Prudential Regulation Review


Prudential Regulation Review

July 2017 

July was a busy month, as is often the case ahead of the holiday peak in August. Rules and guidelines on setting up new or expanded operations in the EU were the subject of papers from ESMA, EIOPA and BaFin, while a number of areas around MiFID implementation and finalisation – particularly the need for firms that want MiFID permissions to have their applications submitted – were the subject of papers from the FCA, ESMA and the European Commission. The FSB was particularly busy, giving its views on a range of topics from finalising the post-crisis reforms to shadow banking, TLAC and derivatives reform.

This note is produced for information only on a best effort basis, and does not constitute advice of any kind.

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Capital (including stress testing and macro prudential)

Vítor Constâncio, Vice President of the European Central Bank (ECB), wrote an opinion piece about the need for a coordinated European strategy on non-performing loans (NPLs).

The European Banking Authority (EBA) provided an update on the new prudential regime for investment firms, based on a three-tier categorisation system.

The Basel Committee on Banking Supervision (BCBS) reported that the EU framework for the Liquidity Coverage Ratio (LCR) was largely compliant with the Basel LCR standard.

The European Systemic Risk Board (ESRB) report on the financial stability implications of IFRS 9 concluded that IFRS 9 represents a major improvement on IAS 39. The report was accompanied by the ESRB Occasional Paper “Assessing the cyclical implications of IFRS 9 – a recursive model”.

The European Parliament’s Economic and Monetary Affairs (ECON) Committee voted to finalise its position on the transitional implementation of IFRS 9 for regulatory capital.

The EBA updated its Risk Dashboard for Q1 2017. Compared to the previous quarter, the EU banking sector showed a modest improvement in asset quality, continuing high levels of capital and a strong increase in profitability.

The Financial Policy Committee’s (FPC’s) latest Financial Stability Report found that the “overall risk from the domestic environment is at a standard level, with most financial stability indicators neither particularly elevated nor subdued.” 

The PRA consulted on its expectations regarding the relationship between minimum requirement for own funds and eligible liabilities (MREL) and buffer requirements, and the consequences of not meeting these.

The FPC and PRA consulted on an increase in the required minimum leverage ratio from 3% to 3.25%.


Conduct of Business (including MiFID)

ESMA consulted on guidelines for aspects of the MiFID II suitability requirements.

ESMA provided interim transparency calculations for MiFID II and issued FAQs for such calculations.

The EU Commission adopted the regulatory technical standards (RTS) for the information to be included by proposed acquirers when notifying National Competent Authorities (NCAs) of a proposed acquisition of a qualifying holding in an investment firm.

ESMA published policy on reporting of circuit breakers’ parameters by National Competent Authorities (NCAs).

Crisis management (including special resolution, systemically important firms, and business continuity)

Elke Konig, Chair of the Single Resolution Board (SRB), presented the 2016 Single Resolution Board (SRB) Annual Report to the ECON committee. The report highlighted progress made in the Single Resolution Fund (SRF) and in establishing Loan Facility Agreements (LFAs) with all Member States.

EIOPA published an opinion calling for a minimum harmonised recovery and resolution framework for (re)insurers within the scope of Solvency II.  

The Financial Stability Board (FSB) assessed resolution reforms ten years on from the financial crisis. The report detailed the adoption of the CCP resolution and resolution planning in 2017, and progress on the implementation of the total-loss absorbing capacity standard (TLAC) for globally systemically important banks (G-SIBs), resolution planning for globally systemically important insurers, and the implementation of the Key Attributes of Effective Resolution Regimes for Financial Institutions in FSB jurisdictions.

The FSB issued guiding principles on the Internal TLAC of G-SIBs.

Regulatory perimeter

Valdis Dombrovskis, Vice-President of the European Commission, spoke on the pan-European covered bonds framework stating that an EU initiative should serve to stimulate covered bond markets as a stable and cheap source of funding for banks, and to ensure the framework is robust enough to justify the preferential prudential treatment granted to it.

ESMA issued a final report on draft technical standards for the publication of derivatives data by trade repositories under EMIR.  

The FSB published its annual review of OTC derivatives market reform

Rethinking the domestic and international architecture for regulation

The Financial Stability Board reported to the G20 on progress in financial regulatory reforms. In a letter to the G20 leaders, Chair of the FSB, Mark Carney, wrote that “G20 reforms have now addressed the fault lines that caused the financial crisis”.

Alongside the letter from Mark Carney, the FSB published its third annual report on the implementation and effects of the G20 financial regulatory reforms and the framework for post-implementation evaluation of the effects of G20 financial regulatory reforms.

The FSB published its assessment of shadow banking activities, risks and the adequacy of post-crisis policy tools to address financial stability concerns.

The FSB published guidance on continuity of access to financial market infrastructures (FMI) for a firm in resolution.

The FSB published its fifth progress report on implementing its principles for sound compensation practices, taking stock of progress across the banking, insurance and securities sectors.

The FSB published a progress report on reducing misconduct risks in the financial sector, with governance, robustness of market structures, and conduct standards in markets at the top of the agenda.

ESMA published a letter to the Commission in favour of the Commission’s proposals for the recognition and supervision of third-country Central Counterparties (CCPs).


Disclosure, valuation and accounting

ESMA published a peer review report identifying areas where national competent authorities (NCAs) can improve their enforcement and supervision of financial information (IFRS).

The EBA consulted on Guidelines specifying a uniform format for institutions' disclosure requirements of IFRS 9 and analogous expected credit losses (ECLs) transitional arrangements.

The EBA published its final draft regulatory technical standards specifying the information that should be provided to competent authorities when applying for authorisation as a credit institution.

The ECB consulted on a draft regulation imposing statistical reporting requirements for pension funds located in the euro zone.

The BCBS issued its sixth report on the implementation of the Basel III regulatory standards


The EBA published a revised Decision adding five additional External Credit Assessment Institutions (ECAIs) to the list of recognized ECAIs for unsolicited credit assessments. Following the ESMA decision, the Joint Committee of the ESAs launched a public consultation to amend the Implementing Regulations on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) accordingly.                           

The Council adopted the Commission’s mid-term review of the Capital Markets Union (CMU) action plan and backed the Commission’s agenda to finalise the CMU building blocks by 2019.

The EBA consulted on its draft report regarding the implementation of its guidelines on methods for calculating contributions to deposit guarantee schemes (DGSs). 

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