EBA Proposes to Harmonize EU Law for Third-Country Branches of Banks
EBA published a report on the treatment of incoming third-country branches under the national law of member states. The report, which is addressed to the European Parliament, the Council, and the Commission, is the result of a stock-taking exercise conducted with competent authorities about their national regulations and supervisory practices and of a mapping of third-country branches established in the member states. Considering the increased volume of activities carried out by third country branches in the context of regulatory fragmentation across EU, the report offers 14 high-level policy recommendations for further harmonization of the law in EU.
In light of the results of the stocktaking exercise and data collection, the proposals for further EU harmonization rely on a mix of branch and subsidiary‐like approaches in accordance with the principle of proportionality, coupled with risk prevention and mitigation measures. Such recommendations focus on EU-centralized equivalence assessment, effective cooperation supported by the conclusion of memoranda of understanding with third-country home authorities, the scope of authorization, and prudential requirements (notably capital, liquidity, and internal governance), Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) aspects, reporting, booking arrangements, and recovery plans.
The recommendations introduce a subsidiarization mechanism as a risk prevention and mitigation measure. This mechanism should apply to third-country branches reaching a certain size and/or other quantitative and qualitative risk indicators as well as to third-country branches carrying out deposit-taking activity of covered deposits. The identification and calibration of the relevant thresholds should be based on an impact assessment. EBA highlighted the importance of a continuous supervisory dialog with the third-country branches and third-country credit institutions and of an effective mutual cooperation with the third-country home authority. Such cooperation is crucial for devising potential mitigation measures that could ensure a safe and sound prudential management of the third-country branch activities and associated risks. In this context, EBA carefully considered the interaction with the framework related to the intermediate parent undertaking. While assets held by the third-country branches are computed to determine whether an intermediate parent undertaking needs to be established, the third-country branches are not included within the intermediate parent undertaking consolidated perimeter.
Related Links
Keywords: Europe, EU, Banking, Third Country Branches, CRD, Proportionality, AML/CFT, Governance, Reporting, Recovery Planning, Subsidiarization Mechanism, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Previous Article
APRA Updates Validation and Derivation Rules in June 2021Related 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.
