December 18, 2018

The European Council presidency and the European Parliament agreed on a new framework for dealing with the non-performing loans (NPLs) of banks. In addition, EU ambassadors have agreed the Council's negotiating position on a proposal reinforcing the role of EBA regarding the risks posed to the financial sector by money laundering activities.

Agreement on NPLs

A provisional political agreement was reached on capital requirements applying to banks with NPLs on their balance sheets. The deal will now be submitted for endorsement by EU ambassadors. The proposal, initially put forward by EC in March 2018, aims to create a prudential framework for banks to deal with new NPLs and thus  reduce the risk of their accumulation in the future. It provides for requirements to set aside sufficient own resources when new loans become non-performing and creates appropriate incentives to address NPLs at an early stage. On the basis of a common definition of NPLs, the proposed new rules introduce a "prudential backstop"—that is, common minimum loss coverage for the amount of money banks need to set aside to cover losses caused by future loans that turn non-performing. In case a bank does not meet the applicable minimum level, deductions from banks' own funds would apply. The agreement will be submitted for endorsement by EU ambassadors. Parliament and Council will then be called on to adopt the proposed regulation at first reading.

Agreement on Proposal Related to AML

EU Ambassadors agreed on the stance regarding the proposal on anti-money laundering (AML). Strengthening the role and powers of EBA regarding AML supervision for financial institutions would ensure that AML rules are effectively applied in all member states and all authorities involved (in particular prudential and AML supervisors) cooperate closely with each other. According to the agreed text, EBA would be given, in particular, the following tasks:

  • Collecting information from national competent authorities on weaknesses identified in the context of their action to prevent or fight money laundering and terrorist financing
  • Enhancing the quality of supervision through the development of common standards and coordination among national supervisory authorities
  • Performing risk assessments on competent authorities to evaluate their strategies and resources to address the most important emerging AML risks at EU level
  • Facilitating cooperation with non-EU countries on cross-border case
  • As a last resort if national authorities do not act, EBA would be able to address decisions directly to individual banks

EU and its member states have engaged in a thorough review of existing practices for cooperation between anti-money laundering and prudential supervisors. On December 04, 2018, the Council adopted an action plan setting out short-term non-legislative actions to better tackle AML challenges. The Council recommended that a "post-mortem" analysis of recent money laundering cases in EU banks would be conducted to understand how they came about and to help shape possible additional actions. The European rules on AML have been considerably strengthened in recent years, with two consecutive reforms being adopted since 2015. The latest revision of the AML directive was adopted in April 2018 and is due to be transposed at national level by January 2020. The presidency of the Council will need to negotiate with the European Parliament to reach a final agreement before the new rules can be adopted and applied.

 

Related Links

Keywords: Europe, EU, NPLs, AML/CFT, AML/CFT Directive, Prudential Backstops, European Council

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