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    EBA Announces Multiple Regulatory and Reporting Updates in April 2023

    The European Banking Authority (EBA) published consultations on the amendments to the guidelines on risk-based anti-money laundering and countering the financing of terrorism (AML/CFT) supervision and the guidelines on benchmarking of diversity practices including diversity policies and gender pay gap. The Authority also issued two new sets of guidelines to challenge the unwarranted de-risking and safeguard access to financial services to vulnerable customers, published eighth edition of the Consumer Trends Report for 2022-2023, released an opinion on the definition of a large decline of net interest income in relation to the interest rate risk in the banking book (IRRBB). Additional updates involve issuance of the final draft regulatory standards on the determination of the exposure value of synthetic excess spread in synthetic securitizations and the publication of data on deposit guarantee schemes across the European Economic Area. Moreover, the European Supervisory Authorities (ESAs) issued the Spring 2023 Joint Committee Report on risks and vulnerabilities in the EU financial system. Finally, EBA and the European Insurance and Occupational Pensions Authority (EIOPA) jointly published draft version of its revised taxonomy architecture.

    Below are the key highlights of the aforementioned developments:

    • EBA is seeking comments, until July 24, 2023, on the guidelines on the benchmarking of diversity practices including diversity policies and gender pay gap under the Capital Requirements Directive (CRD) and the Investment Firms Directive (IFD). The guidelines cover the collection of data on institutions and investment firms' diversity policies, diversity practices and the gender pay-gap at the level of the management body, including templates and instructions for the collection of diversity data, which is foreseen every three years. The guidelines aim at ensuring that the benchmarking covers a representative sample of institutions and investment firms in each member state. Further technical instructions on the data submission will be provided to institutions selected by competent authorities to be part of the sample. The new reporting format is expected to apply for the collection of data in 2025 for the financial year 2024.
    • EBA published an opinion in response to the European Commission amendments relating to the draft regulatory technical standards on the supervisory outlier tests specifying technical aspects of the revised framework on interest rate risks for banking book (IRRBB) positions. The opinion proposes to retain the methodology for a large decline, as originally proposed by EBA, but to amend the level of what constitutes a large decline of the net interest income, replacing the original level of 2.5% of Tier 1 Capital with a level of 5% of Tier 1 Capital in view of the current rate conditions. The EBA scrutiny plans on IRRBB will encompass reconsideration in the short term of the level of the threshold, which might need regular updates through time. In the longer-term horizon, the EBA might undertake a revision of the methodology, depending on more experience to be gathered. EBA stresses the importance to adopt without delay the regulatory technical standards, which are a crucial piece of the EU regulatory framework for the harmonized assessment and monitoring of exposures of institutions to IRRBB.
    • EBA published its final draft regulatory technical standards specifying the determination by originator institutions of the exposure value of synthetic excess spread in synthetic securitizations. These draft regulatory technical standards clarify the calculation of the components that should be included in this exposure value taking into account the relevant losses expected to be covered by the synthetic excess spread. Finally, to ensure a continuation of existing securitization transactions, a grandfathering provision has been introduced for synthetic transactions featuring synthetic excess spread, where the originating institution fulfilled the requirements of Article 248(1)(e) of the Capital Requirements Regulation, or CRR, in accordance with the supervisory practice adopted by the relevant competent authority.
    • EBA is consulting on the amendments to its guidelines on risk-based AML/CFT supervision, with the comment period ending on June 29, 2023. The proposed changes extend the scope of these guidelines to AML/CFT supervisors of crypto-asset service providers (CASPs). The amendments include guidance on the sources of information competent authorities should consider when assessing money laundering and terrorist financing (ML/TF) risks associated with CASPs. EBA informs that specific AML/CFT guidance for CASPs will be delivered through the forthcoming amendments to the EBA Risk Factors Guidelines, the amendments to the guidelines to prevent the abuse of fund transfers for ML/TF purposes, and new guidelines on policies and procedures for compliance with restrictive measures. Through these products, EBA will continue its work to strengthen the AML/CFT defenses of Europe.
    • EBA and the European Insurance and Occupational Pensions Authority (EIOPA) jointly published a draft version of its revised taxonomy architecture to implement the improvements introduced by data point model (DPM) Refit to data point modelling, such as the historization of certain concepts. The revisions also simplify the structure by removing unnecessary artefacts, such as normative codes for taxonomy frameworks.
    • EBA issued two new sets of guidelines to ensure that customers have access to the financial services they need to fully participate in society and that they are not denied this access on unsubstantiated AML/CFT grounds or without valid reason. The first set is an Annex to the EBA ML/TF risk factor guidelines, which set out what financial institutions should do to identify and assess ML/TF risk associated with customers who are Not-for-Profit organizations (NPOs). The guidance contained in the Annex will help financial institutions understand better how NPOs are organized, how they operate in practice, and what ML/TF risk factors are particularly relevant when dealing with such customers. The second set of guidelines is broader and tackles the issue of effective management of ML/TF risks by financial institutions when providing access to financial services. They set out the steps institutions should take when considering whether to refuse or terminate a business relationship with a customer based on ML/TF risk or AML/CFT compliance grounds. Both guidelines are issued in response to the European Commission request following the publication of the EBA Opinion on de-risking.
    • EBA published eighth edition of its Consumer Trends Report for 2022-2023, which summarizes trends observed for the products and services under the consumer protection mandate of EBA. The report presents quantitative data for the retail banking products which covers mortgage credit, consumer credit, payment accounts, payment services, electronic money and deposits. The report observes that mortgage credit was affected by rising inflation and the normalization of interest rates, while credit products were impacted by poor creditworthiness assessments and the rise of new and unregulated credit products. All these issues have been identified as key drivers for consumers’ repayment difficulties and, ultimately, over-indebtedness. The other issue that has been identified by the report was fraud in retail payments based on fraud data collected from 2021. These issues will shape the consumer protection priorities of EBA over the next two years.
    • ESAs published their Spring 2023 joint committee report on risks and vulnerabilities in the EU financial system. While noting that EU financial markets remained broadly stable despite the challenging macro environment and recent market pressure in the banking sector, ESAs advises national supervisors, financial institutions and market participants to remain vigilant, be prepared for a deterioration in asset quality, keep a close eye on loan loss provisioning, closely monitor liquidity risks arising from investments in leveraged funds, monitor the impacts of inflation risk, maintain a strong regulatory framework, enhance risk management capabilities and disclosures for environmental, social, and governance (ESG) risks and ensure the security of their information and communication technology (ICT) infrastructures and adequate ICT risk management.
    • EBA published end-2022 data related to two key concepts and indicators in the Deposit Guarantee Schemes Directive (DGSD), namely available financial means (AFMs) and covered deposits. EBA publishes this data for the deposit guarantee scheme (DGS) in each Member State on a yearly basis to enhance the transparency and public accountability of DGSs across the European Economic Area to the benefit of depositors, markets, policymakers, DGSs and Members States. In the period from 2021 to 2022, the amount of deposits protected by EU deposit guarantee schemes (DGS) increased by 2.5%, and the amount of funds available to protect those deposits in case of bank failures increased by 7.4%. The end-2022 data shows that DGSs are gradually increasing their available funds raised from the industry with the aim of reaching the harmonized minimum target level of 0.8% of deposits covered by the DGS by July 2024. Half of the 36 DGSs in the European Economic Area have already reached the minimum target level ahead of the deadline.
    • EBA published a corrigendum of the revised guidelines on methods for calculating contributions to deposit guarantee schemes under the DGS Directive or DGSD (EBA/GL/2023/02). The corrigendum applies to paragraph 13 in the section Repeal. This correction states that paragraph 21 of the related guidelines on the delineation and reporting of available financial means (AFM) of DGS (EBA/GL/2021/17), issued on December 17, 2021, will be deleted. 

     

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    Keywords: Europe, EU, Banking, Regtech, AML CFT, Basel, Reporting, Investment Firms, Lending, IRRBB, Synthetic Securitization, ICT Risk, Regulatory Technical Standards, DGA, ESG, ESAs, EIOPA, EBA

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