Consultation Paper on draft RTS on derivatives indirect exposures

The European Banking Authority (EBA) launched today a consultation on draft regulatory technical standards (RTS) specifying how institutions should determine exposures arising from derivative and credit derivative contracts not entered directly into with a client but whose underlying debt or equity instrument was issued by a client. These draft RTS will ensure appropriate levels of consistency through different pieces of the regulatory framework for the calculation of exposures for large exposure purposes. The consultation runs until 23 October 2020.

As part of the Risk Reduction Measures (RRM) package adopted by the European legislators, the Capital Requirements Regulation CRR) was amended and, the large exposure framework updated to ensure greater alignment with the Basel standard (LEX). The draft RTS propose a methodology for the calculation of indirect exposures for different categories of derivative contracts and credit derivative contracts with a single underlying debt or equity instrument, namely: options on debt and equity instruments, credit derivative contracts, and other derivatives having as underlying a debt or equity instrument. In addition, the draft RTS provide a separate methodology for the calculation of exposures stemming from contracts with multiple underlying reference names. The proposed methodologies are expected to be easy to implement and applicable by all institutions in a standardised manner.

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 23 October 2020.

A public hearing will then take place on 06 October 2020 from 10:00 CET to 12:00 CET. 

Legal basis 

Article 390(5) of the CRR, as amended by Regulation (EU) 2019/876, requires institutions to add to the total exposures to a client the exposures arising from derivative contracts listed in Annex II of the CRR and credit derivative contracts, where the contract was not directly entered into with that client but the underlying debt or equity instrument was issued by that client.

Article 390(9) of the CRR mandates the EBA “to specify how to determine the exposures arising from derivative contracts listed in Annex II and credit derivative contracts, where the contract was not directly entered into with a client but the underlying debt or equity instrument was issued by that client for their inclusion into the exposures to the client”.

Consultation Paper on Draft Regulatory Technical Standards on the prudential treatment of software assets

The European Banking Authority (EBA) launched today a consultation on draft Regulatory Technical Standards (RTS) specifying the prudential treatment of software assets. As the banking sector is moving towards a more digital environment, the aim of these draft RTS is to achieve an appropriate balance between the need to maintain a certain margin of conservatism in the prudential treatment of software assets and their relevance from a business and an economic perspective. The consultation runs until 09 July 2020.

As part of the Risk Reduction Measures (RRM) package adopted by the European legislators, the Capital Requirements Regulation (CRR) has been amended and introduced, among other things,  an exemption from the deduction of intangible assets from Common Equity Tier 1 (CET1) items for prudently valued software assets, the value of which is not negatively affected by resolution, insolvency or liquidation of the institution. In addition, the EBA has been mandated to develop draft RTS to specify how this provision shall be applied.

These draft RTS specify the methodology to be adopted by institutions for the purpose of the prudential treatment of software assets. In particular, these draft RTS introduce a prudential treatment based on their amortisation, which is deemed to strike an appropriate balance between the need to maintain a certain margin of conservatism in the treatment of software assets as intangibles, and their relevance from a business and an economic perspective. The proposed approach is expected to be easy to implement and applicable to all institutions in a standardised manner.  

The EBA will closely monitor the evolution of the investments in software assets going forward, including the link between the proposed prudential treatment and the need for EU institutions to make some necessary investments in IT developments in areas like cyber risk or digitalisation.

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 09 July 2020. All contributions received will be published following the end of the consultation, unless requested otherwise.

A public hearing will take place on 23 June 2020 from 14.30 to 17.00 CET. 

Legal basis 

These draft RTS have been developed according to Article 36(4) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), which mandates the EBA to “specify the application of the deductions referred to in point (b) of paragraph 1 of Article 36, including the materiality of negative effects on the value which do not cause prudential concerns”. 

