01 July 2020
The European Banking Authority (EBA) published today its final Guidelines on the treatment of structural FX positions. The aim of these Guidelines is to establish a harmonised framework for the application of the structural FX waiver, which will allow its consistent application going forward. The Guidelines will be applicable from 1 January 2022, one year later than originally envisaged to ensure that institutions have time to prepare for the introduction of the requirements.
The structural FX provision, as laid down in Article 352(2) of the Capital Requirements Regulation (CRR), allows Competent Authorities to authorise, on an ad hoc basis, the exclusion of FX-risk positions deliberately taken by firms to hedge against the adverse effect of exchange rates on capital ratios from the calculation of the net open currency positions where those positions are of a structural nature. Considering that the application of the waiver can have a significant impact on capital requirements, these Guidelines identify objective criteria to assist Competent Authorities in their assessment of the structural nature of a foreign-exchange position and to understand whether such position has been deliberately taken for hedging the capital ratio.
The Guidelines have been developed considering also changes to the market risk framework introduced in the CRR2 and the new structural FX treatment envisaged in the Fundamental Review of the Trading Book (FRTB) standards. As a result, these Guidelines have been designed in a way that institutions will not be required to ask for a new permission once they will switch to the FRTB framework for computing the own funds requirements for market risk.
The EBA has developed the Guidelines on its own initiative, in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.
These Guidelines set out the criteria under which a position in the foreign currency should be considered as structural and taken for the purpose of hedging the capital ratio in accordance with Article 352(2) of Regulation (EU) No 575/2013 (CRR).
In June 2017, the EBA published a Discussion Paper on Structural FX to gather feedback on current stakeholders' practices and interpretations of the Structural FX provision. In January 2019, the final Basel FRTB standards were published setting out a new provision with respect to the Structural FX treatment. In October 2019, the EBA published a Consultation Paper on which these Guidelines are based.
29 June 2020
The European Banking Authority (EBA) published today its response to the European Commission’s consultation on a new Digital Finance Strategy for Europe. The EBA is committed to securing technology neutrality in regulatory and supervisory approaches and strongly supports the Commission’s initiative towards a new Digital Finance Strategy. The EBA identifies in its response a wide range of possible EU-level actions to support the scaling of innovative technology cross-border whilst ensuring high standards of consumer protection and financial sector resilience. The EBA looks forward to the publication of the Digital Finance Strategy and stands ready to play its role in optimising the EU Single Market for digital finance.
The EBA highlights in its response the importance of technological neutrality in regulatory and supervisory approaches as a means to facilitate innovation in the financial sector and support scaling cross-border. This requires comprehensive and ongoing monitoring of the application of innovative technologies to enable the timely identification of opportunities and risks and adjustments as appropriate to regulatory and supervisory approaches.
In this context, the EBA supports proposed enhancements to coordination mechanisms, such as the EBA’s FinTech Knowledge Hub and the European Forum for Innovation Facilitators (EFIF), to facilitate a stronger dialogue between industry and regulatory and supervisory authorities on innovation-related issues.
The EBA also supports the European Commission’s proposed initiatives, and identifies additional actions, to:
The response has been prepared pursuant to Article 9(4) of the EBA's Founding Regulation, which mandates the Authority to establish a Committee on financial innovation ‘which brings together all relevant competent national and supervisory authorities with a view to achieving a coordinated approach to the regulatory and supervisory treatment of new or innovative financial activities and providing advice for the Authority to present to the European Parliament, Council and the European Commission'.
In April 2020, the European Commission published its consultation on a new Digital Finance Strategy for Europe/FinTech Action Plan. The consultation builds on the outcome of work carried out in accordance with the March 2018 FinTech Action Plan, including the actions undertaken by the EBA pursuant to its FinTech Roadmap.
24 June 2020
The European Banking Authority (EBA) published today new Implementing Technical Standards (ITS) on public disclosures by institutions and revised final draft ITS on supervisory reporting that implements changes introduced in the revised Capital Requirements Regulation (CRR2) and the Prudential Backstop Regulation. The publication of the two ITS is a major step forward towards promoting market discipline through enhanced and comparable public disclosures for stakeholders, and towards keeping the reporting requirements in line with the evolving needs for Supervisory Authorities' risk assessments.
