Featured Product

    EBA Issues Report on Asset Encumbrance and Guidelines Under AMLD

    June 28, 2022

    The European Banking Authority (EBA) published the annual report on asset encumbrance and the guidelines that set out clear expectations on role and responsibilities of the anti-money laundering and countering the financing of terrorism (AML/CFT) compliance officer and of the management body of credit or financial institutions.

    The AML/CFT guidelines, under the fourth Anti-Money Laundering Directive (AMLD4 or Directive 2015/849), specify that credit or financial institutions should appoint one member of their management body who will ultimately be responsible for the implementation of the AML/CFT obligations and clarify the tasks and functions of that person. The guidelines also describe the roles and responsibilities of the AML/CFT compliance officer, when this person is appointed by the management body pursuant to the proportionality criteria. When the credit or financial institution is part of a group, the Guidelines prescribe that a group AML/CFT compliance officer should be appointed and clarify this person’s tasks and responsibilities. These Guidelines aim to create a common understanding, by competent authorities and credit or financial institutions, of credit or financial institutions’ AML/CFT governance arrangements. They complement but do not replace relevant guidelines issued by the EBA on wider governance arrangements and suitability checks. The guidelines will be applicable from December 01, 2022 and the deadline for competent authorities to comply with these guidelines will be six months after the publication of the translations.

    The report on asset encumbrance analyzes data, from December 2020 to December 2021, on 154 banks covering more than 80% of the European Union/European Economic Area banking sector by total assets. The analysis highlights that, following the COVID-19 outbreak, banks continued to make extensive use of central bank funding in 2021 and over 50% of their central bank eligible-assets and collateral are now encumbered. Thus, the overall encumbrance ratio rose by 2.2 percentage points in 2021 to 29.1%. The encumbrance ratio was comparatively high in some large jurisdictions (Germany, France, and Italy) as well as in Denmark and Finland. Loans and advances other than loans on demand accounted for over half of total encumbered assets and collateral. The key findings suggest that increasing encumbrance ratios might lead to adverse feedback loops of higher encumbrance, higher funding costs, and diminishing liquidity. Going forward, banks might find it challenging to contain their funding costs and may resort more extensively to secured funding or to pledging additional guarantees. The analysis indicates that supervisors should focus on banks that have suffered a substantial rise in encumbrance ratios and whose stock of unencumbered central bank-eligible assets and collateral (CBEAC) is more limited, as these could be an early warning for liquidity and funding risk.


    Related Links

    Keywords: Europe, EU, Banking, AML CFT, Compliance Risk, AMLD, Asset Encumbrance, Basel, Credit Risk, Liquidity Risk, EBA

    Featured Experts
    Related Articles

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582