The European Banking Authority (EBA) published a report that examines risks associated with the provision of non-bank lending and presents proposals that aim to address supervision, consumer protection, anti-money laundering and countering the financing of terrorism (AML/CFT), and macro- and micro-prudential risks.
This report, which is in response to a February 2021 Call for Advice from the European Commission, also outlines the most recent trends and market developments on non-bank lending and provides an overview of the presence of certain business models (Peer-to-Peer lending platforms and marketplaces, Buy-Now-Pay-Later, pawnshops, leasing, factoring, balance sheet lending, crowdlending) across different member states. The different formats in which crypto-asset lending and borrowing activities can happen, including in decentralized form, have been analyzed too. EBA proposed the following key policy actions to address the identified risks:
- Harmonize and strengthen the authorization and supervision requirements in the Consumer Credit Directive (CCD) and the the Mortgage Credit Directive (MCD)
- Revise the definitions dealing with the entities to be included in the scope of prudential consolidation, in particular for the ancillary services undertakings, as well as the definition of activities that are not considered outside the financial sector
- Consider the extension of consolidation rules (through adapting the existing CRR/CRD or new bespoke rules) to ensure that they adequately capture the specific nature and inherent risks of non-bank groups carrying out financial services, including lending
- Improve rules on reporting credit activity carried out by non-bank lenders
- Clarify the identification of the responsibilities of the home and host supervisory authorities regarding the provision of cross-border non-bank lending
- Strengthen the requirements for creditworthiness assessment and ensure that it is conducted also in the interest of consumers, particularly when innovative artificial intelligence tools are used
- Modify the definition of financial holding company, ancillary services undertaking, and financial institution to close existing loopholes with regard to prudential consolidation
- Retain the European Commission proposal amending the Consumer Credit Directive (CCD) to cover the entities outside its scope
- Enhance the disclosure requirements and ensure that they are fair, effective, and well-suited to new forms of lending and more innovative business models
- Cover all non-bank lenders in a more comprehensive way in the European Union-wide AML/CFT framework, to ensure greater harmonization and capture entities such as "obliged entities"
- Establish an oversight and monitoring system at the European Union level for regulated and unregulated non-bank lenders to help assess on a timely basis the build-up of systemic risks as well as to identify and address the most compelling risks at macro level
- Review the setup of a standardized reporting infrastructure at European Union level to enable an appropriate mapping and obtain one integrated overview of macro-prudential risks and vulnerabilities
- Consider the possibility of an introduction of activity-based macro-prudential measures to cover all credit providers, based on a minimum harmonization of the tools that are already widely applied across the European Union
Keywords: Europe, EU, Banking, Lending, Credit Risk, Basel, P2P Lending, AML CFT, Crypto-Assets, CCD, Artificial Intelligence, Regtech, Fintech, Crowdfunding Service Providers, Platform Businesses, Macro-Prudential Policy, EBA, Headline
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