ESA’s Joint Board of Appeal dismissed appeal by Scope Ratings Gmbh against the European Securities and Markets Authority

11 January 2021

The Joint Board of Appeal of the European Supervisory Authorities (ESAs – European Banking Authority, European Insurance and Occupational Pensions Authority, and European Securities and Markets Authority) unanimously decided to dismiss the appeal brought by the credit rating agency Scope Ratings GmbH against the European Securities and Markets Authority (ESMA) in relation to the interpretation of the applicable legal provisions of the Credit Rating Agencies (CRA) Regulation.

Central to this appeal is the appellant’s 2015 covered bond methodology, its application in the context of unsolicited ratings issued by the Appellant in 2015, and the Appellant’s subsequent amendment of this methodology in 2016.

On 28 August 2020, the appellant challenged the Decision of the ESMA Board of Supervisors of 28 May 2020, and published on ESMA’s website on 4 June 2020, which had (a) found that Scope Ratings infringed points 43 of Section I, 3a and 3b of Section II and 4a of Section III of Annex III of the CRA Regulation, (b) adopted a supervisory measure in the form of a public notice pursuant to Article 24 of the CRA Regulation and (c) imposed on Scope Ratings a fine pursuant to Article 36a of the CRA Regulation.

The Board of Appeal unanimously decided to dismiss the appeal. In particular, the Board of Appeal found that ESMA did not err in law in its interpretation of the applicable legal provisions of the CRA Regulation.

 
EBA publishes final technical standards on estimation of Pillar 2 and combined buffer requirements for setting MREL

23 December 2020

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) specifying the methodology to be used by resolution authorities to estimate the Pillar 2 (P2R) and combined buffer requirements (CBR)  at resolution group level for the purpose of setting the minimum requirement for own funds and eligible liabilities requirement (MREL). These standards are part of the EBA's major programme of work to implement the BRRD and address the problem of too-big-to-fail banks.

The estimation of P2R and CBR is necessary for setting MREL when the resolution group perimeter differs significantly from the prudential perimeter at which own fund requirements have been set by the competent authority.

The final draft RTS further specify a straightforward and proportionate methodology for estimating own fund and combined buffer requirements. They provide a framework for a dialogue between resolution groups, competent authorities and resolution authorities aiming to improve the accuracy of the input for MREL setting.

Legal basis

These final draft RTS have been developed according to Article 45c4 of the Bank Recovery and Resolution Directive (BRRD).

EBA publishes final technical standards on reporting of MREL decisions from authorities to EBA

23 December 2020

The European Banking Authority (EBA) published today its final draft Implementing Technical Standards (ITS) specifying uniform reporting templates, instructions and methodology for the identification and transmission, by resolution authorities to the EBA, of information on minimum requirements for own funds and eligible liabilities (MREL). These standards are part of the EBA's major programme of work to implement the BRRD and address the problem of too-big-to-fail banks.

This reporting between resolution authorities and the EBA aims to ensure that the EBA has all the necessary information to understand how MREL is set within the Member States.

Legal basis

These final draft ITS have been developed according to Article 45j of the Bank Recovery and Resolution Directive (BRRD).

EBA publishes final draft technical standards on impracticability of contractual recognition under the BRRD framework

23 December 2020

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) and final draft Implementing Technical Standards (ITS) on impracticability of contractual recognition of bail-in powers under the Bank Recovery and Resolution Directive (BRRD). These standards, which aim at ensuring the harmonised application of instances of impracticability of contractual recognition of bail-in powers, are part of the EBA's work to implement the BRRD.

Where contracts are governed by the law of a third country, the BRRD requires that these contracts include a contractual recognition term by which the parties acknowledge that the contract may be subject to bail-in powers and agree to be bound by their effect. In certain situations, it might be legally or otherwise impracticable to achieve contractual recognition of the bail-in powers.

The final draft RTS further determine the conditions of impracticability, the conditions for the resolution authority to require its inclusion and the timeframe for the resolution authority to require the inclusion of a contractual term. Finally, the draft ITS specify the uniform formats and templates for the notification to resolution authorities of determinations of impracticability to achieve contractual recognition.

Legal basis

These final draft RTS and ITS have been developed according to Articles 55(6) and 55(8) of the BRRD, which mandate the Authority to develop draft RTS to further specify (a) the conditions under which it would be legally or otherwise impracticable for an institution or entity referred to in point (b), (c) or (d) of Article 1(1) to include the contractual term referred to in paragraph 1 of Article 55 BRRD in certain categories of liabilities; (b) the conditions for the resolution authority to require the inclusion of the contractual term pursuant to the third subparagraph of paragraph 2 of Article 55 BRRD; (c) the reasonable timeframe for the resolution authority to require the inclusion of a contractual term pursuant to the third subparagraph of paragraph 2 of Article 55 BRRD and, respectively, to develop draft implementing technical standards to specify uniform formats and templates for the notification to resolution authorities for the purposes of paragraph 2 of Article 55 BRRD.

