EBA Updates Work Program for 2020 in Response to Pandemic

By Regulatory News

August 14, 2020

Regulatory Capital, Basel III, Stress Testing: EU, Stress Testing, Regulatory Reporting: EU

EBA updated the annual work program for 2020 to reflect adjustments in its activities due to disruptions caused by the COVID-19 pandemic. The updated work program aims to alleviate the burden on banks and to limit, to a minimum, the interaction with the industry. Thus, EBA has only launched new consultations that were considered critical, postponed the publication of final technical standards depending on their degree of finalization and expected time of implementation, and put on hold data collections normally used for ad-hoc analyses. The postponed and ongoing activities have been outlined in the updated work program, including activities related to implementation of the revised capital regulations, the revised Bank Recovery and Resolution Directive (BRRD), the investment firms regime, and the environmental, and social, and governance (ESG) considerations, along with the ongoing improvements to the stress testing framework.

EBA work program has been impacted by the outbreak of COVID-19 and its global spread since February 2020, resulting in regulatory delays to allow banks to focus on, and ensure continuity of, their core operations, including support to their customers. The following are the key highlights of the updated work program for 2020:

EBA will support the deployment of the risk reduction package and the implementation of the global standards in EU by delivering the Level 2 regulations necessary for implementation of the new Capital Requirements Directive (CRD), Capital Requirements Regulation (CRR), and BRRD, along with the introduction of the Investment Firms Directive/Regulation (IFD/IFR) regime and the Covered Bonds Directive. One key area will be the implementation of more risk-sensitive requirements for market risk, following the Basel work on the fundamental review of the trading book. Another key priority will be the finalization of the EBA Internal Ratings-Based (IRB) roadmap for calculating minimum capital requirements for credit risk. Stemming from the new Covered Bonds Directive, EBA will have three reports monitoring the functioning of the covered bonds market, equivalent assessment of third-country covered bonds, and development with conditional pass-through structures.
EBA will start consulting on Pillar 2 revisions, improved incorporation of proportionality, coherence with Pillar 1, and the levels of application policies on capital and liquidity.
EBA will continue monitoring own funds and liquidity provisions with a focus on capital and liability instruments, the termination of grandfathering of own funds instruments, and the use of discretions in the area of liquidity transactions for the liquidity coverage ration (LCR) computation.
Although stress testing exercise has been postponed to 2021, improvements will be introduced in the stress testing methodology, including the incorporation of the main suggestions received from banks in the previous exercise. In view of the longer-term future, EBA will continue work with all relevant stakeholders on potential fundamental changes to the EU-wide stress-testing framework.
EBA completed the last phase of the European Centralized Infrastructure of Data (EUCLID) project in 2020, which focused on the upgrade of the EBA supervisory data platform, which supports data collection, data validation, data integration, and report monitoring. The culmination of this work establishes EBA as an EU-wide data hub at the service of competent authorities and the public. EBA will also work on a feasibility study on an integrated EU reporting framework. This project has been considerably impacted by the disruptions caused by coronavirus, as it requires a lot of external interaction, and will be delayed and completed in the first quarter of 2022.
EBA will honor the EC's call for advice on defining the scope of application and the enacting terms of a regulation to be adopted in the field of preventing money laundering and terrorist financing by the third quarter of 2020.
This year, EBA will also continue to build environmental, social, and governance (ESG) considerations into its general work and will complete the second phase of its preparatory work on disclosure and risk assessment in the area of sustainable finance, leading to a discussion paper on the incorporation of ESG into risk management and supervision (CRD and IFD mandates). EBA will also undertake preparatory work on the classification and prudential treatment of assets from a sustainability perspective (CRR and IFR mandates). Moreover, EBA will work on the technical standards of the Joint Committee of ESAs on disclosures (investment and advice activities), whose finalization was foreseen for 2020 but is being delayed to 2021 because of the pandemic.
When it comes to the new BRRD, EBA will deliver its mandates, starting with expediting the ones that are essential to the operationalization of the resolution framework, such as mandates on the Minimum Requirement for own funds and Eligible Liabilities or MREL.

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Keywords: Europe, EU, Banking, Work Program, Basel, Stress Testing, CRR/CRD, BRRD, Resolution Framework, Market Risk, Credit Risk, MREL, Regulatory Capital, Reporting, ESG, Sustainable Finance, EBA

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