The coronavirus (COVID-19) significantly impacts the financial markets. Measures are being taken at a national and European level to ensure their orderly functioning. These measures affect financial institutions and their ongoing regulatory requirements.
In our Financial Law COVID-19 Tracker we are keeping track of these developments impacting financial institutions as they unfold. We are updating this tracker regularly. The developments are organised chronologically, starting with the latest updates.
Please do not hesitate to contact us should you have any questions in respect of any of these developments.
4 December 2020
Council of the European Union approves conclusions on Commission's new action plan on CMU
On 4 December 2020, the Council of the European Union published a press release in which it states that it approved a set of conclusions on the Commission's new action plan on the Capital Markets Union (CMU) (dated 2 December) on 3 December 2020. According to the Council, the conclusions stress that, at this juncture, the highest priority should be given to those actions that are important for improving the funding of the economy and particularly of SMEs and that have the potential to support a swift economic recovery in the context of the COVID-19 pandemic (please see our update of 10 July 2020 below).
3 December 2020
EIOPA publishes update of the symmetric adjustment of the equity capital charge for Solvency II
On 3 December 2020, the European Insurance and Occupational Pensions Authority (EIOPA) published the technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of November 2020. In its press release, EIOPA states that due to the COVID-19 outbreak, it carries out extraordinary calculations to monitor the evolution of the symmetric adjustment to equity risk (EDA) and to support insurance and reinsurance undertakings in the monitoring of their solvency and financial position (please see our update of 27 March 2020 below).
2 December 2020
EBA reactivates Guidelines on legislative and non-legislative moratoria
On 2 December 2020, the European Banking Authority (EBA) published a press release in which it announces its decision to reactivate its Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis (please see our update of 21 September 2020 below). According to the EBA, this decision was made after closely monitoring the developments of the COVID-19 pandemic and, in particular, the impact of the second COVID-19 wave and the related government restrictions taken in many EU countries. The EBA states that this reactivation will ensure that loans, which had previously not benefitted from payment moratoria, can now also benefit from them.
Together with its report, the EBA has published the Guidelines amending Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis, which extended the application of the moratoria from 30 September 2020 to 31 March 2021.
30 November 2020
SRB publishes its 2021-2023 Multi-Annual Programme, including Work Programme 2021
On 30 November 2020, the Single Resolution Board (SRB) published a press release in which it discusses the 2021-2023 Multi-Annual Programme, including its Work Programme 2021. Specifically in connection with COVID-19, it states that:
Work Programme 2021
- Due to the COVID-19 crisis, in some cases internal resolution teams postponed bank-specific priorities of 2020: such deliverables will be reconsidered for the 2021 resolution planning cycle and the SRB may include them in the 2021 priority letters.
- The SRB will enhance its framework for the economic and financial analysis of system-wide events and their potential implications for the banking sector in general and for SRB banks in particular including economic impact of COVID-19.
- In 2021, implications of the COVID-19 crisis will have unfolded. In this sense, international cooperation will remain an ever more essential aspect of the SRB's work towards financial stability and resolvability, particularly for banks with cross-border activities.
- The SRB has adopted actions to support efforts to mitigate the economic impact of the pandemic. Priorities in this area will rely on the evolution of COVID-19.
Multi-Annual Programme 2021-2023
- The increased focus of the ESRB on resolution-related topics as well as its coordination role with respect to financial stability implications (e.g. of COVID-19) will require additional attention by the SRB to the ESRB activities during 2021-2023.
30 November 2020
BCBS endorses coordinated approach to mitigate COVID-19 risks to global banking system
On 30 November 2020, the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision (BCBS), published a press release in which it endorsed a coordinated approach to mitigating COVID-19 risks to the global banking system. According to the press release, GHOS members tasked the Basel Committee with continuing to pursue a coordinated approach in responding to the crisis, which comprises the following elements:
- An ongoing monitoring and assessment of vulnerabilities and risks to the global banking system from COVID-19, and information-sharing of supervisory insights during the crisis.
- Encouraging the use of flexibility embedded in the Basel framework, where relevant.
- Monitoring the implementation of temporary adjustments to mitigate current risks to the banking system, to ensure they are consistent with the objectives of the Basel framework and are unwound in a timely manner.
- Where necessary and prudent, adopting additional global measures in a coordinated manner.
25 November 2020
EIOPA publishes consultation on the Statement on supervisory practices and expectations in case of breach of SCR
On 25 November 2020, the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation on the Statement on supervisory practices and expectations in case of breach of the Solvency Capital Requirement (SCR). According to EIOPA, the statement aims to promote supervisory convergence in the application of the supervisory ladder, in particular addressing the recovery plan required in case of breach of the SCR. EIOPA states that the ongoing uncertainty linked with COVID-19 can potentially lead to breaches of SCR in the future, therefore supervisory convergence in this area is timely, however the Statement is intended to be applicable at any time and is not COVID-19 specific.
25 November 2020
EP adopts text of Directive amending MiFID II Directive
On 25 November 2020, the European Parliament (EP) adopted the text of the amendments on the proposal for a Directive amending the MiFID II Directive (2014/65/EU) as regards information requirements, product governance and position limits to help the recovery from the COVID-19 pandemic (please see our update of 24 July 2020 below).