EBA monitors the use of the proportionality principle for recovery and resolution planning

22 December 2020

The European Banking Authority (EBA) published today its second Report on the application of simplified obligations and waivers under the Bank Recovery and Resolution Directive (BRRD) across the EU. The Report presents the results of the EBA monitoring on how competent and resolution authorities have applied the principle of proportionality for recovery and resolution planning in their respective jurisdictions, and describes the current level of convergence in this area. The EBA observed an increase in a number of authorities applying simplified obligations for less significant banks, especially for resolution planning purposes. There was a higher convergence when assessing which institutions are eligible for simplified obligations. However, significant divergences remained in determining reduced requirements for institutions benefiting from simplified regimes where the regulatory framework does not provide detailed guidance.

The Report highlights that the vast majority of competent and resolution authorities have used their discretion to grant simplified obligations by introducing less strict requirements for some credit institutions and investment firms. The proportion of credit institutions under simplified obligations within particular jurisdictions varied although the highest was typically observed in those Member States with the largest number of banks in Europe.

Just a few EU authorities granted waivers to credit institutions as this is allowed only in those jurisdictions with specific regulatory frameworks for institutional protection schemes (IPS) and credit institutions affiliated to central bodies.     

The Report also highlighted a significantly improved level of harmonisation in the simplified obligations eligibility assessment methodologies applied by competent and resolution authorities compared to 2017. This was mainly driven by the application of the EBA Regulatory Technical Standards (RTS) specifying the conditions for applying simplified obligations that replaced the Guidelines previously issued on the same topic.

Finally, the EBA observed significant differences in the determination by the authorities of the reduced level of BRRD requirements for recovery and resolution plans. Divergent practices have been applied in relation to all possible areas in which such reductions could be introduced by the authorities (i.e. a deadline for preparing the first simplified plans, the frequency of updating the plans, content of the simplified plans, information required from institutions and the simplified resolvability assessment), as the regulatory framework does not provide detailed guidance in this respect.

Note to the editors and background

Article 4(7) of the BRRD requires competent authorities and resolution authorities to inform the EBA of the way they have applied simplified obligations and waivers for recovery and resolution planning to institutions in their jurisdiction. Based on that information the EBA is monitoring the application of simplified obligations and waivers across the European Union.

The BRRD introduces an obligation to prepare and maintain recovery and resolution plans, which in principle is applicable to all credit institutions and certain investment firms. However, the framework also gives competent and resolution authorities the opportunity to grant simplified obligations and waivers to institutions under their jurisdiction, provided that the institutions concerned fulfil specific eligibility criteria.

The EBA published its first Report in December 2017.

EBA proposes appropriate methodology to calibrate O-SII buffer rates

22 December 2020

The European Banking Authority (EBA) proposed today the implementation of an EU-wide floor methodology to calibrate buffer rates of Other Systemically Important Institutions (O-SIIs). The proposed methodology included in the Report aims at  strengthening the stability of the banking sector and avoiding the under-calibration of O-SII capital buffer rates, while allowing the relevant authorities to consider national banking sector specificities. The proposed methodology will inform the European Commission’s further legislative initiatives that could shape the introduction of such an EU-wide floor.

With the proposed floor methodology, all EU institutions identified as O-SII will be assigned a non-zero percent buffer rate. National authorities will still retain the ability to set higher O-SII buffer rates than the prescribed floor and are encouraged to do so where deemed appropriate.

At the moment, there is no harmonised methodology at EU level to calibrate O-SII buffer rates. Therefore, the recommendations included in the Report do not bear immediate consequences for the EU banking sector and should be seen as a preparatory step to inform EU co-legislators in view of legislative initiatives to design and operationalise an EU-wide methodology for the calibration of O-SII buffer rates.

The EBA also published a user-friendly data visualisation tool that will allow stakeholders to better understand and navigate the charts, tables and most of the country-level data contributing to the findings and conclusions included in the Report.

Note to the editors

  • The EBA is mandated in article 131 of fifth Capital Requirement Directive (CRD V) to report to the European Commission, by end 2020, on the appropriate methodology to calibrate O-SII buffer rates. The publication of this Report and submission to the Commission fulfils this mandate.
  • The rationale for this mandate is the heterogeneity of O-SII buffer rates set at the national level by relevant authorities. Similar O-SII scores computed according to the EBA Guidelines of 2014 have often led to different levels of O-SII buffer rates, which under the CRD IV could range from 0% to 2%.
EBA provides additional clarity on the implementation of selected COVID-19 policies

21 December 2020

The European Banking Authority (EBA) published today additional clarifications on the application of the prudential framework in response to issues raised as a consequence of the COVID-19 pandemic. These clarifications update the FAQ section of the EBA Report on COVID-19 implementation policies published on 7 August. They mainly cover the EBA Guidelines on moratoria and COVID-19 reporting, operational risk, downturn LGD estimation and the credit risk mitigation framework. This Report is part of the EBA’s wider monitoring of the implementation of COVID-19 policies as well as of the application of existing policies under these exceptional circumstances.

