EBA updates data on Deposit Guarantee Schemes across the EU

12 May 2020

The European Banking Authority (EBA) published today 2019 data relating to two key concepts in the Deposit Guarantee Schemes Directive (DGSD): available financial means, and covered deposits. The EBA publishes this data on a yearly basis to enhance the transparency and public accountability of deposit guarantee schemes (DGSs) across the EU to the benefit of depositors, markets, policymakers, DGSs and Members States.

Available financial means is the amount of funds raised by DGSs from credit institutions to be used mainly to reimburse depositors in case of bank failures. The data as of 31 December 2019 shows that 28 out of a total of 37 DGSs in EU Member States had increased their funds since 31 December 2018. In general, the increase stems from levies paid by the members of those DGSs, which were raised in order to reach the target level of 0.8% of covered deposits set out in the DGSD and to be attained by July 2024. 

No significant changes to the available financial means occurred in six DGSs, including three cases where the DGSs already hold more than the minimum target level of 0.8% of covered deposits. The amount of available financial means decreased only for two DGSs: in Latvia because of a significant payout to depositors in 2019, and in Norway where half of the DGS available financial means were transferred to a separate resolution fund. Finally, there is also one new DGS in Austria, which took over the protection of deposits previously provided by four separate schemes.

The data also shows that the target level of 0.8% of covered deposits, to be attained by July 2024, had been achieved by 18 of the 37 DGSs in the EU.

Legal basis

The EBA is collecting this data in accordance with Art. 10(10) of the DGSD.

On 25 October 2016, the EBA decided to make this data publicly available on its website.

 

EBA publishes its inquiry into dividend arbitrage trading schemes (“Cum-Ex/Cum-Cum”), and announces a 10-point action plan to enhance the future regulatory framework

12 May 2020

  • The EBA’s inquiry showed that national authorities do not share the same understanding of dividend arbitrage trading schemes, due to differences in Member States’ domestic tax law;
  • The inquiry concluded that facilitating, or handling proceeds from tax crimes undermines the integrity of the EU’s financial system and, therefore, sets out a number expectations of credit institutions and national authorities under the current regulatory framework;
  • The EBA decided on a 10-point action plan for 2020/21 to enhance the future framework of prudential and anti-money laundering requirements covering such schemes.

The European Banking Authority (EBA) published today the results of its inquiry into dividend arbitrage schemes, which looked into the actions of prudential and anti-money laundering (AML) and countering the financing of terrorism (CFT) supervisors in dealing with such schemes. The resulting Report sets out the EBA’s expectations of credit institutions and national authorities under the current regulatory framework. The EBA also decided on a 10-point action plan for 2020/21 to enhance the future framework of prudential and anti-money laundering requirements covering such schemes.

The Report sets out the EBA’s expectations under the current regulatory framework include requiring them to take a comprehensive view of the risks highlighted by dividend arbitrage trading cases looking at the adequacy of financial institutions’ internal controls and internal governance arrangements, their systems and controls of anti-money laundering (AML) and countering the financing of terrorism (CFT). The expectations also cover the exchange of information between prudential and AML authorities when performing reviews of institutions’ internal controls and governance; AML authorities reaching out to local tax authorities; prudential and AML authorities pursuing targeted inspections; and prudential supervisory colleges discussing such schemes.

To enhance the future regulatory framework, the EBA also published a 10-point action plan, which seizes on the opportunities afforded by recent legislative changes in the EU Capital Requirements Directive (CRDV) and the EBA’s AML/CFT mandate in the EBA Regulation, and which will be implemented in 2020 and 2021. The EBA will strengthen its prudential Guidelines on Internal Governance, its Guidelines on the Assessment of the Suitability of Members of the Management Body and Key Function Holders, and its Guidelines on Supervisory Review and Evaluation Process (SREP), and it will also monitor how prudential colleges will follow up on Cum-Ex related guidance.

With regard to AML requirements, the EBA will amend its Guidelines on money laundering and terrorist financing (TF) risk factors, its Guidelines on Risk-Based AML/CFT Supervision, and its biennial Opinion on ML/TF Risks. The EBA will also allocate explicit time to such schemes during its staff-led AML/CFT implementation reviews of national authorities, and monitor AML/CFT colleges for financial institutions that are exposed to significant ML/TF risks associated with tax crimes.

