EBA Examines Use of Proportionality Principle for Resolution Planning
EBA published its second report on the application of simplified obligations and waivers under the Bank Recovery and Resolution Directive (BRRD) across EU. The report presents the results of EBA monitoring on how competent and resolution authorities applied the principle of proportionality for recovery and resolution planning in their respective jurisdictions and describes the current level of convergence in this area. EBA has observed an increase in the number of authorities applying simplified obligations for less significant banks, especially for resolution planning purposes. Also, the convergence was higher when assessing which institutions are eligible for simplified obligations. However, significant divergences remained in determining reduced requirements for institutions benefiting from simplified regimes, where the regulatory framework does not provide detailed guidance.
The report highlights that compared with the 2017 monitoring exercise, more competent and resolution authorities decided to apply simplified obligations to credit institutions in 2019. For recovery planning, the number of authorities applying simplified obligations has risen from 18 to 21, whereas for resolution planning the number has almost doubled (increasing from 13 jurisdictions to 25 jurisdictions). With regard to investment firms, the number of authorities granting simplified obligations since 2017 remained stable for recovery planning (15 competent authorities) and slightly increased for resolution planning (from 9 resolution authorities to 13 resolution authorities). The number of authorities granting simplified obligations to investment firms was lower than that granting simplified obligations to credit institutions, mostly because in some EU jurisdictions there were no investment firms under the scope of BRRD and, thus, none was subject to any recovery or resolution planning requirements.
The proportion of credit institutions under simplified obligations in particular jurisdictions varied, although the highest was typically observed in member states with the largest number of banks in Europe. Just a few EU authorities granted waivers to credit institutions, as this is allowed only in those jurisdictions with specific regulatory frameworks for institutional protection schemes and credit institutions affiliated to central bodies. The report also highlighted a significantly improved level of harmonization in the simplified obligations eligibility assessment methodologies applied by competent and resolution authorities compared to 2017. This was mainly driven by the application of the EBA regulatory technical standards specifying the conditions for applying simplified obligations that replaced the guidelines previously issued on the same topic. EBA also observed significant differences in the determination by the authorities of the reduced level of BRRD requirements for recovery and resolution plans. Divergent practices have been applied in relation to all possible areas in which such reductions could be introduced by the authorities (that is, a deadline for preparing the first simplified plans, the frequency of updating the plans, content of the simplified plans, information required from institutions, and the simplified resolvability assessment), as the regulatory framework does not provide detailed guidance for these aspects.
As part of the EU legislation, BRRD introduces an obligation to prepare and maintain recovery and resolution plans, which in principle is applicable to all credit institutions and certain investment firms. However, the framework also gives competent and resolution authorities the opportunity to grant simplified obligations and waivers to institutions under their jurisdiction, provided that the institutions concerned fulfil specific eligibility criteria.
Related Links
Keywords: Europe, EU, Banking, BRRD, Proportionality, Simplifies Obligations, Recovery and Resolution Planning, Resolution Framework, Supervisory Convergence, Less Significant Institutions, EBA
Previous Article
CSSF Outlines Improvements Needed in Reporting of COVID-19 DataRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
