Consultation on Guidelines PD estimation, LGD estimation and treatment of defaulted assets

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines on the estimation of risk parameters for non-defaulted exposures, namely of the probability of default (PD) and the loss given default (LGD), and on the treatment of defaulted assets. These draft Guidelines are part of the EBA’s broader work on the review of the IRB approach  aimed at reducing the unjustified variability in the outcomes of internal models, while preserving the risk sensitivity of capital requirements. The consultation runs until 10 February 2017.
 
In particular, as to non-defaulted exposures, the draft Guidelines detail the estimation of PD and LGD parameters, including specification of main definitions, requirements for the data used and clarifications on modelling techniques. In case of defaulted assets, these Guidelines provide clarifications on the estimation of risk parameters such as best estimate of expected loss (ELBE) and LGD in-default based on the requirements specified for the LGD for non-defaulted exposures.
 
In addition, these Guidelines specify other aspects that are common to all risk parameters, such as the judgmental component when developing and applying internal models, the appropriate level of conservatism that should be included in risk parameters, as well as the need for regular reviews of the models so as to ensure the necessary changes are applied in case of their deteriorated performance.
 
Considering the material changes to numerous rating systems that these Guidelines may entail, the proposed time for their implementation is end-2020.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 10 February 2017.
All contributions received will be published following the close of the consultation, unless requested otherwise. A public hearing and workshop will then take place at the EBA premises on 19 January 2017 from 10:00 to 16:00 UK time. 

Legal basis and next steps

The EBA has developed these Guidelines on its own initiative in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.
The EBA is planning to carry out a qualitative survey to assess the impact of the proposed requirements on the rating systems, the results of which will be taken into consideration when finalising these Guidelines.
 

Consultation on ITS amending Implementing Regulation (EU) No 680/2014 with regard to operational risk and sovereign exposures

The European Banking Authority (EBA) published today for consultation revised Implementing Technical Standards (ITS) on supervisory reporting. The proposed amendments concern new requirements for the reporting of information on sovereign exposures and changed requirements for the reporting of operational risk data. The standards on supervisory reporting aim at collecting information on institutions’ compliance with prudential requirements in a consistent way and need to be updated whenever prudential or supervisory requirements change. This consultation runs until 7 January 2017.
 
Information on sovereign exposures was crucial in the past and is becoming even more important now that the treatment of sovereigns is under review. The proposed draft ITS include additional information on sovereign exposures as the currently available data suffers from several shortcomings, which has required, so far, to resort to ad-hoc collections from Competent Authorities. 
 
Considering the significant increase in institutions’ costs stemming from operational risk events and the significant impact on profitability, these draft ITS also propose improvements to the reported information on operational risk. These changes will allow supervisors to monitor the losses due to this risk and to analyse the drivers behind the events triggering such material losses. 
 

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 7 January 2017.
 
All contributions received will be published following the close of the consultation, unless requested otherwise. 
 

Legal basis and next steps

These draft ITS have been developed according to Article 99(5) of the Capital Requirements Regulation (CRR), which mandates the EBA to develop uniform reporting requirements.
 
The EBA expects to submit these revised draft ITS to the European Commission in March/April 2017. The application of the revised requirements will be in March 2018, with the first reporting reference date as of 31 March 2018.
 

Consultation on RTS and ITS on the authorisation of credit institutions

The European Banking Authority (EBA) launched today a consultation on (i) regulatory technical standards (RTS) on the information to be provided to Competent Authorities for the authorisation of credit institutions and (ii) implementing technical standards (ITS) on the templates and procedures for the provision of such information. These standards aim at harmonising the information requirements in the authorisation process across the EU, thus facilitating the application process and ensuring a level playing field. The consultation runs until 8 February 2017.
 