The EBA will then carry out a second formal inquiry into the actions taken by financial institutions and national authorities to supervise compliance with the aforementioned amended requirements.

Legal Basis

The EBA has a legal duty to contribute to preventing the use of the financial system for the purposes of money laundering and terrorist financing (ML/TF) and to lead, coordinate and monitor the AML/CFT efforts of all EU AML/CFT super and financial institutions across all sectors. The law implementing these powers and this mandate came into effect on 1 January 2020.

On 28 November 2018, the European Parliament asked the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) to “conduct an inquiry into dividend arbitrage trading schemes such as cum-ex or cum-cum in order to assess potential threats to the integrity of financial markets and to national budgets; to establish the nature and magnitude of actors in these schemes; to assess whether there were breaches of either national or Union law; to assess the actions taken by financial supervisors in Member States; and to make appropriate recommendations for reform and for action to the competent authorities concerned”.

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EBA welcomes EU Commission launch of AML/CFT action plan and stands ready to provide support

07 May 2020

  • Common rules and a single supervisor are necessary to ensure consistent outcomes across the single market 
  • The proposals are a logical next step to the EBA’s new role to lead coordinate and monitor AML/CFT supervision across the EU 
  • The EBA stands ready to advise on ways to strengthen the regulatory framework and establish a new European AML Authority

The European Banking Authority (EBA) welcomed today the EU Commission’s action plan on anti-money laundering and counter terrorist financing (AML/CFT), and stands ready to support the Commission’s considerations through the consultation, whilst continuing to fulfil its recently strengthened mandate to prevent ML/TF and use new powers to lead, coordinate and monitor the EU financial sector’s fight against ML/TF. 

The Commission’s action plan is focused on six pillars, which reflect areas that the EBA has previously stated need to be addressed to strengthen the fight against financial crime across the EU. The steps outlined in the Commission’s communication are also a logical next step to the EBA’s new AML/CFT mandate to lead coordinate and monitor AML/CFT supervision. As the EBA takes forward this new mandate, it is well placed to advise the Commission on the six pillars outlined in its document with a specific focus on: effective implementation; establishing a single rule book, on which the Commission has already issued a Call for Advice to the EBA ; the prospect of EU level AML/CFT supervision; and strengthening the international dimension of the EU AML/CFT framework. 

Notes to editors

Since its inception, the EBA has worked to foster an effective approach to AML/CFT by competent authorities and financial institutions across the EU by 

  • working to ensure that competent authorities develop a good understanding of key ML/TF risks; 
  • laying the foundations for effective cooperation and information exchange among all competent authorities; and 
  • building on its comprehensive framework of standards and guidelines to work with individual competent authorities to support their AML/CFT efforts.
     

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EBA proposes framework for STS synthetic securitisation

06 May 2020

The European Banking Authority (EBA) published today its proposals for developing a simple, transparent and standardised (STS) framework for synthetic securitisation. This proposal, which is limited to balance-sheet securitisation, includes a list of criteria to be considered when labelling the synthetic securitisation as ‘STS' and provides the pros and cons of a potential differentiated capital treatment for this type of securitisation.

The Report examines the rationale behind the STS synthetic product and assesses the positive and negative implications of its possible introduction. Based on this assessment, the EBA recommends to establish a cross-sectoral framework for STS synthetic securitisation that is limited to balance-sheet securitisation.

Among the proposed STS criteria are requirements on simplicity, standardisation and transparency similar to those applied to traditional securitisation. In addition, the Report includes other relevant criteria for synthetic transactions, such as those for mitigating counterparty credit risk or for addressing various structural features of synthetic securitisation. 

Finally, the Report provides conclusions on the prudential treatment of STS securitisation, and in particular, the pros and cons of a potentially differentiated capital treatment for this type of securitisation to inform the European Commission’s future legislative proposal for a STS synthetic securitisation.

Legal basis

The Report has been developed in response to a mandate assigned to the EBA in the Article 45 of the Securitisation Regulation (Regulation (EU) 2017/2402), which requires the Authority, in close cooperation with ESMA and EIOPA, to publish a report on the feasibility of a specific framework for simple, transparent and standardised (STS) synthetic securitisation, limited to balance sheet securitisation.
 