Draft Guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer in accordance with Article 133 (5)(f) of Directive 2013/36/EU

The European Banking Authority (EBA) launched today a consultation on draft Guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer (SyRB) in accordance with the Capital Requirements Directive (CRD). These Guidelines aim at setting a common framework to harmonise the design of the appropriate subsets of sectoral exposures to which a systemic risk buffer may be applied, thus facilitating a common approach throughout the EU. The consultation runs until 13 July 2020.

This consultation paper is setting pre-determined dimensions or components of exposures, which competent or designated authorities should use when defining a subset of sectoral exposures in the application of a systemic risk buffer. A pre-condition when defining a subset of sectoral exposures is its systemic relevance according to a qualitative and quantitative assessment conducted by the relevant authority. The consultation paper recommends three criteria to be used in such assessments: size, riskiness and interconnection.

This consultation paper sets out general principles to ensure the right balance between addressing the systemic risk stemming from the identified subset of sectoral exposures and the unintended consequences when applying a sectoral SyRB to this subset. In particular, relevant authorities should avoid unwarranted interactions with other macroprudential measures and consider reciprocity challenges that could arise when identifying an appropriate subset of sectoral exposures.    

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 that that due to the current Covid-19 situation the deadline for the submission of comments has been extended to 13 July 2020. All contributions received will be published following the close of the consultation, unless requested otherwise.


The EBA will hold a public hearing on the draft Guidelines, which will take place via conference call on 6 May 2020 from 14:00 to 16:00 Paris time. The dial in details will be communicated in due course.

Legal basis and background

The EBA has developed the draft Guidelines in accordance with Article 133(6) of Directive 2013/36/EU (CRD) in conjunction with Article 16(1) of Regulation (EU) No 1093/2010 (EBA founding Regulation). Guidelines set the EBA view of appropriate supervisory practices within the European System of Financial Supervision or how Union law should be applied.

The European Banking Authority (EBA) launched today a consultation on draft Guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer (SyRB) in accordance with the Capital Requirements Directive (CRD). These Guidelines aim at setting a common framework to harmonise the design of the appropriate subsets of sectoral exposures to which a systemic risk buffer may be applied, thus facilitating a common approach throughout the EU. The consultation runs until 13 July 2020.

Draft Guidelines under Articles 17 and 18(4) of Directive (EU) 2015/849 on customer due diligence and ML/TF risk factors

The EBA issued today a public consultation on revised money laundering and terrorist financing (ML/TF) risk factors Guidelines as part of a broader communication on AML/CFT issues. This update takes into account changes to the EU Anti Money Laundering and Counter Terrorism Financing (AML/CFT) legal framework and new ML/TF risks, including those identified by the EBA’s implementation reviews. These Guidelines are central to the EBA’s work to lead, coordinate and monitor the fight against money laundering and terrorist financing, explained in the accompanying factsheet. The consultation runs until 06 July 2020.

These Guidelines, which are addressed to both financial institutions and supervisors, set out factors that institutions should consider when assessing the ML/TF risk associated with a business relationship or occasional transaction. In addition, they provide guidance on how financial institutions can adjust their customer due diligence measures to mitigate the ML/TF risk they have identified. Finally, they support competent authorities’ AML/CFT supervision efforts when assessing the adequacy of firms’ risk assessments and AML/CFT policies and procedures.

In its revised version, the EBA is proposing key changes, including new guidance on compliance with the provisions on enhanced customer due diligence related to high-risk third countries. New sectoral guidelines have been added on crowdfunding platforms, corporate finance, payment initiation services providers (PISPs) and account information service providers (AISPs) and for firms providing activities of currency exchanges offices.

The revised Guidelines also provide more details on terrorist financing risk factors and customer due diligence (CDD) measures including on the identification of the beneficial owner, the use of innovative solutions to identify and verify the customers’ identity. In addition, they set clear regulatory expectations of firms’ business-wide and individual ML/TF risk assessments.