24 November 2020
DNB updates its supervision priorities
On 24 November 2020, the Dutch Central Bank (DNB) published its updated Supervisory Strategy 2021 – 2024 (in Dutch only), in which DNB specifies its priorities formulated in 2018 in the field of technological innovation, sustainability and financial-economic crime. In its supervisory strategy, specifically in connection with COVID-19, DNB states that:
- Technology and data are playing an increasingly crucial role for financial institutions. The COVID-19 crisis has given this an extra impulse as consumers who were previously reluctant to do business online are now doing so.
- The financial sector has opportunities to finance the transition to a sustainable economy. In the EU, the Green Deal is aimed at a green recovery from the COVID-19 crisis.
- The interest rate has not only never been so low, it can also stay as such for a long time. The negative economic impact of the COVID-19 crisis contributes to this.
- Financial institutions are faced with amended prudential legislation. Due to the COVID-19 crisis, buffer requirements for banks have been temporarily alleviated.
- The protection of data and IT infrastructure against cyber-attacks requires continuous investment in resilience. This trend continues unabated in the COVID-19 crisis.
23 November 2020
AFM publishes report on the effects of the COVID-19 pandemic on listed companies
On 23 November 2020, the Netherlands Authority for the Financial Markets (AFM) published a report in which the AFM assessed the quality of the disclosures provided by listed companies on the effects of the COVID-19 pandemic in their half-yearly financial reporting. In its report, the AFM concludes that not all listed companies are entirely clear regarding the effects of the coronavirus pandemic in their half-yearly financial reporting. The AFM furthermore notes that it urges listed companies to use care in the preparation of their disclosures of the effects of COVID-19 in their 2020 annual reporting and ensure that these are comprehensible. In its report, the AFM cites a number of examples of good practice.
23 November 2020
IOSCO annual meeting addresses impact COVID-19 on securities markets
On 23 November 2020, the International Organization of Securities Commission (IOSCO) published a press release in which it discusses the online annual meeting held to discuss the impact of COVID-19 on capital markets. In its press release, IOSCO states that the IOSCO Board approved two additional priority themes for 2021, namely: (i) financial stability and systemic risks in non-bank financial intermediation (NBFI) and (ii) remote working, misconduct risks, fraud and scams, and operational resilience, in the context of the COVID-19 pandemic. IOSCO furthermore states that the Board agreed to undertake further work on, specifically in connection with COVID-19, the impact of COVID-19 on secondary trading market microstructure mechanism, the operations of trading venues and business continuity planning.
23 November 2020
ESAs publishes final report with draft RTS proposing to amend bilateral margin requirements under EMIR
On 23 November 2020, the European Supervisory Authorities (EBA, ESMA, EIOPA; the ESAs) published a final report with draft regulatory technical standards (RTS) proposing to amend the Commission Delegated Regulation (2016/2251) on the risk mitigation techniques for OTC derivatives not cleared by a central counterparty (CCP) (bilateral margin requirements) under the European Market Infrastructure Regulation (EMIR). This updated version of the final report replaces entirely the version submitted to the Commission in May 2020 (please see our update of 4 May below).
ESMA has also published a final report with new draft RTS proposing to amend the three Commission Delegated Regulations on the clearing obligation under EMIR. ESMA has submitted the draft to the Commission for endorsement.
According to a related public statement, the amendments provided for in these draft RTS amongst others (i) extend the temporary exemption for 18 months for intragroup transactions and (ii) reintroduce a regulatory solution to support the preparations in the context of the withdrawal of the UK from the EU.
23 November 2020
EP publishes overview of measures proposed by FSB, BCBS and IAIS to address COVID-19 related financial consequences
On 23 November 2020, the European Parliament (EP) published an overview of measures taken and guidance given by the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS) to address the COVID-19 pandemic related financial consequences.
20 November 2020
FSB publishes report on reforming major interest rate benchmarks
On 20 November 2020, the Financial Stability Board (FSB) published a progress report on the implementation of reforms to major interest rate benchmarks. According to the FSB, the disruption to global financial markets associated with the COVID-19 pandemic has further highlighted the fundamental weaknesses in LIBOR, and has reinforced the critical importance of the FSB's efforts to reform the production and use of global interest rate benchmarks. In its report, the FSB included a roadmap which sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021 (please see our update of 1 July 2020 below).
18 November 2020
ECON publishes report on proposed Directive amending MiFID II Directive
On 18 November 2020, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published a report as part of the capital markets recovery package (please see our update of 24 July 2020 below). The report concerns the proposal for a Directive amending the MiFID II Directive (2014/65/EU) as regards information requirements, product governance and position limits to help the recovery from the COVID-19 pandemic.
18 November 2020
FSB publishes 2020 Resolution Report: "Be prepared"
On 18 November 2020, the Financial Stability Board (FSB) published a report on resolution preparedness. In its report, the FSB updates on progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and highlights the need for resolution preparedness. The FSB furthermore discusses lessons learnt from the COVID-19 pandemic. According to the FSB, the COVID-19 pandemic confirmed the importance of ongoing work on resolvability, including for central counterparties (CCPs).
17 November 2020
FSB publishes report on COVID-19 pandemic: financial stability impact and policy responses
On 17 November 2020, the Financial Stability Board (FSB) published a report at the request of the G20 in which the FSB provides an update on financial stability developments and risks relating to COVID-19, the international policy responses, the effectiveness of policies and the challenges that lie ahead and the way forward for the FSB. The FSB will, amongst other things:
- Continue to assess and share, on a timely basis, information on financial stability risks from COVID-19, including banks’ ability to provide financing to the real economy, functioning short-term funding markets, and the availability of dollar funding globally.
