EBA consults on Guidelines on the appropriate subsets of exposures in the application of the systemic risk buffer

12 February 2020

The European Banking Authority (EBA) launched today a consultation on draft Guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer (SyRB) in accordance with the Capital Requirements Directive (CRD). These Guidelines aim at setting a common framework to harmonise the design of the appropriate subsets of sectoral exposures to which a systemic risk buffer may be applied, thus facilitating a common approach throughout the EU. The consultation runs until 13 July 2020.

This consultation paper is setting pre-determined dimensions or components of exposures, which competent or designated authorities should use when defining a subset of sectoral exposures in the application of a systemic risk buffer. A pre-condition when defining a subset of sectoral exposures is its systemic relevance according to a qualitative and quantitative assessment conducted by the relevant authority. The consultation paper recommends three criteria to be used in such assessments: size, riskiness and interconnection.

This consultation paper sets out general principles to ensure the right balance between addressing the systemic risk stemming from the identified subset of sectoral exposures and the unintended consequences when applying a sectoral SyRB to this subset. In particular, relevant authorities should avoid unwarranted interactions with other macroprudential measures and consider reciprocity challenges that could arise when identifying an appropriate subset of sectoral exposures.    

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that that that due to the current Covid-19 situation the deadline for the submission of comments has been extended to 13 July 2020. All contributions received will be published following the close of the consultation, unless requested otherwise.


The EBA will hold a public hearing on the draft Guidelines, which will take place via conference call on 6 May 2020 from 14:00 to 16:00 Paris time. The dial in details will be communicated in due course.

Legal basis and background

The EBA has developed the draft Guidelines in accordance with Article 133(6) of Directive 2013/36/EU (CRD) in conjunction with Article 16(1) of Regulation (EU) No 1093/2010 (EBA founding Regulation). Guidelines set the EBA view of appropriate supervisory practices within the European System of Financial Supervision or how Union law should be applied.

The European Banking Authority (EBA) launched today a consultation on draft Guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer (SyRB) in accordance with the Capital Requirements Directive (CRD). These Guidelines aim at setting a common framework to harmonise the design of the appropriate subsets of sectoral exposures to which a systemic risk buffer may be applied, thus facilitating a common approach throughout the EU. The consultation runs until 13 July 2020.

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EBA puts forward concrete proposals to improve the current DGSD legal framework

11 February 2020

  • EBA publishes the third and final Opinion on the review of the implementation of the DGSD, on DGS funding and uses of DGS funds;
  • The third Opinion recommends clarifying what funds count towards DGS’s available financial means and the use of DGS funds for failure prevention. No changes are proposed concerning the minimum target level for ex-ante funds.

The European Banking Authority (EBA) published today its third and final Opinion addressed to the European Commission on the implementation of the Deposit Guarantee Schemes Directive (DGSD) in the EU. The Opinion focuses on deposit guarantee schemes (DGSs) funding and uses of DGS funds and proposes a number of changes to the EU legal framework, aimed at strengthening depositor protection, enhancing financial stability and reinforcing financial resilience of DGSs.

In its Opinion, the EBA assesses 33 different topics related to DGS funding and uses of DGS funds and sets out 23 proposals on how to improve current EU legal framework.

In particular, the EBA calls for the need to clarify in the DGSD what funds should count towards the DGS’s available financial means (i.e. ex-ante funds), and when different DGS funding sources (including loans) can be used and under what conditions. The Opinion also addresses the need to introduce more transparency in relation to the reporting of DGS funds, more consistency in the approach to payment commitments, and more precision in the DGSD in relation to how DGS funds should be invested.

In addition, the Opinion recommends the need for the Commission to consider further the consequences of the recent General Court ruling in the Tercas case, concerning the use of DGS funds to prevent failure of credit institutions and the ceiling up to which DGS funds can be used for such failure prevention. The Commission should also consider introducing in the EU framework the possibility to use failed institution’s assets to repay depositors.