Considering the sensitive nature of the activity of a credit institution, the application for authorising a credit institution needs to be supported by a substantial amount of information. The RTS aim at structuring such information, which includes, among others, the history of the applicant credit institution, the activities it intends to carry out, its own funds, its shareholders with qualifying majority, the management body, and also the obstacles which may prevent effective the exercise of the Competent Authority’s supervisory functions. The RTS finally introduce some flexibility in the information requirements so as to adjust them to the different nature of each application.
To ensure consistency and level playing field in the provision of the information, the ITS set out standard forms, templates and procedures. 

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 8 February 2017.
 
All contributions received will be published following the close of the consultation, unless requested otherwise. A public hearing will then take place at the EBA premises on 12 December 2016 11:00 to 12:00 UK time.

Legal basis and background

These draft RTS have been developed in accordance with Article 8(2) of the Capital Requirements Directive (CRD), which mandates the EBA to specify the information to be provided to competent authorities in the application for the authorisation of credit institutions. The draft ITS have been developed according to Article 8(3) of the CRD, which mandates the EBA to produce standard forms, templates and procedures for the provision of such information.
 

Consultation on Guidelines on authorisation and registration under PSD2

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines specifying the information to be provided by applicants intending to obtain authorisation as payment and electronic money institutions as well as to register as account information service providers under the revised Payment Service Directive (PSD2).These Guidelines are in support of the objective of PSD2 of strengthening an integrated payments market across the European Union, ensuring a consistent application of the legislative framework, and promoting equal conditions for competition. The consultation runs until 3 February 2017.
 
The PSD2 sets out information requirements for the application as payment institution and for the registration as account information services provider (AISP).The draft Guidelines published today specify the detailed information and documentation that applicants need to submit to national authorities in the authorisation or registration process, so as to comply with these requirements. 
 
The type of information requested from applicants varies depending on the different nature of the payment service provider. The Guidelines are, therefore, structured into three separate sections, which are addressed to payment institutions, account information service providers, and electronic money institutions respectively. 
 
The information requirements specified in the draft Guidelines include, for example, details on the applicant’s programme of operations; its business plan; evidence of initial capital; the measures taken for safeguarding payment service users’ funds; the applicant’s governance arrangements and internal control mechanisms; the procedures in place to monitor, handle and follow up a security incident and security related customer complaints and to file, monitor, track and restrict access to sensitive payment data; and the identity, and evidence of the suitability, of persons holding qualifying holding and of persons responsible for the management of the payment institution.
 

Consultation process

 
Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the website.
 
All contributions received will be published following the close of the consultation, unless requested otherwise. Please note that the deadline for the submission of comments is 3 February 2017 and that no attachments can be submitted.
 
A public hearing will take place at the EBA premises on 12 December 2016 from 14:00 to 16:00 UK time. 
 

Legal basis and background

 
These Guidelines have been drafted in accordance with Article 5(5) of Directive (EU) 2015/2366 on payment services in the internal market (PSD2), which mandates the EBA to issue guidelines, on the information to be provided to the competent authorities in the application for the authorisation of payment institution. 
 
While Article 5 refers only to the authorisation as payment institutions, some of the requirements apply also to those payment service providers that provide account information services only. These providers do not need to get authorised, but only registered. When registering, they will be subject to some of the requirements under Article 5(1) of PSD2 and, by extension, to a second set of Guidelines that are specific to them.
 
Finally, Article 3 of Directive (EU) 2009/110 (EMD) provides that Article 5 applies to electronic money institutions mutatis mutandi. Electronic Money Institutions can either provide e-money services only or payment services in addition to e-money services. These specificities have been reflected in a third and final set of Guidelines that are specific for these Institutions.
 

Consultation on Guidelines on internal governance (revised)

The European Banking Authority (EBA) launched today a public consultation on its revised Guidelines on internal governance. These draft Guidelines aim at further harmonising institutions’ internal governance arrangements, processes and mechanisms across the EU, in line with the new requirements in this area introduced in the Capital Requirements Directive (CRD) and also taking into account the proportionality principle. The consultation runs until 28 January 2017.
 
