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    EU Agencies Address Aspects of Digital Services Act, MREL and Ukraine

    April 23, 2022

    European Commission (EC) welcomes political agreement on the proposed Digital Services Act (DSA) and published Q&A on the Digital Markets Act. In addition, EBA published annual report on minimum requirements for own funds and eligible liabilities (MREL), along with a statement that sets out how its anti-money laundering and counter-terrorist financing (AML/CFT) guidelines apply in the context of providing access for Ukrainian refugees to at least basic financial products and services. The statement also sets out how financial institutions can adapt their AML/CFT measures to provide a pragmatic and proportionate response to the compliance challenges they face.

    Agreement on Digital Services Act or DSA. The proposed DSA agreement between the European Parliament and European Union member states sets out an unprecedented new standard for the accountability of online platforms regarding illegal and harmful content. It will provide better protection for internet users and their fundamental rights as well as define a single set of rules in the internal market, helping smaller platforms to scale up. The DSA contains European Union-wide due diligence obligations that will apply to all digital services that connect consumers to goods, services, or content, including new procedures for faster removal of illegal content as well as comprehensive protection for users' fundamental rights online. The proposed DSA will enter into force after fifteen months or from January 01, 2024, whichever is later, and will be applicable across European Union. The key elements included in the DSA are as follows:

    • Measures to counter illegal goods, services or content online, such as a mechanism for users to easily flag such content and new obligations on traceability of business users in online market places.
    • Measures to empower users and civil society, including the possibility to challenge platforms' content moderation decisions and seek redress; provision of access to vetted researchers and NGOs; and transparency on the algorithms used for recommending content or products to users.
    • Measures to assess and mitigate risks, such as obligations for very large platforms and very large online search engines to take risk-based action to prevent the misuse of their systems and undergo independent audits of their risk management systems; and new safeguards for the protection of minors and limits on the use of sensitive personal data for targeted advertising.
    • Enhanced supervision and enforcement by the Commission for very large online platforms.

    The political agreement reached by the European Parliament and the Council is now subject to formal approval by the two co-legislators. Once adopted, the DSA will be directly applicable across the European Union and will apply in fifteen months or from January 01, 2024, whichever later, after the entry into force. Regarding the very large online platforms and very large online search engines, the DSA will apply from an earlier date—that is, four months after their designation.

    Annual Report on MREL. The report shows that, as of December 2020, the largest institutions have made good progress in closing MREL shortfalls while smaller institutions were lagging behind. The report highlights that banks with a resolution strategy other than liquidation continue to represent about 80% of the domestic assets in European Union, with the Bank Recovery and Resolution Directive (BRRD II) decisions covering 74% of these domestic assets. As of December 2020, out of the 260 resolution groups, 110 resolution groups presented an external MREL shortfall of EUR 67.6 billion against their end-state MREL targets and 62 non-resolution groups out of a sample 128 presented an internal MREL shortfall of EUR 36 billion. All global systemically important institutions (G-SIIs) had already met their intermediary target and only 38 out of 260 resolution groups had a shortfall of EUR 13.3 billion (EUR 10.2 billion for O-SIIs and EUR 3.1 billion for other banks). More than two-third of other systemically important institution (O-SIIs) with consolidated assets below EUR 50 billion exhibited a shortfall as of December 2020. With regard to O-SIIs, big banks in the category of other banks were not the most affected, as only 37% of other banks with consolidated assets above EUR 10 billion presented a shortfall as of December 2020.

     

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    Keywords: Europe, EU, Banking, Securities, Digital Markets Act, Digital Services Act, Online Marketplaces, Regtech, Risk Management, MREL, BRRD, Regulatory Capital, Basel, Q&A, Systemic Risk, Resolution Framework, G-SII, O-SII, Bigtech, EC, EBA

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