EBA publishes its roadmap on the risk reduction measures package

A significant number of new and updated guidelines are expected in 2020, with proportionality firmly on the agenda

Delivering the Risk Reduction Measures Package

The European Banking Authority has published a roadmap outlining its approach and timelines for implementing more than 100 new mandates allocated to it under the Risk Reduction Measures Package adopted by the Council of the European Union and the European Parliament on 20 May 2019.

These mandates predominantly cover the areas of governance and remuneration, large exposures, resolution, reporting and disclosures, and stem from the revised Capital Requirements Directive (CRD V), Capital Requirements Regulation (CRR 2), and Bank Recovery and Resolution Directive (BRRD 2). In a large part, these mandates aim at completing or updating the Single Rulebook as well as monitoring regulatory practices within the Single Market.

Six focal points to watch out for

The EBA’s roadmap for implementing its mandates under the Risk Reduction Measures Package largely revolves around six spheres of work, outlined below. The roadmap also indicates an increasing focus on themes such as proportionality, gender equality, AML/CFT controls, sustainable finance and environmental, social and governance (ESG) considerations, all of which serve as undercurrents across all spheres of work.

The six spheres of work covered in the EBA’s roadmap are:

  • Governance and remuneration: changes in the sphere of governance are mainly focused on risk management and the management body’s involvement in risk management oversight. In terms of remuneration, the EBA will be publishing regulatory technical standards on identified staff to further support institutions in complying with the requirement, whilst also updating requirements on internal governance and the suitability of members of the management body and key function holders. Additional attention will be given to gender neutrality in remuneration.
  • Large exposures: by means of new regulatory technical standards, the EBA aims to further clarify the definition and identification process for connected clients as well as shadow banking entities within the context of large exposures. Furthermore, the implementing technical standards on supervisory reporting will be updated to reflect any changes within the large exposures regime.
  • Pillar 2: the EBA envisages that SREP guidelines will be reviewed with the aim of streamlining and simplifying its approach. The potential inclusion of environmental, social and governance risks in SREP reviews is also being considered given the increasing importance of sustainable finance. Proportionality will be further embedded in order to reduce compliance costs for smaller and less complex institutions.
  • Resolution: the EBA plans to publish a number of regulatory technical standards in relation to application of MREL in order to improve resolution preparedness.
  • Disclosure: the EBA plans to publish implementing technical standards on disclosure requirements, including ESG disclosures, in a bid to streamline Pillar 3 disclosures and promote market discipline. The goal of such standards will be to foster the use of fixed templates and provide more standardisation and comparability based on common definitions. The principle of proportionality will also be taken into consideration to determine the information to be disclosed.
  • Supervisory reporting: in order to increase proportionality and enhance efficiency of supervisory reporting, the EBA will update its reporting frameworks based on a study on the cost of compliance with reporting requirements as well as a feasibility study on integrated reporting. Revised templates will be established accordingly. A reporting compliance tool will be developed to further support accurate and standardised reporting across the market.  

Implementation timelines

Detailed timelines for the publication of guidelines, standards and reports can be accessed here. Given the extensive EBA mandate and the Authority’s own capacity limitations, meeting proposed deadlines will prove to be an ongoing challenge and delays are expected. The extensive consultation process and strain on resources will cause the majority of mandates with deadlines between six to nine months to be postponed by between three to nine months from the original deadline as stated in the legislative texts.  

Next on the agenda

Comprehensive as the RRM package may be, further amendments are already in the pipeline. Items proposed by the Basel Committee on Banking Supervision that have not yet been finalised by the European Commission, and are therefore lacking in the RRM package, include:

  • The revised standardised and internal ratings based approach for credit risk.
  • The revised operational risk framework.
  • The revised market risk framework.
  • Revisions to the credit valuation adjustment (CVA) framework and introduction of a revised standardised approach.
  • The fundamental review of the trading book capital requirement (on which the EU Commission is expected to adopt a delegated act by December 2019).
  • The standardised output floor for risk weighted assets.

These matters are expected to be covered in the CRD 6/CRR 3 legislative proposal within the next year, which, much like its predecessors, will have to go through multi-year negotiations prior to achieving the status of binding law.  

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