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EBA publishes final Guidelines on Credit Risk Mitigation for institutions applying the IRB approach with own estimates of LGDs

06 May 2020

The European Banking Authority (EBA) published today its final Guidelines on credit risk mitigation (CRM) in the context of the advanced internal ratings-based (A-IRB) approach. These Guidelines, which are part of the EBA's regulatory review of the IRB approach, aim to eliminate the remaining significant differences in approaches in the area of CRM, which are due to either different supervisory practices or bank-specific choices. These Guidelines complement the EBA Report on CRM, which focuses on the standardised approach (SA) and the foundation-IRB approach (F-IRB). 

The Guidelines clarify the application of the CRM provisions currently laid down in the Capital Requirements Regulation (CRR) applicable to institutions using the A-IRB Approach. In particular, they clarify the eligibility requirements for different CRM techniques, namely funded and unfunded credit protection (e.g. collateral and guarantees), available to institutions.

For funded credit protection, the Guidelines provide a mapping to the eligibility requirements of legal certainty and collateral valuation applicable to institutions using the standardised approach (SA) and the foundation internal ratings-based (F-IRB) approach. Specific guidance is also provided on other than immovable physical collateral for which the assessment of legal certainty is particularly challenging. 

The Guidelines also clarify how institutions may recognise the effects of different CRM techniques for capital requirement purposes. In particular, for unfunded credit protection they clarify the set of compliant approaches that are available to institutions to recognise the effects of the credit protection by adjusting their risk parameter estimates. Moreover, the Guidelines clarify how to recognise the effects of funded credit protection based on netting. 

These Guidelines are complementary to the EBA Guidelines on the PD estimation, LGD estimation and the treatment of defaulted exposures, which clarify how to adjust LGD estimates to recognise the effects of collateral (i.e. funded credit protection other than netting).

The EBA has granted one extra year, until 1 January 2022, to the final implementation date of these Guidelines to align with the proposal of the EBA progress Report on the IRB roadmap.

Legal basis, implementation and next steps

These Guidelines have been drafted in accordance with Article 16 of Regulation (EU) No 1093/2010 (EBA Founding Regulation), which mandates the Authority to issue guidelines addressed to all competent authorities or all financial institutions and issue recommendations to one or more competent authorities or to one or more financial institutions, with a view to establishing consistent, efficient and effective supervisory practices within the European System of Financial Supervision (ESFS), and to ensuring the common, uniform and consistent application of Union law.

The Guidelines will apply as of 1 January 2022, at the latest, but earlier implementation is encouraged. Institutions should engage with their competent authorities at an early stage in order to determine an adequate implementation plan, including the timeline for the supervisory assessment and approval of material model changes, where necessary.

EBA launches additional EU-wide transparency exercise

04 May 2020

The European Banking Authority (EBA) launched today an additional EU-wide transparency exercise to provide market participants with updated information on the financial conditions of EU banks as of 31 December 2019, prior to the start of the COVID-19 pandemic. The EBA expects to publish the results of this exercise at the beginning of June. 

The 2020 spring EU-wide transparency exercise that we are launching today is exclusively based on supervisory reporting data. Through this transparency exercise, similarly to the annual transparency exercises the EBA has performed in the past, the EBA will release about one million data points, on average more than 7,500 for about 125 participating banks. The data, with reference date as of December 2019, will cover banks’ capital positions, financial assets, financial liabilities, risk exposure amounts, sovereign exposures and asset quality.   

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.  At the same time, cognisant of the operational challenges banks are currently facing, we are grateful for their participation in this exercise and the EBA stands ready to provide them with the necessary support throughout the process. 

EBA updated ITS package for 2021 benchmarking exercise includes IFRS9 template

04 May 2020

The European Banking Authority (EBA) published today an update to its Implementing Technical Standards (ITS) on benchmarking of internal approaches. The updated ITS include all benchmarking portfolios that will be used for the 2021 exercise. The main novelty is the inclusion of the IFRS9 template. The benchmarking exercise is an essential supervisory tool to enhance the quality of internal models, which is particularly important in a stressed economic situation.

