EC launched a targeted consultation to improve transparency and efficiency in the secondary markets for nonperforming loans (NPLs). EC is proposing to establish a data hub at the European level and to review Pillar 3 disclosures requirements under the Capital Requirements Regulation or CRR. This targeted consultation will inform EC about the remaining obstacles to the proper functioning of secondary markets for NPLs and about the possible enabling actions that it could take to foster these markets by improving the quantity, quality, and comparability of NPL data. The consultation is open until September 08, 2021.
As part of its strategy to leverage data sources, EC is considering targeted changes of Pillar 3 disclosure requirements. Therefore, a central data hub could be set up at the EU level to act as a data repository underpinning the NPL market. Such a hub could store anonymized data on NPL transactions and provide post-trade transaction details. Such disclosures could raise the transparency and enhance the functioning of secondary markets for NPLs. EC would operate a comprehensive electronic database (updated regularly), assess the information, and provide access to market participants. The information delivered to the data hub would also help to perform specific analysis and provide analytical products. From the perspective of sellers, the EU data hub could be an important source for NPL loan market benchmark parameters, which could contribute to internal decisions of banks on whether to sell or to service. This would also allow sellers to benchmark their trades and allow better visibility into the underlying causes for discrepancies.
EC is determined to ensure that such possible measures would not entail disproportional reporting burdens or overlap; for instance, EBA is developing the NPL transaction templates for the purposes of financial due diligence and valuation of portfolios for sale. Similarly, the release of any additional NPL information, either on the hub or as part of Pillar 3 disclosures, should not pose any disadvantages to banks or buyers in terms of trading positions or balance sheet quality, nor should their publication challenge the business model of private platform providers. The key objective of EC is to increase the flow of available information that is conducive for liquid NPL markets in the most efficient way possible. To this end, the data hub and additional disclosures under Pillar 3 rules could help maximize the potential of NPL data. Consequently, the proposed changes should limit market failures in terms of information asymmetries and lead to increasing liquidity, lower bid-ask spreads, and more efficient NPL markets. Ultimately, NPL markets in the EU should be transparent and liquid, so that they allow for informed trades by banks and investors that are beneficial for all stakeholders, including borrowers.
Comment Due Date: September 08, 2021
Keywords: Europe, EU, Banking, NPLs, Credit Risk, Pillar 3, Disclosures, Basel, Regulatory Capital, Secondary Market for NPLs, Data Hub, CRR, Reporting, EC
Previous ArticleECB Publishes Version 5.0.0 of SFRDP Taxonomy Package
Next ArticleEC Releases Sustainable Finance Taxonomy Compass
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.