The proposed changes will significantly strengthen Europe’s AML/CFT defences and foster greater convergence of supervisory practices in areas where supervisory effectiveness has been hampered, so far, by divergent approaches in the implementation of the same European legal requirements.

Consultation process

Comments to the draft Guidelines can be sent by clicking on the "send your comments" button on the EBA's consultation page. Please note that that due to the current Covid-19 situation the deadline for the submission of comments has been extended to 6 July 2020.

All contributions received will be published following the close of the consultation, unless requested otherwise.
The EBA will hold a public hearing on the draft Guidelines, which will take place via conference call on 15 May 2020 from 14:00 to 16:00 Paris time. The dial in details will be communicated in due course.

Legal Basis and background

Article 17 and 18 of Directive (EU) No 2015/849, mandate the ESAs to issue Guidelines addressed to both Competent Authorities and to credit and financial institutions on the risk factors to be considered and the measures to be taken in situations where simplified customer due diligence and enhanced customer due diligence are appropriate.

In June 2017, the three ESAs issued Guidelines on customer due diligence and the factors credit and financial institutions should consider when assessing the money laundering and terrorist financing risks associated with individual business relationships and occasional transactions (JC 2017 37). Since then, the applicable legislative framework in the EU has changed. On 9 July 2018, Directive (EU) 2018/843 (AMLD5) entered into force and is applicable from 10 January 2020. Moreover, new risks have emerged and have been identified in the ESAs’ 2019 Joint Opinion. The European Commission’s post mortem report and the EBA’s implementation reviews has highlighted widespread challenges in the operationalisation and supervision of the risk-based approach to AML/CFT. Therefore, a review of the original Risk Factors Guidelines was warranted.

The scope of the EBA’s consultation is limited to the amendments and additions to the original risk factors Guidelines, which will be repealed and replaced with the revised Guidelines.

The EBA has a new legal mandate to lead coordinate and monitor the financial sector’s fight against ML/TF across the EU. Information on how the EBA will discharge its AML/CFT functions is set out in a factsheet published today.

Consultation Paper on draft RTS on the treatment of non-trading book positions subject to foreign-exchange risk or commodity risk

The European Banking Authority (EBA) launched today a consultation on draft Regulatory Technical Standards (RTS) on how institutions should calculate the own funds requirements for market risk for their non-trading book positions that are subject to foreign-exchange risk or commodity risk under the FRTB standardised and internal model approaches. The consultation runs until 10 June 2020.

The draft standards specify the value of non-trading book positions that institutions should use when computing the own funds requirements for market risk for those positions. In this respect, the standards require that institutions should use either the last available accounting value or the last available fair value for positions attracting foreign-exchange risk. In addition, institutions are not requested to perform a daily re-valuation of non-trading book positions attracting foreign-exchange risk. However, they are required to reflect on a daily basis the changes in the foreign-exchange component. For positions attracting commodity risk, a daily fair-valuation should be performed.

In addition, the draft standards lay down a prudential treatment for the calculation of the own funds requirements for market risk of non-monetary items held at historical cost that may be impaired due to changes in the foreign-exchange rate. In this respect, the standards identify a specific methodology that institutions should use when capitalising the foreign-exchange risk stemming from those items under the standardised approach. Furthermore, it requires institutions to model directly the risk of impairment due to changes in the relevant exchange rate in the case of an internal model approach being used.

Finally, the standards specify an ad-hoc treatment with respect to the calculation of the actual and hypothetical changes associated to non-trading book positions for the purpose of the backtesting and the profit and loss attribution requirements. This is to address the issue of jumps in the value of the portfolio that may lead to over-shootings in the backtesting that are not due to changes in the foreign-exchange risk component of the price.

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 that due to the current Covid-19 situation the deadline for the submission of comments has been extended to 10 June 2020.

A public hearing will then take place at the EBA premises in Paris on 11 February 2020 from 15:00 to 16:00 Paris time. All contributions received will be published following the close of the consultation, unless requested otherwise.

