EUROPEAN COMMISSION
Supervisory data collection – European Commission publishes roadmap – 18 May 2021
The European Commission (Commission) is inviting feedback on the roadmap for its initiative “strategy on supervisory data collection in EU financial services”.
This strategy, announced in the Commission’s digital finance strategy adopted in September 2020, aims to improve the collection of supervisory data (i.e. data reported to EU and national authorities for the supervision of the financial system) and make it fit for the future. The strategy aims to target shortcomings in five areas that were flagged during the Commission’s fitness check of supervisory reporting requirements, as follows: the legislative process and instruments, governance, data needs and uses, data consistency and harmonisation, and technology.
The strategy will consider a number of co-ordinated sectoral and horizontal measures that contribute to the overall objective of improving and modernising supervisory data collection, which will likely be implemented over a number of years. The former may include, among other things, the development of common data templates and provisions to facilitate data sharing. Horizontal measures considered will focus on developing a common data dictionary (i.e. a repository of information about the data, including its meaning, relationships to other data, origin, usage, and format), enhancing data sharing and access, and improving the overall design of reporting requirements in EU legislation.
Feedback on the roadmap will be taken into account in order to further develop the initiative. The feedback period closes on 15 June 2021 and the Commission plans to adopt the initiative in Q4 2021.
Roadmap
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EUROPEAN supervisory AUTHORITies
Securitisation regulation – The European Supervisory Authorities publish report – 17 May 2021
The Joint Committee of the European Supervisory Authorities (ESAs), that is the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, have published a report on the implementation and functioning of the Securitisation Regulation ((EU) 2017/2402).
The report includes recommendations on how to address initial inconsistencies and challenges which may affect the overall efficiency of the current securitisation regime, and is intended to provide guidance to the European Commission in the context of its review of the functioning of the EU Securitisation Regulation. It also provides initial inputs to the ongoing discussion on the efficiency of the securitisation framework given the role that securitisation could play in the recovery post-COVID-19.
In particular, the report highlights:
- Transparency requirements: a more precise legal definition for private securitisations should be specified in order to identify clearly private securitisations that should comply with the transparency requirements. It is also proposed that data reported for those private securitisations should be made available through a securitisation repository.
- Due diligence requirements: the ESAs note that regulatory guidance would be useful to specify how proportionality could be implemented in the area of due diligence to facilitate entrance of new investors into the EU securitisation market.
- Criteria for simple, transparent and standardised (STS) securitisation: targeted amendments in the STS criteria are needed to facilitate the use of the STS label for asset-based commercial paper programmes.
- Supervision of securitisation requirements: in order to enhance the supervision of securitisation requirements, it is deemed necessary to explore: (i) how to develop common EU supervisory tools; (ii) potential alternatives to the current STS supervisory framework, in particular for those jurisdictions with limited STS securitisation issuances; and (iii) the relevance of a common EU approach to the ongoing supervision of authorisation conditions for third-party verifiers.
European Supervisory Authorities Report: Joint Committee report on the implementation and functioning of the securitisation regulation (Article 44) (JC 2021/31)
Press Release
EUROPEAN BANKING AUTHORITY
CRD IV – European Banking Authority publishes report on member states’ reliance on external credit ratings – 17 May 2021
The European Banking Authority (EBA) has published a report (EBA/REP/2021/10) analysing the extent to which member states’ national law relies on external credit ratings.
Article 161(3) of the Capital Requirements Directive (2013/36/EU) (CRD IV) requires the EBA to publish a biannual report analysing the extent to which member states refer to external credit ratings for regulatory purposes and the steps taken to reduce such references.
The EBA found that references to external credit ratings were not material. Also, using EBA supervisory reporting data, the report showed that the use of external credit ratings in the calculation of risk-weighted exposure amounts under the standardised approach, and under the external ratings based approach of the securitisation framework, was limited.