- Initiate and coordinate the international regulatory response to strengthen the resilience of the non-bank financial intermediation (NBFI) sector while preserving its benefits.
- Continue to facilitate sharing of information on jurisdictions’ policy responses and on their use of tools to design, calibrate and assess policies.
- Continue to support crisis management preparedness, including by enhancing cooperation and coordination through crisis management groups and colleges.
- Discuss the factors to be considered in preparation for an orderly unwinding of support measures, once appropriate, and avoid unintended effects across sectors and jurisdictions.
The FSB furthermore published a letter on 17 November 2020 (dated 15 November 2020) from FSB Chair Randal K. Quarles to G20 Finance Ministers and Central Bank Governors. In this letter Mr. Quarles notes that the FSB will continue to act to address vulnerabilities in the financial system exposed by COVID-19 and new and emerging risks. According to Mr. Quarles, the protracted nature of the COVID Event requires continued efforts to support financial resilience and ensure a sustained flow of financing to the real economy.
13 November 2020
EBA publishes methodology for 2021 EU-wide stress test
On 13 November 2020, the European Banking Authority (EBA) published the final methodological note for the 2021 EU-wide stress test, which aims to provide banks with adequate guidance and support for performing the EU-wide stress test. The EBA furthermore published a draft version of the stress test templates and template guidance. According to the EBA, these may be subject to minor technical adjustments before their final publication. According to EBA's accompanying press release, the methodology and templates include some targeted changes compared to the postponed 2020 exercise, such as the treatment of moratoria and public guarantees in relation to the current COVID-19 crisis.
13 November 2020
ESMA publishes report on ESRB recommendation on liquidity risk in investment funds
On 13 November 2020, the European Securities and Markets Authority (ESMA) published a report (dated 12 November 2020) on the recommendation of the European Systemic Risk Board (ESRB) on liquidity risk in investment funds (please see our update of 14 May 2020 below). The report, inter alia, assesses how funds have reacted since the onset of the COVID-19 pandemic. In its report, ESMA concludes with the statement that fund managers authorised under UCITS and AIFM Directives should enhance their preparedness to potential future adverse shock that could lead to deterioration in financial market liquidity and valuation uncertainty. ESMA furthermore identifies five priority areas for action which would enhance the preparedness of these fund categories:
- Ongoing supervision of the alignment of the funds' investment strategy, liquidity profile and redemption policy;
- Ongoing supervision of liquidity risk assessment;
- Fund liquidity profile reporting;
- Increase of the availability and use of Liquidity Management Tools (LMTs); and
- Supervision of valuation processes in a context of valuation uncertainty.
In a related speech, ESMA Chair Steven Maijoor states that ESMA considers that reducing the liquidity and valuation risks at the level of the investment funds sector would reduce the risk and the impact of collective selling by funds on the financial system, and therefore the likelihood of a systemic event.
13 November 2020
FSB publishes annual report on implementation and effects of financial regulatory reforms
On 13 November 2020, the Financial Stability Board (FSB) published its 2020 Annual Report. In its report, the FSB finds that the G20 reforms after the 2008 financial crisis have served the financial system well during the COVID-19 pandemic. It furthermore finds that given the pandemic, there has been limited additional progress implementing the G20 reforms during the last year. The FSB states that the pandemic provides an opportunity to assess the effectiveness of the reforms and underscores the importance of global regulatory cooperation with G20 support.
11 November 2020
IMCO publishes opinion on proposed Regulation amending the Prospectus Regulation
On 11 November 2020, the European Parliament's Committee on the Internal Market and Consumer Protection (IMCO) published an opinion for the Committee on Economic and Monetary Affairs (ECON) as part of the capital markets recovery package (please see our update of 24 July 2020 below). The opinion concerns the proposal for a Regulation amending the Prospectus Regulation (2017/1129) as regards the EU Recovery prospectus and targeted adjustments for financial intermediaries to help the recovery from the COVID-19 pandemic.
10 November 2020
ECON publishes draft reports on proposed Regulations amending the CRR and the Securitisation Regulation; ECB publishes opinion
On 10 November 2020, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published two draft reports as part of the capital markets recovery package (please see our update of 24 July 2020 below). The first draft report concerns the proposal for a Regulation amending the CRR (575/2013) as regards adjustments to the securitisation framework to support the economic recovery in response to the COVID-19 pandemic. The second draft report concerns the proposal for a Regulation amending the Securitisation Regulation (2017/2402) laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation to help the recovery from the COVID-19 pandemic.
The ECB's opinion of 23 September 2020 on those proposals was published in the Official Journal on 9 November 2020.
9 November 2020
FSB publishes discussion paper on regulatory and supervisory issues relating to outsourcing and third-party relationships for consultation
On 9 November 2020, the Financial Stability Board (FSB) published a discussion paper on regulatory and supervisory issues relating to outsourcing and third-party relationships, in which it states that the financial sector's recent response to COVID-19 highlights the benefits as well as the challenges of managing the risks of financial institutions' interactions with third parties. According to the FSB, the pandemic may have also accelerated the trend towards greater reliance on certain third-party technologies. The FSB furthermore states that the management of sub-contractors and supply chains is another challenge that was highlighted in the context of financial institutions' response to COVID-19.
