Response to consultation on Handbook on independent valuers for resolution
1. Do you have suggestions to improving the RAs’ preparatory arrangements?
No specific comment.
2. Do you have comments on the appointment process that could enhance process?
No specific comment.
3. Do you have suggestions to improve the assessment of independence as presented in this draft Handbook and taking into account the provisions of the RTS?
No specific comment.
4. Do you find the examples provided in this Handbook to be meaningful (i.e. they have a high frequency of occurrence in reality)? In these examples, do you find the proposed RA’s assessment to be clear and satisfactorily explained?
No specific comment.
5. Do you find the safeguards proposed satisfactory? Are you aware of other safeguards that could be used in this process? Please detail how you would put such safeguards in place and how they would counter the instances of conflict of interest.
No specific comment.
6. Do you have any other comments in relation to the draft Handbook and how it addresses the elements of independence as provided in the EBA RTS?
The French Banking Federation (FBF) welcomes the opportunity to express the views of the French banking industry on the EBA public consultation on the Handbook on independent valuers for resolution purposes. In this context, we herewith provide you with our response to the question 6 listed in the Consultation Paper. We appreciate your consideration about our answer and remain at your disposal for further clarifications.
First, the French banking industry would like to underline that it understands the EBA's approach to define precise criteria for selecting the valuer who will have to intervene in case of resolution. We support the fact that the selection process must be efficient and prepared in advance, given the very short timescales in the event of a crisis. We are also in favor of choosing qualified and independent resources.
However, we would like to take advantage of this response to also express our concerns regarding the very limited number of firms that would be qualified to assess a large international bank like a Significant Financial Institution or a GSII in the event of resolution. In our view, only a handful of firms have the necessary skills, expertise and firepower to do so. We fear however that in many cases, none of them could be considered as “independent” given all the constraints described in the document. Of course, we understand from the concrete examples described that the EBA is showing pragmatism, and we support this. Indeed, there are some useful examples of acceptable “safeguards” in the draft handbook that go in the right direction. We feel though that greater flexibility is needed to strike the best possible balance between independence and the availability of firms in the event of a crisis of a single large bank and even more so if several institutions are in difficulty at the same time.
It seems to us that only the so-called "Big 4" audit firms and a few others could be selected in general and, in practice, for large (international) banks, almost exclusively the “Big 4” audit firms could tick the box. However, that with their (rotating) audit mandates and the diversity of advisory projects they carry out for large banks, which are often projects involving accounting, finance, restructuring and so on, it seems to us that they would all easily be considered as conflicted every time. This would be even more true in the very likely case of a progressive deterioration of the situation with a recovery phase preceding resolution. In such case, next to the role of statutory auditor occupied by 1 or 2 of the 4 (2 for most significant French banks), the remaining 2 or 3 would easily be considered as non-independent due to non-audit mandates linked to recovery actions and so on or a too short period (less than 1 year) since they were statutory auditors themselves.
Likewise, we wonder whether it would be worthwhile for these firms to accept this kind of valuation mandate if they were to be restricted in the other services they may provide. All the more so as they would face numerous risks and challenges (litigations risk, reputational risk, etc.). In order for them to be able to intervene, it would be necessary to fully recognize their own well established “Chinese Wall” rules so that they are neither considered as conflicted nor deprived of other actual or potential mandates. Indeed, they should be able to mitigate the risk of conflict by implementing certain internal rules such as full segregation of their teams, ringfencing of the knowledge, etc. As a matter of fact, in M&A transactions, it happens that the same firm works for different bidders or even for the seller and for a bidder with none of the respective teams involved even knowing of the others’ involvement.
Furthermore, given the complexity of quickly being able to correctly assess a bank's accounts, we wonder whether it wouldn't be more efficient to be able to call on the statutory auditors who know the bank and its accounts in details even if we understand that they could be considered as conflicted. These are undoubtedly the teams most capable of delivering the required valuation on time.
The industry also wonders whether the banks themselves shouldn't be involved in the selection process. Indeed, they often have a good knowledge of these firms and could help the resolution authorities and alert them if they miss important information, particularly in terms of conflicts of interest. The framework contracts they have with the majority of these firms could also be used to speed up the process, as they often already have a great amount of information on the firms potentially selected and rates already negotiated to ensure a fair price.
Accordingly, we kindly ask the EBA to ensure that the rules remain as pragmatic and flexible as necessary to be able to act in the public interest.