30 March 2020
• The Report identifies lessons learned from more than 120 national financial education and literacy initiatives across the EU as well as key trends and developments that could shape future initiatives.
• The Report includes a focus on FinTech-related education initiatives
The European Banking Authority (EBA) published today its second edition of the Financial Education Report (FER). The Report is based on the EBA financial education repository, which consists of more than 120 financial education initiatives taken by the national authorities. The FER describes the most common approaches used by the national authorities and the lessons learned and experiences gained in the area of financial education and financial literacy. It identifies, for example, that awareness-raising campaigns remain among the key tools used by national authorities to reach wide audiences and, in certain cases, to alert consumers to potential risks they may face regarding the use of financial products and services (e.g. crypto-assets).
Compared to the 2018 edition, this Report includes new aspects such as on the interplay between financial education and financial conduct regulation and supervision of the financial system. In addition, it highlights the increasing role of financial innovation and the growing focus on specific target groups for financial education and literacy initiatives, such as children, youth and elderly. It also identifies a number of developments that could influence future financial education initiatives, including behavioural economics, sustainable finance, and advanced analytics and big data.
The Report provides an opportunity for national authorities to share and compare experiences, and for other organisations and individuals interested in financial education to learn about, and possibly build on, the work carried out so far in this area.
The EBA has developed its Financial Education Reports in line with Article 9(1)(b) of the EBA's Founding Regulation, which requires the Authority “to take a leading role in promoting transparency, simplicity and fairness in the market for consumer financial products or services across the internal market, including by reviewing and coordinating financial literacy and education initiatives by the competent authorities”.
27 March 2020
The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) on the new Internal Model Approach (IMA) under the Fundamental Review of the Trading Book (FRTB). These technical standards conclude the first phase of the EBA roadmap towards the implementation of the market and counterparty credit risk frameworks in the EU.
These final draft technical standards cover 11 mandates and have been grouped in three different documents: the final RTS on liquidity horizons for the IMA; the final draft RTS on back-testing and profit and loss attribution (PLA) requirements; and the final draft RTS on criteria for assessing the modellability of risk factors under the IMA.
The final draft RTS on liquidity horizons for the IMA clarify how institutions are to map the risk factors to the relevant category and subcategory, along with specifications with respect to the list of currencies and currency pairs that can be mapped to a 10-day liquidity horizon under the interest rate and the foreign-exchange risk category. Finally, they provide a definition of large and small capitalisation reflecting the specificities of the EU equity market.
The final draft RTS on back-testing and PLA requirements specify the elements to be included for the purpose of those tests in the hypothetical, actual, and risk-theoretical P&L (HPL, APL and RTPL respectively). Furthermore, they set all key-elements characterising the PLA requirements: the tests ensuring that HPL and RTPL are sufficiently close, the consequences for institutions with desks where those changes are not close, the frequency at which the assessment of the PLA requirement has to be performed. Finally, they also set the aggregation formula that institutions are to use for aggregating the own funds requirements.
The final draft RTS on criteria for assessing the modellability of risk factors under the IMA set out the criteria for identifying the risk factors that are modellable and that institutions are, therefore, allowed to include in their expected shortfall calculations. The modellability assessment is intended to ensure that only risk factors, which are sufficiently liquid and observable, are included into expected shortfall calculations so that reliable risk measures are calculated. The technical standards also set the frequency under which the modellability assessment should be performed by institutions.
The adoption of those RTS is expected, under the current Capital Requirements Regulation (CRR2), to trigger the three-year period after which institutions with the permission to use the FRTB internal models are required, for reporting purposes only, to calculate their own funds requirements for market risk with those internal models.
In light of the current situation linked to COVID-19, these RTS will not impose a burden on the industry today. On the contrary, the EBA trusts that providing early information to all market participants about key aspects for the EU implementation of the FRTB framework will be beneficial to ensure a smooth and harmonised process.
In this context, the EBA also acknowledges and welcomes the decision by the Group of Central Bank Governors and Heads of Supervision (GHOS) to defer the implementation date of the revised market risk framework by one year to 1 January 2023, which will also allow EU banks to benefit from a longer implementation time.
These final draft RTS have been developed according to Article 325bd(7), 325be(3), 325bf(9), 325bg(4) of Regulation (EU) No 575/2013 (CRR) as amended by Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019.
