Banking and Finance

Issue 1158 / 5 May 2022

Council of the European Union

Updates to EU bank resolution framework - Council of the EU announces provisional agreement on ‘Daisy Chain’ proposal - 28 April 2022

The Council of the EU (the Council) has announced a provisional agreement with the European Parliament on the proposed Regulation making targeted amendments to the Capital Requirements Regulation (575/2013/EU) (CRR) regarding total loss absorbing capacity (TLAC), the minimum requirement for own funds and eligible liabilities (MREL) and the Bank Recovery Resolution Directive (2014/59/EU) (BRRD). The focus of the proposed Regulation, adopted by the European Commission (the Commission) in October 2021 and referred to as the ‘Daisy Chain’ proposal, is on the treatment of indirect subscriptions for instruments eligible for internal MREL.

The provisional agreement introduces a revised deduction regime to avoid double-counting MREL elements at the level of intermediate entities and a carefully framed review clause to take into account the impact on different types of banking structures. It also incorporates a transitional regime for multiple point of entry groups until the end of 2024, subject to an assessment by EU resolution authorities.

The agreement is subject to approval by the Council and the European Parliament, after which it will go through the formal adoption procedure. The agreed revised text has not yet been published.

Press release: Daisy Chains: provision agreement on a revised bank resolution framework

European Banking Authority

Review of the EU banking macroprudential framework - EBA publishes response to European Commission’s call for advice - 29 April 2022

The European Banking Authority (EBA) has published its response to the European Commission’s July 2021 call for advice on the review of the EU banking macroprudential framework under article 513 of the Capital Requirements Regulation (575/2013/EU) (CRR).

Among other things, the EBA recommends a comprehensive review of the interaction between macroprudential measures and other capital requirements, such as the leverage ratio, own funds and eligible liabilities requirements. It also sees room for the harmonisation of methodologies covering both the identification of other systemically important institutions and the setting of buffer rates. The EBA is in favour of establishing an oversight and monitoring system for non-bank lenders and enlarging the scope of the macroprudential framework to cover non-bank lenders.

The Commission is required to review the macroprudential provisions in CRR and CRD IV by June 2022 and, if appropriate, to submit a legislative proposal to the European Parliament and the Council of the EU by December 2022.

EBA advice on the review of the macroprudential framework: Response to the Commission’s July 2021 call for evidence

Press release

Environmental risks in prudential framework - EBA publishes discussion paper - 2 May 2022

The EBA has published a discussion paper (EBA/DP/2022/02) on the role of environmental risks in the prudential framework for credit institutions and investment firms, as required by article 501c of the Capital Requirements Regulation (575/2013/EU) (CRR) and article 34 of the Investment Firms Regulation ((EU) 2019/2033) (IFR).

The Paper explores whether and how environmental risks are to be incorporated into the Pillar 1 prudential framework. It stresses the importance of collecting relevant and reliable information on environmental risks and their impact on institutions’ financial losses. It also highlights the need for a holistic regulatory approach that takes into account the EBA’s broader work on ESG, including in relation to transparency measures, risk management, Pillar 2 supervision and macroprudential capital buffers.

The deadline for responses to the discussion paper is 2 August 2022.

EBA Discussion Paper: The role of environmental risks in the prudential framework (EBA/DP/2022/02)


Press release

CRR - EBA publishes final report on draft ITS on the mapping of credit assessments of ECAIs for securitisation - 3 May 2022

The EBA has published its final report (EBA/ITS/2022/03) (dated 7 March 2022) containing draft amended implementing technical standards (ITS) to Commission Implementing Regulation EU/2016/1801 on the mapping of credit assessments of external credit assessment institutions (ECAIs) for securitisation, in accordance with article 270e of the Capital Requirements Regulation (575/2013/EU) (CRR). The EBA published a Consultation Paper (EBA/CP/2021/44) on the proposed amendments in December 2021.

The EBA received positive feedback in agreement with its proposals. It is therefore proceeding with the draft ITS as consulted on.

The draft ITS reflect amendments introduced by the new Securitisation Framework (Regulation EU/2017/2401), as well as the mappings for two ECAIs that have extended their credit assessments to cover securitisations.

