Management Solutions compiles new regulations published by regulators of the financial services industry on a global level (BCBS, FSB), a supranational one (with a focus on Europe), and on some local geographies (USA, UK and Spain).
European Sustainability reporting Standards
(15/11/2022) EFRAG – Agreement on first set of draft ESRS to be submitted to the EC
The European Financial Reporting Advisory Group (EFRAG) has approved the Final version of the European Sustainability Reporting Standards (ESRS), which set out the requirements that undertakings shall comply to report on sustainability-related impacts, risks and opportunities under the Corporate Sustainability Reporting Directive (CSRD). The information shall enable the understanding of the undertaking’s impacts on those matters and how they affect the undertaking’s financial development, performance and position. This final version includes various amendments to the initial draft agreed after the feedback received during the consultation period. In this note these changes are outlined.
Thematic review on climate risks
(03/11/2022) ECB– Results of the 2022 thematic review on climate-related and environmental risks.
The European Central Bank (ECB) has published the Results of the 2022 thematic review on climate-related and environmental risks. With this review the ECB conducted further deep dives into institutions’ (C&E) risk strategies, as well as their governance and risk management frameworks and processes. In addition, the outcome of the thematic review has been incorporated into the 2022 SREP.
(31/10/2022) EIOPA – Methodology for assessing value for money in the unit-linked market
The European Insurance and Occupational Authority (EIOPA) has published the Methodology for assessing value for money in the unit-linked market, which outlines a common European approach on how to identify unit-linked products which may offer poor or no value for money and require a close monitoring by national competent authorities (NCAs) to ensure risks are sufficiently identified, monitored and mitigated. The methodology also offers more clarity to insurance manufacturers and distributors on the supervisory approach to addressing value for money risks when supervising product oversight and governance (POG) requirements.
Digital services in the EU
(27/10/2022) EP/Council – Digital Services Act
The European Commission (EC) has published the proposal for the Digital Services Act (DSA) which harmonises the rules applicable to intermediary services in the internal market with the objective of ensuring a safe, predictable and trusted online environment, addressing the dissemination of illegal content online and the societal risks that the dissemination of disinformation or other content may generate, and within which fundamental rights enshrined in the Charter are effectively protected and innovation is facilitated
Economic Crime and Corporate Transparency
(24/10/2022) UK.GOV – Economic crime and transparency bill
The UK government has published the Economic Crime and Corporate Transparency Bill which will reform the role of Companies House and improve transparency over UK companies and other legal entities in order to strengthen the business environment, support the national security and combat economic crime.
SDR and investment labels
(25/10/2022) FCA – Consultation Paper (CP) 22/20 on Sustainability Disclosure Requirements (SDR) and investment labels
The FCA has published the CP22/20 on Sustainability Disclosure Requirements (SDR) and investment labels which proposes the introduction of labels to help consumers navigate the market for sustainable investment products, and ensuring that sustainability-related terms in the naming and marketing products are proportionate to the sustainability profile of the product. Additionally, the FCA proposes disclosure requirements, including accessible consumer-facing disclosures as well as more detailed product- and entity-level disclosures.
(14/10/2022) EP/Council – Digital Markets Act
The European Parliament (EP) and Council have approved the Digital Markets Act with the aim of contributing to the proper functioning of the internal market by laying down harmonised rules ensuring for all businesses, contestable and fair markets in the digital sector across the Union where gatekeepers are present, to the benefit of business users and end users.
Risks from contingent leverage
(12/10/2022) PRA – CP12/22: Risks from contingent leverage
The Prudential Regulation Authority (PRA) has published the Consultation Paper (CP) 12/22 which sets out the proposals to update the PRA’s supervisory expectations for firms undertaking an Internal Capital Adequacy Assessment Process (ICAAP) in relation to the risks from contingent leverage, and to introduce a new data reporting requirement for collecting data on trading exposures where these risks may most likely arise. The PRA considers these proposals would help firms identify, monitor, and manage contingent leverage risk and would improve its ability to monitor the evolution of these risks with more granular data, helping the PRA take targeted action where relevant.
(10/10/2022) FSB – The priority themes on cross-border payments for the continuation of G20 roadmap / report on the progress made on the roadmap at this regard
The Financial Stability Board (FSB) has published priority issues on cross-border payments for the continuation of the roadmap and a progress report on the roadmap. The priority themes focuses on: i) the payment system interoperability and extension; ii) legal and regulatory frameworks; and iii) cross-border data exchange.
(10/10/2022) FSB – Report on proposed recommendations to promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to crypto-asset activities and markets / Review of the FSB’s high-level recommendation for the regulation, supervision, and oversight of “global stablecoin” arrangements
The Financial Stability Board (FSB) is submitting a set of proposal for the regulation and supervision of crypto-asset activities. They consist of: i) a report on proposed recommendations to promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to crypto-asset activities and markets; and ii) a report on high-level recommendations on supervision, and oversight of “global stablecoin” (GSC) arrangements.
Other publications of interest
(17/11/2022) ESMA - Guidelines on resolvability/ Guidelines on cooperation arrangements for central counterparties
The European Securities and Markets Authority (ESMA) has published two Final Reports. The first report includes the Guidelines on the assessment of resolvability, which set out common aspects to be assessed by resolution authorities when evaluating the extent to which a central counterparties (CCP) may be resolved without relying on certain types of external financial support . On the other hand, ESMA published Guidelines on the CCPs Resolution Regime under the CCP Recovery and Resolution Regulation (CCPRRR). These guidelines specifies provisions to be included in cooperation arrangements that shall be entered into between competent or resolution authorities and third-country authorities.