3 November 2020
BCBS publishes report to G20 on Basel III implementation
On 3 November 2020, the Basel Committee on Banking Supervision (BCBS) published a report on the implementation of the Basel III regulatory reforms and the Basel framework-related measures taken by BCBS members in response to COVID-19. In its report, specifically in connection with COVID-19, the BCBS states that prior to the impact of COVID-19, large internationally active banks made further progress towards meeting fully phased-in final Basel III capital requirements, and their liquidity ratios remained stable compared with end-2018. The BCBS furthermore states that more recent data, reflecting the impact of COVID-19, suggest that banks’ capital and liquidity ratios have generally remained stable.
The BCBS reiterates its expectation of full, timely and consistent implementation of all Basel III standards based on the revised timeline endorsed by the BCBS's oversight body in March 2020, in view of COVID-19. It will continue to monitor the regulatory and supervisory measures taken by its members in response to COVID-19, including the use of flexibility and consistency of these measures with the Basel framework.
3 November 2020
AFM publishes its Trend Monitor 2021: corona crisis reinforces trends and risks for financial sector
On 3 November 2020, the Netherlands Authority for the Financial Markets (AFM) published its Trend Monitor 2021 (in Dutch only), in which the AFM provides an annual analysis of developments affecting the financial sector and its supervision in the coming years. The AFM notes that the corona crisis seems to reinforce existing trends and risks for the financial sector. According to the AFM, persistently low interest rates, ongoing digitization and increasing attention to sustainability are the most influential trends and risks.
2 November 2020
ECB Member of the Executive Board and ECB Vice-Chair of the Supervisory Board Yves Mersch speech on 'Legal aspects of the ECB's response to the coronavirus (COVID-19) pandemic – an exclusive but narrow competence'
On 2 November 2020, ECB Member of the Executive Board and ECBr Vice-Chair of the Supervisory Board Yves Mersch held a speech titled 'Legal aspects of the ECB's response to the coronavirus (COVID-19) pandemic – an exclusive but narrow competence' at the ESCB Legal Conference.
Mr Mersch, among various other things, notes that the measures in relation to dividends and the leverage ratio, as well as the other measures providing temporary capital, liquidity and operational relief to banks, are exceptional measures which are justified as long as the impact of the COVID-19 crisis continues to be felt.
30 October 2020
EC publishes letter to the ESAs on draft RTS under Sustainable Finance Disclosure Regulation
On 30 October 2020, the European Commission (EC) published a letter (dated 20 October 2020) to the European Supervisory Authorities (EBA, ESMA, EIOPA – ESAs), in which it states that in the view of the implications of the COVID-19 crisis, the regulatory technical standards (RTS) under the Sustainable Finance Disclosure Regulation will enter into force on a later date. The Sustainable Finance Disclosure Regulation itself will nonetheless apply as of 10 March 2021.
29 October 2020
ECB Member of the Supervisory Board Kerstin af Jochnick speech on 'Supervision in times of uncertainty'
On 29 October 2020, ECB Member of the Supervisory Board Kerstin af Jochnick held a speech titled 'Supervision in times of uncertainty' at the European Confederation of Institutes of Internal Auditing (ECIIA) Banking Forum. Ms af Jochnick, amongst other things, notes that by engaging with potentially distressed borrowers in a timely manner, distinguishing viable distressed borrowers from non-viable ones and adopting prudent provisioning practices, banks could help minimise potential cliff effects when moratoria are lifted. According to Ms af Jochnick, this would also provide greater clarity on banks' balance sheets. As regards the recommendation to suspend dividend payments, Ms af Jochnick notes that having these elements in place would help the ECB in their review of this recommendation, which the ECB will complete in December (see our update of 28 July 2020 below).
28 October 2020
ESMA issues public statement on European Common Enforcement Priorities to enhance transparency on COVID-19 impact
On 28 October 2020, the European Securities and Markets Authority (ESMA) issued its annual public statement on European Common Enforcement Priorities, which sets out the priorities that EEA corporate reporting enforcers will consider when examining listed companies' 2020 annual financial reports. According to ESMA, the enforcement priorities for financial statements prepared in accordance with IFRS, reflect the need to provide adequate transparency regarding the consequences of the COVID-19 pandemic, which are expected to affect several areas of the 2020 annual financial reports (see our update of 20 May 2020 below).
The Netherlands Authority for the Financial Markets (AFM) stated in a press release that ESMA cooperated with national regulators, including the AFM, in composing these priorities.
27 October 2020
DNB postpones or cancels a number of investigations with insurers in connection with COVID-19
On 27 October 2020, the Dutch Central Bank (DNB) published a new version of the calendar (published in December 2019), which provides an overview of (sector-wide) inquiries from DNB with insurers in the context of supervision, financial stability and resolution. DNB states that it has postponed or cancelled a number of investigations in connection with the situation surrounding COVID-19. This also applies for the European Insurance and Occupational Pensions Authority (EIOPA) and the International Association of Insurance Supervisors (IAIS).
