Contents

• Download the full regulatory news bulletin
• CRR: Commission Implementing Regulation containing ITS on reporting requirements for market risk
• Potential EU bank referral scheme for SMEs: European Commission call for evidence
• Basel III monitoring exercise: EBA decision
• SSM: ECB Decision amending Decision on reporting funding plans of credit institutions by NCAs to ECB
• EU CRR: EBA report on implementation of LCR
• COVID-19: ECB speech on NPL management
• Internal model outcomes: EBA 2020 assessment
• EU deposit guarantee schemes: EBA consults on draft revised guidelines on stress tests
• CRR: EBA consults on draft RTS on gross jump-to-default amounts and on residual risk add-on under Fundamental Review of Trading Book
• CRR: EBA discussion paper on feasibility study of integrated reporting system

CRR: Commission Implementing Regulation containing ITS on reporting requirements for market risk

Commission Implementing Regulation (EU) 2021/453 containing implementing technical standards (ITS) on specific reporting requirements for market risk under the Capital Requirements Regulation (CRR) has been published in the Official Journal of the European Union (OJ).

The ITS introduce elements of the Fundamental Review of the Trading Book (FRTB) into the EU prudential framework by means of a reporting requirement and cover:

• reference dates and reporting dates;
• reporting on thresholds set out in Articles 94(1) and 325a(1) of the CRR;
• reporting on the alternative standardised approach under Article 430b(1) of the CRR; and
• data exchange formats and information associated with submissions.

The Implementing Regulation enters into force on 5 April 2021 and applies from 5 October 2021.

Potential EU bank referral scheme for SMEs: European Commission call for evidence

The European Commission has published a call for evidence on the merits and feasibility of setting up a referral scheme to require EU banks (and other providers of funding) to direct small and medium-sized enterprises (SMEs) whose funding application they have turned down to providers of alternative funding. The objective of this scheme would be to facilitate SME's access to a wider set of funding options, including alternatives.

Responses can be submitted until 9 April 2021 and will feed into the feasibility assessment.

Basel III monitoring exercise: EBA decision

The European Banking Authority (EBA) has published a decision about information required for the monitoring of Basel supervisory standards. Among other things, the decision changes the monitoring exercise from being voluntary to mandatory from December 2021. It also provides for a reduced frequency of reporting Basel III data (from semi-annual to annual).

The decision has entered into force.

SSM: ECB Decision amending Decision on reporting funding plans of credit institutions by NCAs to ECB

Decision (EU) 2021/432 of the European Central Bank (ECB), amending Decision (EU) 2017/1198 on the reporting of funding plans of credit institutions by national competent authorities (NCAs) to the ECB, has been  published in the OJ.

Decision (EU) 2017/1198 relates to the single supervisory mechanism (SSM). It requires NCAs to provide the funding plans of certain significant and less significant credit institutions to the ECB and establishes harmonised procedures for submitting the funding plans. To ensure consistent, efficient and effective supervisory practices and to facilitate the reporting of funding plans, Decision (EU) 2017/1198 requires funding plans to be reported in accordance with the harmonised templates and definitions referred to in the funding plan template attached to the EBA's guidelines on harmonised definitions and templates for funding plans of credit institutions. These guidelines were repealed and replaced from 31 December 2020 by the EBA's 2019 guidelines. The ECB is one of the addressees of the 2019 guidelines.

Decision (EU) 2021/432 amends Decision (EU) 2017/1198 to align reporting by NCAs of funding plans of credit institutions with the most recent harmonised definitions and templates in the EBA's 2019 guidelines. It also amends Decision (EU) 2017/1198 to ensure compliance with the EBA's 2020 Decision concerning supervisory reporting by NCAs.

Decision (EU) 2021/432 was made by the ECB on 1 March 2021. It is addressed to member states' NCAs and takes effect on the day of its notification to the addressees.

EU CRR: EBA report on implementation of LCR

The EBA has published its second report on monitoring the implementation of the liquidity coverage ratio (LCR), which was introduced by the Capital Requirements Regulation (CRR), in the EU. The first section of the report focuses on usage of liquidity buffers, guidance on unwinding mechanism waivers, recourse to central bank support, and additional outflows from derivatives, in the context of a crisis (especially in light of the COVID-19 pandemic). The second section discusses some specific practices and approaches (where the EBA is seeing material differences in implementation) and sets out guidance on:

• the treatment of fiduciary deposits;
• LCR optimisation risk;
• interdependent inflows and outflows for LCR purposes; and
• treatment of deposit guarantee scheme deposits.

The EBA will continue regularly monitoring the implementation of the LCR for EU banks and will update its reports on an ongoing basis to set out its observations and provide further guidance, where necessary.

The EBA is currently working on a minimum harmonised methodology for the assessment of a below 3% run-off evidence in the context of Article 24(5) of the LCR Delegated Regulation. Other topics being examined by the EBA are the LCR calculated by significant currency and diversification of liquid assets.

