EU Council Adopts Legislative Reforms Under Capital Markets Union
European Council adopted a set of legislative reforms contributing to the Capital Markets Union, including sustainable finance reforms and legislative frameworks for investment firms and covered bonds. The Council also published the adopted texts that concern the creation of a new category of benchmarks contributing to sustainable finance, transparency obligations for sustainable investments, a new prudential framework for investment firms, a harmonized framework for covered bonds, and the rules promoting access to small and medium enterprise (SME) growth markets.
With respect to sustainable finance, the first reform introduces disclosure obligations on how financial companies integrate environmental, social, and governance factors in their investment decisions. The second reform creates new types of benchmarks aimed at giving greater information on an investment portfolio's carbon footprint: the EU climate transition benchmarks, which aim to lower the carbon footprint of a standard investment portfolio, and the EU Paris-aligned benchmarks, which have the more ambitious goal to select only components that contribute to attaining the 2°C reduction set out in the Paris climate agreement.
Another package of measures that was adopted sets out new prudential requirements and supervisory arrangements for investment firms. The reform adapts the requirements to the firms' risk profiles and business models while preserving financial stability. The largest firms that are considered systemic will be subject to the full banking prudential regime and will be supervised as credit institutions, while smaller firms will enjoy a new bespoke regime with dedicated prudential requirements.
The Council also adopted a set of new rules on harmonized product requirements and supervision of covered bonds, to ensure a high level of investor protection. This framework specifies a common definition for receiving an EU covered bond label and benefit from preferential capital treatment. Harmonized regulatory framework would provide a stable funding source for credit institutions, which would be better placed to provide affordable mortgages for consumers and businesses and would make alternative safer investments available to investors. Covered bonds are financial instruments issued by a credit institution and backed by a separate pool of assets—typically mortgages or public debt—to which investors have a preferential claim in case of failure of the issuer.
The Council adopted a new SME framework to help small and medium businesses access new sources of funding. This specifically concerns access to "SME growth markets," a recently introduced category of trading venue dedicated to small issuers. The proposal contains amendments to the market abuse and the prospectus regulations, which make the obligations placed on SME growth market issuers more proportionate while preserving market integrity and investor protection.
Related Link: Press Release and Adopted Texts
Keywords: Europe, EU, Banking, Securities, Capital Markets Union, Sustainable Finance, ESG, Climate Benchmarks, Covered Bonds, Prudential Framework for Investment Firms, SME, Climate Change Risk, Proportionality, European Council
Previous Article
EBA Single Rulebook Q&A: First Update for November 2019Related Articles
BIS Examines Use of Big Data and Machine Learning at Central Banks
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA Finalizes Reporting Standard for Operational Risk Requirements
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB Publishes Guide for Determining Penalties for Regulatory Breaches
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS Sets Out Good Practices to Manage Operational Risks Amid COVID
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR Announces New Data Collection Application for Banks and Insurers
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 Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox
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.
EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB Publishes Overview of Resolution Tools Available in Banking Union
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR
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).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting