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    EBA Issues Standards on FRTB-SA, Launches Central Database for AML/CFT

    February 02, 2022

    The European Banking Authority (EBA) published the final draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA). The technical standards are part of the phase 3 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches. EBA also launched its central database for anti-money laundering and counter-terrorist financing (AML/CFT). Additionally, the European Supervisory Authorities (ESAs) published a joint thematic repository on financial education and digitalization initiatives of national competent authorities, with focus on cybersecurity, scams, and fraud; the repository contains 127 national initiatives. EBA also published the second edition of its general repository of national education initiatives in the banking sector, which contains another 200 initiatives. The thematic repository will be used to prepare a joint ESAs thematic report on financial education to be published later this year.

    The final draft regulatory technical standards on emerging markets and advanced economies complement the FRTB list of advanced economies by including all member states and all countries belonging to the European Economic Area. For institutions to be able to calculate own funds requirements under the sensitivities-based method, the Capital Requirements Regulation (CRR) requests EBA to specify the economies that should attract lower risk-weights for equity risk under FRTB-SA. Other economies are subject to higher risk-weights for equity risk exposures. The Basel Fundamental Review of the Trading Book (FRTB) provides a list of countries that are considered to be “advanced” for the purpose of the FRTB-SA. In the absence of clear criteria in the Basel framework, which only specifies a pre-defined list, EBA specifically sought criteria to assess whether an economy qualifies as advanced or not, EBA, accordingly, analyzed an extensive sample of equity names to assess whether equity names related to economies included in the FRTB list are less volatile than those related to the excluded European Union countries. The results show that this is not the case. On the basis of the results obtained, and considering that the European Union has a Single Market, the final draft technical standards complement the FRTB list of advanced economies by including all member states and all countries belonging to the European Economic Area.

    The central database for AML/CFT, also called the European reporting System for material CFT/AML weaknesses (EuReCA), will be central to coordinating efforts to prevent and counter money laundering and terrorist financing (ML/TF) risks in the European Union. The database will contain information on material weaknesses in individual financial institutions that competent authorities have identified. Competent authorities will be reporting the measures they have imposed on financial institutions to rectify those material weaknesses. EuReCA will also include the internal audit findings identified by a prudential authority during an on-site inspection—about which the management body of the senior management appeared to have been informed and decided not to remediate. EBA will use information from EuReCA to inform its view of ML/TF risks affecting the  financial sector. It will also share information from EuReCA with competent authorities, as appropriate. In this regard, EuReCA will act as an early warning tool that will help competent authorities to act before ML/TF risks crystallize. EuReCA has been established based on provisions in the draft regulatory technical standards on a central database on AML/CFT (published in December 2021). EuReCA will not start to collect personal data until the approval of the draft technical standards by the European Commission.

     

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    Keywords: Europe, EU, Banking, Insurance, Securities, CRR, Basel, Market Risk, FRTB, Regulatory Technical Standards, Standardized Approach, Regulatory Capital, AML CFT, ML TF Risk, EuReCA, Cybersecurity, EBA, ESAs, Subheadline

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