(17/11/2022) ESMA - ESMA consults on rules for passporting for investment firms
The European Securities and Markets Authority (ESMA) has launched a consultation on the review of the technical standards under Article 34 of the Markets in Financial Instruments Directive (MiFID II), covering the provision of investment services across the EU. The main amendments proposed add the different items to the information that investment firms are required to provide at the passporting stage e.g the investment firm’s internal organisation in relation to the cross-border activities of the firm. The consultation closes on 17 February 2023. ESMA will consider the feedback it receives to the consultation in Q2 2023 and expects to publish a final report by the end of 2023.
Liquidity Risk Management
(16/11/2022) IOSCO – Thematic Review on Liquidity Risk Management Recommendations
The Board of the International Organization of Securities Commissions (IOSCO) has published a thematic review assessing the implementation of selected recommendations issued in 2018 to strengthen the liquidity risk management practices for collective investment schemes (CIS) globally. The Review found that larger jurisdictions show a high degree of implementation of regulatory requirements consistent with the objectives of the Recommendations. For the CIS design process, the Review identified some challenges with respect to dealing frequency, dealing arrangements and disclosure practices. Additionally, the Review found that responsible entities (i.e., asset managers) have a high degree of implementation of the Recommendations at the level of policies and practices
Finantial Stability Report
(16/11/2022) FSB – FSB publishes annual report on its work to promote global financial stability
The Financial Stability Board (FSB) has published its latest Annual Report, which was delivered to the G20 Leaders ahead of their Bali Summit, describes the FSB’s work to promote global financial stability. Particularly, the FSB warns that the outlook for global financial stability is particularly challenging amidst high inflationary pressures, elevated debt levels, lower growth, and much tighter global financial conditions. So far global financial markets have proved to be resilient. However, many authorities have limited policy space to intervene should a shock materialise. This amplifies the need to remain vigilant and take policy measures to maintain the resilience of the financial system.
(15/11/2022) EBA – EBA consults on Guidelines to institutions and resolution authorities on resolvability testing
The European Banking Authority (EBA) has launched a public consultation on its draft Guidelines addressed to institutions and resolution authorities on resolvability testing. The Guidelines aim to set-out a framework to ensure that resolvability capabilities developed to comply with the resolvability and transferability Guidelines are fit for purpose and effectively maintained. Particularly, Guidelines are proposing that authorities develop multi-annual testing programme so as to gain assurance of firms’ resolvability while providing sufficient visibility to banks. Additionally, for the most complex banks, the Guidelines are proposing to have them develop a master playbook to ensure a holistic approach to resolution planning. The consultation runs until 15 February 2023.
(15/11/2022) ESAs – ESAs launch joint Call for Evidence on greenwashing
The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published a Call for Evidence on greenwashing to gather input from stakeholders on how to understand the key features, drivers and risks associated with greenwashing and to collect examples of potential greenwashing practices. Respondents are invited to submit their responses by 10 January 2023. Contributions will feed into the ESAs’ findings for their progress reports due in May 2023, and final reports due in May 2024.
(15/11/2022) FSB/NGFS – Current climate scenario analysis exercises may understate climate exposures and vulnerabilities, warn FSB and NGFS
The Financial Stability Board (FSB) and Network for Greening the Financial System (NGFS) have published a joint report outlining initial findings from climate scenario analyses undertaken by financial authorities at the individual firm level, at the level of the different financial sectors, and at the overall financial system level to assess climate-related financial risks. The report highlights that the exercises, mostly based on NGFS scenarios, have explored a range of physical and transitional risk factors. The use of different approaches means that the results are not directly comparable, but it highlights that measures of exposure and vulnerability are likely to be underestimated, not least because the measurements do not capture certain sources of risk. This is compounded by the scarcity of data, which remains a key challenge for these exercises.
(14/11/2022) FSB – FSB report considers financial policy challenges in the wake of COVID-19
The Financial Stability Board (FSB) has published a report looking at financial policies in the wake of COVID-19 aimed at supporting equitable recovery and addressing the effects from scarring in the financial sector. The report notes that economic and financial market developments over the past few months have reinforced three challenges to policymakers noted in the FSB’s interim report to the G20: i) the need for sustained policy support amidst rising inflation and removal of monetary accommodation; ii) the risk of negative cross-border spillovers from a deteriorating global recovery and diverging monetary and fiscal policy stances; and iii) that vulnerabilities that support measures prevented from materialising may now come to the fore.
(14/11/2022) IOSCO – IOSCO Statement on Financial Reporting and Disclosure during Economic Uncertainty
The Board of the International Organization of Securities Commissions (IOSCO) has issued a public statement encouraging issuers, external auditors, as well as audit committees (or those charged with governance) to be particularly vigilant in times of economic uncertainty in their consideration of how risks and uncertainties that could affect or have affected an issuer’s operations, financial condition, cash flows and prospects can be transparently communicated to investors.
