EU & UK Reg Round Up: 19/09/2024

Likith Kumar Jayaraman -

European Banking Authority

EBA issues revised list of validation rules - 12 September 2024

The European Banking Authority (EBA) has released a revised list of validation rules under its Implementing Technical Standards (ITS) on supervisory reporting. The update highlights rules that have been deactivated due to either incorrectness or IT issues. Competent Authorities across the EU are advised that data submissions compliant with these ITS should not be validated against the deactivated rules.

ESAs warn of risks from economic and geopolitical events - 10 September 2024

The European Supervisory Authorities (EBA, EIOPA, and ESMA) have issued their Autumn 2024 Joint Committee Report, highlighting the ongoing economic and geopolitical uncertainties that pose risks to the EU financial system. With a focus on credit risk in the financial sector, the report warns national supervisors of the potential financial stability concerns that remain amidst declining inflation, high interest rates, and geopolitical tensions such as the ongoing conflicts in Ukraine and the Middle East. The ESAs advise financial institutions and national authorities to remain vigilant, particularly regarding credit risk, inflation, and operational challenges posed by cyber risks.

EBA launches 2024 EU-wide transparency exercise - 9 September 2024

The European Banking Authority (EBA) has initiated the 2024 EU-wide transparency exercise, designed to provide early insights into the health and resilience of Europe’s banking sector. The exercise, which involves over 100 major EU banks, will focus on key indicators such as capital positions, profitability, financial assets, and risk exposures. The results will be published alongside the Risk Assessment Report (RAR) in November 2024. Since its inception in 2011, the transparency exercise has been crucial in enhancing the transparency of the EU banking sector. It complements the EBA’s bi-annual stress tests, offering detailed, quarterly disclosures that help to build confidence in the stability of the European financial system.

EBA issues Opinion on macroprudential measure in the Netherlands - 29 August 2024

The European Banking Authority (EBA) has issued an Opinion on the Dutch Central Bank's (De Nederlandsche Bank - DNB) decision to extend a macroprudential measure aimed at protecting the Dutch banking sector from risks in the residential real estate market. Originally introduced in 2022, the measure will now be extended for two additional years, through to 2026. This measure imposes a minimum average risk weight on housing loan portfolios for banks using the internal ratings-based (IRB) approach, based on the Loan-to-Value (LTV) ratio of each loan. Loans covered by the Dutch National Mortgage Guarantee (NHG) scheme are exempt from this requirement. The EBA supports the extension, acknowledging the continued systemic risk posed by high household indebtedness and rising real estate prices in the Netherlands. The EBA also recommends the DNB closely monitor the measure’s alignment with the broader output floor and be prepared to adjust its calibration if necessary.

EBA updates data used for the identification of global systemically important institutions - 27 August 2024

The European Banking Authority (EBA) has updated the 13 key indicators used to identify global systemically important institutions (G-SIIs) for the 33 largest EU institutions with leverage ratio exposures over EUR 200 billion. The updated dataset includes one additional institution this year and reflects end-2023 data. These indicators are critical for the annual G-SII assessment and provide a comprehensive view of the systemic importance of European banks, supported by user-friendly Excel and PowerBI tools for data aggregation. The data supports the identification of G-SIIs by competent authorities, who will apply higher capital buffer requirements based on these assessments after the final publication of global denominators by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB) in November 2024.

European Securities and Markets Authority

ESMA publishes its second risk monitoring report of 2024 - 29 August 2024

ESMA has published its second risk monitoring report for 2024, highlighting ongoing high or very high risks across EU financial markets, driven by external events such as interest rate shifts, credit risk concerns, and political developments. While markets exhibited less volatility earlier in the year, recent trends show increased nervousness, exemplified by equity dips in August and heightened sensitivity to geopolitical and economic factors. Equity issuance remains challenging, but IPO activity is improving. However, corporate bond issuance has slowed, and corporate debt sustainability is a growing concern.

ESMA publishes translations of its Guidelines on funds’ names- 21 August 2024

ESMA has published translations of its Guidelines concerning fund names that incorporate ESG or sustainability-related terms in all official EU languages. The Guidelines will take effect on 21 November 2024, three months post-publication. National competent authorities are required to inform ESMA by 21 October 2024 about their compliance status. For existing funds, there will be a six-month transition period until 21 May 2025. New funds established after the application date must adhere to these Guidelines immediately. The primary goal of the Guidelines is to protect investors from misleading sustainability claims and to provide asset managers with clear criteria for the appropriate use of ESG terms in fund naming.

Bank of England

The PRA publishes the second policy statement on Basel 3.1 and proposals on the strong and simple capital regime for smaller firms - 12 September 2024

The Prudential Regulation Authority (PRA) has published a near-final policy statement addressing the implementation of Basel 3.1 standards for credit risk, output floors, and reporting and disclosure requirements, following consultation paper CP16/22. The new rules, relevant to PRA-regulated banks, building societies, investment firms, and financial holding companies, aim to deliver a balanced, risk-sensitive capital regulation framework.

Key points include:

  • Tier 1 Capital Requirements: The PRA estimates that UK firms' Tier 1 capital will increase by less than 1% by January 2030, when transitional arrangements end.
  • Implementation Date: The start date for Basel 3.1 implementation is pushed back six months to 1 January 2026, with a four-year transition period ending on 31 December 2029.

Material Changes from the Original Proposals:

  1. Lower Capital Requirements for SME Exposures: No increase in capital requirements, easing lending to SMEs.
  2. Lower Capital Requirements for Infrastructure Exposures: Capital requirements remain unchanged.
  3. Reduced Operational Burdens for Trade Finance: The existing UK CRR 20% conversion factor for trade finance items is maintained.
  4. Simplified Residential Property Valuation: A more risk-sensitive approach is introduced.
  5. Adjusted Output Floor Calculation: Aligns the output floor with standardised approaches used by firms without model approval.

These changes, according to PRA's Deputy Governor Sam Woods, are designed to enhance regulatory safety, promote growth, and align the UK with international standards. The PRA has also launched CP7/24, a consultation paper proposing a simplified capital regime for SDDTs (Small Domestic Deposit Takers), intended to increase resilience while supporting competition and sustainability in the UK banking sector. This regime simplifies capital rules under Pillar 1 and Pillar 2, with a single predictable capital buffer. The SDDT capital regime is proposed to be implemented by 1 January 2027, and the consultation period closes on 12 December 2024.

Recognised list of software houses for statistical reporting - 11 September 2024

The Bank of England is reopening the BEEDS User Acceptance Testing (UAT) environment for software houses to test their statistical reporting submissions from 16 September to 27 September 2024. This UAT process allows software providers to verify their systems' ability to submit valid statistical data for various entry points (excluding form IPA). To qualify as a recognised software house for statistical reporting, software providers must successfully submit valid files, as nil returns are not accepted. Participation in the UAT environment does not grant access to the live BEEDS portal. Interested parties should submit their requests to BEEDSqueries@bankofengland.co.uk.  Successful participants will be notified via email once their submissions are validated by the Bank.