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Banking – News – Update March

EBA launces public consultation on draft technical standards on Pillar 3 disclosures of ESG risks

On 1 March 2021, the European Banking Authority (EBA) published a consultation paper on draft implementing technical standards (ITS) on Pillar 3 Environmental, Social and Governance (ESG) risk disclosures. The framework for ESG disclosures outlined in the draft technical standards aims to ensure that stakeholders are informed about ESG exposures and strategies and can make informed decisions. The draft ITS include, amongst others, comparable disclosures that show how climate change may exacerbate other risks and how institutions are mitigating those risks.

The EBA moreover published an advice on KPIs for transparency on institutions’ environmentally sustainable activities, including a green asset ratio (GAR). The GAR would be a key metric to show whether banks and big investment firms are shifting away from financing fossil fuels and toward renewable energy. In case the advice would be adopted, each bank would need to disclose how much of its total loans and equity holdings is “green”, based on the EU taxonomy.

Please contact Pieter Klaassen  for more information.

Announcement on the end of LIBOR

On 5 March 2021, the Financial Conduct Authority (FCA) has announced the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. This takes place in two stages:

• Immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings
• Immediately after 30 June 2023, in the case of the remaining US dollar settings

The FCA does not expect that any LIBOR settings will become unrepresentative before the relevant dates set out above, but most of the LIBOR settings will cease immediately after these dates. As ISDA has confirmed separately, the ‘spread adjustments’ to be used in its IBOR fallbacks have also been fixed as a result of the FCA’s announcement, providing clarity on the future terms of the many derivative contracts which now incorporate these fallbacks.

Please contact Niels Felix for more information.

Fintech regulation: how to achieve a level playing field (BIS)

There is an ongoing discussion on how regulation should evolve to encourage a fair competition between traditional banks and new fintechs and big techs. Some suggest moving from an entity-based to an activity-based regulatory approach under the principle “same activity, same regulation”. According to this paper, which discusses how level playing field considerations should affect the definition of the regulatory framework following the emerge of fintechs and big techs, there is, however, only a limited scope for further harmonising the requirements for different players in specific market segments without jeopardising higher-priority policy goals. It is even advocated to rely more – and not less – on entity-based rules. That is, the paper claims that the regulatory framework should incorporate entity-based requirements for big techs in areas such as competition and operational resilience that would address the risks from the different activities they perform. This would mitigate competitive distortions and help regulation to achieve its primary objectives.

Please contact Petra van Meel for more information on this topic.

EBA launches public consultation on draft revised Guidelines on stress tests of DGSs

On 11 March 2021, the European Banking Authority (EBA) launched a public consultation on its revised Guidelines on the stress tests conducted by national Deposit Guarantee Schemes (DGSs) under the Deposit Guarantee Schemes Directive (DGSD). The proposed revision will extend the scope of the DGS stress testing, by requiring more tests that will cover additional aspects of DGS interventions. The proposed framework will also achieve greater harmonisation and comparability, to enable the EBA to carry out a robust peer review of national DGS stress tests in 2024/25. The proposed revisions are based on the findings of the first EBA peer review of the DGS stress tests and resilience of national DGSs, which the EBA published in a report in June 2020. In this report, the EBA provided early indications of areas in which the DGS stress testing framework could be improved. The consultation runs until 11 June 2021.

Please contact Sjoerd Blijlevens for more information on this topic.