantee scheme opened
On 7 September, the Irish government announced a new €2bn credit guarantee scheme to provide Irish businesses, including those in the farming and fishing sectors, with access to low cost loans as they respond to the impacts of COVID-19.
Loans provided under the scheme will range from €10,000 to €1m. Interest rates will vary depending on the loan, but they will be lower than would otherwise be available in the market.
Payment breaks provided a major source of temporary relief to Irish households and firms at a time of extraordinary financial stress – Central Bank of Ireland
The Central Bank of Ireland (CBI) published two financial stability notes (FSN) on the subject of payment breaks availed of by households and business during the COVID-19 pandemic. The FSN made the following observations:
67,000 payment breaks were applied to owner-occupier mortgages in Ireland by the five major retail banks at end May. These payment breaks covered one-in-nine mortgages worth over €10bn in loan balances. By August 2020, almost half of payment breaks on residential mortgages had ended with a return to full payments.
Loans with current or previous payment difficulties were the strongest available predictors of payment breaks at retail banks.
Borrower sector is the strongest predictor of payment break uptake by Irish firms. Sectors with a high share of employees either on wage subsidies or temporarily laid-off had the highest payment break rates.
Speech – Ed Sibley: "Learning the lessons from the global financial crisis in addressing the distress arising from the pandemic"
At a University of Limerick webinar, Ed Sibley, the Deputy Governor of the CBI, discussed the importance of supporting borrowers whose incomes have been affected by COVID-19. Sibley noted that effective engagement between lenders and borrowers is critical to preventing the build-up of arrears and the successful restructuring of loans where the ability to pay the debt has been reduced. Sibley commented that the CBI has engaged intensively with lenders to ensure that they meet the CBI's expectations when dealing with customers experiencing distressed debt.
Speech – Derville Rowland: CBI expects lenders to engage constructively with borrowers who are experiencing financial difficulty as a result of COVID-19
At the Autumn Seminar of the Money Advice and Budgeting Service (MABS), the CBI's Director General, Financial Conduct, Derville Rowland addressed the role of CBI in the national consumer protection framework and its current priorities in light of the ongoing impact of COVID-19. Rowland noted that, while system-wide payment breaks will come to an end over the coming months, the full suite of consumer protections remain in place and that lenders have clear guidance on how they must treat borrowers in difficulty. Rowland also commented that any restructuring arrangements offered by lenders must be appropriate and sustainable for a borrower's individual circumstances. Rowland also addressed the issue of culture, commenting that there is an onus on regulated firms to have effective cultures and to set the right standards for dealing with customers.
EBA publishes its 2019 annual report on resolution colleges
The European Banking Authority (EBA) has published its annual report on resolution colleges for 2019. The report sets out the EBA's observations on the functioning of resolution colleges during the year and progress achieved in key areas of resolution planning. The report also highlights the main areas that the EBA will monitor in 2020, which primarily involve responses to the COVID-19 pandemic.
European Commission seeks EBA's advice on final Basel III reforms in light of the impact of the COVID-19 pandemic
The European Commission (the Commission) is seeking technical advice from the EBA on the potential impact of the final Basel III reforms on the EU banking sector and the wider EU economy. The Commission is also seeking the EBA's opinion on whether, looking at the EU banking sector as a whole, any significant shifts to or from certain types of activities, exposures, business lines or business models would be expected following the introduction of any of the reforms.
The Commission will consider the results of the updated advice when preparing an impact assessment that will accompany legislative proposals on the final elements of the Basel III framework.
EBA issues revised list of ITS validation rules
The EBA has issued a revised list of validation rules in its implementing technical standards (ITS) on supervisory reporting. The revised list highlights certain rules which have been, for various reasons, deactivated. Competent authorities are advised not to submit data in accordance with the deactivated rules.
ECB allows temporary relief in bank's leverage ratio after declaring exceptional circumstances due to the COVID-19 pandemic
The ECB announced that euro area banks under its direct supervision may exclude certain central bank exposures from their leverage ratios. The decision came after the ECB's governing council confirmed the existence of "exceptional circumstances" due to the COVID-19 pandemic. Banks may benefit from this measure until 27 June 2021.