CRR2 implements a number of key measures such as net stable funding ratio, leverage ratio and large exposures and introduces new disclosure requirements for institutions on all prudential topics. These comprehensive disclosure and reporting ITS are released in the context of the EBA Roadmaps on the Risk Reduction Package on disclosures and on supervisory reporting.
The disclosure ITS optimise the Pillar 3 policy framework for credit institutions by providing a single overarching package that brings together all previous pieces of regulation and incorporates all prudential disclosures, thus facilitating implementation by institutions and improving clarity for users of such information. The ITS implement the disclosures in a way to ensure that market participants have sufficient and comparable information to assess the risk profiles of institutions, in line with the Basel Committee’s Pillar 3 standards and with the increased standardisation of institutions' public disclosures. This reinforces the ultimate objective of market discipline. The CRR2 definitions for ‘small and less complex institutions’ and ‘large institutions’ support proportionality of Pillar 3 disclosures. In addition, the ITS include thresholds to trigger additional disclosures for large banks based on their risk profiles.
The reporting ITS reflect the changes brought in by the CRR2 and the Prudential Backstop Regulation and include 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.
These ITS include several proportionality measures, including simplified net stable funding ratio reporting for small and non-complex institutions. These ITS are designed to replace the Commission's Implementing Regulation (EU) No 680/2014 and they have been used as an opportunity to improve the consistency between the reporting and disclosure requirements, with a view to facilitate institutions' compliance with both requirements.
The first disclosure and reporting reference dates will be 30 June 2021.
The ITS on disclosure have been developed in accordance with the mandate included in Article 434a of Regulation (EU) N0 575/2013.
The ITS on supervisory reporting have been developed in accordance with the mandate included in Article 430 of Regulation (EU) N0 575/2013. These final draft ITS replace the Regulation (EU) No 680/2014.
The publication of the corresponding reporting technical package, including the Data Point Model (DPM), validation rules and XBRL taxonomy, is expected by the end of the Summer 2020.
The two ITS have been developed fostering consistency of quantitative data, and a revised version of the mapping between disclosure and reporting will be provided in order to facilitate compliance by institutions and to improve the quality of the information disclosed. Both of these final draft ITS were submitted to the European Commission for adoption.
18 June 2020
The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) on the criteria to identify all categories of staff whose professional activities have a material impact on the institutions’ risk profile (“risk takers”). The objective of these RTS is to define and harmonise the criteria for the identification of such staff and to ensure a consistent approach across the EU. The identification process is based on a combination of qualitative and quantitative criteria.
“Risk takers” will be identified based on the criteria laid down in the revised Capital Requirements Directive (CRD) and those specified in the RTS, once the final draft have been adopted. To ensure that all risk takers are identified, members of staff are identified as having a material impact on the institution’s risk profile as soon as they meet at least one of the criteria, be it the criteria foreseen under the CRD, the qualitative or quantitative criteria in the RTS or, where necessary because of the specificities of their business model, additional internal criteria.
Following the feedback received during the consultation phase, the qualitative criteria have been revisited to enhance the application of proportionality. The definition of managerial responsibility has been revised taking into account that institutions of different sizes have different layers of hierarchical levels. The final draft RTS also clarify how the criteria should be applied on a consolidated, sub-consolidated and individual basis. Finally, some flexibility in calculating the amount of remuneration for the application of the quantitative requirements has been introduced.
In terms of quantitative criteria, the revised CRD set out a threshold of total remuneration of EUR 500 000 combined with the average of the remuneration of members of the management body and senior management.
The final draft RTS retain the qualitative criterion that identify the staff high levels of remuneration above EUR 750 000. In addition, the 0.3% of staff with the highest remuneration criterion has been amended to be applied only by institutions that have more than 1 000 staff in order to reduce the burden for small institutions. The quantitative criteria are based on the rebuttable assumption that the professional activities of those staff would have a material impact on the institutions risk profile.
The EBA has been mandated under Article 94 (2) of CRD as amended by Directive (EU) 2019/878 (CRD5) to developed these final draft RTS to set out criteria to define (a) managerial responsibility and control functions, (b) material business unit and significant impact on the relevant business unit’s risk profile and (c) other categories of staff not expressly referred to in Article 92(3) CRD whose professional activities have an impact on the institution’s risk profile comparably as material as that of those categories of staff referred to therein.