No changes are proposed to the current DGSD provisions in relation to the minimum target level for the ex-ante funds, the target level basis and the possibility for DGSs to continue collecting contributions above the minimum target level. The Opinion also recommends that there is no need for changes in relation to contributions from third country branches, or immediate changes to the risk-based contributions based on the assessment of their impact on different business models.

Background information

The third EBA Opinion on DGS funding and uses of DGS funds follows the first Opinion on eligibility of deposits, coverage level and cooperation between DGSs, published in August 2019, and the second Opinion on DGS payouts, published in October 2019. In the three Opinions, the EBA assessed 115 topics and proposed 81 improvements to the current EU legal framework with the aim of further strengthening the depositor protection framework, improving depositor information, reinforcing operational effectiveness of DGSs, harmonising approaches across EU Member States and, ultimately, enhancing financial stability and ensuring that depositors are well protected.

The proposals in the first Opinion included, among others, changes to the current framework to ensure that across the EU depositors are protected by one of the EU DGSs, even if they hold their deposits at a branch of a credit institution from a non-EU country. Conversely, the Opinion proposed that EU DGSs should not protect deposits placed with branches of EU credit institutions operating outside the EU – this is particularly relevant in relation to the UK’s withdrawal from the EU. The Opinion also put forward a number of improvements to how depositors are informed about DGS protection, and proposed to consider expanding the list of deposits eligible for protection, including deposits made by public authorities and those held as deposits by financial institutions on behalf of their clients. No changes were proposed to the current coverage level of EUR 100,000.

The second Opinion proposed changes aimed at ensuring that depositors are not unduly left without access to their funds when the decision  that deposits have become unavailable has not (yet) been made by the authorities. The Opinion proposed that, in such instances, depositors should have access to an appropriate daily amount from their deposits. Similarly, the EBA recommended that the EU framework could benefit from more clarity on DGS payouts where there are money laundering/ terrorism financing concerns. Throughout the Opinion, the EBA underlined the importance of enhancing depositor protection, and clearly informing depositors about the most relevant features of such protection, in normal times, as well as during a DGS payout. Finally, the Opinion proposed further work to establish the best way to reimburse depositors who have placed deposits with credit institutions protected by DGSs other Member States.

Legal basis

Article 19(6) DGSD requires the EBA to support the EU Commission in its development of a report on the progress towards the implementation of the DGSD. The Opinion on DGS funding and uses of DGS funds is the third part of the EBA’s fulfilment of this mandate, which should be read alongside two other Opinions – on eligibility of deposits, coverage level and cooperation between DGSs, and on DGS payouts.

The EBA invites the Commission to consider the proposals outlined in the Opinions when preparing a report on the implementation of the DGSD to be submitted to the European Parliament and the Council.

 

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EBA consults on revised guidelines on money laundering and terrorist financing risk factors

05 February 2020

The EBA issued today a public consultation on revised money laundering and terrorist financing (ML/TF) risk factors Guidelines as part of a broader communication on AML/CFT issues. This update takes into account changes to the EU Anti Money Laundering and Counter Terrorism Financing (AML/CFT) legal framework and new ML/TF risks, including those identified by the EBA’s implementation reviews. These Guidelines are central to the EBA’s work to lead, coordinate and monitor the fight against money laundering and terrorist financing, explained in the accompanying factsheet. The consultation runs until 06 July 2020.

These Guidelines, which are addressed to both financial institutions and supervisors, set out factors that institutions should consider when assessing the ML/TF risk associated with a business relationship or occasional transaction. In addition, they provide guidance on how financial institutions can adjust their customer due diligence measures to mitigate the ML/TF risk they have identified. Finally, they support competent authorities’ AML/CFT supervision efforts when assessing the adequacy of firms’ risk assessments and AML/CFT policies and procedures.

In its revised version, the EBA is proposing key changes, including new guidance on compliance with the provisions on enhanced customer due diligence related to high-risk third countries. New sectoral guidelines have been added on crowdfunding platforms, corporate finance, payment initiation services providers (PISPs) and account information service providers (AISPs) and for firms providing activities of currency exchanges offices.

