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November 28, 2018

EC published the third progress report and the associated questions and answers (Q&A) on risk reduction and the trend of declining non-performing loans (NPLs). Also published was a communication on the Capital Markets Union, which highlights initiatives on which further swift progress is needed. The EC communication calls for swift progress on Pan European Personal Pension Products (PEPPs), covered bonds, cross-border distribution of collective investment funds, and disclosures on sustainable finance, among others.

In the third progress report on the reduction of NPLs, EC highlighted that NPLs in the European banking sector have declined further, now standing at an EU average of 3.4%. While efforts need to continue to address legacy issues still weighing on the sector since the financial crisis, this development is very encouraging.  Ther report confirms that EC has delivered all elements of the European Council's July 2017 Action Plan on NPLs and explores the potential set-up of a European NPL transaction platform, where banks and investors could trade NPLs and NPL portfolios. The progress report also accompanies a Communication that highlights important deliverables on the roadmap to completing the Banking Union.

In addition, the EC Vice president delivered a keynote speech at a conference in Brussels, wherein he called for renewed efforts to deliver the Capital Markets Union. He said that, out of the 13 Capital Markets Union legislative proposals, which have been proposed, 10 are still sitting on the desks of EU co-legislators. However, EC will soon adopt amendments to Solvency II to facilitate investment by insurers in private equity and long-term listed equity. He also said that, in March, EC put forward an Action Plan on Sustainable Finance, to incentivize more money to flow into decarbonizing the economy. In this context, EC has presented three legislative proposals:

  • The first proposal is the draft regulation to agree on EU-wide definitions on what is green and what is not. This sustainable finance taxonomy will provide clarity for investors and companies that want to invest in green and climate-friendly projects.

  • The second proposal will require investment managers to disclose how they integrate sustainability considerations into their investment and advisory processes.

  • The third proposal will set standards for climate-friendly benchmarks, to help investors steer capital towards low-carbon portfolios.

Related Links

Keywords: Europe, EU, Banking, Banking Union, Capital Markets Union, NPLs, Sustainable Finance, Solvency II, EC

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