EBA Final Report: Draft implementing technical standards amending Implementing Regulation (EU) 2016/1801 on the mapping of credit assessments of external credit assessment institutions for securitisation in accordance with Regulation (EU) No 575/2013 (EBA/ITS/2022/03)

Press release

Equivalence of confidentiality and professional secrecy regimes - EBA publishes updated Guidelines - 3 May 2022

The EBA has updated its Guidelines for assessing the equivalence of confidentiality and professional secrecy regimes, to widen the scope and the purpose of the assessment. The EBA uses the Guidelines in order to perform its equivalence assessment evaluating the professional secrecy and confidentiality regimes that apply to third-country authorities, thereby facilitating cooperation with third-country authorities as well as the functioning of supervisory and (where relevant) resolution colleges.

The updated Guidelines allow for:

  • a wider scope of the assessment to include all relevant provisions in the Capital Requirements Directive (2013/36/EU) (CRD IV), the revised Payment Services Directive ((EU) 2015/2366) (PSD2), the Bank Recovery and Resolution Directive ((EU) 2015/59) (BRRD) and the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4), as applicable to the specific third country authorities; and
  • a wider purpose to support cooperation arrangements and facilitate participation in supervisory, resolution and anti-money laundering colleges.

The Guidelines will be translated into the official EU languages and published on the EBA website. National competent authorities will then have two months to report whether they comply with the Guidelines. The Guidelines will apply two months after their publication, at the latest.

EBA Final Report: Guidelines on the equivalence of confidentiality and professional secrecy regimes of third-country authorities (EBA/GL/2022/04)

Principles for the assessment of confidentiality and professional secrecy

Press release

Non-bank lending - EBA publishes final report on advice to European Commission - 4 May 2022

The EBA has published a final report (the Report) setting out its technical advice to the European Commission on non-bank lending, which is defined as lending provided by financial intermediaries outside the EU financial services regulator perimeter. This advice responds to the Commission’s February 2021 call for advice on digital finance and related issues, and is accompanied by a letter to the Commission.​​​​​​​

The EBA observes that, while the magnitude of non-bank lending remains very small compared to credit provided by banks, developments in the areas of Fintech and BigTech (including in relation to cryptoassets) are reshaping the landscape. The EBA further concludes that analysis of the regulatory regimes currently in place demonstrates that non-bank lending remains largely unharmonised across the EU.

After providing an overview of different Member State approaches to non-bank lending, the Report goes on to identify areas where specific risks flowing from the provision of credit by non-bank lenders have been detected, and sets out proposals to address these risks. The proposals include:

  • enhancing disclosure requirements and ensuring that they are fair, effective and well-suited for new forms of lending;
  • strengthening requirements for creditworthiness assessments;
  • strengthening existing provisions around authorisation and admission to activities, and clarifying the identification of the prudential perimeter; and
  • covering all non-bank lenders in a more comprehensive way in the EU-wide AML/CFT framework to achieve greater harmonisation.

EBA Final Report on response to the non-bank lending request from the CfA on digital finance (EBA/Rep/2022)

EBA letter to European Commission: European Commission request to EBA for technical advice on non-bank lending (EBA-2022-D-3928)

Press release​​​​​​​

CRD IV - EBA publishes final report on draft ITS on benchmarking of internal models - 5 May 2022

The EBA has published a final report (the Report) on draft implementing technical standards (ITS) updating Commission Implementing Regulation (EU) 2016/2070 on the benchmarking of internal models, in preparation for its 2023 benchmarking exercise.

The updated ITS include all benchmarking portfolios and metrics that will be used for the 2023 exercise. The EBA explains that the benchmarking exercise is an essential supervisory tool to monitor and enhance the quality of internal models, which are relevant for the assessment of the institution’s capital adequacy. The exercise covers approved internal ratings-based (IRB) approaches used for own funds requirements calculation of credit and market risk, as well as internal models used for IFRS9.

The EBA will now submit the draft ITS to the European Commission for endorsement. They will apply 20 days after their publication in the Official Journal of the European Union.

EBA Final Report: Draft Implementing Technical Standards on amending Commission Implementing Regulation (EU) 2016/2070 with regard to benchmarking of internal models (EBA/ITS/2022/04)

Annexes (zip file)

Press release

Bank of England

RTGS Renewal and CHAPS - Bank of England publishes consultation papers - 29 April 2022

The Bank of England (the Bank) has published two consultation papers related to the Real-Time Gross Settlement (RTGS) service: one that sets out proposals for a new framework for RTGS and CHAPS tariffs; and another on the next stage of the roadmap for the RTGS service beyond 2024.

The Bank is in the process of renewing the RTGS infrastructure, with a move to enhanced ISO 20022 for CHAPS payments scheduled for Spring 2023 and implementation of a new core settlement engine in Spring 2024.

The first consultation relates to the recovery of costs incurred by the Bank in building and running the RTGS and CHAPS services. The Bank notes that, going forward, fees will need to cover the cost of building the renewed RTGS service, the future costs of running RTGS (and the CHAPS payment system) together with an allowance to keep the underlying hardware current.

The second consultation seeks industry views on what features they would like to see investment in for the next stage of the roadmap for RTGS beyond 2024. The Bank is particularly interested in hearing from existing RTGS participants on features that could change how organisations currently interact with the service, such as new ways to connect, maintaining and enhancing RTGS resilience and extending operating hours.

The deadline for responses to both consultations is 30 June 2022. The Bank will publish its final tariff approach and feedback summary on the RTGS roadmap in late 2022.

RTGS - CHAPS Tariff Consultation

Roadmap for Real-Time Gross Settlement service beyond 2024

Prudential Regulation Authority

Developing a ‘strong and simple’ prudential framework - PRA publishes Consultation Paper (CP5/22) - 29 April 2022

The PRA has published a Consultation Paper (CP5/22) on the definition of a ‘Simpler-regime Firm’ under the proposed ‘strong and simple’ prudential framework for smaller UK banking firms. It follows the PRA’s April 2021 Discussion Paper (DP1/21) and December 2021 Feedback Statement (FS1/21) on the proposed framework, as previously reported in this Bulletin.

As set out in DP1/21, the PRA is seeking to mitigate the ‘complexity problem’ that can arise when the same prudential requirements are applied to all firms. It aims to achieve this through its ‘strong and simple’ initiative that would seek to simplify the prudential framework for non-systemic domestic banks and building societies, while maintaining their resilience. Since this would be a major change in prudential policy, taking a number of years to develop and implement, the PRA is starting to achieve its aim by first developing a ‘simpler regime’ for the smallest firms. This approach aims to ensure the benefits of simplification are experienced by the largest number of firms as soon possible.

The Consultation Paper sets out the PRA’s proposals for introducing a definition of a ‘Simpler-regime Firm’ in the PRA Rulebook, which would be the first step in designing a strong and simple framework. To be considered a Simpler-regime Firm, a firm must:

  • have total assets less than £15 billion, calculated using the average of the firm’s total assets reported during the previous 36 months;
  • have at least 85% of its relevant credit exposures located in the UK;
  • on the last day of the preceding month, have on- and off-balance-sheet trading book business equal to or less than both 5% of the firm’s total assets and £44 million;
  • have total net foreign exchange positions that do not exceed in value 2% of its own funds;
  • hold no positions in commodities or commodity derivatives;
  • not apply the Internal Ratings Based Approach to calculate its risk-weighted exposure amounts for credit risk;
  • not provide clearing, transaction settlement, custody or correspondent banking services to a UK bank or building society, or to a credit institution whose registered office or, if it does not have a registered office, whose head office, is outside the UK;
  • not be an operator of a payment system; and
  • if it is a subsidiary, only be a subsidiary of a UK undertaking.

The deadline for responses is 22 July 2022. The PRA plans to consult on other aspects of the ‘simpler regime’ layer of the strong and simple framework, including the requirements that would apply under this regime, in early 2023. The second set of proposals is likely to follow in 2024.

The PRA notes that it would also need to take account of other planned changes to prudential regulation when bringing forward these reforms.

PRA Consultation Paper: The Strong and Simple Framework: a definition of a Simpler-regime Firm (CP5/22)