European Council Agrees on Measures to Prevent Accumulation of NPLs
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
- European Council Press Release on NPLs
- EC Press Release on NPLs
- European Council Press Release on AML
- Presidency Compromise Proposal on AML (PDF)
Keywords: Europe, EU, NPLs, AML/CFT, AML/CFT Directive, Prudential Backstops, European Council
Previous Article
Expert Group of EC Issues Recommendations on Framework for FintechRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.