EBA supports EU Commission’s actions towards a more sustainable European economy

16 July 2020

  • The EBA strongly supports the Commission’s sustainable finance agenda and notes the requirement to embed environmental, social and governance (ESG) considerations into its own work;
  • The EBA argues for internationally consistent disclosures based on a comprehensive taxonomy to promote market disciple and ensure investor  and customer protection;
  • The EBA notes the need for a robust, evidence-based and risk-based regulatory framework and argues for a single EU data platform of ESG-related information to support evidence-based decision making by the public and private sector.

The European Banking Authority (EBA) published today its reponse to the European Commission’s consultation on a Renewed Sustainable Finance Strategy. The EBA is committed to ensuring the resilience and long-term sustainability of banking sector activities and welcomes the Commission’s efforts to support the transition towards a more sustainable, and resilient EU economy. The EBA looks forward to the adoption of the Commission’s Renewed Sustainable Finance Strategy and stands ready to contribute to its objectives set out in the European Green Deal.

In its response, the EBA agrees with a wide range of possible EU-level actions to support financing of the transition to a more sustainable European economy while appropriately managing the ESG risks in the financial sector and ensuring high standards of consumer protection. Given their unique position in facilitating capital flows through their lending, investment and advisory roles, credit institutions also have a key role to play in mobilising funds towards sustainable investments.

In support of the European Commission’s overall proposed initiatives the EBA highlights actions where further progress is particularly needed, notably in the following areas:

  • Disclosure
  • By promoting internationally consistent disclosures of key metrics such as the Green Asset Ratio to support the identification, assessment and measurement of sustainability financial risks and strategies to inform investors and consumers and promote market discipline;
  • By completing the EU taxonomy to cover all economic activities;
  • By supporting further standardisation and labelling for sustainable products to foster consumer protection.
  • Evidence based decision making
  • By emphasising the importance of the EBA providing risk-based evidence to inform any adjustments to the prudential treatment of sustainability related assets;
  • By encouraging the development of a single EU data platform to enable equal, user-friendly and timely access of public authorities and all market participants to publicly reported ESG information.
  • International cooperation
  • By further promoting regulatory convergence at an international level, helping to prevent potential negative spill-overs from policy fragmentation and limit arbitrage opportunities.

Legal basis and background

In April 2020, the European Commission published a consultation on the Renewed Sustainable Finance Strategy, which builds on the outcome of the work carried out in accordance with the Action Plan on Financing Sustainable Growth published in March 2018.

The response of the EBA to this consultation has been prepared pursuant to Article 1 (3) of the EBA's Regulation (as amended on 1 January 2020), which mandates the EBA to take into account sustainable business models and the integration of ESG factors in the field of activities of credit institutions, financial conglomerates, investment firms, payment institutions and e-money institutions[, to the extent necessary to ensure the effective and consistent application of its mandates.

EBA updates list of correlated currencies

10 July 2020

The European Banking Authority (EBA) updated today the 2019 list of closely correlated currencies that was originally published in December 2013. The list is part of the implementing technical standards (ITS) that were drafted for the purposes of calculating the capital requirements for foreign-exchange risk according to the standardised rules. The list was updated according to the procedure and methodology laid down in the ITS and submitted to the European Commission for endorsement.

EBA calls on resolution authorities to consider the impact of COVID-19 on resolution strategies and resolvability assessments

09 July 2020

The European Banking Authority (EBA) published today a statement on resolution planning in light of the COVID-19 pandemic. With this statement, the EBA intends to reiterate the importance of resolution planning in times of uncertainty to ensure that resolution stands as a credible option in times of stress.  In addition, the EBA highlights the importance for resolution authorities to continue promoting institutions’ efforts to enhance their capabilities and increase their resolvability.

Resolution authorities should take into account the impact of COVID-19 on banks and their business models when taking decisions on resolution plans and on the minimum requirement for own funds and eligible liabilities (MREL). In addition, resolution authorities should use and test resolution colleges as the main fora to exchange information and share decisions in these times of stress.

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European Parliament confirms François-Louis Michaud as new EBA Executive Director

09 July 2020

After a plenary vote in the European Parliament on 8 July 2020, François-Louis Michaud was confirmed as the new Executive Director of the European Banking Authority (EBA). François-Louis Michaud, who will serve a five-year renewable term, was selected by the EBA Board of Supervisors from a shortlist of candidates compiled by the EBA Selection Committee.