18 June 2020
The European Banking Authority (EBA) published today its Final draft amending Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) on passport notification. The two sets of amending technical standards increase the quality and consistency of information to be provided by a credit institution notifying its home competent authorities when it intends to open a branch or provide services in another Member State, as well as of the communication between home and host authorities.
In particular, the amendments focus on:
The review of the two sets of technical standards on passport notification, originally enacted by the European Commission under Commission Delegated Regulation (EU) No 1151/2014 and Commission Implementing Regulation (EU) No 926/2014, has been done in accordance with Articles 35, 36 and 39 of Directive 2013/36/EU in combination with Article 29(d) of Regulation (EU) 1093/2010 establishing the EBA.
18 June 2020
The European Banking Authority (EBA) has decided today to extend the application date of its Guidelines on legislative and non-legislative moratoria to 30 September 2020. With EU economies not yet fully opened, this extension shows the importance of a continued support to the measures taken by banks to extend loans in response to the extraordinary nature of the current situation. This extension would ensure that adequate treatment for borrowers is available across the EU, considering that the Covid-19 crisis has been affecting EU countries in a different way and at a different pace.
Acknowledging the crucial role played by banks in providing financing to European businesses and citizens during the ongoing COVID-19 pandemic, the EBA has decided to legally extend the application date of the Guidelines by three months. In granting this extension, the EBA is highly aware of the trade-off faced in making the extension, as persistent liquidity shortages under the current circumstances may develop into solvency issues that need to be properly assessed by banks on a case-by-case basis. .
In addition, the EBA highlights that the implementation timeline envisaged in the EBA’s IRB roadmap to repair internal models remains overall unchanged. The EBA, nonetheless, also recognises that there may be institution-specific circumstances requiring more flexibility. Consequently, the EBA notes that supervisors may want to use their supervisory discretion in line with Article 146 of the Capital Requirements Regulation (CRR).
The COVID-19 pandemic has raised a significant number of policy challenges, both at the EU and national level. One of the main decisive EBA actions to apply the flexibility embedded in the regulatory framework, was the publication of the Guidelines on legislative and non-legislative moratoria on loan repayments (EBA/GL/2020/02, GLs on moratoria) on the 2 April 2020. This ensured that banks, while maintaining comparable metrics, would also be able to grant payment holidays to customers, under either legislative or non-legislative moratoria.
17 June 2020
The European Banking Authority (EBA) published today its first peer review of stress tests and the resilience of Deposit Guarantee Scheme (DGSs). The purpose of the peer review was to assess the resilience of DGSs based on the results of the DGS stress tests, and to identify good practices and areas for improvement.
In the Report, the EBA assessed the results of 135 DGS stress tests performed by 32 DGSs from 27 EU Member States. The priority tests covered DGS’ operational and funding capabilities, credit institutions’ single customer view (SCV) files containing depositor information to prepare for a DGS payout, and cross-border cooperation between DGSs in case of cross-border branches.
The EBA concluded that such tests have become an established tool to prepare for DGS interventions. In addition, the EBA is of the view that using the grading system outlined in the Guidelines on stress tests of DGSs, the overall resilience of DGSs across the EU is ‘fair’, which is the second best result, after ‘optimal’. This means that the identified shortcomings are isolated and/or can easily be addressed by the DGSs at the point of failure, and are unlikely to affect the ability of DGSs to perform their tasks in line with the Deposit Guarantee Schemes Directive (DGSD). The Report also identified good practices that were deployed by a number of DGSs and which can be considered by the other DGSs.
The EBA also highlighted some shortcomings and provided early indications on how to improve and enhance the framework. In particular, the EBA found that the divergence in the type of exercises performed and in the way outcomes were reported, made it difficult for the EBA to compare the tests between DGSs, thus hampering the desired consistency. The EBA, therefore, provided early indications on how to enhance the comparability for future peer reviews. These early indications will also serve as input for any potential future revision of the EBA Guidelines on stress tests of DGSs.