Legal basis

These draft RTS have been developed according to Article 325(9) of REGULATION (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013.

Article 325(9) mandates the EBA to develop draft regulatory technical standards to specify how institutions are to calculate the own funds requirements for market risk for non-trading book positions that are subject to foreign-exchange risk or commodity risk in accordance with the approaches set out in points (a) and (b) of paragraph 3.

Consultation Paper on draft RTS on revised identified staff for remuneration purposes

The European Banking Authority (EBA) launched today a public consultation on its draft Regulatory Technical Standards (RTS) on the criteria to identify all categories of staff whose professional activities have a material impact on the institutions’ risk profile (“risk takers”). The aim of these standards is to define and harmonise the criteria for the identification of such staff and to ensure a consistent approach across the EU. The suggested identification process is based on a combination of qualitative and quantitative criteria. The consultation runs until 19 February 2020.

“Risk takers” will be identified based on the criteria laid down in the revised Capital Requirements Directive (CRD) and those specified within the draft RTS. Members of staff are identified as having a material impact on the institution’s risk profile as soon as they meet at least one of the criteria, be it the criteria foreseen under the CRD, the qualitative or quantitative criteria in the draft RTS or, where necessary because of the specificities of their business model, additional internal criteria, to ensure that all risk takers are identified.

The qualitative criteria which were set out in 2014 in the RTS on identified staff have been largely retained in the updated draft RTS. The revised qualitative criteria identify staff with managerial responsibilities and with decision-making powers that have a material impact on the institutions risk profile. In terms of quantitative criteria, the revised CRD set out a threshold of total remuneration of EUR 500 000 combined with the average of the remuneration of members of the management body and senior management.

The draft RTS retain the additional quantitative criteria that identify the staff high levels of remuneration above EUR 750 000 and the 0.3% of staff with the highest remuneration, based on the rebuttable presumption that the professional activities of those staff would have a material impact on the institutions risk profile.

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 19 February 2020.

A public hearing will take place at the EBA premises on 28 January 2020 from 15:00 to 17:00 CET. All contributions received will be published following the end of the consultation, unless requested otherwise.

Legal basis and next steps

These draft standards have been revised in light of Article 94 (2) of CRD as amended by Directive (EU) 2019/878 (CRD5) that mandates the EBA to develop draft RTS to set out criteria to define (a) managerial responsibility and control functions, (b) material business unit and significant impact on the relevant business unit’s risk profile and (c) other categories of staff not expressly referred to in Article 92(3) CRD whose professional activities have an impact on the institution’s risk profile comparably as material as that of those categories of staff referred to therein.

The revised RTS takes also into account the supervisory experience gained since the entry into force in 2014 of the Regulation (EU) No 604/2014 (RTS on identified staff) and of the results of the EBA’s peer review on identified staff.

After the finalisation of the draft RTS, it is planned to submit it in June 2020 to the European Commission.

Consultation Paper on draft ITS amending the benchmarking Regulation

  • The introduction of IFRS9 templates is the main change to the standards;
  • The objective of the exercise is to collect data on the IFRS9 expected credit losses;
  • In the first phase of the exercise, the EBA will collect data on low default portfolios and focus on the probability of default.

The European Banking Authority (EBA) launched today a consultation to amend the Commission's Implementing Regulation on benchmarking of internal models to adjust the benchmarking portfolios and reporting requirements in view of the benchmarking exercise it will carry out in 2021. On the credit risk side, the amended standards will allow to complement the analysis of credit risk models through the introduction of IFRS 9 templates and the collection of risk weighted exposure value (RWA) calculated under the Standardised Approach (SA) and hypothetical RWA calculated with empirical default rates. On the market risk side, the framework remains stable, with the consultation restricted to clarifications on the setting of reference dates and instruments/portfolios definitions. The consultation runs until 13 February 2020.