Based on the quantitative data collected, the EBA considers that there is limited value in producing a regular report on this issue and recommends that the mandate laid down in Article 161(3) of CRD IV should be removed. It also notes that changes to member states’ laws relating to the use of credit ratings introduced by CRD IV and the securitisation framework in the Capital Requirements Regulation (575/2013/EU) are already in effect and that the final Basel III reforms intend to further amend the standardised approach for credit risk to reduce reliance on external credit ratings through enhanced due diligence.
Report: Reliance on external credit ratings (Directive 2013/36/EU Article 161(3)) (EBA/REP/2021/10)
Press Release
EUROPEAN CENTRAL BANK
Securitisation Regulation – European Central Bank announces it will start supervising credit institutions’ compliance – 14 May 2021
The European Central Bank (ECB) has announced it will start supervising the compliance of those credit institutions for which it has direct supervisory responsibility with requirements for risk retention, transparency and resecuritisation as set out in Articles 6 to 8 of the Securitisation Regulation ((EU) 2017/2404).
In April 2021 Regulation (EU) 2021/557 (Amending Regulation) - which made amendments to the Securitisation Regulation as part of the COVID-19 capital markets recovery package - was published in the Official Journal of the European Union. Recital 26 of the Amending Regulation stated that monitoring the compliance of financial institutions with the obligations in Article 5 to 9 of the Securitisation Regulation was the responsibility of competent authorities in charge of their prudential supervision.
The ECB is of the view that, following this clarification, the supervision of risk retention, transparency and the ban on resecuritisation requirements falls within the scope of its direct supervision of credit institutions. The ECB aims to define how it intends to perform this role over the coming months and it then intends to provide further details on its supervisory approach and model. This will include obligations for credit institutions to notify their supervisor of securitisation-related activities.
Press Release: ECB Banking Supervision to supervise securitisation requirements for banks
Single supervisory mechanism – European Central Bank adopts amendments on reporting of supervisory financial information – 18 May 2021
The European Central Bank (ECB) has adopted a Regulation (ECB/2021/24) (Amending Regulation) amending ECB Regulation (EU) 2015/534 on the reporting of supervisory financial information under the single supervisory mechanism (SSM) (Financial Reporting Regulation).
The Financial Reporting Regulation applies to supervised entities and groups in the SSM, and sets out reporting requirements for credit institutions and rules for the submission of information by national competent authorities to the ECB.
The ECB adopted the Amending Regulation on 14 May 2021. It will enter into force on the fifth day following that of its publication in the Official Journal of the European Union and will apply from 28 June 2021.
Regulation (EU) [YYYY/XX] amending Regulation (EU) 2015/534 on reporting of supervisory financial information (ECB/2021/24)
SINGLE RESOLUTION BOARD
Crisis management and deposit insurance framework – Single Resolution Board publishes blueprint – 18 May 2021
The Single Resolution Board (SRB) has published a blueprint setting out key considerations for the European Commission’s review of its crisis management and deposit insurance (CMDI) framework. The CMDI framework sets out the rules for handling bank failures while protecting depositors. It consists of three EU legislative texts acting together with national legislation: the Bank Recovery and Resolution Directive (2014/59/EU), the Regulation on the Single Resolution Mechanism (806/2014/EU) and the Deposit Guarantee Schemes Directive (2014/49/EU).
Among other things, the SRB considers the following points:
- the CMDI should enshrine the hybrid model of the European Deposit Insurance Scheme (EDIS) into law, but with a time-bound transition period towards the steady state where the SRB acts as the central authority with powers to manage all bank failures in the Banking Union, handling both the EDIS and the Single Resolution Fund (SRF);
- the SRB is enhancing its public interest assessment analysis and ensuring all relevant factors are accounted for, in particular a system-wide stress scenario which might expand the number of banks falling under resolution tools; and
- when it comes to the use of external funds to banks, there are two possible sources of additional funds in resolution: the SRF and deposit guarantee scheme funds.