27 October 2020
Minister of Finance provides overview of measures for the financial resilience of Dutch households
In a letter (in Dutch only) to the Lower House published on 27 October 2020, the Dutch Minister of Finance provided an overview of measures for the financial resilience of Dutch households, as COVID-19 and the (expected) economic effects create financial uncertainty for these households. With regard to adequate consumer protection, there are three topics on which the Dutch Minister of Finance provides an overview of concrete measures that have already been taken, including additional actions that still need to be taken. These measures relate to, among other things (i) responsible lending (see our update of 10 August 2020 below) and (ii) the improvement of information provision to financial service providers.
23 October 2020
EC adopts Delegated Regulation further postponing entry into force date of Delegated Regulation under CSDR containing RTS on settlement discipline
On 23 October 2020, the European Commission (EC) adopted a Delegated Regulation, which amends Delegated Regulation (EU) 2018/1229 supplementing the Central Securities Depositories Regulation (CSDR) with regard to regulatory technical standards (RTS) on settlement discipline (please see our updates of 28 August 2020 below). It postpones the entry into force of these RTS until 1 February 2022.
21 October 2020
Council of the European Union publishes a note relating to the proposed Directive amending MiFID II Directive
On 21 October 2020, the Council of the European Union published an "I" item note (dated 16 October 2020) relating to the proposed Directive amending the MiFID II Directive (2014/65/EU) as regards information requirements, product governance and position limits to help the recovery from the COVID-19 pandemic.
The note encloses the Presidency compromise text of the proposed Directive. The European Commission adopted the proposed Directive in July 2020 (see our update of 24 July 2020 below).
19 October 2020
ESRB publishes response letter to a consultation of the EC on the review of Solvency II
On 19 October 2020, the European Systemic Risk Board (ESRB) published its response to the consultation of the European Commission on the review of Solvency II. In its response, specifically in connection with COVID-19, the ESRB points to the consequences of the COVID-19 pandemic as aspects that should be analysed and taken into account in the review of Solvency II. According to the ESRB, these consequences shed a new light on the strength and weaknesses of the insurance sector.
19 October 2020
FSB publishes toolkit of effective practices for financial institutions' cyber incident response and recovery
On 19 October 2020, the Financial Stability Board (FSB) published a final report on effective practices for cyber incident response and recovery. In its report, the FSB states that the COVID-19 pandemic highlighted the need for many organisations and authorities to consider adjustments to cyber risk management processes, cyber incident reporting, cyber incident response and recovery activities, as well as management of critical third-party service providers and relevant stakeholders.
19 October 2020
European Commission publishes Commission Work Programme 2021
On 19 October 2020, the European Commission (EC) published its Work Programme for 2021 (with annexes), which describes the activities of the EC for the coming year. In its Work Programme, the EC states that as the pandemic and containment measures linger, it is essential for Europe to ensure that a health and economic crisis does not develop into a social crisis. According to the EC, it needs to make progress on the Capital Markets Union and the Banking Union. As part of its plan, the EC will (i) revise the framework for handling EU bank failures, (ii) take measures to boost cross-border investment in the EU and (iii) step up the fight against money laundering.
14 October 2020
AFM publishes points of attention for decision moments in the event of payment problems under consumer loans
On 14 October 2020, the Netherlands Authority for the Financial Markets (AFM) published a number of points of attention for decision moments in the event of payment problems under consumer loans (in Dutch only). It aims to provide lenders with guidance for the moment that customers report payment problems or when a previously granted payment moratorium expires. The AFM expects lenders to at least seize these decision moments to work with the customer to see how payment problems can be addressed. The AFM finds it essential that the lenders have a clear policy that puts the customers' interests first and is executable on a large scale.
14 October 2020
FSB report on market fragmentation and updates on ongoing work
On 14 October 2020, the Financial Stability Board (FSB) published a report in which the FSB provides an update on ongoing work to address market fragmentation in the area of, among other things, regulatory and supervisory coordination and information sharing. The FSB has focused on policy measures taken in response to COVID-19, which has helped its member jurisdictions to respond quickly and consistently to the effects of COVID-19, while minimising the risk of market fragmentation. In terms of maintaining financial stability and minimising the risk of market fragmentation, the FSB has previously agreed on a set of principles underpinning the policy measures taken in response to COVID-19 (see our update of 15 April 2020 below)
13 October 2020
DNB publishes a press release on the DNB Financial Stability Report
On 13 October 2020, the Dutch Central Bank (DNB) published a press release in which it discusses the DNB Financial Stability Report, which was published on the same day. According to DNB, the Dutch financial sector has so far proved resilient to the impact of the COVID-19 crisis. DNB furthermore highlights the following in its press release:
- Banks are now better capitalised than before the credit crisis and can therefore absorb the impact of the crisis without having to stop the supply of lending to households and businesses;
- Due to the second wave of infections, uncertainty is increasing again. Banks are anticipating loan defaults by firms in hard-hit sectors and have raised their provisions for NPLs accordingly;
- Measures introduced by governments, central banks and supervisory authorities remain important to prevent the economic crisis from spreading to the financial sector;
- DNB will continue to give banks additional leeway in order to maintain lending levels and absorb any losses (see our update of 23 March 2020 below); and
- Interest rates remain historically low, putting increasing pressure on the business models of banks, insurers and pension funds
2 October 2020
ESMA publishes its 2021 Work Programme
On 2 October 2020, the European Securities and Markets Authority (ESMA) published its Work Programme for 2021 which, according to ESMA, has been highly impacted by the COVID-19 pandemic. In its work programme, ESMA sets out its priorities and areas of focus for the next 12 months in support of its mission to enhance investor protection and promote stable and orderly financial markets. According to its work programme, ESMA will, specifically in connection with COVID-19, among other things:
- continue to foster convergence in the areas of liquidity risks in funds and the use of liquidity management tools by funds, following the work done in this area in 2020 in the context of COVID-19;
- continue to monitor the impact on markets of the (post) COVID-19 pandemic;
- continue to engage with CRAs to monitor the impact of COVID-19 on their operations, focussing on business continuity and adherence to key requirements of the CRA Regulation; and
- focus on ensuring uninterrupted and stable trade reporting service under EMIR/SFTR in the context of COVID-19 and Brexit.
30 September 2020
EIOPA sets out its key priorities for 2021-2023 in light of the pandemic
On 30 September 2020, the European Insurance and Occupational Pensions Authority (EIOPA) published its Single Programming Document (dated 29 September 2020), which sets out its priorities for 2021-2023. It takes into account the current market situation in the light of the COVID-19 pandemic and the political priorities defined by the European Commission. According to its accompanying press release, the main priority for the future will be COVID-19 crisis management, risk mitigation and active support to the recovery of the European economy.
30 September 2020
EBA publishes work programme for 2021
On 30 September 2020, the European Banking Authority (EBA) published its Work Programme for 2021, which describes the activities and tasks of the EBA for the coming year and highlights its key strategic areas of work. According to the Work Programme, the EBA identified a new horizontal priority to address the aftermath of COVID-19. Specifically in connection with COVID-19, it furthermore states that:
- the EBA will be active in monitoring and mitigating the effects of COVID-19 on EU banks, promoting coordinated actions of competent authorities;
- the EBA will intensify the assessment of asset quality as well as monitoring the use of moratoria and public guarantees, in order to ensure that risk metrics remain reliable and that banks can support the recovery and cope with potentially increasing losses; and
- depending on the evolution of the pandemic and economic conditions, it will also be paramount that banks are given clarity on the timing of lifting divided restrictions and re-building capital buffer
25 September 2020
BCBS published a press release regarding the risks to the global banking system and related vulnerabilities in the light of COVID-19
On 25 September 2020, the Basel Committee on Banking Supervision (BCBS) published a press release following its meetings on 14, 18 and 25 September 2020, regarding the risks to the global banking system and related vulnerabilities in the light of the COVID-19 pandemic. A few highlights of the discussed policy and supervisory initiatives are as follows:
- The BCBS reiterates its previous guidance that banks should make use of the Basel III capital and liquidity buffers during the COVID-19 crisis to absorb financial shocks and to support the real economy by lending to creditworthy households and businesses;
- Supervisors will allow banks sufficient time to restore buffers, taking account of economic and market conditions as well as the circumstances of individual banks;
- The BCBS approved an updated workplan to evaluate its post-crisis reforms, which will incorporate lessons learned from the COVID-19 crisis.
22 September 2020
ECON publishes draft report on proposed Directive amending MiFID II Directive
On 22 September 2020, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published a draft report on the proposal for a Directive amending the MiFID II Directive (2014/65/EU) as regards information requirements, product governance and position limits to help the recovery from the COVID-19 pandemic.
The draft report sets out amendments to the draft legislative proposals, including, amongst others, with respect to the disclosure of costs and charges, best-execution reports, product governance, research and the ancillary activity exemption.
22 September 2020
ESAs issue joint risk assessment report on risks and vulnerabilities in the EU financial system
On 22 September 2020, the European Supervisory Authorities (EBA, ESMA, EIOPA – ESAs) published their first joint risk assessment report (dated 4 September 2020) of the financial sector since the outbreak of the COVID-19 pandemic. The report highlights how the pandemic has led to further amplified profitability concerns across the board and heightened liquidity challenges in segments of the investment fund sector. In their report, the ESAs furthermore highlighted the need to implement the following policy actions: (i) monitor risks and perform stress testing, (ii) foster flexibility where and when needed, (iii) support the real economy, (iv) stay prepared and (v) supervise digital transformation.
21 September 2020
EBA is phasing out the guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of COVID-19
On 21 September 2020, the European Banking Authority ("EBA") published a press release announcing that it is phasing out its guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 pandemic.
The regulatory treatment will continue to apply to all payment holidays granted under eligible payment moratoria prior until 30 September 2020. Banks can continue supporting their customers with extended payment moratoria after 30 September 2020, but such loans should be classified on a case-by-case basis.
17 September 2020 (updated 22 September 2020)
ECB decision on temporary relief in bank's leverage ratio published in OJ. DNB extends relief to Dutch less significant banks
On 17 September 2020, the European Central Bank (ECB) announced that euro area banks under its direct supervision may exclude certain central bank exposures from the leverage ratio. The ECB's move is aimed at easing the implementation of monetary policy.
This decision by ECB Banking Supervision came after the Governing Council of the ECB, as monetary authority of the euro area, confirmed that there are exceptional circumstances due to COVID-19. On 21 September 2020, the decision was published in the Official Journal of the EU (OJ). It will enter into force on 26 September 2020.
