ECB, EBA, and ESMA announce important communication related to COVID-19

News

ECB, EBA, and ESMA announce important communication related to COVID-19, apply BCP, and postpone non-urgent supervisory actions

13 March 2020

Regulatory News Alert

Context

The ECB, EBA, and ESMA have taken exceptional measures in response to today’s exceptional circumstances. Deloitte presents in this short note the essentials found in these communications:

1. The ECB issued a press release to:

  • Say it will allow banks to operate temporarily below the level of capital defined by the Pillar 2 Guidance (P2G), the capital conservation buffer (CCB), and the liquidity coverage ratio (LCR).
  • Banks will also be allowed to meet Pillar 2 requirements, partially with lower quality capital (such as Additional Tier 1 or Tier 2 instruments). This brings forward a measure in CRD5 that was due to come into effect in January 2021 (Article 104a) – EU banks will be allowed to meet P2R with 56.25% CET1, and the rest with AT1 and Tier 2 capital.
  • The ECB expects that banks should use the capital freed up by these measures to support the economy, rather than to increase dividend distributions or variable remuneration. 
  • The ECB is discussing bank-specific measures, such as rescheduling on-site inspections and extending deadlines for the implementation of remediation actions stemming from recent on-site inspections
  • It underlines that banks should continue to apply sound underwriting standards, pursue adequate policies regarding the recognition and coverage of non-performing exposures, and conduct solid capital and liquidity planning and robust risk management.

The ECB expects that these first measures will be complemented by national competent authorities that are invited to relax the countercyclical capital buffer (CCyB).

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2. EBA released in a press release that:

  • Banks should address any operational challenges they may face as a priority. The EBA will postpone the EU-wide stress test exercise to 2021
  • Banks have now to focus on ensuring continuity of their core operations, including customers support. 
  • For 2020, the EBA will carry out an additional EU-wide transparency exercise in order to provide updated information on banks’ exposures and asset quality to market participants.
  • Competent authorities supervisory activities, including on-site inspections, should be organized in a pragmatic and flexible way and postponed if not considered essential.

More broadly, CAs are encouraged to make full use of the flexibility embedded in the current applicable regulatory framework as outlined by the ECB communication on application of Pillar 2.

 

3. ESMA also issued a statement saying:

  • Business Continuity Planning (BCP) is the priority for all stakeholders including market infrastructures with the potential to deploy their BCP to ensure operational continuity in line with regulatory obligations.
  • Market disclosure issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects, or financial situation in accordance with their transparency obligations under the Market Abuse Regulation. This also applies in the context of transparency regulation, where firms should provide information on the actual and potential impacts of COVID-19 both on quantitative and qualitative aspects and assess their financial situation and economic performance in their 2019 year-end financial report or intermediary reporting. 
  • Fund Management asset managers should continue to apply the requirements on risk management, and react accordingly.

 

Next steps

EU and local authorities should continue to scrutinize the evolution of the situation and may issue additional alerts or take further actions.

 

How can Deloitte help you?

Deloitte’s experts can assist you in applying and deploying BCP as well as to prepare essential actions to help you navigate the different measures.

Deloitte’s Regulatory Watch Kaleidoscope service helps you stay ahead of the regulatory curve to better manage and plan upcoming regulations.

Contacts

Subject matter specialists

Martin Flaunet
Partner – Banking
Tel : +352 45145 2334
mflaunet@deloitte.lu

Jean-Philippe Peters
Partner – Risk Advisory
Tel : +352 45145 2276
jppeters@deloitte.lu

Pascal Martino
Partner – Banking Leader
Tel : +352 45145 2119
pamartino@deloitte.lu

Arnaud Duchesne
Director – Advisory & Consulting
Tel : +352 45145 4852
aduchesne@deloitte.lu


Regulatory Watch Kaleidoscope service

Simon Ramos
Partner – IM Advisory & Consulting
Leader
Tel : +352 45145 2702
siramos@deloitte.lu

Benoit Sauvage
Director – RegWatch, Strategy & Consulting
Tel : +352 45145 4220
bsauvage@deloitte.lu

Marijana Vuksic
Manager – Strategy, Regulatory & Corporate Finance
Tel : +352 45145 2311
mvuksic@deloitte.lu

 

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