In order to analyse potential sources of variability stemming from the implementation of the new accounting standard (IFRS 9), two annexes have been introduced. The collection of quantitative data on the IFRS 9 parameters will contribute to gather a better understanding of the different methodologies, models, inputs and scenarios, which could lead to material inconsistencies in expected credit loss (ECL) outcomes, and affect own funds and regulatory ratios. The initial focus of the analysis is on the probability of default (PD) parameter, and, in particular, on the following three aspects:

  • The analysis of the variability of the PD parameter estimated over a default horizon of 12 months;
  • Variability of the macroeconomic forecasts and the interaction between the lifetime PD curve and the macro economic scenarios used for determining the ECL;
  • Variability of practices in the assessment of significant increases in credit risk (SICR). 

On the credit risk side, neither new portfolios nor new data points have been added compared to the 2020 exercise. However, some marginal changes have been applied in annex I. First, the annex now includes counterparties treated under the standardised approach, which are reported in the IFRS 9 template. Second, institutions should report the hypothetical RWA calculated under the standardised approach  for low default portfolios (LDP) and the hypothetical RWA based on empirical default rates at the rating split level.

For the market risk benchmarking, some instruments have been updated and clarified but the overall composition of the portfolio has not changed with respect to the 2020 exercise.

In addition, the update includes changes and clarifications that the EBA introduced based on the Consultation Paper that was published on 17 December 2019.  

Finally, the EBA believes that under the current circumstances, the usefulness of this exercise has increased. From a supervisory perspective, it will help maintain the high quality of internal models. From the regulatory point of view, it will continue to be used to monitor the models’ behaviours and sensitivity to a stressed economic situation, as well as the implementation of the forthcoming regulatory products along the IRB road map.
 

Joint RTS on amendments to the bilateral margin requirements under EMIR in response to the COVID-19 outbreak

04 May 2020

The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs), in response to the COVID-19 outbreak have published joint draft Regulatory Technical Standards (RTS) to amend the Delegated Regulation on the risk mitigation techniques for non-centrally cleared OTC derivatives (bilateral margining), under the European Markets Infrastructure Regulation (EMIR), to incorporate a one-year deferral of the two implementation phases of the bilateral margining requirements.

The ESAs have intensified their coordination with national competent authorities (NCAs), as well as with relevant authorities from other jurisdictions in order to ensure adequate regulatory actions where needed during this crisis. In this context, these amending draft RTS were developed to facilitate further an internationally coordinated approach on how to adapt the implementation of the bilateral margin requirements.

The Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) announced on 3 April1 their agreement to defer by one year, the deadline for completing the final two implementation phases of the bilateral margin requirements, in order to provide additional operational capacity for counterparties to respond to the immediate impact of COVID-19. The ESAs draft RTS present the changes to the Delegated Regulation on bilateral margining to incorporate in the EU regulatory framework the one-year deferral agreed by the BCBS and IOSCO. 

These changes would result in covered counterparties with an aggregate average notional amount of non-centrally cleared derivatives above €50 billion becoming subject to the requirement to exchange initial margin from 1 September 2021, while covered counterparties with an aggregate average notional amount of non-centrally cleared derivatives above €8 billion becoming subject to the requirement from 1 September 2022.

Legal basis and next steps

The ESAs have developed the RTS under Article 11(15) of Regulation (EU) No 648/2012 of the European Parliament and Council on OTC derivatives, central counterparties and trade repositories (EMIR).

A first version (ESAs 2019 20) of these draft RTS had been submitted to the Commission and published on the websites of the ESAs on 5 December 2019. This first version dealt with the treatment of physically settled FX forward and swap contracts, intragroup contracts, equity option contracts and the implementation of the initial margin requirements. However, in response to the Covid-19 outbreak, the Final Report and the draft RTS have now been updated to take into account the agreement from the BCBS and IOSCO to defer by one year the deadline for completing the final two implementation phases of the bilateral margin requirements. This updated version of the Final Report on the draft RTS on bilateral margining thus replaces entirely the version submitted to the Commission in December 2019.

The ESAs have now submitted this second version of the draft RTS to the Commission for endorsement in the form of a Commission Delegated Regulation, i.e. a legally binding instrument applicable in all Member States of the European Union. Following the endorsement, they are then subject to non-objection by the European Parliament and the Council.