COVID-19: ECB speech on NPL management

The European Central Bank (ECB) has published a speech by Elizabeth McCaul, ECB Supervisory Board Member, on non-performing loan (NPL) management in the context of the COVID-19 pandemic. Points of interest in Ms McCaul's speech include:

• ECB Banking Supervision initiatives, including its guidance to banks on NPLs, have helped reduce the NPL ratio of euro area banks to around 2.8% in Q3 2020, down from around 7% at the end of 2015. This is significant progress and meant that banks entered the pandemic in a relatively strong position. However, NPLs are expected to increase again in the coming months as the impact of COVID-19 on the real economy intensifies. This challenge must be addressed effectively;
• credit risk is a key priority for ECB Banking Supervision. Ensuring that deteriorated exposures are managed properly and in a timely manner will be key to preventing a build-up of NPLs in the short term. In correspondence to banks in July and December 2020, the ECB emphasised the importance of taking a "look through" approach and identifying borrowers' financial difficulties at an early stage; and
• the ECB expects banks to assess loans, including those subject to moratoria measures and public guarantees, and will closely follow their progress in this regard. In the coming months, the ECB will monitor credit risk metrics related to loans subject to outstanding or expired EBA-compliant moratoria to detect potential misclassifications and to assess whether the short-term consequences of the COVID-19 crisis have evolved into longer-term issues.

Internal model outcomes: EBA 2020 assessment

The EBA has published two reports setting out the results of its 2020 annual assessment of the consistency of internal model outcomes. In the reports, the EBA considers the consistency of risk weighted assets (RWA) across all EU institutions authorised to use internal approaches for calculating capital requirements.

The credit risk report and accompanying annex present the key results of the 2020 supervisory benchmarking (SVB) exercise for both high-default portfolios (HDPs) and low-default portfolios (LDPs).

The market risk report presents the results of the 2020 supervisory benchmarking under Article 78 of the Capital Requirements Directive and the related regulatory and implementing technical standards (RTS and ITS) which define the scope, procedures and portfolios for benchmarking internal models for market risk (MR). The report also summarises the conclusions drawn from a hypothetical portfolio exercise (HPE) that was conducted by the EBA during 2019/20. The primary objective of the exercise is to assess the level of variability observed in RWA for MR produced by banks' internal model.

EU deposit guarantee schemes: EBA consults on draft revised guidelines on stress tests

The EBA has published a consultation paper on draft revised guidelines on stress tests conducted by national deposit guarantee schemes (DGSs) under the Deposit Guarantee Schemes Directive (DGSD).

In June 2020, following its first peer review of the stress tests, the EBA identified areas in which the DGS stress testing framework could be improved. The EBA is now proposing to repeal and replace the existing guidelines to further strengthen the framework by achieving greater harmonisation and comparability. The proposed framework will enable the EBA to carry out a more robust peer review of national DGS stress tests in 2024/25.

The consultation closes on 11 June 2021. The EBA will hold a public hearing on its proposals on 26 May 2021. It will then finalise the guidelines.

CRR: EBA consults on draft RTS on gross jump-to-default amounts and on residual risk add-on under Fundamental Review of Trading Book

The EBA has published consultation papers on the following draft regulatory technical standards (RTS):

• consultation paper on draft RTS on gross jump-to-default (JTD) amounts under Article 325w(8) of the CRR. The draft RTS specify the key inputs needed for computing own funds requirements for default risk under the FRTB-SA. Gross JTD amounts determined in accordance with the draft RTS should be consistent with those determined in accordance with international standards, while employing the formulae and requirements set out in the CRR; and
• consultation paper on draft RTS on residual risk add-on (RRAO), which specify what an exotic underlying is and which instruments are instruments bearing residual risks for the purposes of Article 325u(2) under Article 325u(2) of the CRR. They clarify the scope of the RRAO (that is, for which instruments the own funds capital requirements for residual risks should be determined), specifying a non-exhaustive list of instruments bearing residual risks, and a list of risks that, in themselves, do not constitute residual risks. These RTS also clarify that longevity risk, weather, natural disasters and future realised volatility should all be considered as exotic underlyings.

The deadline for comment on the proposals is 12 June 2021. A public hearing on the consultation papers will be held on 29 April 2021. The draft Delegated Regulations each state that they will enter into force twenty days after publication in the OJ.

CRR: EBA discussion paper on feasibility study of integrated reporting system

The EBA has published a discussion paper on a feasibility study of an integrated reporting system under Article 430c of the CRR. Article 430c requires the EBA to prepare a feasibility study for the development of a consistent and integrated system for collecting statistical, resolution and prudential data, and to involve the relevant authorities in the study's preparation. The EBA has also published an accompanying factsheet.

Responses can be submitted to the EBA until 11 June 2021. The feedback received will inform the EBA's final report on, and preparation of, the feasibility study.

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Authored by Yvonne Clapham