The European Commission has recently published its updated work program for 2018, outlining the regulatory priorities for the year ahead. The priorities contain a mixture of the new and the old. With the European Parliament elections in 2019, this is the European Commission's last push to complete actions under its `jobs and growth' mandate started in 2014.
The European Commission has recently published its updated work programme for 2018, outlining the regulatory priorities for the year ahead. The priorities contain a mixture of the new and the old. With the European Parliament elections in 2019, this is the European Commission's last push to complete actions under its `jobs and growth' mandate started in 2014.
However, finalising key aspects the regulatory reform agenda continues to be a challenge. The Basel Committee has spent almost a year failing to reach agreement on the ‘output floor’, which is a key element of Basel 4 (or, as the Basel Committee sees it, the finalisation of Basel 3). So after its last meeting the Committee was only able to announce the finalisation of its standards on step-in risk (the final standards are very close to the consultation version on which we commented in April).
Meanwhile, the European Commission has withdrawn its proposal to force large banks to separate their investment banking activities from their commercial and retail banking activities. There was little prospect of the European Parliament reaching an agreed position on this proposal.
The European Banking Authority continues its efforts to ensure governance remains a priority. It has published the final Guidelines on Internal Governance, as well as Guidelines on assessing the suitability of key individuals, in partnership with the European Securities and Markets Authority.
Additional guidance for consultation published by the European Central Bank (ECB) on Non-performing exposures (NPEs) reinforces and supplements the ECB’s March 2017 Guidance by specifying quantitative supervisory expectations – the ECB calls these “prudential provisioning backstops” - concerning the minimum levels of prudential provisions against NPEs. The expectations are based on the length of time an exposure has been classified as non-performing and on any collateral held. Many banks are concerned that the additional guidance may have a significant impact on their provisioning for NPEs.
In other news, the Financial Stability Board's (FSB) stocktake of financial sector cybersecurity regulations, guidance and supervisory practices across all 25 FSB member jurisdictions and nine international organisations appears to have two key takeaways: (i) the range of regulatory and supervisory practices across FSB member jurisdictions are broadly consistent but by no means harmonised; and (ii) the pace of new regulation in this area shows no sign of slackening.
We also take a look at the implications of the European Commission’s decision to adopt equivalence in relation to the US with respect to the risk mitigation techniques and margin requirements afforded to un-cleared over-the-counter (OTC) derivative transactions under EMIR.
Recently, the European Commission set out further guidance on the EU’s new markets rules (the revised Markets in Financial Instruments Directive (MiFID II)) – specifically on how EU firms can receive brokerage and research services from non-EU jurisdiction institutions. This guidance along with action from US regulators aims to assuage the growing unease over how cross-border research will operate under the new regime.
Following our earlier publication on Recovery Planning in July we will soon be launching a companion paper on Resolution: the evolving journey in Europe. This focuses in particular on operational continuity, minimum requirements for banks to hold loss absorbing capacity (MREL), and valuation preparedness.