The revised Guidelines also provide more details on terrorist financing risk factors and customer due diligence (CDD) measures including on the identification of the beneficial owner, the use of innovative solutions to identify and verify the customers’ identity. In addition, they set clear regulatory expectations of firms’ business-wide and individual ML/TF risk assessments.

The proposed changes will significantly strengthen Europe’s AML/CFT defences and foster greater convergence of supervisory practices in areas where supervisory effectiveness has been hampered, so far, by divergent approaches in the implementation of the same European legal requirements.

Consultation process

Comments to the draft Guidelines can be sent by clicking on the "send your comments" button on the EBA's consultation page. Please note that that due to the current Covid-19 situation the deadline for the submission of comments has been extended to 6 July 2020.

All contributions received will be published following the close of the consultation, unless requested otherwise.
The EBA will hold a public hearing on the draft Guidelines, which will take place via conference call on 15 May 2020 from 14:00 to 16:00 Paris time. The dial in details will be communicated in due course.

Legal Basis and background

Article 17 and 18 of Directive (EU) No 2015/849, mandate the ESAs to issue Guidelines addressed to both Competent Authorities and to credit and financial institutions on the risk factors to be considered and the measures to be taken in situations where simplified customer due diligence and enhanced customer due diligence are appropriate.

In June 2017, the three ESAs issued Guidelines on customer due diligence and the factors credit and financial institutions should consider when assessing the money laundering and terrorist financing risks associated with individual business relationships and occasional transactions (JC 2017 37). Since then, the applicable legislative framework in the EU has changed. On 9 July 2018, Directive (EU) 2018/843 (AMLD5) entered into force and is applicable from 10 January 2020. Moreover, new risks have emerged and have been identified in the ESAs’ 2019 Joint Opinion. The European Commission’s post mortem report and the EBA’s implementation reviews has highlighted widespread challenges in the operationalisation and supervision of the risk-based approach to AML/CFT. Therefore, a review of the original Risk Factors Guidelines was warranted.

The scope of the EBA’s consultation is limited to the amendments and additions to the original risk factors Guidelines, which will be repealed and replaced with the revised Guidelines.

The EBA has a new legal mandate to lead coordinate and monitor the financial sector’s fight against ML/TF across the EU. Information on how the EBA will discharge its AML/CFT functions is set out in a factsheet published today.

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EBA acts to improve AML/CFT supervision in Europe

05 February 2020

•    Results from the first AML implementation review highlight that competent authorities are working hard to reform their approach to AML/CFT supervision. 
•    Challenges remain that need to be addressed to ensure AML/CFT supervision is risk based, proportionate and effective.
•    The EBA is reviewing competent authorities’ approach to AML/CFT supervision as part of its duty to lead, coordinate and monitor European supervisors’ AML/CFT policies and efforts.

The European Banking Authority (EBA) published today its first Report on competent authorities’ approaches to the anti-money laundering and countering the financing of terrorism (AML/CFT) supervision of banks. This publication is part of the EBA’s new role to lead, coordinate and monitor the fight against money laundering and terrorist financing (ML/TF) in all EU Member States, which is further explained in the accompanying factsheet

The EBA’s findings show that most competent authorities in this year’s sample are taking significant steps to strengthen their approach to AML/CFT supervision. AML/CFT supervisory staff have a good understanding of international and European AML/CFT standards and are committed to the fight against financial crime. Several competent authorities have made the fight against ML/TF one of their key priorities, and in a number of cases, significantly expanded their AML/CFT supervisory teams.

Nevertheless, the EBA found that significant challenges remain and are common to all competent authorities in the sample. These include the need to move away from a focus on tick box compliance to assessing the effectiveness of banks’ AML/CFT systems and controls. Competent authorities also need to strengthen their approach to ensuring compliance by taking more proportionate and sufficiently dissuasive measures to correct deficiencies in banks’ AML/CFT systems and controls.  Finally, the EBA found that not all competent authorities were able to cooperate effectively with domestic and international stakeholders to draw on synergies and to position AML/CFT in the wider national and international supervisory framework.

The EBA’s findings and associated recommendations are relevant to all AML/CFT competent authorities regardless of whether they were included in this year’s sample.

