EU & UK Reg Round Up: 16/01/2025
European Banking Authority
The EBA publishes final guidelines on the management of ESG risks - 09 January 2025
The European Banking Authority (EBA) has released its final Guidelines on the management of Environmental, Social, and Governance (ESG) risks. These Guidelines outline requirements for institutions to identify, measure, manage, and monitor ESG risks, ensuring resilience over the short, medium, and long term. Aligned with the Capital Requirements Directive (CRD6), the Guidelines establish internal processes and ESG risk management frameworks to enhance the safety and soundness of institutions as the EU transitions towards a sustainable economy. They also define plans to address financial risks from ESG factors, supporting the EU’s goal of achieving climate neutrality by 2050.
EBA issues revised list of ITS validation rules - 19 December 2024
The European Banking Authority (EBA) has published a revised list of validation rules within its Implementing Technical Standards (ITS) on supervisory reporting. The update identifies rules deactivated due to incorrectness or IT-related issues. Competent Authorities across the EU are advised not to validate data submissions against these deactivated rules.
EBA releases technical package for 4.0 reporting framework - 19 December 2024
The European Banking Authority (EBA) has published the final technical package for version 4.0 of its reporting framework, effective in the first half of 2025. This update introduces the new Data Point Model (DPM) semantic glossary and enhanced capabilities of the DPM 2.0 model. The package includes specifications such as validation rules, DPM details, and XBRL taxonomies, supporting reporting obligations related to asset-referenced tokens (ARTs), electronic money tokens (EMTs), COREP template updates, and Digital Operational Resilience Act (DORA) requirements. The DPM Query Tool has been updated to reflect these changes.
EU/EEA banks' profitability holding up despite declining net interest margin - 18 December 2024
The European Banking Authority (EBA) has released its Q3 2024 Risk Dashboard, providing aggregated data for major EU/EEA institutions. Banks' return on equity (RoE) rose slightly to 11.1%, driven by other operating income and reduced expenses, despite a decline in net interest income and trading income. The net interest margin fell by 3 basis points to 1.66%. Asset quality remained stable, with the non-performing loan (NPL) ratio at 1.88%. The common equity tier 1 (CET1) ratio slightly declined to 16.0%, while liquidity ratios, though lower, stayed well above requirements.
EBA publishes final draft RTS on residual risk hedge instruments - 17 December 2024
The European Banking Authority (EBA) has released its final draft Regulatory Technical Standards (RTS) defining the conditions under which instruments attracting residual risks can qualify as hedges. These RTS are part of the EBA's Phase 1 deliverables under the EU Banking Package for market risk, specifically the fundamental review of the trading book (FRTB) framework. The residual risk add-on (RRAO), a component of the standardised approach/sensitivity-based method (SA/SbM), imposes charges for instruments with residual risks. The RTS clarifies the criteria for qualifying instruments as hedges, emphasizing whether the RRAO charge arises from a non-SbM risk factor or other reasons.
ESAs confirm progress towards DORA reporting in 2025 - 17 December 2024
The European Supervisory Authorities (EBA, EIOPA, and ESMA) announced the results of their 2024 Dry Run exercise for DORA reporting. Nearly 1,000 financial entities participated, with 6.5% of registers passing all data quality checks and most others requiring only minor improvements. The ESAs are confident that high-quality registers will be achievable by 2025, enabling the identification of critical third-party service providers (CTPPs). Financial entities are urged to review the findings to ensure preparedness for the official reporting phase.
EU banks’ Liquidity Coverage Ratio reaches 167% amid growth in liquid assets - 13 December 2024
The European Banking Authority (EBA) reported a 3-percentage point rise in EU banks' liquidity coverage ratio (LCR) from June 2023 to June 2024, reaching 167%. This increase was supported by growth in high-quality liquid assets (HQLAs), particularly sovereign bonds, despite a decline in central bank reserves. In the first half of 2024, banks repaying TLTRO loans experienced an average LCR drop of 4 percentage points, while banks without such liabilities saw a modest increase. Euro area banks reported EUR 197bn in remaining TLTRO balances by June 2024. Foreign currency LCRs, though improved for USD and GBP, remain a concern during market stress due to potential constraints in currency swap markets. The report also examined LCR impacts on lending, TLTRO repayments, and central bank liquidity trends.