Article 325bd(7), mandates the EBA to develop RTS to specify: (a) how institutions are to map the risk factors of the positions to broad categories of risk factors and broad sub-categories of risk factors; (b) which currencies constitute the most liquid currencies sub-category of the broad category of interest rate risk factor; (c) which currency pairs constitute the most liquid currency pairs sub-category of the broad category of foreign exchange risk factor; (d) the definitions of small market capitalisation and large market capitalisation for the purposes of the equity price and volatility sub-category of the broad category of equity risk factor.
Article 325be(3), mandates the EBA to develop RTS to specify the criteria to assess the modellability of risk factors and to specify the frequency of that assessment.
Article 325bf(9), mandates the EBA to develop RTS to specify the technical elements to be included in the actual and hypothetical changes to the value of the portfolio of an institution for the purposes of the back-testing.
Article 325bg(4), mandates the EBA to develop RTS to specify: (a) the criteria necessary to ensure that the theoretical changes in the value of a trading desk's portfolio is sufficiently close to the hypothetical changes in the value of a trading desk's portfolio, taking into account international regulatory developments; (b) the consequences for an institution where the theoretical changes in the value of a trading desk's portfolio are not sufficiently close to the hypothetical changes in the value of a trading desk's portfolio; (c) the frequency at which the P&L attribution is to be performed by an institution; (d) the technical elements to be included in the theoretical and hypothetical changes in the value of a trading desk's portfolio for the purposes of the P&L attribution; (e) the manner in which institutions that use the internal model are to aggregate the total own funds requirement for market risk for all their trading book positions and non-trading book positions that are subject to foreign exchange risk or commodity risk, taking into account the consequences referred to in point (b).
The EBA is legally mandated to deliver these mandates by the 28 March 2020.
25 March 2020
Following its call on 12 March 2020 to Competent Authorities to make use of the full flexibility provided for in the existing regulation, the European Banking Authority (EBA) issued today a second statement to explain a number of additional interpretative aspects on the functioning of the prudential framework in relation to the classification of loans in default, the identification of forborne exposures, and their accounting treatment. These clarifications will help ensure consistency and comparability in risk metrics across the whole EU banking sector, which are crucial to monitor the effects of the current crisis. The EBA also reminds financial institutions of their consumer protection obligations, temporarily lifts some reporting obligations for payment service providers (PSPs), and calls on PSPs to raise their contactless payment thresholds to the legal limit.
The EBA supports the measures taken and proposed by national governments and EU bodies to address the adverse systemic economic impact of the coronavirus in the form of general moratoria. The statement clarifies the implications of moratoria on the prudential and accounting treatment of the exposures, but reiterates that it is crucial that the classification of exposures accurately and timely reflects any deterioration of asset quality.
In particular, the EBA clarified that generalised payment delays due to legislative initiatives and addressed to all borrowers do not lead to any automatic classification in default, forborne or unlikeliness to pay. Individual assessments of the likeliness to pay should be prioritised.
The EBA also highlighted that when applying the IFRS 9 international accounting standard, institutions are expected to use a certain degree of judgement and distinguish between borrowers whose credit standing would not be significantly affected by the current situation in the long term, and those who would be unlikely to restore their creditworthiness. The European Securities and Markets Authority (ESMA) also issued a Statement with further guidance on the accounting implications of the economic support and relief measures adopted by EU Member States in response to the COVID-19 crisis.
Whilst ensuring flexibility on the prudential side to support generalised payment delays, the EBA emphasised there is no flexibility in relation to consumer protection. The EBA called on all lenders to act in the interest of consumers. In particular making sure that customers fully understand the implications of taking up any measures, without hidden charges and that such new terms should not have automatic adverse impacts on the customer’s credit rating.
The EBA finally noted the importance of orderly payments services during this period, recommended the use of contactless payments up to EUR50 and encouraged consumers and merchants to take sanitary measures and consider all when paying in-store.
As a follow-up to its decision to support banks’ focus on key operations and to limit any non-essential requests in the short term, the EBA has reviewed all ongoing activities requiring inputs from banks in the next months and decided:
12 March 2020
The outbreak of COVID-19 (Coronavirus) and its global spread since February has created significant immediate challenges to society and risks for the economic outlook. Although the long-term magnitude of the economic shock cannot yet be quantified, it will likely dampen economic activity.
Since the financial crisis, European banks have strengthened their capital position, built up solid liquidity buffer and improved the quality of the assets on their balance sheets. EU banks have implemented measures to ensure business continuity and adequate service to their customers, but they are facing operational challenges, hence the need to focus on their core operations and critical functions. Supervisors are working with banks as they maintain their support to household and corporate sectors, particularly to small and medium enterprises, and ensure that the basic needs of their customers are satisfied.