Weaknesses in corporate governance in a number of institutions have contributed to excessive and imprudent risk-taking in the banking sector, which has led to the failure of individual institutions and systemic problems in Member States and globally. In order to address the potentially detrimental effects of poorly designed corporate governance arrangements on the sound management of risk, and to take into account the new requirements introduced in the CRD in this area, the EBA is updating its Guidelines on internal governance, originally published on 27 September 2011.
 
These draft Guidelines put more emphasis on the duties and responsibilities of the management body in its supervisory function in risk oversight, including the role of their committees. They aim at improving the status of the risk management function, enhancing the information flow between the risk management function and the management body and ensuring effective monitoring of risk governance by supervisors. The ‘know-your –structure’ and complex structures sections, especially following the ‘Panama events’, have been strengthened to ensure that the management body is aware of the risks that can be triggered by complex and opaque structures and to improve transparency. In addition, the framework for business conduct has been further developed and more emphasis is given to the establishment of a risk culture, a code of conduct and the management of conflicts of interest.
 
Finally, more guidance is provided on the risk management framework, on how internal control functions are organised and how internal controls are implemented.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 28 January 2017.
 
A public hearing will take place at the EBA premises on 5 January 2017 from 14: 00 to 17:00 UK time. All contributions received will be published following the end of the consultation, unless requested otherwise.

Legal basis and next steps

These draft Guidelines have been developed on the basis of Article 74 of Directive 2013/36/EU, which mandates the EBA to further harmonise institutions’ governance arrangements, processes and mechanisms across the EU
 
Competent Authorities across the EU will be expected to implement the Guidelines by mid-2017. 
 
The EBA Guidelines will apply to Competent Authorities across the EU, as well as to institutions on a solo and consolidated basis. Once the revised Guidelines are enforced, the 2011 Guidelines will be repealed.
 

Consultation on Joint ESMA EBA Guidelines on suitability of management body

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) launched today a consultation on Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders (the Guidelines). The draft Guidelines aim at further improving and harmonising suitability assessments within the EU financial sectors and so ensure sound governance arrangements in financial institutions.
 
Weaknesses in corporate governance  are widely acknowledged to have been one of the underlying causes of the financial crisis where inadequate oversight by, and challenge from, the management body in a number of credit institutions and investment firms contributed to excessive and imprudent risk-taking in the financial sector. In order to address those weaknesses, the EBA and ESMA have issued jointly these Guidelines in accordance with the new requirements introduced under the Capital Requirements Directive (CRD) and the Markets in Financial Instruments Directive (MiFID II). 
 
The draft Guidelines:
  • provide common criteria to assess the individual and collective knowledge, skills and experience of members of the management body as well as the good repute, honesty and integrity, and independence of mind of members of the management body;
  • require members of the management body to commit sufficient time to perform their duties and specify how the number of directorships held by members of the management body  should be counted, for significant institutions;
  • set out how different aspects of diversity, educational and professional background, age, gender and geographical provenance should be taken into account in the recruitment process; and
  • highlight the importance of induction and training to ensure the initial and ongoing suitability of members of the management body, and call for institutions to establish training policies and to allocate appropriate financial and human resources to induction and training.
The consultation closes on 28 January 2017 and a public hearing in London will take place on 5 January 2017 from 14:00 to 17:00 UK time. 

Legal basis and next steps

These draft Guidelines have been developed according to Article 91 (12) of Directive 2013/36/EU (CRD) and Article 9 of Directive 2014/65/EU.
 
These Guidelines take also into account the results of the EBA peer review of the Guidelines on the assessment of the suitability of members of the management body and key function holders of credit institutions, published on 22 November 2015.
 
The joint Guidelines will apply to Competent Authorities across the EU, as well as to credit institutions and investment firms. Once the revised Guidelines are enforced, the previous EBA Guidelines on the assessment of the suitability of the management body and key function holders from 2012 will be repealed.
 
Competent Authorities across the EU will be expected to implement the Guidelines by mid-2017. 
 