Upon news of his confirmation by the European Parliament, Francois-Louis Michaud said:

I am honoured to have been confirmed by the European Parliament as the new Executive Director of the European Banking Authority, and I look forward to working with its Chairperson, its Board and its staff. I am fully committed to ensuring that the EBA fulfils its mandate and contributes to having a banking sector which adequately supports the European economy, especially at the current difficult juncture. I will dedicate all my efforts to make sure the EBA operates as a transparent and trusted, effective and efficient European Authority. One of my key priorities as Executive Director will be to ensure gender balance at all levels of the organisation.

Note to the editors

The Executive Director will be in charge of the day-to-day management and operations of the Authority. He will remain in office for a five-year term and may be re-elected only once.

François-Louis Michaud, who is currently Deputy Director General at the European Central Bank (ECB), in the directorate general responsible for the supervision of the largest European banks (DGMS1), will take up his duties as Executive Director of EBA the in the coming weeks.

EBA provides clarity on the implementation of the prudential framework in the context of COVID-19

07 July 2020

The European Banking Authority (EBA) published today a Report, which provides clarifications on the application of the prudential framework that have been raised as a consequence of the COVID-19 pandemics. This Report is part of the EBA’s wider monitoring of the implementation of COVID-19 policies as well as of the application of existing policies under these exceptional circumstances.

The EBA has already taken a substantial number of measures, which aimed at providing operational relief to institution within the current prudential framework. These include the publication, on 2 April 2020, of Guidelines on legislative and non-legislative moratoria on loan repayments, which encouraged institutions to grant payment holidays to customers.

However, a significant number of issues have been brought to the attention of the EBA, both in the context of the Guidelines on payment moratoria, but also more broadly in relation to the prudential framework. The Report provides clarity on the implementation of the Guidelines by addressing a number of interpretative questions and presents an overview of the general payment moratoria in place in the EU based on notifications sent to the EBA.

In addition, the Report also includes considerations on the COVID-19 issues, which can arise in applying the operational risk framework. The report sets out common criteria that aim at providing clarity on the supervisory and regulatory expectations regarding the treatment of COVID-19 operational risk losses in the capital requirement calculations. The Report also encourages credit institutions to collect information on data losses, even when these are not expected to be part of the setting of capital requirements.

As a significant number of policy issues have arisen and will continue to arise in the context of the EBA’s monitoring of the implementation of COVID-19 policies, the EBA expects to update the Report at a later stage.

EBA publishes final Guidelines on the treatment of structural FX positions

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.

Legal Basis and background

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.

The EBA supports the Commission’s proposal for a new Digital Finance Strategy for Europe

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:

  • promote consumer financial education and digital and financial literacy;
  • develop a high-level AI principle-based framework to serve as an appropriate foundation for the wider use of AI in the financial services;
  • support the scaling of RegTech and SupTech initiatives and facilitate ‘machine readability’ and the standardisation of concepts, definitions and reporting obligations across EU financial services legislation;
  • further harmonise customer due diligence (CDD) processes where possible and investigate potential models (including public and private sector and hybrid models) for efficient, robust and trusted digital identity verification.

Legal basis and background

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.

EBA publishes final draft comprehensive ITS on institutions’ Pillar 3 disclosures and revised final draft ITS on supervisory reporting (Framework 3.0)

24 June 2020

  • The disclosure ITS implement the new requirements introduced by CRR2 and aims to reinforce market discipline by increasing consistency and comparability of institutions' public disclosures.
  • The updated reporting framework reflects changes in the CRR and introduces new reporting requirements on net stable funding ratio and counterparty credit risk.
  • New proportionality measures have been implemented, in particular for small and non-complex institutions.

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.

Implementation and remittance date

The first disclosure and reporting reference dates will be 30 June 2021.

Legal basis and next steps

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.

EBA publishes revised standards to identify staff with a material impact on the institution’s risk profile

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.

Legal basis

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.

EBA publishes final revised technical standards to enhance quality and consistency of information for passport notifications

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:

  1. requesting the credit institution to indicate as accurate, as accurately as possible, the intended start date of each activity for which the notification is submitted, rather than just of the core business activities;
  2. increasing the granularity of the information on the financial plan to be notified in case of establishment of a branch;
  3. providing additional information in case of termination of the branch.

Next steps and legal basis

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.