The Report includes additional clarifications on the application of the Guidelines on moratoria and on COVID-19 reporting and disclosure, as well as on the operational risk taxonomy to be used in light of COVID-19. Two new sections have been added, which provide further details on the likely identification of a COVID-19-triggered downturn period and its incorporation into downturn LGD estimation, and clarifications on the treatment of the COVID-19 public guarantee schemes as a form of credit risk mitigation under the A-IRB approach.

As additional policy issues are likely to arise in the context of the EBA’s monitoring of the implementation of COVID-19 policies, the EBA expects to update the Report at a later stage.

EBA explains how it will use its new power to carry out risk assessments in the fight against money laundering and terrorist financing

17 December 2020

The European Banking Authority’s (EBA) published today the methodology for carrying out risk assessments under Article 9a of the revised EBA Regulation. These risk assessments are part of the EBA’s new role to lead, coordinate and monitor the fight against money laundering and terrorist financing (ML/TF) in all EU Member States.

The main objective of a risk assessment under Article 9a is to establish how well equipped competent authorities are to tackle emerging ML/TF risks, in terms of their capabilities and resources to respond to future risks that may arise as well as to intervene early and in a coordinated manner to manage those risks across the single market. 

This methodology sets out how the EBA will identify emerging ML/TF risks, and how it will carry out the risk assessment. The methodology also explains the review and publication process of the outcome of each risk assessment.

Going forward, the EBA will use this methodology to assess whether the use of its powers under Article 9a is warranted.

Legal basis

This methodology has been prepared in accordance with Article 9a(5) of the EBA Regulation, which empowers the EBA to ‘perform risk assessments of the strategies, capacities and resources of competent authorities to address the most important emerging risks related to money laundering and terrorist financing (ML/TF) at Union level as identified in the supranational risk assessment (SNRA).’

EBA updates its Report on liquidity measures and confirms banks’ solid liquidity position

17 December 2020

The European Banking Authority (EBA) published today its EBA Report on liquidity measures, which monitors and evaluates the liquidity coverage requirements currently in place in the EU. The liquidity coverage ratio (LCR) of EU banks stood at around 166% in June 2020, materially above the minimum threshold of 100%.

The Report shows that EU banks have continued to improve their LCR. This trend continued at end-June 2020 even if the Covid-19 crisis had an impact on banks’ liquidity positions. At end-June 2020, EU banks' average LCR stood at 166% and no bank reported LCR levels below 100%. The access to additional liquidity via extraordinary central bank facilities supported EU banks’ efforts to maintain their LCR buffers.

A more in-depth analysis of potential currency mismatches in LCR levels revealed that EU banks tend to hold materially lower liquidity buffers in some foreign currencies, in particular US dollar. The activation of FX swap lines among the major central banks in the first semester of 2020 helped mitigate the stress in the FX funding markets and contributed to an improvement in EU banks’ foreign currency LCRs.

Note to the editors

  • The results of the Report on liquidity measures are presented separately for G-SIIs and O-SIIs and other banks (non G-SIIs or O-SIIs). Some figures are presented by country.
  • Article 412(1) of the CRR foresees the possibility of monetising liquid assets during times of stress (resulting in an LCR below 100%) as maintaining the LCR at 100%, under such circumstances, could produce undue negative effects on the credit institution and other market participants.
EBA publishes final draft technical standards on capital requirements of non-modellable risks under the FRTB

17 December 2020

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) on the capitalisation of non-modellable risk factors (NMRFs) for institutions using the FRTB Internal Model Approach (IMA) implemented in EU as a reporting requirement. These draft RTS are a key deliverables in the EBA’s work on implementing the FRTB in EU and part of its roadmap for the new market and counterparty credit risk approaches published on 27 June 2019.

These draft RTS lay down a specific methodology that institutions are to use for determining the own funds requirements related to non – modellable risk factors in the new market risk regime. The methodology is applicable to all kinds of risk factors and adjusts to different levels of NMRF data availability. Data collected in the data collection exercise launched in June 2019 served as a basis for its calibration.

The methodology set out in these draft RTS ensures a level playing field among credit institutions in the Union on a key component for determining own funds requirements for market risk. They also provide legal certainty on how the level of own funds requirements for NMRFs should be determined. With this publication, a significant milestone is reached towards the implementation of the FRTB standards in the EU.

Legal basis

These draft RTS have been developed according to Article 325bk(3) of REGULATION (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013. 

Article 325bk(3) of that Regulation requires the EBA to develop draft RTS to specify (a) how institutions are to develop extreme scenarios of future shock applicable to non-modellable risk factors; (b) a regulatory extreme scenario which institutions may use when they are unable to develop an extreme scenario of future shock in accordance with point (a) or which competent authorities may require that institution apply; (c) the circumstances under which institutions may calculate a stress scenario risk measure for more than one non-modellable risk factor; (d) how institutions are to aggregate the stress scenario risk measures of all non-modellable risk factors.