The European Banking Authority (EBA) has published results of the recent Basel III monitoring exercise for European Union (EU) banks as well as a report on the market share of non-EU entities in the EU banking system. Additionally, the European Supervisory Authorities (ESAs) delivered, to the European Commission (EC), a report setting out the draft regulatory technical standards on disclosure of financial product exposure to investments in fossil gas and nuclear energy activities under the Sustainable Finance Disclosure Regulation (SFDR).
Disclosure standards under SFDR. ESAs delivered, to EC, the disclosures for fossil gas and nuclear energy investments, in line with the SFDR. EC will scrutinize the draft regulatory technical standards and endorse them within three months of their publication. Due to the urgency of the matter and the challenging application timeline of the Complementary Climate Delegated Act (applies from January 01, 2023), the ESAs have left it to the EC to include an expected application date when they endorse the draft regulatory standards. ESAs consider the existing disclosures in the SFDR Delegated Regulation sufficient for fossil gas or nuclear energy investments by financial products that are not covered by the EU Taxonomy. However, as part of the recent amendments, ESAs propose to add specific disclosures to provide transparency about investments in taxonomy-aligned gas and nuclear economic activities. These disclosures, which are in line with the definitions in the Complementary Climate Delegated Act, will help investors make informed decisions and
- add a yes/no question in the financial product templates of the SFDR Delegated Regulation to identify whether the financial product intends to invest in such activities; if the answer was yes, a graphical representation of the proportion of investments in such activities would be required.
- implement minor technical revisions to the Delegated Regulation to correct inconsistencies observed after its publication.
EBA reports on Basel monitoring and market share of non-EU entities. The mandatory Basel III Monitoring Report examines the impact that Basel III full implementation will have on EU banks in 2028. The assessment reveals that the full Basel III implementation would result in an average increase of 15.0% of the current Tier 1 minimum required capital of EU banks. To comply with the new framework, EU banks would need EUR 1.2 billion of additional Tier 1 capital. The report also includes a separate Annex on the impact of the EC proposal for the EU implementation under the Capital Requirements Regulation (CRR3). The other report from EBA examines the reliance of the EU financial sector on counterparties, operators, and financing originating from outside the Single Market. As of June 2021, the market share of non-EU entities in the EU banking sector was at 12.2% of total banking assets, 11.4% of loans, 6.6% of debt securities, and 31.4% of derivatives. The review found that 20% of EU banks’ total fees and commissions expenses were credited to operators residing outside EU and 19% of EU banks’ total funding was denominated in significant foreign currencies.
- ESA Disclosure Standards Under SFDR
- Complementary Climate Delegated Act
- EBA Report on Basel III Monitoring
- EBA Report on Share of Non-EU Entities
Keywords: Europe, EU, Banking, Securities, Basel, Basel III Monitoring, Regulatory Technical Standards, SFDR, Disclosures, CRR3, ESG, Climate Change Risk, Regulatory Capital, EBA, ESAs
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