(14/11/2022) EBA – Final technical standards on the measurement of liquidity risks for investment firms
The European Banking Authority (EBA) has published its final Regulatory Technical Standards (RTS) on specific liquidity measurement for investment firms under the Investment Firms Directive (IFD). These RTS will ensure that all competent authorities follow the same harmonised approach when adopting the decision to impose further liquidity requirements to an investment firm. In particular, competent authorities will have to assess: i) all elements specific to each service provided by the investment firm under the Markets in Financial Instruments Directive (MiFID); and ii) other elements that could have a material impact, such as external factors, group structure, operational or reputation
(10/11/2022) EP – Sustainable economy: Parliament adopts new reporting rules for multinationals
The European Parliament, following the established legislative process, has adopted the Corporate Sustainability Reporting Directive (CSRD) adding several modifications to the text proposed by the EC. After this, the Council is expected to adopt the proposal of the Parliament on 28 November, prior to its subsequent signature and publication in the EU Official Journal. The Directive will enter into force 20 days after publication and will start applying between 2024 and 2022.
(10/11/2022) FSB – FSB sets out policy proposals to address systemic risk in non-bank financial intermediation
The Financial Stability Board (FSB) has published a progress report to the G20 on enhancing the resilience of non-bank financial intermediation (NBFI), including a set of policy proposals to address systemic risk in NBFI and programme of further work. The report describes the main findings to date and next steps in assessing and addressing vulnerabilities in money market funds, open-ended funds, margining practices, bond market liquidity, and cross-border USD funding in emerging market economies (EMEs).
Hybrid banking instruments
(09/11/2022) Gov.UK – Draft regulations: amendment to the Hybrid and Other Mismatches rules to retain an exemption for certain hybrid instruments issued by banks
The Government of the United Kingdom (Gov.UK) launched in May a technical consultation in order to seeks views on draft regulations that will remove a sunset clause from the Hybrid and Other Mismatches rules so that an exemption for certain hybrid instruments issued by banks continues to apply from 1 January 2023. Now, the Gov.UK has published the responses to this consultation and the Gov.UK explanation to them. The responses to this consultation did not suggest any changes and the draft proposals have been accepted.
Compliance Carbon Markets
(09/11/2022) IOSCO – IOSCO consults on the development of sound and well-functioning carbon markets
The Board of the International Organization of Securities Commissions (IOSCO) has launched a public consultation on recommendations for establishing sound Compliance Carbon Markets (CCMs) and on key considerations for enhancing the resilience and integrity of Voluntary Carbon Markets (VCMs). IOSCO calls on market participants to provide feedback on how to foster fair and functional markets and increase structural resilience to ensure these markets achieve the environmental objectives upon which their existence is based. Comments can be sent before 10 February.
(07/11/2022) EBA – The EBA clarifies the operationalisation of intermediate EU parent undertakings of third country groups
The European Banking Authority (EBA) has published an Opinion to clarify the framework applicable to the set-up and operationalisation of intermediate EU parent undertakings (IPUs) by third country groups (TCGs) operating in the EU. In particular, the opinion clarifies clarifies the process, as well as the information requirements and the assessment criteria, both from a supervisory and/or resolution perspective, for those cases where the TCG intends to have in place two IPUs and not a single one.
(07/11/2022) BoE – CP14/22 - Review of Solvency II: Reporting phase 2
The Bank of England (BoE) has released a Consultation Paper (CP) that sets out the Prudential Regulation Authority’s (PRA) proposals to streamline significantly a number of current Solvency II reporting and disclosure requirements for insurers, and to improve the collection of data in a small number of areas where reporting is currently not tailored appropriately to the features of the UK insurance sector, or to the PRA’s supervisory needs. The PRA considers that the proposals would allow it to continue to meet its statutory objectives while reducing ongoing reporting costs for firms, thereby improving competitiveness and proportionality.
(07/11/2022) EIOPA – Monthly update of the symmetric adjustment of the equity capital charge for Solvency II – end-October 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published the technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of October 2022. This publication includes an attached document with the Value of EIOPA Equity Index and the calculations of Synmetric Adjustment through the years.
(04/11/2022) EIOPA – Risk Dashboard indicates overall resilience among insurers even amid high macro and market risks
The European Insurance and Occupational Pensions Authority (EIOPA) has published its Risk Dashboard based on Solvency II data from the second quarter of 2022. The results show that insurers’ exposures to macro and market risks are currently the main concern for the insurance sector. All other risk categories, such as profitability and solvency, climate as well as digitalisation and cyber risks stay at medium levels. On climate risks, insurers maintained their relative exposure to green bonds while the ratio of investments in green bonds over the total green bond outstanding slightly decreased.
(04/11/2022) BoE – Single Resolution Board publishes MREL dashboard Q2.2022
The Single Resolution Board (SRB) has published its minimum requirement for own funds and eligible liabilities (MREL) dashboard for Q2.2022. The dashboard provides more transparency by category of bank and resolution strategy. The first section of the dashboard focuses on the evolution of MREL targets for resolution entities and non-resolution entities, the level and the quality of stock of MREL instruments and shortfalls in Q2.2022. The second section highlights recent developments in the cost of funding and provides an overview of gross issuances of MREL instruments in Q2.2022.
(04/11/2022) Fed – Federal Reserve Board invites public comment on a proposal to publish a periodic list of depository institutions that have access to Federal Reserve accounts
The Federal Reserve (Fed) Board has published for public comment on a proposal to publish a periodic list of depository institutions that have access to Federal Reserve accounts and payment services. The proposal will enhance transparency to the public by periodically publishing this comprehensive list of financial institutions. Comments can be sent until 4 January 2023.