Note to editors

  1. The European Union (EU) has a comprehensive legal framework to tackle money laundering and terrorist financing. Nevertheless, there has been a constant stream of high profile ML/TF cases involving European banks. These scandals, together with findings by international AML/CFT assessment bodies, point to deficiencies in some competent authorities’ approaches to their AML/CFT supervision of banks, have led to suggestions that supervisors should do more to ensure that Europe’s AML/CFT framework is implemented consistently and effectively. The EBA, therefore, decided to review the effectiveness of national competent authorities’ approaches to the AML/CFT supervision of banks, and to support individual competent authorities’ AML/CFT efforts.

The EBA has a new legal mandate to lead, coordinate and monitor the financial sector’s fight against ML/TF across the EU. Information on how the EBA will discharge its AML/CFT functions is set out in a factsheet published today.

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EBA calls for measures to ensure a more balanced composition of management bodies in institutions

03 February 2020

The European Banking Authority (EBA) issued a new benchmarking report on diversity practices in credit institutions and investment firms analysing the development since its 2015 diversity benchmarking exercise. Based on data as of September 2018, still many institutions, 41.61% out of 834, have not adopted a diversity policy. The representation of women in management bodies is still relatively low and many institutions do not have a gender diverse board. The EBA calls on institutions and Member States to consider additional measures for promoting a more balanced representation of both genders and on competent authorities to ensure institutions’ compliance with the requirement to adopt diversity policies.

More diverse management bodies can help improve decision-making regarding strategies and risk-taking by incorporating a broader range of views, opinions, experiences, perceptions, values and backgrounds. All institutions are required to adopt a policy promoting diversity within their management bodies. The issue of diversity is not limited to gender; it also concerns the age, professional and educational background, and geographical provenance of the members of the management body. Despite the legal requirements, a significant proportion of institutions have still not adopted a diversity policy and not all institutions that have adopted a diversity policy promote gender diversity by setting a target for the under-represented gender.

The gender representation in institutions’ management bodies continued to differ significantly between Member States. At EU-wide level, in 2018, two thirds (66.95%) of institutions had executive directors of only one gender. In nearly all such cases, the board was composed only of men. The situation in the largest institutions in each Member State (significant institutions) improved slightly but in 2018 was still not satisfactory as 50.63% of them (60.34% in 2015) had no female members of the management body in their management function. With regard to the supervisory function, 70.78% of institutions have non-executive directors of both genders.

The overall representation of women in management bodies in their management function has improved slightly, reaching 15.13% in 2018 (2015, 13.63%), and their representation in management bodies in their supervisory function has improved significantly, reaching 24.02% (18.90% in 2015).

The EBA analysed whether there was in 2018 a correlation between the profitability of a credit institution and the composition of the executive directors within the management body Credit institutions that have executive directors of both genders seem to have a higher probability of a return on equity (ROE) at or above the average of 6.42% than credit institutions with executive directors of only one gender. While 54.70% of the credit institutions with more gender-balanced management bodies in their management function have an ROE at or above 6.42%, only 40.69% of those with executive directors of just one gender reach that ROE level. Moreover, the average ROE for institutions with gender-diverse management functions is above the average for other institutions (7.28% versus 5.95% respectively).

The EBA also collected data on remuneration for the management body to establish if there is a gender pay gap. In most institutions, the remuneration of male members of the management body is higher than that for female members. This can partly be explained by the fact that only 8.53% of chief executive officers (CEOs) and 9.49% of chairpersons are female, and higher remuneration is usually paid for those functions. However, the different roles alone cannot explain the observed differences in pay.

Legal basis and next steps

This report has been developed in line with Article 91 (11) of Directive 2013/36/EC which requires Competent Authorities to collect the information disclosed on the diversity policy, and the extent to which these objectives and targets have been achieved in accordance with Article 435(2)(c) of Regulation (EU) No 575/2013 and shall use it to benchmark diversity practices. Competent Authorities shall provide the EBA with this information, which shall be used to benchmark diversity practices at European Union (EU) level.

