EBA Issues Multiple Regulatory Updates for Banking Sector
As part of its recent publications, EBA provided clarity on the applicability of guidelines that have been replaced or modified by the Pillar 3 disclosure standards, published a report on standards related to the financial product disclosures under the Sustainable Finance Disclosure Regulation (SFDR), and issued the list of third-country groups and branches of credit institutions in the European Union and European Economic Area (EU/EEA). EBA also issued an opinion on the European Commission (EC) proposal on Pillar 3 disclosures on environmental, social, and governance (ESG) risk, a report on monitoring of the total loss-absorbing capacity and minimum requirement for own funds and eligible liabilities (TLAC/MREL), a thematic note on residential real estate exposures of banks, and a peer review on the implementation of the guidelines on information and communications technology (ICT) risk management.
Below are the key highlights of the recently issued regulatory developments and reports:
- EBA provided clarity on the applicability of several EBA disclosure guidelines that have been replaced totally or partially by the implementing technical standards on Pillar 3 disclosures. As part of this effort, EBA revised the scope of application of the guidelines on disclosure of non-performing and forborne exposures and repealed the guidelines on the disclosure requirements under Part Eight of the Capital Requirements Regulation (CRR or Regulation No 575/2013), the liquidity coverage ratio (LCR) disclosure to complement the disclosure of liquidity risk management (EBA/GL/2017/01), and the disclosure of encumbered and unencumbered assets (EBA/GL/2014/03). The EBA amending guidelines on disclosure of non-performing and forborne exposures adjust the scope of application of existing guidelines to clarify that these guidelines will continue to apply to listed small- and non-complex institutions and to other medium-size institutions that are non-listed. The amending Guidelines will apply from December 31, 2022.
- The three European Supervisory Authorities (ESAs), which include EBA, the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authorities (ESMA), have delivered to the European Commission (EC) their final report with draft regulatory technical standards on the disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under the SFDR. 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 European Union Taxonomy. EC will scrutinize the draft 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 (which will apply from January 01, 2023), ESAs have left it to EC to include an expected application date when they endorse the draft regulatory technical standards.
- EBA published the list of third-country groups operating in EU/EEA with the intermediate EU parent undertakings (IPU), where applicable. EBA also published the list of all third-country branches of credit institutions authorized to operate in the EU/EEA.
- EBA issued an opinion in response to the amendments proposed by EC to the EBA final draft implementing technical standards on Pillar 3 disclosures on ESG risks. In the opinion, while accepting the two substantive changes proposed by EC to enhance proportionality, EBA insists that institutions should make every effort to collect and disclose the very relevant information reflected in the Banking Book Taxonomy Alignment Ratio (BTAR). EC has proposed amendments to emphasize that institutions "may" choose to disclose this information, instead of being required to do it on a "a best effort basis" and that the collection of the information from the counterparties will be on a "voluntary basis", including that institutions need to inform the counterparties about the voluntary nature of this request of information. In the opinion, EBA recognizes the importance of proportionality and, therefore, although favoring the original wording requesting institutions to disclose this information on a best effort basis, EBA accepts the amendments proposed by EC.
- EBA published an updated report on monitoring of TLAC/MREL. Following the first TLAC-MREL monitoring report, EBA has observed that its recommendations have been, overall, well implemented. However, it has identified the need for a few new notable provisions to be recommended and for some others to be avoided. This report provides policy views based on TLAC/MREL instruments assessed up to February 2022, with a view to continue strengthening the quality of the instruments and to have more standardized information across the EU.
- EBA published a thematic note on EU banks’ residential real estate exposures. EU banks reported more than EUR 4.1 trillion of loans and advances collateralized by residential immovable property. House prices across the EU have increased substantially during 2021 and this has raised concerns about overheating and the potential for significant price declines in residential real estate markets. Higher interest rates driven by increased inflation combined with the prospect of slower economic growth will likely put financial pressure on lower income and over-indebted households; these developments clearly point to higher risks in mortgage portfolios of banks. Banks should follow prudent loan origination policies and enhance their monitoring of mortgage loan portfolios to identify promptly pockets of risks.
- EBA published the conclusion of its peer review of how competent authorities supervise institutions’ ICT risk management and have implemented the EBA guidelines on ICT risk assessment under the supervisory review and evaluation process (SREP). Overall, the analysis suggests that the competent authorities across the EU have applied a risk-based approach to the supervision of ICT risk management. EBA has not identified any significant concerns regarding the supervisory practices but makes some general recommendations for further improvements. The peer review also includes recommendations to the EBA to incorporate a number of identified good practices into the guidelines on ICT risk assessment under the SREP, when the latter will be reviewed in the future.
Related Links
- Pillar 3 Disclosure Guidelines
- Financial Product Disclosures Under SFDR
- Third-Country Groups and Branches of Banks
- Opinion on ESG Pillar 3 Disclosures
- Report on TLAC-MREL Monitoring
- Note on Residential Real Estate Market
- Review of ICT Risk Guidelines
Keywords: Europe, Banking, Basel, Pillar 3, Disclosures, ICT Risk, Lending, Regulatory Capital, TLAC, MREL, RRE, ESG, SDFR, Sustainable Finance, Financial Product Disclosures, Third Country Groups, Third Country Branches, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
US Authorities to Address Climate Risks and Digital Asset RisksRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.