EU-wide stress test
(04/11/2022) EBA – EBA publishes methodology and draft templates for the 2023 EU-wide stress test
The European Banking Authority (EBA) has published the final methodology, draft templates and template guidance for the 2023 EU-wide stress test along with the milestone dates for the exercise. The methodology and templates cover all relevant risk areas and have considered the feedback received from industry. The stress test exercise will be launched in January 2023 with the publication of the macroeconomic scenarios and the results will be published by the end of July 2023.
(20/10/2022) EBA – Final Draft for IRRBB SOT / Final Draft for IRRBB SA / Final Guidelines on IRRBB and CSRBB
The European Banking Authority (EBA) has published two final documents for its regulatory technical standards (RTS) on the Interest Rate Risk in the Banking Book (IRRBB) supervisory outlier test (SOT), the IRRBB and credit spread risk arising from non-trading book activities (CSRBB) and the guidelines on IRRBB and CSRBB. With respect to the previous drafts the following changes stand out: for the Final draft RTS on IRRBB SOT it is added in Article 2 that the calibration of the specified sizes for the disturbances must be performed at least every five years. For the IRRBB SA there are also changes in the nomenclature and formulation of certain sections, standing out the changes in the calculation of the economic value of own funds. Regarding the Guidelines on IRRBB and CSRBB the entry into force has been changed, in general, to June 30 2023.
Borrowers in financial difficulty
(03/11/2022) FCA – Borrowers in financial difficulty following the coronavirus pandemic - key findings
The Financial Conduct Authority (FCA) has detailed its findings from our review of firms’ treatment of borrowers in financial difficulty after the pandemic. The FCA include areas all firms must improve on. This findings are relevant to the treatment of all borrowers in financial difficulty at any time, including those impacted by the cost of living rises. To improve outcomes for borrowers in financial difficulty, lenders need to focus on issues in these areas: i) engaging with customers , ii) effectiveness of conversations with customers, iii) helping customers to consider and access money advice and not for profit debt advice and iv) fees and charges.
(03/11/2022) EBA – EBA publishes assessment on the application of the supporting factor to infrastructure lending
The European Banking Authority (EBA) has published a Report, which analyses some qualitative as well as quantitative aspects of the lending trends and riskiness of infrastructure loans which have benefitted from a capital reduction due to the introduction of the so-called infrastructure supporting factor (ISF) under the Capital Requirements Regulation (CRR). Conclusions of the Report show that the findings, based on the quantitative data and the qualitative survey, do not allow to conclude on the impact of ISF on lending. On the other hand, the expected higher risk- sensitivity of the standardised approach to credit risk when CRR III comes into force would support the questioning of the application of the ISF going forward. In any case, the EBA warns of the voluntary nature of the survey and the consequent sample selection bias that should be taken into account when interpreting these results.
(02/11/2022) SEC – SEC Proposes Enhancements to Open-End Fund Liquidity Framework
The Securities and Exchange Commission (SEC) has voted to propose amendments to better prepare open-end funds for stressed conditions and to mitigate dilution of shareholders’ interests. The rule and form amendments are expected to enhance how funds manage their liquidity risks, by requiring the implementation of liquidity management tools, and by revising the frequency and introducing greater detail in the information reported by funds.
(01/11/2022) FCA – PS22/12: Pensions Dashboards rules for pension providers
The Financial Conduct Authority (FCA) has set out final rules and guidance requiring FCA regulated pension providers to provide and enable information about personal and stakeholder pensions for pensions dashboards. This rules require that FCA regulated pension providers must: i) complete connection to the digital architecture operated by the pensions dashboard programme; ii) be ready to receive requests to find pensions, and search records for data matches; iii) be ready to return pensions information to the consumer’s chosen pensions dashboard.
(28/10/2022) ESMA – European enforces focus on Russia’s invasion of Ukraine Economic outlook and climate-related disclosure
The European Securities and Markets Authority (ESMA) has issued its annual Public Statement setting out the European common enforcement priorities (ECEP) for the 2022 annual financial reports of issuers admitted to trading on European Economic Area (EEA) regulated markets. This year’s priorities cover the impact of Russia’s invasion of Ukraine, the macroeconomic environment and climate-related matters in financial and non-financial information. The statement also highlights the importance of comprehensive disclosures pursuant to Article 8 of the Taxonomy Regulation.
(27/10/2022) SEC – Outsourcing by investment advisers
The Securities and Exchange Commission (SEC) is proposing a new ruleto prohibit registered investment advisers from outsourcing certain services or functions without first meeting minimum requirements. The proposed rule would require advisers to conduct due diligence prior to engaging a service provider to perform certain services or functions. It would further require advisers to periodically monitor the performance and reassess the retention of the service provider in accordance with due diligence requirements to reasonably determine that it is appropriate to continue to outsource those services or functions to that service provider.
Water and air pollution
(26/10/2022) EC – European Green Deal: Commission proposes rules for cleaner air and water
The Commission (EC) has proposed tougher rules on pollutants in ambient air, surface water, groundwater and urban waste water treatment. For air, the proposals will ensure that people suffering health problems as a result of air pollution will be entitled to compensation in the event of breaches of EU air quality standards. On residential water, it includes stricter standards for nutrients from waste water, micropollutants and new requirements for the control of microplastics. In addition, the list of water pollutants with PFAs, anti-biotics, bisphenol A, pesticides, among others, will be updated. Once adopted, the proposals will take effect progressively, some of them will be left to national authorities to decide what concrete measures to adopt.