Blueprint for the CMDI framework review
Webpage
PRUDENTIAL REGULATION AUTHORITY
Capital internal models – PRA publishes statement on supervisory benchmarking exercise – 18 May 2021
The PRA has published a statement on its expectations concerning the 2022 and 2023 supervisory benchmarking exercise relating to banks’ capital internal models. The statement is relevant to credit institutions that have been in scope of the associated reporting requirements.
As set out in the Benchmarking of Internal Approaches Part of the PRA Rulebook, relevant firms are required annually to report information on their internal approaches to the PRA. However, following the UK’s exit from the EU, these technical standards are now outdated and, in relation to market risk, are no longer applicable under UK law. Therefore, firms will not be required or expected to submit any data for the 2022 and 2023 benchmarking exercise. This includes credit and market risk and IFRS 9 data. For IFRS 9, this reflects the fact that no requirement to submit this information has been brought into UK law.
The PRA, moreover, intends to review the future direction of the exercise in light of: the end of the UK’s participation in the European Banking Authority’s (EBA) benchmarking exercise; the upcoming changes to credit and market risk models as a result of the EBA internal ratings based roadmap; and the UK’s future implementation of the Fundamental Review of the Trading Book (FRTB). Firms should expect the market risk benchmarking exercise to resume in line with the UK implementation of the FRTB, and the credit risk benchmarking exercise to resume in 2024.
The PRA notes that if firms have questions with regard to their planned reporting approach, they should contact their supervisor.
PRA Statement: Supervisory benchmarking exercise relating to capital internal models
FINANCIAL CONDUCT AUTHORITY
FSCS protection – FCA publishes Dear CEO letter to e-money firms – 18 May 2021
The FCA has published a Dear CEO letter to e-money firms asking them to write to their customers to make clear how their money is protected. In particular, firms need to make clear if the Financial Services Compensation Scheme (FSCS) does not apply.
The FCA is concerned that many e-money firms compare their services to traditional bank accounts, or hold themselves out as an alternative to banks in their financial promotions, but do not adequately disclose the differences in protections between e-money and bank accounts. In particular, they do not make clear that FSCS protection does not apply. The FCA is also concerned that firms are giving a potentially misleading impression to customers about the extent to which their products or services are regulated by the FCA.
The FCA is asking e-money firms to:
- write to customers within six weeks of 18 May 2021 to remind them of how their money is protected through safeguarding, and to make clear that FSCS protection does not apply. This must be separate from any other messaging or promotional activity;
- review financial promotions in light of BCOBS 2.3.1AR (requiring communications made to e-money customers and each payment service or e-money promotion to be accurate and not emphasise any potential benefits of a payment service or e-money without also giving a fair and prominent indication of any risks, like lack of FSCS protection) and BCOBS 2.3.4G. In particular, firms need to ensure that promotions give customers enough information; and
- draw this letter to the attention of the board, as the FCA expects the board to have considered the issues raised and to have approved the action taken in response.
The FCA intends to follow up with a sample of firms to assess the action taken in response to the Dear CEO letter.
FCA Dear CEO Letter: Please act – ensure your customers understand how their money is protected
FINANCIAL SERVICES CULTURE BOARD
Financial Services Culture Board – Banking Standards Board extends membership scope - 30 April 2021
The Banking Standards Board (BSB) has extended its membership scope to enable firms from across the UK financial services sector to join as members, and has become the Financial Services Culture Board (FSCB).
The remit of the BSB was to help raise standards of behaviour and competence across the banking sector and to provide challenge, support and scrutiny to member firms committed to rebuilding the trustworthiness of the sector. While the BSB worked primarily with banks, its work and approach was not bank-specific. It is hoped that this move to becoming the FSCB will allow it to work individually and collectively with a wider range of firms, to the benefit of their customers, clients, employees and other stakeholders.
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Message from CEO
Message from Deputy Chair
Message from Chair