EBA seeks input from institutions on their ESG disclosure practices
The EBA has published an online survey seeking input from credit institutions on their practices and views in the area of disclosure of information on environmental social governance (ESG) risks. The survey is addressed to large credit institutions that will be required to disclose prudential information on ESG risks and aims to support the EBA’s policy work on Pillar 3 disclosure. The survey is also part of the EBA's wider efforts to develop a robust policy framework in the area of sustainable finance.
The deadline for the call for input is 16 October 2020.
ECB finalises guide to assessing how banks calculate counterparty credit risk
The ECB has published a finalised guide outlining the methodology it uses to assess how euro area banks calculate their exposure to counterparty credit risk (CCR) and advanced credit valuation adjustment (CVA) risk. The publication of the guide follows a public consultation with market participants which ended on 18 March 2020. The guide explains the methodology the ECB uses to assess the validity of banks' internal models.
EBA publishes opinion on certain elements of the definition of credit institution and aspects of the scope of authorisation
The EBA has published an opinion, addressed to the European Commission, highlighting the opportunity to clarify certain issues relating to the definition of credit institution in the upcoming review of the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD). The EBA is of the view that the following concepts would benefit from clarification: “deposits”, “other repayable funds” and “from the public”.
The EBA has also raised two additional points in the opinion relating to:
divergent approaches in Member States in the scope of the authorisation of credit institutions
the type and extent to which commercial activities may be carried out by credit institutions
ECB proposes to reduce reporting burden for banks and increase data quality
The ECB has published the European System of Central Banks' (ESCB) input into the EBA feasibility report on reducing the reporting burden for the European banking industry. The report proposes to reduce the reporting burden for banks in the fields of statistical, resolution and prudential reporting.
The ESCB is of the view that this can be achieved through:
a common standard data dictionary and common data model for statistical, resolution and prudential information requirements
smarter procedures, such as harmonised transmission reporting formats, the removal of duplications and improved data sharing between authorities
increased cooperation between European authorities, and between authorities and the banking industry, to achieve a common standard data dictionary, a common data model and smarter procedures
EBA phases out its guidelines on legislative and non-legislative loan repayments moratoria
The EBA has indicated that it will phase out its guidelines on legislative and non-legislative payment moratoria by the end of September. The EBA commented that the guidelines, which were published in the early phase of the COVID-19 pandemic, provided the necessary flexibility as well as certainty in light of actions taken by banks to support their customers as exceptional lock-down measures were put in place across Europe.
According to notifications on general payment moratoria received by the EBA, the vast majority of EU banks participated in such schemes. However, the EBA does not consider that the extension of such exceptional measures is appropriate at this stage. Instead, the EBA advises that any loan rescheduling should be conducted on a case-by-case basis.
EBA launches EU-wide transparency exercise
The EBA has launched its seventh annual EU-wide transparency exercise. The exercise aims to provide market participants with updated information on the financial conditions of EU banks as of June 2020. The EBA considers that the exercise will provide an important insight into the impact of COVID-19 on the financial sector. The results of the exercise will be published at the beginning of December.
ECB to accept sustainability-linked bonds as collateral
The ECB has decided that bonds with coupon structures linked to certain sustainability performance targets will become eligible as collateral for both Eurosystem credit operations and Eurosystem outright purchases.
To be eligible, coupons must be linked to a performance target referring to one or more of the environmental objectives set out in the EU Taxonomy Regulation and/or to one or more of the United Nations Sustainable Development Goals relating to climate change or environmental degradation.
The decision applies from 1 January 2021.
EBA publishes work programme for 2021
The EBA has published its work programme for 2021. The programme describes the activities and tasks of the EBA for the coming year, while also highlighting the EBA's key strategic areas of work.
The programme indicates that the EBA will focus on the following six strategic areas in 2021:
supporting the deployment of the risk reduction package and the implementation of effective resolution tools
reviewing and upgrading the EU-wide EBA stress testing framework
becoming an EU integrated data hub by leveraging on the enhanced technical capability of performing flexible and comprehensive analyses
contributing to the sound development of financial innovation and operational resilience in the financial sector
building the infrastructure in the EU to lead, coordinate and monitor AML/CTF supervision
providing policies for factoring and managing environmental, social and governance risks