(26/10/2022) ESMA – SMSG advice in respect of the ESMA Consultation Paper on the Review of the Guidelines on MiFID II product governance requirements
The Securities and Market Stakeholders Group (SMSG) has launched an advice in respect of the European Securities Markets Authority (ESMA) Consultation Paper on the Review of the Guidelines on MiFID II product governance requirements. In general, the SMSG is of the opinion that the revised guidelines are balanced, fairly reflect and elaborate on the changes in Level 1 and Level 2 texts, and adequately deal with the results of the 2021 Common Supervisory Action on MiFID II Product Governance Requirements.
(26/10/2022) ESMA – ESMA issues an opinion on product intervention measure on futures taken by Germany
The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has issued an opinion on a product intervention measure on futures with additional payment obligations taken by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). ESMA’s opinion concludes that the proposed measure is justified and proportionate. In the opinion ESMA encourages NCAs to monitor futures with additional payment obligations in their respective markets to assess whether similar risks for retail investors as those identified by BaFin could arise there.
(26/10/2022) SEC – Tailored Shareholder Reports, Treatment of Annual Prospectus Updates for Existing Investors, and Improved Fee and Risk Disclosure for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements
The Securities and Exchange Commission (SEC) is adopting rule and form amendments that require open-end management investment companies to transmit concise and visually engaging annual and semi-annual reports to shareholders that highlight key information that is particularly important for retail investors to assess and monitor their fund investments. Certain information that may be more relevant to financial professionals and investors who desire more in-depth information will no longer appear in funds’ shareholder reports but will be available online, delivered free of charge upon request, and filed on a semi-annual basis on Form N-CSR.
Mortgage insurance schemes
(26/10/2022) BoE – Regulatory treatment of retail residential mortgages provided under private mortgage insurance schemes with similar contractual features to MGS
The Prudential Regulation Authority (PRA) has published a Statement on the regulatory treatment of retail residential mortgage loans under private mortgage insurance schemes with similar contractual features to the Mortgage Guarantee Scheme. This statement does not provide an exhaustive commentary of the regulatory requirements for these loans, firms should review the relevant legislation and, if necessary, seek independent advice to satisfy themselves that they meet all applicable requirements. In particular, the UK Capital Requirements Regulation (CRR) requires firms to obtain a legal opinion on the effectiveness and enforceability of credit protection afforded by a guarantee.
Accounting standards, annual accounts and financial standards
(25/10/2022) CNMV – Consulta pública relativa al proyecto de nueva circular sobre normas contables, cuentas anuales y estados financieros intermedios de las infraestructuras de mercado
The Comisión Nacional del Mercado de Valores (CNMV) submits for public consultation the draft of the new Circular on accounting standards, annual accounts and interim financial statements of market infrastructures. This new circular includes certain new features with the aim of simplifying and updating the obligations, accounting rules and financial and activity statements, taking into account the applicable regulations in force, eliminating unnecessary redundancies and adapting them to the new reality of Spanish infrastructures.
(24/10/2022) FDIC – Resolution-Related Resource Requirements for Large Banking Organizations
The Board of Governors of the Federal Reserve System (Board) and Federal Deposit Insurance Corporation (FDIC) have published for public comment an advance notice of proposed rulemaking to solicit public input regarding whether an extra layer of loss-absorbing capacity could improve optionality in resolving a large banking organization or its insured depository institution, and the costs and benefits of such a requirement. This may, among other things, address financial stability by limiting contagion risk through the reduction in the likelihood of uninsured depositors suffering loss, and keep various resolution options open for the FDIC to resolve a firm in a way that minimizes the long term risk to financial stability and preserves optionality.
(24/10/2022) EBA – EBA publishes Report on the integration of ESG risks in the supervision of investment firms
The European Banking Authority (EBA) published a Report on how to incorporate ESG risks in the supervision of investment firms. The Report also provides an initial assessment of how ESG factors and ESG risks could be included in the supervisory assessment of investment firms, covering the main elements of the SREP: i) business model analysis, ii) assessment of internal governance and risk management, and iii) assessment of risks (risk to capital and liquidity risk).
(24/10/2022) IFRS – IASB adds narrow-scope project to work plan on possible amendments to financial instruments Accounting Standard
The International Accounting Standards Board (IASB) has expanded the scope of its maintenance project on the work plan for proposed narrow-scope amendments to IFRS 9. The aim of the proposed amendments is to respond to stakeholders’ feedback on the Request for Information published in September 2021 as part of the Post-implementation Review of IFRS 9. The proposed amendments will cover three areas: i) contractual cash flow characteristics, ii) electronic cash transfers and iii) equity instruments and other comprehensive income. The next milestone is the publication of the Exposure Draft on these proposals.