Under the amended Directive 2013/36/EU, the EBA is mandated to benchmark gender-neutral remuneration practices, and it will carry out further work in this area. The EBA will continue to monitor diversity in management bodies and issue periodical benchmark studies on diversity.

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EBA launches 2020 EU-wide stress test exercise

31 January 2020

The European Banking Authority (EBA) launched today the 2020 EU-wide stress test, the fifth exercise since its establishment, and released the macroeconomic scenarios. The adverse scenario follows for the first time a ‘lower for longer’ narrative, a recession coupled with low or negative interest rates for a prolonged period. The EU real GDP would decline by 4.3% cumulatively by 2022, resulting in the most severe scenario to date. The EBA expects to publish the results of the exercise by 31 July 2020.

Key features of the exercise

The stress test is designed to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of EU banks to economic shocks. In line with the previous two exercises, no pass-fail threshold has been included as the results of the exercise are designed to serve as an input to the Supervisory Review and Evaluation Process (SREP).

The EBA’s 2020 stress test methodology was published in November 2019 [1] and is to be applied to the scenarios released today.

Key elements of the scenarios

The baseline scenario for EU countries is based on the projections from the national central banks of December 2019 [2], while the adverse scenario assumes the materialisation of the main financial stability risks that have been identified by the European Systemic Risk Board (ESRB) and which the EU banking sector is exposed to. The adverse scenario also reflects recent risk assessments by the EBA.

The narrative depicts an adverse scenario related to a prolonged period of historically low interest rates coupled with a strong drop in confidence leading to a significant weakening of economic growth in EU countries. This is amplified by trade tensions at the global level. Slowing growth momentum and/or rising risk premia could further challenge debt sustainability in the public and private sectors across the EU.

The possible prolongation of negative growth and the low interest rate environment could further exacerbate the search for yield behaviour by investors, leading to under-pricing of risks and asset price misalignments, which could reverse as market sentiment changes and/or risks materialise.

The adverse scenario is designed to ensure an adequate level of severity across all EU countries. By 2022, the EU real GDP would decline by 4.3% cumulatively, the unemployment rate would rise by 3.5 percentage points, equity prices in global financial markets would fall by 25% in advanced economies and by 40% in emerging economies, residential real estate prices would decline by 16%, and commercial real estate prices would decline by 20%.

Detailed information about the adverse scenario can be found in the note produced by the European Systemic Risk Board (ESRB).

Process

The adverse macroeconomic scenario has been developed by the ESRB and the ECB in close cooperation with the EBA, competent authorities and national central banks.

The EBA, who is responsible for coordinating the whole exercise, developed a common methodology and will act as a data hub for the final dissemination of the results, in line with its commitment to enhancing the transparency of the EU banking sector. Competent authorities will assure the quality of the results and decide on any necessary supervisory reaction measure as part of the SREP process.

 Notes for editors

  • The EU-wide stress test will be conducted on a sample of 51 EU banks – 35 from countries under the jurisdiction of the Single Supervisory Mechanism (SSM) – covering roughly 70% of total banking sector assets in the EU and Norway, as expressed in terms of total consolidated assets as of end 2018. UK banks will be included in the sample as the 2020 EU-wide stress test takes place during the implementation period following the UK’s withdrawal from the EU.

The exercise will be run at the highest level of consolidation. This exercise will involve close cooperation between the EBA and the competent authorities (including the SSM, the ECB and the ESRB).

(1) In the package that was published today, the sample has been revised.

(2) For non EU-countries, the projections are mainly based on the projections from the October 2019 IMF World Economic Outlook and on the November 2019 OECD Economic Outlook.

 

 

EBA releases its annual assessment of the consistency of internal model outcomes

31 January 2020

The European Banking Authority (EBA) published today two Reports on the consistency of risk weighted assets (RWAs) across all EU institutions authorised to use internal approaches for the calculation of capital requirements. The reports cover credit risk for high and low default portfolios (LDPs and HDPs), as well as market risk. The results confirm that the majority of risk-weights (RWs) variability can be explained by fundamentals. These benchmarking exercises are a fundamental supervisory and convergence tool to address unwarranted inconsistencies and restoring trust in internal models.

