Featured Product

    ESAs Issue Advice to Address Short-Term Pressures in Financial Sector

    December 18, 2019

    ESAs published reports that examine the undue short-term pressures from the financial sector on corporations. These reports are in response to a Call for Advice from EC as part of its Action Plan on financing sustainable growth and will inform the policy areas that regulators should address. Although all three ESAs have made certain recommendations in their advice, EIOPA states that it found no clear evidence of undue short-termism in insurance and institutions for occupational retirement provision. EBA, however, provides policy recommendations advocating that policy action should aim to provide relevant information and incentives for banks to incorporate long-term time horizons in their strategies, governance, business activities, and risk management. The EBA report takes into consideration three dimensions and perspectives that relate to short-termism: the banks’ perspective, the corporates’ perspective, and the sustainable finance perspective.

    EBA report identified some limited concrete evidence of short-termism, without necessarily being in a position to label it systematically as undue, and highlights the need to promote long-term approaches. In its report, EBA calls on banks to consider long-term horizons in their strategies and business activities and provides the following policy recommendations for the banking sector to EC and EU legislators:

    • Maintain a robust regulatory prudential framework as a precondition for long-term investments, while continuing to monitor potential unintended consequences of financial regulations on the supply of sustainable investment financing 
    • Foster the adoption of longer-term perspectives by institutions through more explicit legal provisions on sustainability in the Capital Requirements Directive
    • Continue enhancing disclosures of long-term risks and opportunities, by both corporations and banks, by setting principles and requirements that can ensure comparability and reliability of disclosure. through amendments to the Non-Financial Reporting Directive
    • Improve information flows, data access, and support the role of the banking sector in raising awareness on sustainability challenges and environmental, social, and governance (ESG) risks.

    EIOPA found no clear evidence of undue short-termism in insurance and institutions for occupational retirement provision, though it has made certain recommendations, including the following:

    • Developing a cross-sectoral framework with the aim of promoting long-term investments and supporting sustainable economic growth at European level. General principles should guide the consistent implementation across the financial system of defined objectives in this matter and should help to assess performance against concrete targets as well as potential deviations at sectoral or sub-sectoral level.
    • Facilitating the generation and publication of long-term performance benchmarks to increase the focus on long-term value creation rather than immediate shareholder interests or excessively short-term profitability objectives. The availability of transparent and commonly understandable long-term benchmarks should benefit both providers and customers.

    ESMA recommends, to EC, action in the following key areas:

    • Disclosure of ESG factors, including amending Non-Financial Reporting Directive to establish principles for high-quality non-financial information, promoting a single set of international ESG disclosure standards, and requiring the inclusion of non-financial statements in annual financial reports
    • Institutional investor engagement including a review of the White List under the Takeover Bids Directive, a potential shareholder vote on the non-financial statement, and monitoring of the application of the Shareholder Rights Directive or SRD II.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, Sustainable Finance, Prudential Framework, Advice, ESG, Disclosures, EBA, EIOPA, ESMA, EC, ESAs

    Related Articles
    News

    EC Adopts Financial Reporting Changes Arising from Benchmark Reforms

    EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.

    January 14, 2021 WebPage Regulatory News
    News

    BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk

    BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.

    January 14, 2021 WebPage Regulatory News
    News

    HMT Updates List of Post-Brexit Equivalence Decisions in UK

    HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Issues Erratum for Technical Package on Reporting Framework 3.0

    EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.

    January 14, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets

    APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Publishes Risk Dashboard for Third Quarter of 2020

    EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro

    ECB concluded the public consultation on the introduction of a digital euro in EU.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Finalizes Guide on Supervisory Approach to Bank Consolidation

    ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.

    January 12, 2021 WebPage Regulatory News
    News

    SRB Chair Outlines Work Priorities for 2021

    The SRB Chair Elke König published an article setting out work priorities for 2021.

    January 11, 2021 WebPage Regulatory News
    News

    FDIC Selects Companies to Compete in Final Phase of Tech Sprint

    FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.

    January 11, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6417