European Securities and Markets Authority
EU funds continue cost reductions but remain high by international standards - 14 January 2025
The European Securities and Markets Authority (ESMA) published its seventh market report, revealing a gradual decline in the costs of EU retail investment products. Despite this, costs remain higher than international benchmarks due to the fragmented market, with EU funds averaging much smaller sizes compared to US mutual funds. This underscores the need for greater market competitiveness under a potential Savings and Investments Union.
ESMA publishes 2024 ESEF XBRL taxonomy files and conformance suite - 8 January 2025
The European Securities and Markets Authority (ESMA) has released the 2024 European Single Electronic Format (ESEF) XBRL taxonomy files and an updated ESEF Conformance Suite. These resources aim to support software vendors and issuers in implementing the ESEF Regulation for preparing 2024 IFRS consolidated financial statements. The publication aligns with the 2024 draft update to the ESEF Regulation and the revised ESEF Reporting Manual. It also helps EU issuers listed on US capital markets (Foreign Private Issuers) meet their reporting obligations with the US Securities and Exchange Commission (SEC). Issuers are reminded that the 2024 ESEF taxonomy files and Conformance Suite will only apply to annual financial reports for financial years starting on or after 1 January 2024, once the 2024 ESEF Regulation update takes effect. Alternatively, issuers may use the 2022 ESEF taxonomy files and Conformance Suite for the same reporting period.
ESMA launches selection for consolidated tape provider for bonds - 3 January 2025
The European Securities and Markets Authority (ESMA) has initiated its first selection process for the Consolidated Tape Provider (CTP) for bonds. Interested entities must register and submit their applications by 7 February 2025. The CTP is designed to improve market transparency and efficiency by aggregating trade data from various trading venues into a single, continuous electronic feed. This consolidated market view will enable participants to access timely and accurate information, supporting better decision-making and enhancing price discovery and trading efficiency.
ESMA publishes feedback on proposed review of securitisation disclosure templates - 20 December 2024
The European Securities and Markets Authority (ESMA) has released a Feedback Statement summarizing responses to its Consultation Paper (CP) on revising securitisation disclosure templates under the Securitisation Regulation (SECR). The statement provides an in-depth analysis of stakeholder views regarding the costs and benefits of the proposed revisions, which align with four potential implementation options outlined in the CP. While stakeholders acknowledged the importance of enhancing the transparency framework for securitisations, many expressed concerns about the timeline for revising the templates. They suggested postponing the review to align it with a broader review of the SECR.
Bank of England
Bank of England publish statistical notice for Levy contributions for 2025 - 07 January 2025
The Bank of England has issued guidance on calculating contributions to the Bank of England Levy for eligible institutions. Contributions are based on eligible liability data submitted for the Reference Period, which spans from 1 October to 31 December of the year preceding the Levy Year. Eligible institutions are required to submit this data using the Eligible Liabilities Return (Form EL). The deadline for initial submissions relating to the 2025 Reference Period is 15 January 2025, with any revisions to previously submitted data due no later than 5:00 PM on 31 January 2025. Institutions are reminded to ensure accuracy and timeliness in their submissions to avoid complications in their Levy calculations.
Review of cooperation in UK payment systems - 20 December 2024
The Bank of England (Bank), Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), and Payment Systems Regulator (PSR) have reaffirmed their commitment to enhancing cooperation under their Memorandum of Understanding (MoU). The MoU outlines the framework for collaboration between the Authorities concerning UK payment systems and is reviewed annually as required by the Financial Services (Banking Reform) Act 2013. Senior representatives from the Authorities evaluated the effectiveness of their cooperation over the past year. Improvements have been made in sharing expertise and data; however, further enhancements are needed.
Monetary Policy Committee maintain bank rate - 19 December 2024
The Monetary Policy Committee (MPC) remains committed to achieving the 2% inflation target while supporting growth and employment. At its meeting ending on 18 December 2024, the MPC voted 6–3 to maintain the Bank Rate at 4.75%, with three members favoring a reduction to 4.5%. Inflationary pressures have risen, with CPI inflation increasing to 2.6% in November, up from 1.7% in September, exceeding prior forecasts due to elevated prices for core goods and food. Although household inflation expectations have largely stabilized, some indicators suggest renewed upward pressure. The MPC expects inflation to rise slightly in the near term, as domestic inflationary pressures persist despite the easing of external shocks.