Funds Transfers Regulation
(21/10/2022) EBA – EBA launches call for interest for two expert groups and a call for input to advise on its work under the recast Funds Transfers Regulation
The European Banking Authority (EBA) has issued a call for expression of interest to join two Technical Expert Groups – on crypto assets service providers and anti-money laundering and countering the financing of terrorism (TEG-CASPs/AML), and on restrictive measures regimes (TEG-RMRs) – and a call for input on the Joint Guidelines to prevent the abuse of fund transfers for ML/TF purposes issued in 2017 by the European Supervisory Authorities (ESAs). These will provide technical advice to the EBA on those aspects of the revised Regulation on information accompanying transfers of funds (TFR) that relate to the EBA’s mandates.
(14/10/2022) EP/Council – Digital Markets Act
The European Parliament (EP) and Council have approved the Digital Markets Act with the aim of contributing to the proper functioning of the internal market by laying down harmonised rules ensuring for all businesses, contestable and fair markets in the digital sector across the Union where gatekeepers are present, to the benefit of business users and end users.
Consumer Leasing and Truth in Lending
(13/10/2022) Fed/CFPB– Agencies announce dollar thresholds in Regulation Z and Regulation M for exempt consumer credit and lease transactions
The Federal Reserve Board (Fed) and the Consumer Financial Protection Bureau (CFPB) have announced the dollar thresholds used to determine whether certain consumer credit and lease transactions in 2023 are exempt from Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing). Specifically, Regulation Z and Regulation M generally will apply to consumer credit transactions and consumer leases of $66,400 or less in 2023. However, private education loans and loans secured by real property, such as mortgages, are subject to Regulation Z regardless of the amount of the loan.
(13/10/2022) Fed/CFPB/OCC – Agencies announce threshold for smaller loan exemption from appraisal requirements for higher-priced mortgage loans
The Consumer Financial Protection Bureau (CFPB), the Federal Reserve Board (Fed), and the Office of the Comptroller of the Currency (OCC) have announced that the 2023 threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans will increase from $28,500 to $31,000. The threshold amount will be effective January 1, 2023, and is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W, as of June 1, 2022.
(13/10/2022) PSF – Final report on minimum safeguards
The Platform on Sustainable Finance (PSF) has published its Final Report on Minimum Safeguards relative to october 2022. This report advises on the application of minimum safeguards (MS) in relation to the Taxonomy Regulation (TR). It does so by i) embedding MS in existing EU regulation, ii) identifying substantive topics relating to the standards and norms referenced in TR and iii) presenting advice on compliance with MS. When exploring the links between MS and EU legislation, the report focuses on the existing Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and the upcoming Corporate Sustainability Due Diligence Directive (CSDDD).
AI and Machine Learning
(13/10/2022) BoE – DP5/22 - Artificial Intelligence and Machine Learning
The Bank of England (BoE) has released a Discussion Paper (DP) on Artificial Intelligence and Machine Learning. The BoE considers that Artificial intelligence (AI) and machine learning (ML) are rapidly developing technologies that have the potential to transform financial services, however AI can pose novel challenges, as well as create new regulatory risks, or amplify existing ones. Taking this into account, the DP aims to further the supervisory authorities understanding and to deepen dialogue on how AI may affect our respective objectives.
Insurance sector operational resilience
(13/10/2022) IAIS – Public Consultation on Issues Paper on Insurance Sector Operational Resilience
The International Associations of Insurances Supervisors (IAIS) has published for consultation its Issues Paper on Insurance Sector Operational Resilience. The paper identifies issues impacting operational resilience in the insurance sector and provides examples of how supervisors are approaching these developments, with consideration of lessons learnt during the Covid-19 pandemic. Recognising that operational resilience is a broad and evolving area, the paper addresses three specific operational resilience sub-topics concerning areas the IAIS considers as matters of significant and increasing operational risk and, therefore, of immediate interest to supervisors: i) Cyber resilience, ii) Third-party outsourcing, and iii) Business continuity management. Feedback on the paper is invited by 6 January 2023.
Climate-related financial risks
(13/10/2022) FSB – FSB publishes recommendations for supervisory and regulatory approaches to climate-related risks and calls for continued progress on disclosures
The Financial Stability Board (FSB) has published two reports as part of its work on addressing climate-related financial risks, outlined in its Roadmap. In one hand, a final report on supervisory and regulatory approaches to climate-related risks. The report aims to assist supervisory and regulatory authorities in developing their approaches to monitor, manage and mitigate cross-sectoral and system-wide risks arising from climate change and to promote consistent approaches across sectors and jurisdictions. In the other hand, the FSB has published a progress report on climate-related disclosures, which takes stock of progress made over the past year by the International Sustainability Standards Board (ISSB), by national and regional authorities and by firms.
(12/10/2022) PSF – Platform Recommendations on Data and Usability
The Platform on Sustainable Finance (PSF) has published a Report on data and usability of the EU Taxonomy. The report contains a detailed overview of the first implementation phase of the taxonomy by economic operators and across financial markets. It also includes specific recommendations for targeted adjustments to enhance the usability of the taxonomy and improve the coherence of the broader sustainable finance framework. The report does not constitute guidance for market participants or legal interpretation of the rules, but it provides input to the European Commission and the European Supervisory Authorities on the implementation issues of the EU taxonomy standards and disclosure requirements.