While the peer review performed by the EBA is a regular exercise required by the DGSD, it also includes provisions stemming from the outbreak of the COVID-19 pandemic. More specifically, the Report outlines lessons learnt from a real-life payout case in one EU Member State that coincided with the pandemic. The Report also includes early indications of how to improve the framework by exploring how to incentivise DGSs to perform ‘special’ tests, which would allow them to assess scenarios with severe business continuity problems, such as a pandemic, power outages or significant operational disruptions.
The DGSD requires Member States to ensure that DGSs perform stress tests of their systems. In 2016, the EBA issued Guidelines on stress tests of DGSs that set out the scope, principle-based requirements and a list of four ‘priority tests’ that DGSs are required to perform and report on to the EBA by 3 July 2019, by means of a predefined reporting template. The DGSD, in turn, requires the EBA to use these reports to conduct a peer review of all DGSs across the EU, and to do so at least every five years.
11 June 2020
The European Banking Authority (EBA) published today its 2019 Annual Report, which provides a detailed account of all the work the Authority achieved in the past year and anticipates the key areas of focus in the coming year.
2019 was a year of significant changes for the EBA, starting with the appointment of José Manuel Campa as Chairperson, and the Authority’s relocation from London to Paris. Commenting on the EBA’s work in 2019, José Manuel Campa said: “I am very lucky to have inherited a strong, healthy and well established organisation. Thanks to its technical expertise, it has brought a unique contribution to strengthening the European banking sector, and ultimately serving the public interest.”
In 2019, in a response to the call received from the Commission, the EBA prepared its advice on the implementation of the Basel III framework in the EU. Throughout its advice, the EBA devoted particular attention to areas where specific European arrangements may exist, providing a detailed analysis of the impact of the reform by business models and bank size.
The EBA’s work also focused closely on the regulatory package on Risk Reduction Measures adopted by the Council of the EU and the European Parliament, for which the EBA has received a large number of mandates, which include large exposures, Pillar 2, supervisory reporting and disclosure, governance and remuneration, and resolution.
Providing transparency to the financial community on the status of the European banking industry remained a core priority in 2019. The EBA carried out its annual EU wide transparency exercise, which confirmed the stronger capital position of European banks and the steady decline in non-performing loans (NPLs). Another fundamental achievement in the transparency domain was the finalisation of EUCLID and the strengthening of the EBA’s role as an EU data hub for Competent Authorities.
Throughout 2019, the EBA continued its work to protect consumers and depositors and contributed to secure and convenient retail payments in the EU.
Financial innovation and digital finance were also at the core of the EBA’s activities. The Authority provided guidance to banks to strengthen governance in the areas of outsourcing to the cloud and ICT risk, and has advised the European Commission on cybersecurity and on the applicability and suitability of EU law to crypto-assets. The EBA also published its Action plan sustainable finance outlining its approach and timeline for delivering mandates related to environmental, social and governance (ESG) factors.
Finally, with the review of the EBA founding regulation, the EBA has been given new powers in the area of anti-money laundering (AML) to lead policy development, to coordinate and to monitor the efforts of national supervisors in order to strengthen AML practices across the single market.
08 June 2020
The European Banking Authority (EBA) published today the seventh EU-wide transparency exercise. This additional data disclosure comes as a response to the outbreak of COVID-19 and provides market participants with bank-level data as of 31 December 2019, prior to the start of the crisis. The data confirms the EU banking sector entered the crisis with solid capital positions and improved asset quality, but also shows the significant dispersion across banks.
Commenting on the publication of the results, Jose Manuel Campa, EBA Chairperson, said: “The EBA considers that the provision to market participants of continuous information on banks’ exposures and asset quality is crucial, particularly in moments of increased uncertainty. The dissemination of banks’ data complements our ongoing monitoring of the risks and vulnerabilities in the banking sector and contributes to preserving financial stability in the Single Market”.
In the context of an unprecedented health crisis, EU-wide Transparency data confirms banks entered this challenging period in a stronger position than in previous crises in line with the EBA’s “Thematic note on the first insights into the Covid-19 impacts”. Compared with the Global Financial Crisis in 2008-2009, banks now hold larger capital and liquidity buffers.
