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
EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
EBA Publishes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
EIOPA Examines Physical Climate Risk Exposure, SII Non-Compliance
The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks
EC Publishes Results on Review of Web Accessibility Directive
The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.
NGFS Report Explores Quantification of Climate Risk Differentials
The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations
MAS Consults on Adjustment Spreads for Conversion of SOR Contracts
The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
