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    EBA Issues Multiple Regulatory and Reporting Updates for Banks

    April 21, 2023

    The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework. Additionally, EBA launched consultations on draft Guidelines on the criteria related to simplicity, standardization, and transparency (STS) for on-balance-sheet securitizations, on draft regulatory technical standards for assessing the new market risk internal models under the Fundamental Review of the Trading Book (FRTB), and on draft Guidelines on the assessment of adequate knowledge and experience of the management or administrative organ of credit servicers under the Non-Performing Loans Directive. It also updated the list of institutions involved in the 2023 supervisory benchmarking exercise, published guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP), results of its quarterly risk dashboard, and answers to eight questions under the Single Rulebook Question and Answer (Q&A) tool, in the month of April 2023.

    The Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework set out a common approach in case there are errors, inaccuracies or other changes in the data reported in accordance with the supervisory and resolution reporting framework developed by EBA. Under the general approach, financial institutions are expected to resubmit the corrected data for the current reporting date and historical data for past reference dates going back at least one calendar year (except for the data with monthly reporting frequency). The Guidelines also set out general circumstances when the resubmission of historical data may not be required. The Guidelines represent a tool to assist institutions in ensuring that their reporting obligations are complete and up-to-date, even in the event of mistakes or inaccuracies. EBA notes that the approach set out in these Guidelines may differ from the existing practices employed by the financial institutions when dealing with the corrections and resubmission of historical reported data. Building on the intrinsic proportionality of the underlying reporting requirements, EBA seeks detailed feedback and responses to specific questions on the possibility of considering additional proportionality elements through this consultation. The Guidelines will be applicable from December 31, 2023.

    Below are the key highlights of other recent developments:

    • EBA is consulting on its draft Guidelines on the harmonized interpretation and application of the STS criteria and specific requirements concerning the credit protection agreement, the third-party verification agent and the synthetic excess spread, applicable to STS on-balance-sheet securitizations, with the comment period ending on July 07, 2023. With the introduction of STS criteria for on-balance-sheet securitizations in the Securitization Regulation, on-balance-sheet securitizations are now eligible for preferential risk-weight treatment under the Capital Requirements Regulation (CRR). The draft Guidelines also propose targeted amendments to the Guidelines for asset-backed commercial paper (ABCP) securitization and non-ABCP securitization.
    • EBA is consulting on its draft regulatory technical standards on the assessment methodology under which competent authorities verify institutions’ compliance with the requirements applicable to their internal models under the Fundamental Review of the Trading Book (FRTB) rules, with the comment period ending on June 26, 2023. These draft standards set out a framework for competent authorities to assess the requirements and focus on three main aspects: governance, the internal risk-measurement model covering the expected shortfall, and the stress scenario risk measure and the internal default risk model. As a result, these draft standards provide clarity as to the type of requests institutions can expect from competent authorities during the investigation phase. The draft standards form part of the phase 4 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches.
    • EBA is consulting on its draft Guidelines on the assessment of adequate knowledge and experience of the management or administrative organ of credit servicers, as a whole, under the Non-Performing Loans Directive, with the comment period ending on July 19, 2023. The Guidelines specify the criteria for the assessment of the organs’ collective knowledge and experience, which will be performed based on the individual members assessment by credit servicers, taking into account the principle of proportionality. The Guidelines set out the main requirements of the credit servicers assessment process, including the good repute, and specify when such an assessment has to be performed. The final Guidelines are expected to be issued by the end of 2023 and will enter into force around early in 2024, three months after the publication of its translations in all official languages of the European Union.
    • EBA updated the list of institutions, which have a reporting obligation for the purpose of the 2023 EU supervisory benchmarking exercise. EBA will be conducting the 2023 benchmarking exercise on a sample of 117 institutions from 16 countries across the EU and the European Economic Area. EBA runs this exercise leveraging on established data collection procedures and formats of regular supervisory reporting and assists Competent Authorities in assessing the quality of internal approaches used to calculate risk weighted exposure amounts.
    • EBA, together with European Securities and Markets Authority (ESMA), published guidelines that specify common procedures and methodologies for SREP which are proportionate to the different sizes and business models of investment firms, and the nature, scale and complexity of their activities. In particular, investment firms are classified into four distinct categories, which translate into different frequency, depth and intensity of the assessments, and the engagement of the competent authority. These guidelines make a link between ongoing supervision, as addressed in Directive on the prudential supervision of investment firms (2019/2034), and the gone concern, by determining whether the investment firm is 'failing or likely to fail'. Following the publication of the translations, the competent authorities are expected to comply with the guidelines within two months. The guidelines will apply from June 19, 2023.
    • EBA published its quarterly risk dashboard together with the first edition of the risk dashboard on minimum requirement for own funds and eligible liabilities (MREL). The dashboard highlights that banks increased their capital ratios and maintained high liquidity ratios in the fourth quarter of 2022. Volatility in European banks’ equity and debt has been strongly affected by Silicon Valley Bank (SVB) and Credit Suisse related events, although direct exposures of European banks were limited. Despite having diversified funding and liquidity profile, banks need to prepare for the repayment of targeted longer-term refinancing operations (TLTRO) for Euro area banks due to decline in total assets in the fourth quarter by around 7%. The non-performing loan (NPL) ratio remained stable at 1.8%.

     

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    Keywords: Europe, EU, Banking, Securities, Q&A, Basel, Reporting, Regulatory Capital, STS Securitization, FRTB, Market Risk, Credit Risk, Non Performing Loans, SREP, Supervisory Benchmarking, Single Rulebook, CRR, Internal Models, Proportionality, Investment Firms, Risk Dashboard, MREL, TLTRO, ESMA, EBA

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