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    EBA Updates Address Basel and NPL Requirements for Banks

    December 22, 2022

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates, common equity tier 1 (CET1) instruments, and diversified indices under the Capital Requirements Regulation (CRR). EBA also published the implementing standards on nonperforming (NPL) loan transaction (sales and transfer) templates, repealed the guidelines on COVID-19 reporting and disclosures, and published a closure report on COVID-19 measures.

    Below are the key highlights of these recent publications:

    • The final draft regulatory technical standards on the identification of GCCs provide the complete framework for identification of two or more natural or legal persons who are so closely linked by idiosyncratic risk factors, that it is prudent to treat them as a single risk. The regulatory technical standards also set out legal provisions for the assessment of situations where control and economic dependencies coexist and thus one overall group of connected clients, as opposed to two or more separate groups of connected clients, needs to be formed. Following the submission to the European Commission for adoption, the final draft regulatory technical standards will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.
    • The Joint Committee of the European Supervisory Authorities (ESAs), which includes EBA, published the list of identified financial conglomerates. The 2022 list includes 63 financial conglomerates with the head of group located in the European Union or European Economic Area.
    • The updated list of CET1 capital instruments includes addition of new type of CET1 instruments, issued by institutions from Iceland, Liechtenstein, Spain, and Norway, that are evaluated as compliant with the Capital Requirements Regulation (CRR). EBA also deleted few instruments that are no longer used by institutions and made minor amendments to the column referring to the national provisions to mirror legislative changes or to provide further clarifications.
    • The list of diversified indices is part of the implementing technical standards drafted to calculate the capital requirements for position risk in equities according to the standardized rules. The list has been updated according to the procedure and methodology laid down in the implementing technical standards and submitted to the European Commission for endorsement. The regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
    • The draft implementing technical standards on NPL transaction Data Templates are intended to provide a common data standard for sales or transfers of NPLs across the European Union. The templates cover information on counterparties related to the loan, contractual characteristics of loan, any collateral and guarantee provided, any legal procedures and enforcement procedures in place, and the historical collection of loan repayment. The NPL transaction data templates are also complemented by a data glossary and the instructions for filling in the templates. The draft standards will be submitted to the European Commission for adoption and the regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
    • The closure report on COVID-19 measures provides an overview of the wide range of policy measures taken on the back of the pandemic, their state of play, and the path out of policy support measures. The findings reveal that the overall European Union banking system has proved resilient to the COVID-19 crisis, preserving adequate capital ratios, displaying (on average) improved asset quality, and continuing to hold substantial liquidity. The publication is accompanied by an update to the list of public guarantee schemes and general payment moratoria schemes issued in response to the pandemic. Additionally, EBA has decided to repeal the Guidelines on COVID-19 reporting and disclosures from January 01, 2023 in response to the decreasing relevance of the related public support measures and its overall proportionate approach to reporting.

     

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    Keywords: Europe, EU, Banking, Basel, CRR, Regulatory Technical Standards, Reporting, NPL Templates, Regulatory Capital, Implementing Technical Standards, Diversified Indices, Disclosures, Financial Conglomerates, NPLS, Covid 19, EBA

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