The main update of the 2021 ITS relates to the introduction of the IFRS 9 benchmarking templates. In line with the staggered approach communicated by the EBA in the IFRS 9 roadmap, in this first phase of the exercise, the IFRS 9 templates solely collect data on low default portfolios (LDP) with a focus on the probability of default (PD).

The objective of the exercise is to collect quantitative data on the IFRS 9 Expected Credit Loss (ECL) parameters and other relevant information that, combined with a qualitative questionnaire to be filled by the institutions separately, will be used to gain a deeper understanding of the different methodologies, models, and scenarios that could lead to material inconsistencies in ECL outcomes, affecting own funds and regulatory ratios.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the "send your comments" button on the consultation page.

All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 13 February 2020.

A public hearing on this consultation will take place at the EBA premises on 3 February 2020 from 15:00 to 17:00 CET. Deadline for registration is 21 January 2020 at 16:00 CET.

Legal basis

These draft ITS have been developed in accordance with article 78 of the Capital Requirements Directive (CRD), which requires the EBA to specify the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercises. These are used by competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements.

In addition, IFRS9, the new international accounting standard recently adopted, introduced new rules for the measurement of credit losses. As a result, it directly impacts on the amount of own funds and regulatory ratios reported and it is, therefore, necessary to reflect such impact also on the reporting requirements under Regulation (EU) No 2016/2070 as regards benchmarking portfolios, reporting templates and reporting instructions.

Consultation Paper on ITS on disclosure and reporting of MREL and TLAC

The European Banking Authority (EBA) launched today a public consultation on the draft Implementing Technical Standard (ITS) on disclosure and reporting of the minimum requirement for own funds and eligible liabilities (MREL) and the total loss absorbency requirement (TLAC). This is the first time that the EBA introduces harmonised reporting and disclosure requirements for MREL and TLAC. These draft ITS follow an integrated approach and, in the case of disclosures, are aligned with the Basel Pillar 3 standards. By integrating disclosures and reporting, the EBA seeks to maximise efficiency by institutions, and to facilitate the use of information by authorities and market participants. The consultation runs until 22 February 2020.

The draft ITS include proposals for templates and tables implementing the TLAC/MREL disclosure and reporting requirements. In addition to the draft ITS, the consultation paper includes two recommended reporting templates covering the forecast of MREL and TLAC positions and funding structures, and a file mapping disclosure and reporting requirements.

The integrated approach aims to optimise efficiency by institutions when complying with their disclosure and reporting obligations, to facilitate the use of information by authorities and market participants, and to promote market discipline. For this purpose:

  • MREL and TLAC are integrated for both the reporting and the disclosure templates;
  • Reporting and disclosure requirements are enshrined in a single set of ITS;
  • Disclosure of quantitative information is integrated with supervisory reporting data, and a mapping between both is provided;
  • TLAC disclosure templates have been aligned with the Basel Pillar 3 standards.

This consultation paper is one of the deliverables presented in the EBA Roadmap on the risk reduction measures package, which explains the EBA Pillar 3 strategy to implement a comprehensive disclosure framework with the aim to become the EU-wide Pillar 3 hub and the EBA pathway for a more efficient and proportionate supervisory reporting.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the "send your comments" button on the consultation page.

All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 22 February 2020.

A public hearing on this consultation will take place at the EBA premises on 2 December from 10:00 to 12:00 Paris time (reporting templates) and from 14:00 to 16:00 Paris time (disclosure templates). Deadline for registration is 25 November 16:00 Paris time. Please note that those two public hearings cover all consultations on reporting and disclosure requirements respectively in the context of the banking package (CRR2, CRD5, BRRD2) that were launched by the EBA.

