ECB Opinion on Amendments to Luxembourg Financial Services Legislation
ECB published an opinion (CON/2020/25) on the deposit guarantee scheme and other amendments to the financial services legislation. ECB published this opinion in response to a request from the Luxembourg Ministry of Finance for an opinion on the draft law that seeks to implement the Capital Requirements Directive (CRD5), the Capital Requirements Regulation (CRR2), and the revised Bank Recovery and Resolution Directive (BRRD2) and to amend various provisions of Luxembourg financial sector legislation (draft law). This opinion focuses on certain aspects of the draft law including the backstop arrangements of the Luxembourg Deposit Guarantee Fund (FGDL), orderly winding-up of failing or likely to fail institutions that are not subject to a resolution action, and issuance of participation certificates by the Banque et Caisse d’Epargne de l’Etat (BCEE).
ECB recalls that the efficiency of the deposit guarantee schemes (DGSs) in EU ultimately rests on the credibility of national backstop arrangements, which are, therefore, highly important. Thus, ECB welcomes the draft law that aims to ensure that the FGDL is adequately funded. An adequately funded DGS provides protection for smaller depositors while enhancing financial stability. Sound funding arrangements ensure an effective deposit guarantee and foster the maintenance of public confidence. ECB notes, as pointed out in the explanatory memorandum to the draft law, that several other member states have introduced backstop mechanisms to support the funding of their respective national DGSs. Member states have followed various paths for the setup of their backstops. In some instances, the backstops are based on mandatory arrangements, while in others the provision of the backstop is optional. Some backstops are of a private nature, while other backstops are provided by the State.
The explanatory memorandum to the draft law clarifies that the concept of winding-up used in Article 33-2 of the draft law is to be interpreted broadly and includes procedures such as the suspension of payments, which allow for the restructuring of failing entities. It is important that the provisions of BRRD2 are transposed in a comparable manner across EU member states to ensure a level playing field within the Banking Union. ECB, therefore, recommends clarifying that all procedures applicable to the institution meeting the conditions of Article 32b of the BRRD lead to its winding-up in an orderly manner with the eventual realization of all of its assets. ECB takes note of the amendments to the Law on the BCEE, which ECB understands are aimed at ensuring compliance with the conditions for these instruments to qualify as common equity tier 1 pursuant to Article 28 of the CRR.
Related Link: Opinion (PDF)
Keywords: Europe, Luxembourg, Banking, Deposit Guarantee Fund, Deposit Guarantee Scheme, Opinion, Regulatory Capital, CET 1, CRR2, BRRD2, CRD5, Basel, Resolution Framework, ECB
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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
PRA Consults on Proposals to Support Transposition of BRRD2Related Articles
EBA Publishes Standards on Disclosure of Investment Policy Under IFR
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
EBA Updates Filing Rules for Supervisory Reporting
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
APRA Finalizes Guidance for New Prudential Standard on Remuneration
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
OCC Updated LIBOR Self-Assessment Tool for Banks
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
TCFD Updates Guidance for Financial Disclosures on Climate Risk
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
BCBS Report Examines Progress on Adoption of Basel III Framework
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
ACPR Implements Updates Related to DPM Version 3.1
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
EBA Note Examines Transition Risks of Benchmark Rates
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
OSFI to Communicate Next Steps on Climate Risk Policy in Early 2022
In a letter to the federally regulated financial institutions and pension plans, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of the feedback received to the January 2021 discussion paper on ways to address climate risks.