The EBA, along with national competent authorities (CAs) and the European Central Bank, is coordinating a joint effort to alleviate the immediate operational burden for banks at this challenging juncture. The EBA recommends CAs to make full use, where appropriate, of the flexibility embedded in the regulatory framework to support the banking sector.
Addressing any operational challenges banks may face should be the priority. The EBA has decided to postpone the EU-wide stress test exercise to 2021. This will allow banks to focus on and ensure continuity of their core operations, including support for their customers. For 2020, the EBA will carry out an additional EU-wide transparency exercise in order to provide updated information on banks’ exposures and asset quality to market participants.
In addition, the EBA recommends CAs to plan supervisory activities, including on-site inspections, in a pragmatic and flexible way, and possibly postpone those deemed non-essential. CAs could also give banks some leeway in the remittance dates for some areas of supervisory reporting, without putting at stake the crucial information needed to monitor closely banks’ financial and prudential situation.
A number of provisions in the regulatory framework ensure that banks build up adequate capital and liquidity buffers. These buffers, including macroprudential ones, are designed to be used in order to absorb losses and ensure continued lending to the economy during a downturn. Banks should also follow prudent dividend and other distribution policies, including variable remuneration.
CAs are encouraged, where appropriate, to make full use of the flexibility already embedded in the existing regulatory framework. The ECB-Banking Supervision’s decision to allow banks to cover Pillar 2 requirements with capital instruments other than common equity tier 1 (CET1) is an example. The use of Pillar 2 Guidance is another way to ensure that prudential regulation is countercyclical and banks can provide the necessary support to the household and corporate sectors.
The liquidity coverage ratio (LCR) is also designed to be used by banks under stress. Supervisors should avoid any measures that may lead to the fragmentation of funding markets.
It is crucial that the classification of exposures accurately and timely reflects any deterioration of asset quality. There is, however, flexibility in the implementation of the EBA Guidelines on management of non-performing and forborne exposures and the EBA calls for a close dialogue between supervisors and banks, also on their non-performing exposure strategies, on a case by case basis.
The EBA is in close contact with the European Systemic Risk Board in order to ensure that microprudential and macroprudential measures are fully aligned.
10 March 2020
The European Banking Authority (EBA) published today the Chapter on how resolution authorities should assess institutions’ management information systems, in the context of the resolvability assessment, to ensure that data and information are swiftly provided to support a robust valuation for resolution (valuation MIS). This Chapter, which is part of the EBA Handbook on valuation for purposes of resolution, aims at enhancing institutions’ preparedness in business as usual to support a timely and robust valuation in case of resolution.
The EBA approach to valuation MIS embeds the proportionality principle since it relies, as far as possible, on the institutions’ internal capabilities, intended as a combination of internal data aggregation capabilities and internal valuation models that are suitable for the valuation for resolution. The Valuation MIS approach is complemented by a data dictionary for benchmarking purposes, which does not introduce any reporting obligation and is expected to be used by institutions to perform a self-assessment of the internally available data and information. The results of the self-assessment will form the basis of a dialogue between the institution and the resolution authorities in the context of the resolvability assessment, to calibrate the valuation MIS requirements.
The adoption of the MIS Chapter relies on Article 29(2) of Regulation (EU) No 1093/2010 establishing the EBA. The Chapter, like the whole Handbook, is addressed to EU and national resolution authorities, and whilst it is not binding and not subject to comply/explain, it aims at fostering the convergence of resolution practices across the EU to ensure a level playing field.
10 March 2020
The European Banking Authority (EBA) published today an Opinion on the treatment of credit insurance in the prudential framework, in response to the extensive feedback received in its public consultations on draft Guidelines on credit risk mitigation for institutions applying the Internal Ratings-Based Approach (IRB Approach) with own estimates of Loss Given Default (LGD). In this Opinion the EBA calls for the implementation of the final Basel III framework as agreed by the Basel Committee on Banking Supervision.
The main concerns raised in the feedback received relate to LGD applied to the exposures to the insurance companies under the IRB Approach without the use of own estimates of LGD, especially in the context of the changes introduced in the final Basel III framework published by the Basel Committee on Banking Supervision (BCBS) in December 2017. These reforms disallow the use of own estimates of LGD for exposures to financial institutions, including insurance companies. As a result, the regulatory values of LGD have to be used also where the effects of credit insurance used as credit risk mitigation is recognised through substitution of risk parameters. This was commented as overly punitive given the higher seniority of claims from policy insurance over other claims towards insurance undertakings.
