Featured Product

    ESAs Assess Risks While EBA Publishes Risk Retention Standards

    The European Supervisory Authorities (ESAs) issued a joint risk assessment report for 2022 and the European Banking Authority (EBA) published the final draft regulatory technical standards on risk retention for securitization transactions.

    The joint risk assessment report highlights the increasing vulnerabilities across the financial sector as well as the rise of environmental and cyber risks. The report indicates that the European Union economy’s strong recovery from COVID-19 pandemic in 2021 have been hindered by emerging risks such as new waves and variants of the virus, inflation risk, rising commodity prices, and heightened geopolitical risks. Also, financial markets remain vulnerable to changes in market sentiment, particularly if financial conditions tighten unexpectedly due to inflation pressures. In the real estate sector, persistent price increases and higher borrowing by households have increased risks. The financial sector is increasingly exposed to environmental risks and risks stemming from digitalization. In light of the above-mentioned risks and uncertainties, the joint committee advises the ESAs, national competent authorities, financial institutions and market participants to take the following policy actions:

    • Financial institutions should be prepared for further potential negative implications stemming from geopolitical tensions and ensure compliance with the sanctions regimes put in place both at the European Union and at global levels.
    • Financial institutions and supervisors should prepare for a possible deterioration of asset quality in the financial sector.
    • The impact of further increases in yields and sudden reversals in risk premia on financial institutions and investors should be closely monitored.
    • Retail investors are of particular concern, and supervisors should monitor risks to retail investors seeing that their participation in financial markets has increased substantially in recent years.
    • Financial institutions should further incorporate Environmental, Social and Governance (ESG) considerations into their business strategies and governance structures. Financial institutions should continue to develop methodologies and approaches to test their long-term resilience against ESG factors and risks;.
    • Considering the elevated level and frequency of cyber incidents, financial institutions should strengthen their cyber resilience and prepare for a potential increase in cyberattacks.

    Standards on risk retention for securitization transactions. EBA published the final draft regulatory technical standards specifying the requirements for originators, sponsors, and original lenders related to risk retention, as laid down in the Securitization Regulation. The regulatory technical standards aim to provide clarity on the risk retention requirements ensuring a better alignment of interests and reducing the risk of moral hazard, thus contributing further to the development of a sound, safe, and robust securitization market in the European Union. These regulatory technical standards carry over a substantial part of the provisions on risk retention set out in the previous standards adopted by EBA in 2018, with some modifications. The modifications were introduced due to the Capital Markets Recovery Package (CMRP) focus on the modalities of risk retention in non-performing exposure securitizations and the impact of fees payable to retainers on the risk retention requirement. The modifications aim to facilitate the securitization of non-performing exposures and are part of the broader work on supporting the functioning of the secondary markets for non-performing exposures. In addition, the standards provide further clarity on the application of the risk retention requirement to re-securitizations as well as the treatment of synthetic excess spread as a possible form of compliance. The new Securitization Regulation will replace the existing 2014 Commission Delegated Regulation (No 625/2014) and contains transitional provisions regarding the application of the existing Delegated Regulation to those securitizations whose securities were issued before its application date. The regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.


    Related Links


    Keywords: Europe, EU, Banking, Basel, ESG, Climate Change Risk, Risk Retention, Securitization, Regulatory Technical Standards, Risk Assessment Report, Covid-19, Cyber Risk, Governance, EBA, ESAs

    Featured Experts
    Related Articles

    CFPB Finalizes Rule on Small Business Lending Data Collection

    The Consumer Financial Protection Bureau (CFPB) published a final rule that sets out data collection requirements on small business lending, under section 1071 of the Dodd-Frank Act.

    March 30, 2023 WebPage Regulatory News

    BCBS to Consult on Pillar 3 Climate Risk Disclosures by End of 2023

    The Bank for International Settlements (BIS) published a summary of the recent Basel Committee (BCBS) meetings.

    March 23, 2023 WebPage Regulatory News

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    US Congress Report Examines Data Privacy and Cybersecurity Regulations

    The U.S. Congressional Research Service published a report on banking, data privacy, and cybersecurity regulation.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    EU to Conduct One-Off Scenario Analysis to Assess Transition Risk

    The European authorities recently made multiple announcements that impact the banking sector.

    March 10, 2023 WebPage Regulatory News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8810