The Capital Requirement Regulation (CRR), as amended by the CRR “quick fix”, allows banking supervisors to allow banks to exclude central bank exposures from their leverage ratio (please see also our update of 11 August 2020). On the same date, the Governing Council of the European Central Bank (ECB) decided that it concurs with ECB Banking supervision that there are ‘exceptional circumstances’ allowing the temporary exclusion of certain central bank exposures from the leverage ratio.
Banks may benefit from this measure until 27 June 2021.
Following the ECB's decision, DNB stated in a press release that it will also provide the same temporary relief to the less significant banks that fall under its supervision.
17 September 2020
ESMA renews decision on lower short selling threshold
On 17 September 2020, the European Securities and Markets Authority (ESMA) published a decision renewing its decision dated 30 July 2020 (see our update below) to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital.
In a related press release, ESMA states that it believes that this decision will maintain the ability of national competent authorities (NCAs) to deal with any threats to market integrity, orderly functioning of markets and financial stability at an early stage, allowing them and ESMA to address such threats in case of signs of exacerbated market stress.
The decision shall enter into force on 18 September 2020 and applies for a period of three months (until 18 December 2020).
7 September 2020
FSB extends implementation timelines for minimum haircut standards for non-centrally cleared SFTs
On 7 September 2020, the Financial Stability Board (FSB) published a press release in which the FSB announced that is has extended the implementation timelines for minimum haircut standards for non-centrally cleared securities financing transactions (SFTs).
With this extension, the FSB aims to ease operational burdens on market participants (both banks and non-banks) and authorities in order to focus on addressing the priorities resulting from the impact of COVID-19. According to the FSB, the extension is in line with the re-prioritisation of the FSB's work in light of the pandemic and will give market participants additional time to prepare for the implementation of the framework of numerical haircut floors set out in minimum haircut standards.
The FSB report sets out the policy recommendations in the framework for haircuts on certain non-centrally cleared SFTs, as lastly updated on 7 September 2020. The extension of the implementation timelines apply to recommendations 14 to 18 of the FSB report.
Finally, the FSB notes that it will continue to monitor the implementation of its policy recommendations to (i) address financial stability risks in the SFT markets and to (ii) enhance the resilience of non-bank financial intermediation.
3 September 2020
Temporary Bill COVID-19 introduced
On 3 September 2020, the Temporary Bill COVID-19 (Bill) (Tijdelijke wet COVID-19 Justitie en Veiligheid ) (only in Dutch) was submitted to the Lower House of Parliament. The Bill is set to amend and introduce various measures in light of the COVID-19 pandemic.
The bill amongst others provides for a temporary possibility for courts to upon the request of an entrepreneur faced with a petition for its bankruptcy, to suspend the handling of that petition. An approved suspension would also result in a temporary moratorium of payments vis-à-vis the petitioner for existing debts. This regime, if the bill would be adopted in its current form, is set to expire on 1 December 2020, with the possibility for one or more extensions of two months each.
2 September 2020
The ECB published a blog post highlighting the need of regulatory policies and EU-wide supervision, especially in the light of COVID-19
On 2 September 2020, Luis de Guindos, Vice-president of the ECB, Fabio Panetta and Isabel Schnabel, Members of the Executive Board of the European Central bank (ECB) published a blog post, in which they conclude, amongst others, that despite the fact that the coronavirus (COVID-19) crisis has made the Capital markets Union (CMU) more important than ever progress has unfortunately slowed. In the blogpost, it is also concluded that:
- EU capital markets must be able to rely on common rules and regulatory policies that support a level playing field for all market participants. The single rulebook must be strengthened and applied consistently throughout the EU;
- A reliable, verifiable and transparent EU green bond standard based on the EU Taxonomy would significantly enhance the credibility of this asset class. To serve its purpose and prevent greenwashing, the EU green bond standard must strike a balance between being selective in financing investment projects and avoiding disproportionately strict rules for issuers;
- In the longer term, further harmonization of general legal frameworks would be desirable. Investors must be able to trust the predictability of the legal framework;
- There is a strong case for implementing EU-wide supervision of capital markets. This could include genuine EU-level supervision of systemically important EU central counterparties and greater supervisory convergence for central securities depositories.
2 September 2020
DNB and AFM publish recommendations underlining the importance of prudent lending standards (including in the light of COVID-19)
On 2 September 2020, the Netherlands Authority for the Financial Markets (AFM) and the Dutch Central Bank (DNB) published a response (in Dutch only) to the consultation on the proposed amendment to the temporary rules on mortgage credit 2021 (Wijzigingsvoorstel van de tijdelijke regeling hypothecair krediet 2021).
According to the AFM and DNB, reducing the financial vulnerability of households is an important starting point when setting lending standards for 2021. DNB and AFM state that the corona crisis and the related economic recession, underline the importance of prudent lending standards. In response to the proposed amendment to the temporary rules on mortgage credit 2021, DNB and AFM are making a number of recommendations to the Ministry of Finance and the Ministry of the Interior and Kingdom Relations to achieve more income buffers at household level.
28 August 2020
ESMA proposes to further postpone CSDR settlement discipline until 1 February 2022
On 28 August 2020, the European Securities and Markets Authority (ESMA) announced that it published a final report on draft regulatory technical standards (RTS) that would definitively postpone the date of entry into force of the RTS on settlement discipline regime under the Central Securities Depositories Regulation (CSDR) until 1 February 2022.