Notes for editors

1. The European Supervisory Authorities are:

i.    the European Banking Authority;
ii.   the European Insurance and Occupational Pensions Authority; and
iii.  the European Securities and Markets Authority

2. The ESAs, along with the European Systemic Risk Board (ESRB), the Joint Committee of the ESAs, and the national competent or supervisory authorities of each Member State form the European 

3. The main objective of the ESFS is to ensure that the rules applicable to the financial sector are adequately implemented in order to preserve financial stability and to promote confidence in the financial system as a whole, and provide sufficient protection for financial consumers.
 

 

 

 

 

EBA publishes final Guidelines on the methodology to determine the weighted average maturity of contractual payments due under the tranche of a securitisation transaction

04 May 2020

The European Banking Authority (EBA) publishes today its final Guidelines on the determination of the weighted average maturity (WAM) of the contractual payments due under the tranche of a securitisation transaction, as laid down in the Capital Requirements Regulation (CRR). These Guidelines  aim at ensuring that the methodology applicable for the determination of the WAM for regulatory purposes is sufficiently transparent and harmonised in order to increase consistency and comparability in the own funds held by institutions.

The maturity of the tranche is an additional parameter introduced by the revised Securitisation Regulation that is needed by institutions using the internal or the external rating based approach (SEC-IRBA, SEC-ERBA) for the calculation of the risk-weighted exposure amounts of their securitisation positions. These Guidelines will help institutions using SEC-IRBA or the SEC-ERBA and opting for the use of the weighted average maturity approach (WAM) instead of the final legal maturity approach when calculating their capital requirements.

Infinalising the Guidelines, the EBA considered that the methodology applicable for the determination of the WAM for regulatory purposes should be sufficiently harmonised, to allow even less sophisticated institutions to use it, conservative to maintain a sufficient level of prudence, and simple to facilitate the supervision by competent authorities.

The main areas covered by the guidelines are the following:

  • Meaning of contractual payments due under the tranche;
  • Data and information requirements;
  • Methodologies for determining the contractual payments of the securitised exposures due under the tranche both for traditional and synthetic securitisations;
  • Implementation and use of the WAM model.

Legal basis

The GLs have been developed according to Article 257(4) of Regulation (EU) No 575/2013 (CRR), as amended by Regulation (EU) 2401/2017. This article mandated the EBA to monitor the range of practices on the determination of tranche maturity with particular regard to the application of the WAM and, in addition, in accordance with Article 16 of Regulation (EU) No 1093/2010, to issue these guidelines by 31 December 2019.

EBA publishes final draft technical standards on specific reporting requirements for market risk

04 May 2020

The European Banking Authority (EBA) published today its final draft Implementing Technical Standards (ITS) on specific reporting requirements for market risk. These ITS introduce the first elements of the Fundamental Review of the Trading Book (FRTB) into the EU prudential framework by means of a reporting requirement. The ITS are expected to apply from September 2021.

The specific reporting requirements for market risk include a thresholds template, providing insights into the size of institutions’ trading books and the volume of their business subject to market risk, and a summary template, reflecting the own funds requirements under the alternative standardised approach for market risk (MKR-ASA). At a later stage, and in line with the mandate of Article 430b of the amended Capital Requirements Regulation (CRR), these reporting requirements will be complemented with details on the own funds requirements under the MKR-ASA and the alternative internal model approach.

As announced in EBA Statement on the application of the prudential framework on targeted aspects in the area of market risk in response to the COVID-19 outbreak, published on 22 April 2020, the reporting requirements are expected to apply from September 2021.

Those reporting requirements will become part of version 3.1 of the EBA reporting framework.

Background and legal basis

The EBA is required to develop ITS on specific reporting requirements for market risk in accordance with Article 430b of the CRR. These ITS are adopted by the EU Commission in the form of Implementing Regulations. The reporting requirements defined in these ITS will become part of the overall EBA reporting framework, currently comprising the ITS on Reporting in accordance with Article 430 of the CRR, the ITS on Supervisory Benchmarking in accordance with Article 78 of the CRD, the ITS on Resolution Planning Reporting in accordance with Article 11 of the BRRD and the Guidelines on harmonised definitions and templates for Funding Plans.