Legal basis and next steps

These draft ITS have been developed in accordance with:

  • Article 434a of CRR2 and Article 45i(6) of BRRD2, which mandate the EBA to specify uniform disclosure formats, associated instructions, and in the case of MREL frequencies, implementing respectively the TLAC and MREL disclosure requirements;
  • Articles 430(7) of CRR2 and Article 45i(5) of BRRD2, which mandate the EBA to specify the uniform reporting templates, the related instructions and methodology, the frequency and dates of reporting, the definitions and the IT solutions for TLAC and MREL reporting.

 The EBA expects to submit these revised draft ITS to the European Commission in June 2020.

Consultation Paper on specific supervisory reporting requirements for market risk

The European Banking Authority (EBA) launched today a public consultation on specific supervisory reporting requirements for market risk, which are the first elements of the Fundamental Review of the Trading Book (FRTB) introduced by the revised Capital Requirements Regulation (CRR2) in the prudential framework of the EU. The consultation runs until 7 January 2020.

This consultation paper includes proposals for a thresholds template, providing insights into the size of institutions’ trading books and the volume of their business subject to market risk, and a summary template, reflecting the own funds requirements under the ‘Alternative Standardised Approach’ for market risk (MKR-ASA). This consultation paper is the first step to address the elements of the mandate of Article 430b CRR referring to the MKR-ASA. The reporting requirements on the new market risk framework will be gradually expanded over time.

Mindful of the importance of expanding the reporting requirements resulting from the FRTB in a proportionate manner, the EBA is taking a gradual approach as institutions will also continue to be subject to the current market risk framework and the associated reporting requirements.

This consultation paper is one of the deliverables presented in the EBA Roadmap on the risk reduction measures package, which includes the EBA’s strategy to implement the CRR2/CRD5, the BRRD2 and the IFR mandates in the reporting framework.

Consultation process            

Responses to the consultations can be sent to the EBA by clicking on the following link.

All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 7 January 2020.

A public hearing will take place at the EBA premises on 2 December from 10:00 to 12:30. Please note that this public hearings covers all consultations on reporting in the context of the banking package (CRR2, CRD5, BRRD2) that were launched by the EBA, i.e. the consultation on the ITS on Reporting related to CRR2 and Backstop Regulation, the consultation on the ITS on disclosure and reporting on MREL and TLAC  and the consultation on this ITS.

Consultation Paper on the RTS and ITS on passport notification

The European Banking Authority (EBA) published today a Consultation Paper on the draft amended Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) on passport notification. The review of the two Regulations aims at improving the quality and consistency of information to be provided by a credit institution notifying its home competent authorities when it intends to open a branch or provide services in another Member State, as well as the communication between home and host authorities. The consultation runs until 13 February 2020.

 

Since their entry into force, the two Commission Regulations have significantly contributed to the convergence of supervisory practices across the EU, streamlining passport notifications by credit institutions and deepening the internal market. However, practice has shown the need for clarification as to the information to be provided by credit institutions in order to allow a better assessment of the passport notification and the credit institution’s arrangements to carry out the planned activities.

 

The proposed amendments focus on the quality and clarity of the information to be provided by the credit institutions to their home competent authorities in the passport notification, as well as to the communication between home and host authorities. In particular, material changes include the indication of the date of the intended start of each activity for which the passport notification is submitted; the assumptions underpinning the financial forecasts; the provision of a statement by an external auditor, in case of a planned termination of a branch, that the credit institution no longer holds deposits nor repayable funds from the public through the branch.

 

Consultation process

 

Responses 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 after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 13 February 2020.

 

A public hearing on this consultation will take place at the EBA premises on 21 January 2020, from 10:30 to 12:30 CET.

 

Legal basis

The review of the two sets of technical standards on passport notification, originally enacted by the European Commission under Commission Delegated Regulation (EU) No 1151/2014 and Commission Implementing Regulation (EU) No 926/2014, has been done in accordance with Articles 35, 36 and 39 of Directive 2013/36/EU, in combination with Article 29(d) of Regulation (EU) 1093/2010 establishing the EBA.