The analysis presented in the Opinion leads to the conclusion that there should not be a specific value of regulatory LGD for credit insurance claims. While higher seniority typically applies to claims from insurance policies, due to the specific structure of the balance sheets of the insurance undertakings, most of the claims in the unwinding proceedings would benefit from such priority. As a result, in case of failure of an insurance company the insurance policy holders may still suffer from significant losses, especially in the conditions of economic downturn. In particular, there is no evidence that these losses would be significantly lower than the currently applicable regulatory LGD values.
The Opinion points out that the final Basel III framework has been calibrated at the overall level and as such should be implemented in the EU in line with the international agreement. It is also stressed that specifying any preferential treatment for the claims on credit insurance policies would not be compliant with the final Basel III framework.
This Opinion is also submitted to the European Commission to inform its current work on the proposal for the revisions of the Capital Requirements Regulation (Regulation (EU) No 575/2013) in relation to the implementation of the final Basel III framework.
This Opinion has been drafted in accordance with Article 16a and Article 8(1)(a) of Regulation (EU) No 1093/2010. The EBA founding Regulation), which mandates the Authority to contribute to the establishment of high-quality common regulatory and supervisory standards and practices.
06 March 2020
Announcement in all EU official languages
The European Banking Authority (EBA) launched today a call for expression of interest for membership to its new Banking Stakeholder Group (BSG), as a consequence of the ESAs Review process that took place in 2019 and entered into force in January 2020.
The mandate of the current members will expire on 30 June 2020. The call for expression of interest is open to candidates representing stakeholders across the European Union. The deadline for application has been extended to 17 April 2020 at 23:59 CEST.
The call for expressions of interest for membership to the BSG is open to candidates representing stakeholders across the European Union. The deadline for application has been extended to 17 April 2020 at 23:59 CEST.
The relevant documents for the application can be found at: https://eba.europa.eu/about-us/organisation/banking-stakeholder-group
The application should be accompanied by a CV in Europass format. Candidates are also invited to provide a letter of motivation clearly stating the reasons for the application as well as main expectations as to the candidate's future contribution to the work of the BSG.
Details on the selection process can be found in the selection procedure document.
The final decision on the composition of the BSG will be taken by the EBA's Board of Supervisors by mid-June 2020. Applicants will be informed accordingly by the end of June 2020 and the composition of the new BSG will be made available on the EBA's website.
The first meeting of the newly composed BSG will be held on 7 July 2020.
The BSG is set up according to Article 37 of the EBA Founding Regulation, to help facilitate dialogue and consultation with stakeholders on the work of the EBA.
In accordance with Article 37 of Regulation (EU) No 1093/2010  establishing the European Banking Authority (EBA), the Authority is required to establish the BSG in compliance with requirements stipulated by Article 37 (2) of the Regulation.
Article 37 was amended with effect on 1 January 2020. The changes, which relate to the composition, length of mandate, and scope of activities of the Stakeholder Groups, require the EBA to reestablish the BSG in a different composition.
In line with the amendments the BSG will continue to be composed of 30 members. Those members will now comprise:
The EBA's BSG meets at least four times a year at the EBA’s office and on its own initiative when necessary. The EBA covers accommodation and travelling costs for the following categories of stakeholders: consumers, academics, employees and SMEs' representatives, and users of banking services. Each member of the EBA's BSG serves for a period of four years and individual terms can be renewed once. More information on the BSGs' activities can be found here.
02 March 2020
The European Banking Authority (EBA) published today its Report assessing institutions’ Pillar 3 disclosures, which aims atidentifying best practices and potential areas for improvement. While the EBA observes overall progress in institutions’ prudential disclosures, some practices may still impair the proper communication of their risk profile in a comparable way, compromising the ultimate objective of market discipline.
Institutions’ Pillar 3 disclosures play a key role in promoting market discipline through the public reporting of meaningful prudential information. The definition and implementation of a common Pillar 3 framework with granular and comparable prudential disclosures is a major step towards reducing asymmetry of information with users of prudential information.The aim of this Report is to assess the implementation by institutions of thePillar 3 framework as well as of identifying best practices and potential areas for improvement that should help institutions enhance their own disclosures and which will be a valid input to the EBA’s policy work on Pillar 3.