Credit Risk exercise

The credit risk Report examines the different drivers leading to the observed dispersion across banks' models. The results are broadly in line with previous exercises, with 50% of the difference in variability explained with simple risk drivers (“top down analysis”), a RW deviation on LDPs below 10 percentage points (“common counterparty analysis”) and estimates for HDPs generally on the conservative side when compared with empirical observed metrics (“backtesting analysis”).

Furthermore, this year, for the first time, on HDPs, the EBA performed a comparison with the standardised approach (SA) risk weights. The overall observed variability under the SA is at a similar level than the one observed on IRB. In this regard, within a single exposure class, the variability under the IRB approach follows, in a conservative manner, the empirical variability of risk (observed via default rates). On the other side, it is worth noting that the variability of RWAs in the SA is less linked to the empirical risk variability.

As in previous years, the quantitative analysis is complemented with a qualitative one in order to better understand the quantitative metric of the exercise. In addition to a questionnaire filled in by supervisors and interviews conducted with seven institutions, a survey was carried out among institutions to better assess the variability of practices in terms of rating scales. This survey highlights the variability of practices on the type of calibration of the probability of default (PDs).

Market Risk exercise

The Report presents the results of the 2019 supervisory benchmarking and summarises the conclusions drawn from a hypothetical portfolio exercise (HPE) that was conducted by the EBA during 2018/19.

The 2019 exercise is the first exercise with the new set of hypothetical instruments and portfolios. The new set of instruments mainly consists of vanilla instruments and is more extensive in terms of the number of instruments to model with respect to the three previous benchmarking exercises. Compared to the previous exercises, the 2019 analysis shows a substantial reduction in terms of dispersion in the initial market valuation and some reduction in risk measures, especially for the aggregated portfolios. This improvement was expected and is likely due to the simplification in the market risk benchmarking instruments. The remaining dispersion is probably the result of new benchmarking instruments being used by banks for the first time

As for the dispersion, the bulk of it has been examined and justified by the banks and the competent authorities. A minor part of the outlier observations remain unexplained and are expected to be part of the on-going supervisory activities.

The quantitative analysis, which has been extended in terms of scope with respect to the previous exercises, was also complemented by a questionnaire to competent authorities. Although the majority of the causes were identified, and actions put in place to reduce the unwanted variability of the hypothetical RWAs, the effectiveness of these actions can be evaluated only with on-going analysis.

Note to the editors

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EBA updates its guidelines on fraud reporting under PSD2

22 January 2020

The European Banking Authority (EBA) publishes today an amendment to its 2018 guidelines on fraud reporting under the revised Payment Services Directive (PSD2). The changes reflect some consequential amendments to the reporting templates under the guidelines as a result of clarifications provided more recently by the European Commission on the application of strong customer authentication (SCA) to certain type of transactions.

More specifically, the amendment introduces two new data fields for reporting transactions where SCA is not applied for reasons other than an exemption to SCA under the Commission Delegated Regulation (EU) 2018/389, with the aim of ensuring that these transactions are reported in a consistent and correct manner across the EU/EEA.

In addition, some editorial changes to the guidelines were introduced for greater clarity.

A consolidated version of the updated guidelines is published alongside the amending guidelines for convenience purposes.

Application date

The amendments will apply to the reporting of payment transactions initiated and executed from 1st July 2020.

Legal basis

These amending Guidelines have been drafted according to Article 16 of the EBA Regulation and in fulfilment of the EBA mandate under Article 96(6) of Directive (EU) 2015/2366 on payment services in the internal market (PSD2).

EBA consults on the future of the EU-wide stress test framework

22 January 2020

The European Banking Authority (EBA) launched today a public consultation on possible future changes to the EU-wide stress test. This discussion paper aims to present the EBA’s vision of the future of the EU-wide stress test and to collect comments and feedback from the different users. The proposal envisages two components owned by supervisors and banks respectively: the supervisory leg and the bank leg. The consultation runs until 30 June 2020.