Consultation on ITS on MREL reporting by Resolution Authorities

The European Banking Authority (EBA) launched today a public consultation on draft Implementing Technical Standards (ITS) on the procedures and templates which Resolution Authorities should use when informing the EBA of the minimum requirements for own funds and eligible liabilities (MREL) that have been set for each institution under their jurisdiction. These standards will enable the EBA to monitor on a consistent basis the implementation of MREL across the Union. The consultation runs until 21 November 2016.
 
Resolution Authorities are required to report to the EBA the minimum requirement that has been set for each institution in their respective jurisdiction according to common procedures and using common templates.
 
The common templates proposed by the EBA cover, among other things, the overall amount of MREL required from an institution, as well as each of the components of the MREL decision as foreseen in the Regulatory Technical Standard (RTS) on MREL. In addition, Resolution Authorities are required to provide an explanation on the adjustments made to the default MREL amount. This will facilitate the EBA in monitoring the consistency in the application of the MREL framework and help assess any divergences in the levels of MREL set for comparable institutions across Member States.
 
The ITS also provide for simplified reporting for certain categories of institutions for which liquidation, rather than resolution, will be the preferred strategy. In those cases, the MREL will only be made of a loss absorption amount.
 
These ITS only cover the reporting of MREL requirements from Resolution Authorities to the EBA. Reporting by institutions to Resolution or Competent Authorities is outside of the scope of this consultation.

Consultation process 

 
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 21 November 2016.
 
A public hearing will then take place at the EBA premises on 14 November 2016 from 14:30 to 15:30 UK time. All contributions received will be published following the close of the consultation, unless requested otherwise.

Legal basis, background 

These draft ITS have been developed according to Article 45(17) of the BRRD, which mandates the EBA to develop procedures and templates for the identification and transmission of MREL information by Resolution Authorities to the EBA.
 

Consultation on Guidelines on ICT Risk Assessment under the SREP

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines on the assessment of the Information and Communication Technology (ICT) risk in the context of the Supervisory Review and Evaluation Process (SREP). These draft Guidelines are addressed to competent authorities and aim at promoting common procedures and methodologies for the assessment of ICT risk. The consultation runs until 06 January 2017.
 
The growing importance and increasing complexity of ICT risk within the banking industry and in individual institutions, as well as the increasing potential adverse prudential impact from this risk on an institution and on the sector as a whole led the EBA to develop these Guidelines on its own initiative to assist competent authorities in their assessment of ICT risk as part of the SREP. 
 
These Guidelines build on existing references to ICT risk in the EBA SREP guidelines providing the scope and methodology for the assessment of ICT risk within an institution. The guidelines are structured around 3 main parts: (i) setting the context and scope of the ensuing assessment; (ii) addressing what competent authorities should expect to see with regard to management of ICT risks at senior management level and management body level, as well as the assessment of an institution’s ICT strategy and its alignment with the business strategy; and (iii) covering the assessment of the institution‘s ICT risk exposures and the effectiveness of controls. The assessment contained in these guidelines feeds into the EBA SREP methodology more generally, therefore, they should be read along with the EBA SREP Guidelines , which continue to remain applicable as appropriate.

Consultation process

‎Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. All contributions received will be published following the close of the consultation, unless requested otherwise. Please note that the deadline for the submission of comments is 06 January 2017. A public hearing will take place at the EBA premises on 22 November from 13.30 to 16.30 UK time. 

Legal basis

The EBA has developed these Guidelines on its own initiative in accordance with Article 16 of Regulation (EU) No 1093/2010 which envisages that the Authority shall issue guidelines with a view to ensuring the common, uniform and consistent application of Union law and to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision.
 

Consultation on Technical Standards on standardised terminology and disclosure documents under the PAD

The European Banking Authority (EBA) published today a consultation paper on draft technical standards setting out the standardised terminology for services linked to a payment account, the standardised format and common symbol of both the fee information document (FID) and the statement of fees (SoF). These technical standards are aimed at enhancing the comparability of fees through standardised terminology and disclosure documents across the European Union. This will allow consumers to compare offers from different payment services providers and to make informed decisions on the payment account that best suits their needs. 
 
