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    EBA Enhances Proportionality in Reporting, Makes Other Announcements

    December 20, 2021

    The European Banking Authority (EBA) published the final draft implementing technical standards on supervisory reporting with respect to common reporting (COREP), asset encumbrance, global systemically important institutions (G-SIIs), and additional liquidity monitoring metrics (ALMM). It also published a package of two final draft regulatory technical standards on the reclassification of investment firms as credit institutions, along with the associated threshold monitoring templates, instructions, validation rules, and the data point model. EBA also paved the way for setting up a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) by through the publication of its recent draft regulatory technical standards. Another regulatory announcement from EBA involves the launch of a consultation on the draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple, transparent, and standardized (STS) on-balance-sheet securitizations that feature non-sequential amortization; the consultation period on these standards ends on February 28, 2022.

    In the final draft implementing technical standards on supervisory reporting, reporting requirements for small institutions have been significantly reduced in the area of additional liquidity monitoring metrics (ALMM) and asset encumbrance. The amendments to the reporting are a step forward in the implementation of the EBA recommendations on cost reduction measures included in its study on the cost of compliance with supervisory reporting requirements. EBA introduced the necessary amendments that will exempt small and non-complex institutions (SNCIs) from reporting several liquidity metrics, including the concentration of funding by product type, the funding price for various lengths of funding, information on roll-over of funding, and more granular data on asset encumbrance. EBA also implements simplifications for medium-size institutions, which will be exempted from reporting liquidity metrics on roll-over of funding. Additional amendments to the templates aim to implement changes to regulatory requirements, streamlining reporting requirements, filling in data gaps, and further clarifying the reporting instructions. These final draft standards have been developed in accordance with Article 415(3a) of the Capital Requirements Regulation (CRR or 575/2013). The first reference date for the application of these implementing standards is expected to be December 31, 2022. The final draft implementing standards will be part of the 3.2 reporting framework release (phase 1) and the technical package (including the data point model, XBRL taxonomy, and validation rules) for this will be published in the first quarter of 2022.

    The package of two final draft regulatory standards on the reclassification of investment firms as credit institutions offers clarity in the calculation of the EUR 30 billion threshold for investment firms looking to understand whether they should be applying for authorization as a credit institution as well as assist competent authorities in the monitoring of firms’ position triggering a reclassification. With these standards, EBA is providing a methodological framework for determining the need for reclassification of an investment firm as a credit institution, which is neutral to geographical limitations, thus ensuring a proportionate and consistent calculation of the level of total assets to be compared to the EUR 30 billion threshold. The first set of final draft standards on the calculation methodology also cover other technical aspects, including the accounting standards for the determination of asset values, the methodology for implementing the solo and the group test, and the procedure to calculate the total assets on a monthly basis and the treatment of assets belonging to European branches of third-country groups. The second set of draft regulatory standards specify harmonized reporting requirements to provide competent authorities with the tools for carrying out the ongoing monitoring of the EUR 30 billion threshold. These harmonized requirements are an integral part of the investment firms’ reporting framework. The technical standards are expected to apply from June 2022, subject to the legislative process being concluded in time. EBA will also develop the data point model (DPM), XBRL taxonomy, and validation rules based on the final draft regulatory standards. EBA has developed these draft standards according to Article 8a(6)(b) of the Capital Requirements Directive and Article 55(5) of the Investment Firms Regulation. The draft regulatory standards will be submitted to the European Commission for endorsement, following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union

    The report on draft regulatory technical standards on a central database on AML/CFT notes that the European Reporting system for material CFT/AML weaknesses (EuReCA) will be a key tool for coordinating efforts to prevent and counter money laundering and terrorism financing (ML/TF) in the European Union. EBA is legally required to establish and keep up to date a central AML/CFT database. The database, also known as EuReCa, will contain information on material weaknesses in individual financial institutions that make them vulnerable to ML/TF. Competent authorities across the European Union will have to report such weaknesses as well as the measures they have taken to rectify them. The EBA regulatory standards specify when weaknesses are material, the type of information competent authorities will have to report, how information will be collected, and how the EBA will analyze and disseminate the information contained in EuReCa. They also set out the rules necessary to ensure confidentiality, protection of personal data, and the effectiveness of EuReCa. In this context, the EBA also published technical specifications that detail the data points and a list of competent authorities that will be indirectly submitting information to EuReCA. EBA will also share information from the database with competent authorities as appropriate, to support them at all stages of the supervisory process, and in particular if specific risks or trends emerge. EuReCA will be an early warning tool, which will help competent authorities to act before the ML/TF risk crystalize. EBA will submit these draft regulatory technical standards to the European Commission for approval. Once approved, these standards will be directly applicable in all member states. EuReCA will start to receive data in the first quarter of 2022.

    The proposed draft regulatory standards related to the STS on-balance-sheet securitizations specify and, where relevant, calibrate the minimum performance-related triggers for STS on-balance-sheet securitizations that feature non-sequential amortization. The Capital Markets Recovery Package amended the Securitization Regulation in several aspects and these draft standards aim to provide technical clarification on these triggers. With the purpose of standardization, the amended Securitization Regulation sets out that sequential amortization shall be applied to all tranches of STS on-balance-sheet securitizations. However, as a derogation, STS on-balance-sheet securitization might feature non-sequential amortization to avoid disproportionate costs of protection, as long as some minimum performance-related triggers determine the application of sequential amortization. This will ensure that tranches providing credit protection have not already been amortized when significant losses occur at the end of the transaction. The draft regulatory standards further specify the minimum backward- and forward-looking triggers and set out that, for two of them, their level should be determined by the parties involved in securitization transactions, as they are transaction specific and depend on the assessment made by the parties of the riskiness of the underlying exposures at inception. However, the standards establish a level for the additional backward-looking trigger to ensure for all STS on-balance-sheet securitizations featuring a non-sequential amortization that under no circumstances the credit enhancement of the retained senior tranche falls below a certain threshold, in comparison with that at origination, as a result of the amortization of the protected tranches. The comment period on this consultation ends on February 28, 2022. The final draft regulatory standards will be submitted to the European Commission for adoption. Following the submission, the standards will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

     

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    Keywords: Europe, EU, Banking, CRD, CRR, Basel, Liquidity Risk, Proportionality, Reporting, Securitization Framework, STS Securitization, Credit Risk, AML/CFT, ML/TF Risk, EuReCA, Investment Firms, IFR, Reporting Framework 3.2, COREP, EBA

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