The EBA observes that institutions are on the correct path towards achieving consistency and comparability through the implementation of common disclosure formats, accompanied by qualitative explanations that help communicate meaningful prudential information. There is, nevertheless, room for improvement. In particular, the following findings may hamper the ability of users to access, understand and compare the information:
The EBA also observes that whileenvironmental, social and governance (ESG) related information is still scarce and diffuse, institutions are starting to embed sustainability considerations in their strategic agenda and to recognise environmental and climate change risks as emerging risks.
28 February 2020
The European Banking Authority (EBA) published today a Report on the review of the Regulatory Technical Standard (RTS) specifying the minimum monetary amount of the professional indemnity insurance (PII) or comparable guarantee for mortgage credit intermediaries. The EBA assessed the information obtained from national authorities, from a sample of intermediaries and through desk-based research and concluded that no amendments to the RTS are currently required.
In this Report, the EBA provides an overview of the legal basis of its work, the methodological approach used and its assessment on whether to amend the RTS at this point in time. Based on this assessment, the EBA concludes that there is currently no evidence that would suggest that the PII minimum monetary amounts would need to be amended.
In reaching this conclusion, the EBA stresses that its mandate laid down in the MCD only refers to the threshold amounts themselves. The mandate does not extend to the EBA assessing, for example, the extent to which the usage of the minimum payout amounts prescribed in the RTS are potentially impeded by specific clauses in PII contracts; the nature of the comparable guarantee(s) that may be used in the market; or what should be understood as a “comparable guarantee” at all. The EBA, therefore, did not analyse those elements or conducted any thorough assessment of the contents of the insurance contracts.
This Report has been developed in accordance with Article 29(2)(a) of Directive 2014/17/ EU on credit agreements for consumers relating to residential immovable property (MCD), which mandates the EBA to review, and if necessary, develop draft RTSs to amend the minimum monetary amount of the professional indemnity insurance or comparable guarantee, for submission to the EU Commission by 21 March 2018 and every two years thereafter. Given the late transposition of the MCD in some Member States, the EBA decided in early 2018 to postpone the review by two years, from 2018 to 2020.
In order to fulfil the above mandate, the EBA assessed the responses to a survey sent by National Competent Authorities (NCAs) to the ten largest credit intermediaries in their respective jurisdiction, intelligence gathered from national authorities themselves, and desk-based research.
The RTS on PII were published in the Official Journal in October 2014 as Delegated Regulation (EU) No 1125/2014, set the minimum monetary amount of the PII or comparable guarantee for mortgage credit intermediaries by specifying an amount for each individual claim (EUR 460,000) and an aggregate amount per calendar year for all claims (EUR 750,000).
The EBA will review the RTS on PII every two years.
17 February 2020
The European Banking Authority (EBA) published today its first quantitative Report on minimum requirements for own funds and eligible liabilities (MREL) under a new methodology. The report shows that authorities have made strong progress in agreeing resolution strategies and setting related MREL requirements but it also notes that banks need to issue MREL eligible debt to close their shortfall.
222 European banks representing 80% of total assets are covered by a resolution strategy other than liquidation. This is reflective of the fact that authorities have progressed since the introduction of BRRD in 2014 and the fact that the majority of European banking assets are held by large and complex banking groups for which liquidation is not deemed appropriate.
On a weighted average basis, MREL requirements in the EU range between 26.5% of risk-weighted assets (RWAs) for the global systemically important institutions (G-SIIs) – the largest and most complex banks – and 19% of RWAs for the banks with total assets below EUR 1 billion that are neither G-SIIs nor other systemically important institutions (O-SIIs). Overall, MREL levels are reflective of banks’ going-concern requirements; in the case of transfer strategies, MREL levels also reflect the scaling down of MREL based on the transfer perimeter.
105 banks out of 222 sample already meet their requirement while the rest reported an estimated MREL shortfall of EUR178bn. While this is significant, it is worth noting that 65 of those banks with shortfalls also report instruments totaling EUR67bn that are close in nature to MREL but not eligible. This shows that some banks already have a sophisticated investor base, likely to invest in long-term unsecured debt such as MREL eligible instruments.
In the light of these shortfalls, the EBA encourages European resolution groups to take advantage of the current positive market conditions to issue and build up resources. As pointed out in the recent EBA risk assessment report, despite continued volatility, spreads for all market instrument have been on a downward trend for most of 2019, with spreads between secured and unsecured as well as between senior and subordinated instruments narrowing.
The Report is based on data provided by resolution authorities and covers the actual population of banks covered by an MREL decision, the actual level of this requirement and the level of resources effectively eligible in the relevant jurisdictions.
The Report, which will be updated annually in line as mandate by BRRD Art 45l(1), is accompanied by a factsheet.