The consultation will run until 22 December 2016. 
 
These draft technical standards propose to standardise eight terms for services that are to be used by payment service providers (PSPs), as well as consumer-friendly definitions of these terms in all EU official languages. The EBA identified the terminology based on the national provisional lists that Member States have developed in line with the EBA Guidelines on standardised fee terminology published on 18 March 2015. 
 
PSPs shall use the proposed standardised terminology in two disclosure documents: the pre-contractual FID and the post-contractual SoF. To ensure PSPs provide this information to consumers in a clear, easy-to-understand, and standardised format across the Union, the draft standards also propose standardised templates and symbols for each of the documents, including instructions for the PSPs on how to fill in these templates.
 
Prior to issuing this consultation paper, the EBA carried out consumer testing of the templates and symbols in eight Member States of the European Union, the results of which were fed into the  policy work.

Consultation process

 
Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the website.
 
All contributions received will be published following the close of the consultation, unless requested otherwise. Please note that the deadline for the submission of comments is 22 December 2016 and that no attachments can be submitted.
A public hearing will take place at the EBA premises on 21 November 2016 from 13.30 to 16.30 UK time. 

Legal basis and background

 
Directive 2014/92/EU (“Payment Accounts Directive”) seeks to standardise the most relevant terminology for payment accounts across the EU and provides for the creation of templates to be used by PSPs for presenting certain fee information to consumers.  
 
These draft technical standards have been drafted in  accordance with Articles 3(4), 4(6) and 5(4) of the Payment Accounts Directive, which mandate the EBA to develop draft regulatory technical standards (RTS) setting out the Union standardised terminology for those services that are common to at least a majority of Member States (Article 3(4)); draft implementing technical standards (ITS) regarding a standardised presentation format of the FID and its common symbol (Article 4(6)), and draft ITS regarding a standardised presentation format of SoF and its common symbol (Article 5(4)). 
 

Consultation on the Guidelines on the criteria on how to stipulate the minimum monetary amount of the professional indemnity insurance under PSD2

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines on the criteria Competent Authorities should consider when stipulating the minimum monetary amount of the professional indemnity insurance (PII) or comparable guarantee for payment initiation and account information service providers under the revised Payment Service Directive (PSD2).
The consultation runs until 30 November 2016.
 
The PSD2 recognises new types of payment services that have emerged in the area of internet payments, such as payment initiation (PIS) and account information (AIS).  
 
The draft Guidelines set out criteria, indicators, calculation methods and a formula Competent Authorities should use when granting authorisation to undertakings applying for the provision of (PIS) and/or approving the registration of undertakings applying for the provision of AIS. 

Consultation process

 
Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the website.
 
All contributions received will be published following the close of the consultation, unless requested otherwise. Please note that the deadline for the submission of comments is 30 November 2016 and that no attachments can be submitted.

Legal basis and background

 
These Guidelines have been drafted in accordance with Article 5(4) of Directive (EU) 2015/2366 on payment services in the internal market (PSD2), which mandates the EBA to issue guidelines, addressed to Competent Authorities, on the criteria they should follow when stipulating the minimum monetary amount of the PII or comparable guarantee for undertakings that apply for provision of PIS or AIS. 
 
The draft Guidelines are one of the 11 mandates conferred onto the EBA by the PSD2, which entered into force on 12 January 2016 and which will apply as of 13 January 2018. 
 
The PSD2 brings into the scope of EU law two new types of services: PIS and AIS. PIS establish a software bridge between the website of the merchant and the online banking platform of the payer’s account servicing payment service provider, in order to initiate internet payments on the basis of a credit transfer. 
 
AIS, in turn, provide the payment service user with aggregated online information on one or more payment accounts held with one or more other payment service providers and accessed via online interfaces of the account servicing payment service provider. The payment service user is thus able to have an overall view of its financial situation across all of his/her accounts.