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    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices, while the European Banking Authority (EBA) proposed guidelines on resolvability testing and published the final regulatory technical standards on liquidity risk measurement under the Investment Firms Directive (IFD). The European Insurance and Occupational Pensions Authority (EIOPA) issued papers on the proposal for the Insurance Recovery and Resolution Directive (IRRD), along with updates on Solvency II reporting. Finally, European Securities and Markets Authority (ESMA) issued recommendations in relation to its 2022 enforcement priorities on non-financial climate disclosures and expected credit losses for financial instruments.

    Below are the key highlights of the updates from the aforementioned regulators:

    • ESAs. The Call for Evidence on greenwashing aims to gather input from stakeholders on how to understand the key features, drivers, and risks associated with greenwashing and to collect examples of potential greenwashing practices. The aim is to better understand the areas that may become more prone to greenwashing risks and to seek input on potential greenwashing practices relevant to various segments of the sustainable investment value chain and of the financial product lifecycle. Obtaining a more granular understanding of greenwashing will help inform policy making and supervision. The submission period ends on January 10, 2023, with the contributions expected to feed into the ESAs’ progress reports that are due in May 2023 and the final reports due in May 2024. Furthermore, in a letter to the European Commission, ESAs have informed about a delay in meeting their SFDR mandate, which was due by April 20, 2023. The mandate was to review the indicators for principal adverse impact (PAI) and the financial product disclosures in the SFDR Delegated Regulation. ESAs have identified significant challenges related to the substantial number of technical components to be worked on under this mandate to deliver the desired changes to the SFDR Delegated Regulation and related to the need to seek input from a range of expert bodies or agencies as stated in the mandate.
    • EBA. The final standards on liquidity risks for investment firms address in detail the main elements that may affect the liquidity risk of an investment firm. The competent authorities will have to assess all elements specific to each service provided by the investment firm under the Markets in Financial Instruments Directive (MiFID) as well as other elements that could have a material impact, such as external factors, group structure, and operational or reputational risks. 
      For small and non-interconnected investment firms, competent authorities are expected to assess only a limited set of those elements. Additionally, the recently published proposed guidelines on resolvability testing set out a framework to ensure that resolvability capabilities developed to comply with the resolvability and transferability Guidelines are fit for purpose and effectively maintained. For the most complex banks, the guidelines are proposing to have them develop a master playbook to ensure a holistic approach to resolution planning. The consultation runs until February 15, 2023. all elements specific to each service provided by the investment firm under the Markets in Financial Instruments Directive (MiFID);  other elements that could have a material impact, such as external factors, group structure, operational or reputational risks. 
    • EIOPA. The reporting update includes the publication of Hotfix for Solvency II Data Point Models (DPMs) and XBRL Taxonomies, along with the hot fixes for and pension fund (including PEPP) DPMs and taxonomies. EIOPA also published two staff papers to provide more clarity on recovery and resolution in insurance. The papers focus on the proposal for an Insurance Recovery and Resolution Directive (IRRD) put forward by the European Commission in September 2021. In the first staff paper, EIOPA answers most frequently asked questions on IRRD, covering topics such as pre-emptive actions, exemption from planning requirements for specific undertakings, cross-border insurers, EIOPA’s role in the process, and the question of funding. In the second staff paper, EIOPA conducted a comparative analysis of IRRD and the Bank Recovery and Resolution Directive (BRRD) to identify similarities and differences between the two legal texts.
    • ESMA. ESMA recently issued its annual Public Statement on European Common Enforcement Priorities. This year’s priorities cover the impact of Russia’s invasion of Ukraine, the macroeconomic environment, and climate-related matters in financial and non-financial information. The statement also highlights the importance of comprehensive disclosures pursuant to Article 8 of the Taxonomy Regulation. The 2022 enforcement priorities for financial statements prepared in accordance with IFRS cover a call for consistency between the information disclosed within the IFRS financial statements and the non-financial information concerning climate-related matters, impact of climate risks in impairment of non-financial assets, recognizing and measuring provisions, and disclosure of the accounting treatment followed when entering into power purchase agreements. The priorities also cover reflection of the impairment of non-financial assets, and recognition of revenue and expected credit losses for financial instruments.

     

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    Keywords: Europe, EU, Banking, Insurance, Securities, Investment Firms, IFR, SFDR, Solvency II, Resolution Framework, Basel, Reporting, IRRD, BRRD, ECL, IFRS 9, ESG, Climate Change Risk, EBA, EIOPA, ESMA, ESAs

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