EBA published its annual report for 2018. The report provides a detailed account of the achievements in 2018 and anticipates the key areas of focus in the coming year. The key focus areas for EBA for 2019, as highlighted in the annual report, are addressing nonperforming loans (NPLs), implementing the final Basel III standards from December 2017, contributing to the prudential regime for investment firms, and understanding risks and challenges posed by fintech.
EBA, in 2018, had focused on the developing and maintaining the Single Rulebook, promoting convergence of supervisory activities, ensuring preparedness for Brexit, and publishing a package of three revised guidelines to further enhance institutions’ risk management and convergence in the supervisory review and evaluation process (SREP). The key priority areas for 2019 include:
- NPLs in Europe. In 2019, EBA plans to finalize its consultation paper on guidelines on loan origination and monitoring to prevent newly generated loans becoming non-performing and, therefore, the build-up of new NPLs in the future. To this end, EBA is acting to promote improved underwriting standards for new loans. EBA will also contribute to the work of other bodies and institutions of the EU, such as the analysis of the insolvency and debt recovery frameworks, and will work together with the EU authorities on tools to develop secondary markets for NPLs.
- Implementation of final Basel III reforms and revision of CRR, CRD, and BRRD. The finalization of risk-reduction package, including revisions to CRR, CRD, and BRRD, is a priority area. In addition, in accordance with the mandates given by the CRR 2 and BRRD 2, EBA will develop and/or modify reporting requirements on several topics, such as MREL, the net stable funding ratio, the internal ratings-based approach for credit risk, the standardized approach for market risk, the leverage ratio, and counterparty credit risk. EBA will also prioritize technical standards and guidelines that facilitate the use of internal models for banks investing in securitization positions. MREL is another focus area for EBA. In light of the progress in MREL setting, EBA has been updating its methodology for quantitative monitoring of MREL resources. This will feed into regular updates to EC on the impact of MREL on the European Financial Sector, with a first report expected by the end of 2019.
- Standardized and integrated reporting system. EBA will prepare a feasibility report regarding the development of a consistent and integrated system for collecting statistical, resolution, and prudential data and report its findings to EC. EC will, if appropriate, and taking into account the EBA feasibility report, submit to the European Parliament and the Council a legislative proposal for the establishment of a standardized and integrated reporting system for reporting requirements.
- Prudential regime for investment firms. EU is considering a new prudential regime for investment firms. Investment firms will be subject to a more tailored, simpler and more proportionate set of prudential requirements than the current ones based on the CRD and CRR. A first consultation paper covering all the aspects concerning the categorization of investment firms, capital composition, the capital requirements calculations, consolidated supervision and the reporting framework is expected during the fourth quarter of 2019. EBA is expected to consult the industry on the proposed technical standards, splitting them into several batches and staggering their publication. EBA will also outline a precise work plan for the forthcoming public consultations on the remaining technical standards and guidelines.
- Risks and opportunities arising from financial innovation. EBA aims in 2019 to establish an "innovation radar" to identify and track a broad range of financial innovations—for example, the launch of new products or innovative uses of existing products and services. A focus on the licensing process will also be part of the core mandates conferred upon EBA by the CRD V, which will relate to the development of guidelines on a common assessment methodology for the granting of authorizations to credit institutions and a report on the treatment of third-country branches under the national laws of member states. EBA expects to publish a thematic report in 2019 to better understand the use of big data and data analytics in financial services, identify any potential regulatory and supervisory areas of attention, and formulate best practices and principles when it comes to the application and implementation of data analytics by institutions.
- Implementation of IFRS 9. Understanding the practices followed by banks with regard to IFRS 9 modeling will be a key area of focus for EBA in 2019 and the following years. This is because the results of the IFRS 9 modeling performed by banks are ultimately reflected in the expected credit losses calculations, thus impacting prudential figures. EBA is investigating how to better plan its activities in this area, with a focus on the possibility of developing a benchmarking exercise for IFRS 9.
Keywords: Europe, EU, Banking, Annual Report, CRR, Basel III, IFRS 9, Brexit, Securitization, EBA
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ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
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EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
The EBA Single Rulebook question and answer (Q&A) tool updates for this month include answers to ten questions.