Insuring and reinsuring supervision
(12/10/2022) EIOPA – EIOPA evaluates progress on supervising the propriety of (re)insurers’ administrative, management and supervisory body members and qualifying shareholders
The European Insurance and Occupational Pensions Authority (EIOPA) has published a follow-up report to the 2019 peer review on the propriety assessment of administrative, management and supervisory body (AMSB) members and qualifying shareholders across the European Economic Area. The follow-up report assesses how national competent authorities (NCAs) have implemented the actions recommended in the original peer review. Sixteen out of seventeen NCAs have already fully implemented the measures recommended to them by EIOPA.
Financial system analysis
(11/10/2022) FSB – FSB Chair sets out ongoing work to strengthen financial resilience amidst growing financial stability challenges
The Financial Stability Board (FSB) has published a letter from its Chair, to G20 Finance Ministers and Central Bank Governors. The letter notes that financial conditions have tightened further since July, against the backdrop of higher inflation and a weakening economic outlook. Complementing work on current vulnerabilities, the FSB is taking forward initiatives that deal with important structural changes affecting the financial system. In November, the FSB will report on progress in strengthening the resilience of non-bank financial intermediation. The letter summarises the reports being delivered to the G20 meeting, which cover: crypto assets, cross-border payments, cyber risk, and climate change.
Impact protocol for banks
(10/10/2022) UNEP FI – UNEP FI launches Impact Protocol for Banks
The United Nation Environment Financial Initiative (UNEP FI) has launched the Impact Protocol for Banks, along with the latest Module of Version 3 of the Portfolio Impact Analysis Tool for Banks, marking the consolidation of a full toolkit for impact management for banks. The Impact Protocol provides a step-by-step overview of how to analyse and manage bank portfolio impacts as per UNEP FI’s holistic impact approach, and in conformity with the requirements of the Principles for Responsible Banking. Furthermore, UNEP FI’s Impact Analysis Tools, which are the operationalisation of the holistic impact approach and methodology, has a new modular version which allows more flexibility to accommodate for a variety of types of user.
Real Estate market
(10/10/2022) EBA – Banks exposed to downside risks as residential real estate markets get overheated, EBA Report finds
The European Banking Authority (EBA) has published a thematic note on EU banks’ residential real estate exposures. EU banks reported more than EUR 4.1 trillion of loans and advances collateralised by residential immovable property. This corresponds to 1/3 of all loans towards households and non-financial corporates. On the other hand, higher interest rates driven by increased inflation combined with the prospect of slower economic growth will likely put financial pressure on lower income and over-indebted households. EBA highlights that banks should follow prudent loan origination policies and enhance their monitoring of mortgage loan portfolios to identify promptly pockets of risks.
(10/10/2022) EMMI - Launch of EFTERM®
The European Money Markets Institute (EMMI) has announced the launch of EFTERM® on 14 November 2022. This new fallback rate will help EURIBOR® users to comply with the relevant legal requirements under the EU Benchmarks Regulation. The Efterm® Governance Framework published, entails three documents:i) the Efterm® Governance Code of Conduct, setting out all governance, control, and accountability frameworks for the provision of Efterm®; ii) the Efterm® Code of Obligations of the Calculation Agent, setting out the requirements for the Calculation Agent in acting as a sub-contractor of The European Money Markets Institute for the determination of Efterm®and iii) the Benchmark Determination Methodology for Efterm®, setting out the determination methodology for the calculation of Efterm® under both regular and contingency circumstances.
Non-compliance with statistical reporting
(10/10/2022) ECB – Regulation 2022/1917/ Decision (EU) 2022/1921
The European Central Bank (ECB) has published a Regulation which establishes a harmonised framework in which sanctions may be imposed on reporting agents for non-compliance with statistical reporting requirements laid down by ECB regulations and decisions. In particular, it establishes the scope of monitoring of compliance by the reporting agents with those requirements and defines the following procedures to be applied by the competent Eurosystem central bank: i) monitoring and recording procedure; ii) reporting procedure; iii) notification procedure; iv) endorsement and implementation of a remedial plan ;v) infringement procedure. Along with this Regulation the ECB has published the Decision on the methodology for the calculation of sanctions for alleged infringements of statistical reporting requirements. Both documents shall apply generally on 30 April 2024.
Supervisory banking statistics
(07/10/2022) ECB - ECB publishes supervisory banking statistics for the second quarter of 2022
The ECB has published the 2Q aggregated supervisory banking statistics of banks designated as significant institutions (SIs). Some data stand out, for example: i) aggregate Common Equity Tier 1 ratio stable at 14.96% in second quarter of 2022 (compared with 14.99% in previous quarter and 15.60% in the same quarter last year); ii) aggregated annualised return on equity up to 7.62% in second quarter of 2022 (compared with 6.04% in first quarter of 2022 and 6.92% in the same quarter last year) and iii) aggregate non-performing loans ratio fell further to 1.85% (or 2.35% excluding cash balances), down from 1.95% in previous quarter (2.51% respectively), while loans that show a significant increase in credit risk (stage 2 loans) continued to grow, standing at 9.72% (up from 9.28% in previous quarter).
High-cost lending products
(06/10/2022) FCA – FCA strategy for firms providing high-cost lending products
The Financial Conduct Authority (FCA) has published a letter regarding its strategy for firms providing high-cost lending products. This letter sets out FCA’s updated view on the key risks of harm that high-cost firms pose to their customers and the markets in which they operate. In addition, this firms will need to start preparing for implementation of the Consumer Duty, which becomes effective from 31 July 2023.