 

"The framework we are proposing today aims at making the EU-wide stress test more informative, flexible, and cost-effective. It is the first time we embark on a comprehensive discussion on the future of EU stress testing and we are keen to receive feedback from a wide range of stakeholders."

José Manuel Campa, EBA Chairperson

Key features of the new framework                       

Since 2011, the EU-wide stress test has contributed to improving banks’ resilience after the financial crisis, has enhanced transparency and has been instrumental in restoring trust in the EU banking sector. The proposed new framework tries to balance the need to preserve comparability and conservatism, while allowing for more flexibility in order to identify banks’ idiosyncratic risks.

The proposal envisages two components owned by supervisors and banks respectively: the supervisory leg and the bank leg. The supervisory leg serves as the starting point for supervisory decisions and would be directly linked to the setting of Pillar 2 Guidance (P2G). The bank leg, on the other hand, allows banks to communicate their own assessment of risks in an adverse scenario.

To ensure a certain level of comparability, both legs would use the same common scenarios and starting points for projecting the stress test results.

The supervisory leg would be based on a common EU methodology, in line with the current constrained bottom-up approach but with the possibility for competent authorities to adjust or replace banks’ estimates based on top-down models or other benchmarking tools.

The methodology for the bank leg would be less prescriptive than today and give banks more discretion in calculating their projections. In practice, banks would use the same common methodology as in the supervisory leg, but would be allowed to relax the methodological constraints to the extent they can explain and disclose the rationale and impact of such deviations.

The standards for the disclosure of the results should remain high. For the bank leg, the proposed disclosure is as granular as it is today, including the overall outcome in terms of capital depletion, main risk drivers, and detailed data on exposures. For the supervisory leg, granularity would be more limited in quantity, but very relevant in terms of supervisory decisions. In particular, the discussion paper seeks views on three possibilities: (i) disclosing P2G, (ii) disclosing ranges of P2G or (iii) disclosing not P2G but the CET1 capital depletion net of any supervisory adjustments so that the results are informative in terms of supervisory expectations regarding capital distribution.

As for the scenario design, the discussion paper is considering costs and benefits of multiple macroeconomic scenarios. In addition, feedback is requested on the feasibility of introducing exploratory scenarios, which would focus on potential risks with very short realisations (e.g. liquidity risk) or coming from longer-term changes in the business environment (environmental, social and political) or in technology.  

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that due to the current Covid-19 situation the deadline for the submission of comments is has been extended to 30 June 2020.

A public hearing will take place at the EBA premises on 21 February 2020 from 10:30 to 12:30 CET. All contributions received will be published following the end of the consultation, unless requested otherwise.

Notes to editors

The 2020 EU-wide stress test will be conducted according to the current framework and its results will be published in July 2020.

EBA found that Competent Authorities have properly applied standards on identified staff

16 January 2020

  • The Review Panel has not detected any deficiencies nor major issues regarding the application of the RTS from 1 January 2015 to 31 December 2017.
  • The Report has highlighted a number of best practices and weaknesses.

The European Banking Authority (EBA) published today its Report on the application by Competent Authorities (CAs) of the EBA regulatory technical standards (RTS) on the criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile. This Peer Review shows that, within the European Economic Area (EEA), CAs have applied properly the RTS during the reference period from 1 January 2015 to 31 December 2017. 

The Review Panel identified a number of best practices and weaknesses from CAs. As to the best practices, this Report highlights, in particular, the institution’s notification and prior approval process on the exemptions of identified staff, the assessment of the application of such exemptions, and the supervisory tools for assessing the institutions’ compliance.

As to the weaknesses, the Report highlighted that although CAs typically follow a risk-based approach, some of them have some difficulties to distinguish their standard risk-based methods of supervision and the application of the proportionality principle. This leads to diverging approaches and, in a few cases to the exclusion of certain institutions from the supervisory review on a systematic basis. 

Legal basis

Peer review exercises are conducted in accordance with the provisions of Article 30 of the EBA Founding Regulation and the EBA decision establishing the Review Panel.