Prudential Regulation Review  

After the summer break, September saw the European Commission publishing a major legislative package intended to reform and increase substantially the powers of the three European Supervisory Authorities (ESAs). The Commission encouraged the European institutions to treat the proposals “as a matter of priority” as it would like to ensure their entry into force before the end of the current legislative term of the Parliament in 2019, although this may be challenging. 

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

Capital (including macro-economic issues and stress testing)

The European Banking Authority (EBA) published final technical standards on the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) reporting by resolution authorities, specifying templates and procedures to follow.

The EBA published its twelfth CRDIV-CRR/Basel III monitoring exercise for the European banking system, showing a further improvement of European banks' capital positions.

The ESAs Joint Committee issued its latest report on risks and vulnerabilities in the EU’s financial system. 

Sabine Lautenschläger, Member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the Supervisory Board of the ECB, spoke on the importance of completing Basel III, and the need for a well-written but not too detailed EU rulebook so as to allow supervisors flexibility, while eliminating loopholes in the system.

Mr Vitor Constancio, Vice President of the ECB, spoke at the European Systemic Risk Board (ESRB) annual conference on the financial soundness of non-bank financial institutions, and the development of necessary tools to mitigate potential risk. 

The Basel Committee on Banking Supervision published the results of its latest Basel III monitoring exercise, finding all 200 banks in the sample met Basel III minimum and CET1 capital requirements, and all 30 G-SIBs met their fully phased-in liquidity requirements. 

Governance and risk management (including remuneration)

The EBA published guidance to further harmonise EU banks’ internal governance. The EBA Guidelines will apply by 30 June 2018. 

The EBA and European Securities and Markets Authority (ESMA) published joint guidelines to assess the suitability of members of management bodies and key function holders in line with CRD IV and MiFID II. The guidelines apply from 30 June 2018.

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

Daniele Nouy, Chair of the Supervisory Board of the ECB, spoke on bank resolution frameworks. She highlighted that the Bank Recovery and Resolution Directive is currently being reviewed to make improvements, and that the EU has yet to complete the banking union by implementing a European Deposit Insurance Scheme.

Regulatory perimeter

The ECB published two draft guides for the assessment of license applications for credit institutions. The first guide sets out the general process and requirements, while the second is directed specifically at firms with a FinTech business model seeking a full banking license.

The ECB published the first report from its joint research with the Bank of Japan to assess the applicability of Distributed Ledger Technology (DLT) solutions in the area of financial markets infrastructures. 

Rethinking the domestic and international architecture for regulation

The EU Commission published a communication on reinforcing integrated supervision and adopted a package of proposals to amend the regulations establishing the ESAs and the ESRB, along with associated changes to the Solvency II and MiFID II Directives.

Disclosure, valuation and accounting

The EU Commission published the final draft of the RTS for the disclosure of encumbered and unencumbered assets under the Capital Requirements Regulation. 

Information security and data privacy

The EU Commission outlined proposals for a new EU Cybersecurity Agency to assist Member States in preventing and responding effectively to cyber-attacks. The EU Cybersecurity Agency will organise yearly pan-European cybersecurity exercises and will work to ensure better sharing of intelligence.

Central Bank of Ireland

Deputy Governor Sharon Donnery spoke at the joint Banco de Portugal - European Central Bank Conference on Risk Management in the context of the changing European institutional architecture and regulatory environment.

Ed Sibley, Deputy Governor of Financial Regulation, spoke at the second annual ESRB conference on the Irish experience, measures and solutions regarding NPLs. 

An economic letter by Naoise Metadjer and Kitty Moloney considers the importance of the definition of liquidity for stress tests on Investment Funds (IFs) and Money Market Funds (MMFs) and presents a prototype methodology for liquidity monitoring based on maturity, sector and credit ratings of securities held by a number of Irish-domiciled funds.

Other

The EU Commission issued a draft regulation on the final system of contributions to the administrative expenditures of the Single Resolution Board. Under the proposal, banks will contribute in proportion to the resource requirements they place on the Board, according to the size and risk of their activities. 

EMEA Centre of Regulatory Strategy

If you would like to contact a member of the EMEA Centre for Regulatory Strategy then please click on the below links:

Rod Hardcastle - Director, Centre for Regulatory Strategy UK

John Andrews - Senior Manager, Centre for Regulatory Strategy UK