Supervision Operating Plan
(06/10/2022) EC – OCC Releases Bank Supervision Operating Plan for Fiscal Year 2023
The Office of the Comptroller of the Currency (OCC) has released its bank supervision operating plan for Fiscal Year 2023. The plan provides the foundation for policy initiatives and for supervisory strategies as applied to individual national banks, federal savings associations, federal branches, federal agencies, and technology service providers. The OCC staff uses this plan to guide its supervisory priorities, planning, and resource allocations.
(06/10/2022) EC – EBA risk dashboard decline slightly
The European Banking Authority (EBA) has published its quarterly Risk Dashboard covering the main risks and vulnerabilities in the EU banking sector. Between the most relevant figures, the average CET1 fully loaded ratio remained unchanged at 15%. Overall, banks reported robust liquidity ratios with the average liquidity coverage ratio (LCR) reaching 164.9% and the net stable funding ratio (NSFR) standing at 126.9%Furthermore, European banks’ return on equity (RoE) stood at 7.9% (6.7% in Q1 2022).
(06/10/2022) EC – Commission Notice on the interpretation of certain legal provisions of the Disclosures Delegated Act under Article 8 of EU Taxonomy Regulation on the reporting of eligible economic activities and assets
The European Commission (EC) has published a frequently asked questions document which seeks to clarify the content of the delegated act on disclosure of information under Article 8 of the EU Taxonomy Regulation in order to support its application by assisting financial and non-financial undertakings in applying the relevant legal provisions. The document only clarifies provisions already contained in existing legislation and does not introduce additional requirements for the operators concerned and the competent authorities.
(05/10/2022) BCBS – Buffer usability and cyclicality in the Basel framework / Newsletter on positive cycle-neutral countercyclical capital buffer rates
The Basel Committee on Banking Supervision (BCBS) has published a second evaluation report assessing the impact of the implemented Basel reforms regarding buffers usability and cyclicality. The report found some indications of a positive relationship between lending and the capital headroom of banks. Given the evaluation findings, the longer-term impacts of the pandemic, ongoing geopolitical events and the potential for new risks to emerge, the Committee wishes to stress the importance of the prudent build-up and use of buffers at banks to smooth the impact of internal and external shocks. To facilitate this, some jurisdictions have chosen to implement positive cycle-neutral countercyclical capital buffer (CCyB) rates.
(03/10/2022) FCA – CP22/19: Creation of a baseline financial resilience regulatory return
The Financial Conduct Authority (FCA) has published a consultation paper (CP) in order to make some changes to the data collection for solo-regulated firms. The data collected give the FCA a baseline set of financial resilience information and the changes proposed would move this data collection onto RegData (platform on regulatory data), with the aim of reducing the administrative and financial burden and in order to increase the quality and consistency of financial resilience data. Comments to this document can be submitted before 2 December 2022.
Central Credit Registry
(03/10/2022) BdE – Proyecto de Circular del Banco de España, por la que se modifica la Circular 1/2013, de 24 de mayo, del Banco de España, sobre la Central de Información de Riesgos
The Banco de España (BdE) has published the draft Circular amending the Circular on the Central Credit Register to adapt it to the changes introduced by Order EDT 600/2022. This Circular does not modify the content of the Order, but it does modify the dates on which it will enter into force. Thus, January 2023 is the date on which institutions must individually report the data of all holders, including those of their transactions, whose cumulative risk at the reporting institution is equal to or greater than 3,000 euros, and January 2027 is the date from which institutions must individually report the data of all holders, including those of their transactions, whose cumulative risk at the reporting institution is equal to or greater than 1,000 euros.
Debit card transactions
(03/10/2022) FED – Federal Reserve Board finalizes updates to the Board’s rule concerning debit card transactions
The Federal Reserve Board (FED) has finalized updates to rule concerning debit card transactions. The final rule underscores that debit card issuers should enable at least two unaffiliated networks to process debit card transactions and it aims to encourage competition between networks and incentivize them to improve their fraud-prevention capabilities. This final rule will be effective on 1 July 2023.
EBA’s reporting framework
(03/10/2022) EBA – EBA releases the technical package for phase 3 of its 3.2 reporting framework
The European Banking Authority (EBA) has published the technical package for phase 3 of version 3.2 of its reporting framework. The technical package supports the implementation of the updated reporting framework by providing standard specifications and includes the validation rules, the Data Point Model (DPM) and the XBRL taxonomies for version 3.2. In particular, COREP, Asset Encumbrance, G-SII, and Additional liquidity monitoring metrics (ALMM) is delayed to June 2023 with no content modifications. And as a novelty, there are new and amended reporting requirements for investment firms and credit institutions.
(03/10/2022) EBA – EBA assesses the market share of non-EU entities in the EU banking system and the dependency of EU banks on funding in foreign currencies
The European Banking Authority (EBA) has published a Report on the reliance of the EU financial sector on counterparties, operators, and financing originating from outside the Single Market. As of June 2021, 360 banks controlled by non-EU entities were operating in the EU representing 12% of the Union’s total banking assets. At the same time, EU banks had, on average, 19% of their total funding denominated in significant foreign currencies. These findings reflect the high degree of openness of the EU economy within the global financial system. While raising funding from non-EU sources brings opportunities, it may create vulnerabilities in some areas. Against this background, matching foreign currency assets with liabilities denominated in the same currency is generally considered prudent risk management.
Macroeconomic outlook reports