EU banks reported increasing capital ratios in 2019. The EU weighted average CET1 fully loaded capital ratio was at 14.8% as of Q4 2019, around 40bps higher than Q3 2019. The trend was supported by higher capital, but also contracting risk exposure amounts (REA). As of December 2019, 75% of the banks reported a CET1 fully loaded capital ratio above 13.4% and all banks reported a ratio above 11%, well above the regulatory requirements. Compared to the previous quarter, the interquartile range remained stable.
The EU weighted fully phased-in leverage ratio stood at 5.5% as of December 2019. The leverage ratio increased by 30bps compared to the previous quarter, driven by rising capital and declining exposures. The lowest reported leverage ratio was 4.7% at country level, and 1.6% at bank level.
The asset quality of EU banks has been on an improving trend over the last few years. As of Q4 2019 the EU weighted average NPL ratio declined to 2.7%, 20bps lower than in Q3 2019. The Q4 2019 ratio was the lowest since the EBA introduced a harmonised definition of NPLs across European countries. Dispersion in the NPL ratio across countries remained wide, with few banks still reporting double-digit ratios, although in the last quarter the interquartile range compressed by 80 bps, to 3.1%.
04 June 2020
The European Banking Authority (EBA) outlined today its roadmap for the implementation of the new regulatory framework for investment firms and launched a public consultation on its first set of regulatory deliverables on prudential, reporting, disclosures and remuneration requirements. The roadmap outlines the EBA’s work plan for each of the mandates laid down in the IFR/IFD and clarifies the sequencing and rationale behind their prioritisation. Through these mandates, the EBA will contribute to the implementation of a regulatory framework that is calibrated to the size and nature of investment firms. This will strengthen supervision, which will rely more directly on the risks faced by the clients and the investment firms themselves. The consultations launched today run until 4 September 2020.
The first consultation paper on prudential requirements includes three draft Regulatory Technical Standards (RTS) on the reclassification of certain investment firms to credit institutions, five draft RTS on capital requirements for investment firms at solo level, and one draft RTS on the scope and methods of prudential consolidation for investment firms at group level.
The second consultation paper on reporting requirements and disclosures, includes draft Implementing Technical Standards (ITS) on the levels of capital, concentration risk, liquidity, the level of activities as well as disclosure of own funds; and draft RTS specifying the information that investment firms have to provide in order to enable the monitoring of the thresholds that determine whether an investment firm has to apply for authorisation as credit institution.
The third and fourth consultation papers on remuneration requirements include one draft RTS on the criteria to identify all categories of staff whose professional activities have a material impact on the firm’s risk profile or assets it manages (‘risk takers’); and one draft RTS specifying the classes of instruments that adequately reflect the credit quality of the investment firm as a going concern and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration of risk takers.
When developing these RTS and ITS, the EBA has considered the proportionality principle so as to take into account the specificities of the different classes of investment firms.
Finally, to assess the impact of the provisions proposed in the regulatory deliverables, the EBA also launched a data collection exercise on a voluntary basis.
Comments to these consultations can be sent to the EBA by clicking on the ‘send your comments’ button on the consultation page. Please note that the deadline for the submission of comments is 4 September 2020.
All contributions received will be published following the closure of the consultation, unless specifically requested otherwise.
The EBA will hold a public hearing, which will take place via conference call on the following dates:
The dial in details will be communicated in due course.
The EBA has developed these draft RTS and ITS according to Article 8a(6)(a), Article 8a(6)(b) of the CRD and in Article 7(5), Article 13(4), Article 15(5)(a), Article 15(5)(b), Article 15(5)(c), Article 23(3), Article 49, Article 54, Article 55(5) of the Regulation (EU) 2019/2033 and Article 5(6), Article 30(4), Article 32(1)(j) of the Directive (EU) 2019/2034, which mandate the Authority to further specify, develop, determine a prudential framework for investment firms to ensure a level playing field among investment firms across the EU and supervisory convergence.
The Investment Firms Prudential Package consists of the Directive (EU) 2019/2034 and the Regulation (EU) 2019/2033, which were published in the Official Journal on 5 December 2019 and represents a new prudential framework for investment firms authorised under MIFID.
The mandates allocated to the EBA includes 18 draft RTS, 3 draft ITS, 6 sets of guidelines, 2 reports, the requirement for the EBA to maintain a list of capital instruments and a database of administrative sanctions, and a number of notifications in various areas.