This postponement is amongst others due to the impact of the COVID-19 pandemic and is additional to the postponement to 1 February 2021 that entered into force yesterday. See our updates of 24 August and 28 July 2020 below.
The RTS are now subject to endorsement by the EC, after which the RTS will be subject to the non-objection of the European Parliament and of the Council.
27 August 2020
ESMA publishes statement regarding the intention to update risk parameters in guidelines on stress test scenarios under MMF Regulation
On 27 August 2020, ESMA published a statement regarding the intention to update the 2019 Guidelines on stress test scenarios produced under the Money Market Funds Regulation (MMF Regulation).
In its press release, ESMA notes that it has assessed whether the scenarios envisaged in the 2019 Guidelines are still appropriate. It has found that applying the 2019 scenarios in the current market environment generally leads to absolute levels of stress similar to the levels observed in March 2020. For some parameters, however, ESMA has found that the 2019 scenarios have been exceeded by the extreme market movements observed during the COVID-19 crisis. The relevant factors will be updated accordingly.
ESMA expects to publish the 2020 update of the guidelines in Q4 2020. ESMA confirms that the 2019 guidelines will continue to apply pending the application date for the 2020 update.
24 August 2020
Delegated Regulation postponing entry into force of CSDR RTS on Settlement Discipline published in the Official Journal of the EU
On 24 August 2020, Commission Delegated Regulation (EU) 2020/1212, was published in the Official Journal of the EU (OJ). It will come into force on 27 August 2020. This regulation amends Delegated Regulation (EU) 2018/1229 supplementing the Central Securities Depositories Regulation (CSDR) regarding regulatory technical standards (RTS) on settlement discipline. It postpones the entry into force of these RTS until 1 February 2021. Please note that ESMA announced recently (please see our update of 28 July 2020 below) that, amongst others due the impact of the COVID-19 pandemic, it is working on a proposal to further postpone the entry into force of these RTS until 1 February 2022.
14 August 2020
EBA published its revised work programme due to COVID-19
On 14 August 2020, the EBA published a revised work programme for 2020. According to its press release, the EBA work programme has been impacted by the outbreak of COVID-19 and its global spread since February 2020, resulting in contained delays mainly to allow banks to focus on and ensure continuity of their core operations, including support to their customers. The EBA's activities that have been postponed due to the COVID-19 pandemic are highlighted in the work programme, with revised deadlines for completion of the work.
11 August 2020
EBA publishes revised ITS and guidelines on impact of the CRR ‘quick fix’ in response to COVID-19 on supervisory reporting and disclosure
On 11 August 2020, the European Banking Authority (EBA) announced that it published the following documents to provide clarifications on the application of certain adjustments (“quick fix”) on disclosures and supervisory reporting of institutions introduced in the Capital Requirements Regulation (CRR) in response to the COVID-19 pandemic (see also our below updates of 28 April 2020, 19 June 2020 and 26 June 2020):
- Revised ITS on supervisory reporting (dated 10 August 2020): this ITS replaces the existing ITS, which was published on 24 June 2020, and reflects changes made by the CRR Amending Regulation (see our below update of 24 June 2020). This ITS will apply from 28 June 2021, except for certain requirements relating to the leverage ratio buffer.
- Guidelines on uniform disclosures (dated 10 August 2020): these guidelines clarify whether institutions are going to apply or not the temporary treatment included in the new Article 468 CRR for unrealised gains and losses measured at fair value through other comprehensive income and adjustments to the provisions on the IFRS 9 transitional arrangements in accordance with Article 473a of the CRR. These guidelines apply from 10 August 2020 until the end of the transitional periods for Article 468 CRR (31 December 2020) and Article 473a CRR (31 December 2024).
- Guidelines on supervisory reporting and disclosure requirements (dated 11 August 2020): these guidelines clarify how to report the CRR ‘quick fix’ amendments that have an impact on templates related to the leverage ratio, own funds and credit risk. These guidelines apply from 11 August 2020 until 27 June 2021.
10 August 2020
Minister of Finance decision to a temporary reduction in maximum fee on consumer credit entered into force
On 10 August 2020, a decision of the Minister of Finance amending the Cost of Credits Decree (Besluit kredietvergoeding) entered into force. As a result of these amendments, the maximum fee on consumer credit is temporary reduced to 10% due to the COVID-19 crisis (see our update of 20 July 2020 below).
7 August 2020
EBA updates its report on the implementation of selected COVID-19 policies to include implementation questions and technical clarifications
On 7 August 2020, the European Banking Authority (EBA) announced in a press release that it published an updated version of its report on the implementation of selected COVID-19 policies, which was first published on 7 July 2020 (see our below update of the same date). In section 4 of its report, EBA has now included technical and interpretive questions that were raised by supervisors and credit institutions following the publication of EBA’s guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis on 2 June 2020 (see our below update of the same date). In the same section of the report, EBA has provided for clarifications on the issues raised, such as with respect to:
- forbearance measures;
- newly originated loans and advances subject to public guarantee schemes;
- breakdown of measures taken by nomenclature of economic activities codes;
- interest income and fee and commission income from loans and advances, and
- prudential information on loans and advances subject to public guarantee schemes.
It is EBA’s expectation that it will keep updating the report to reflect further issues that have arisen and may continue to arise in the context of its monitoring of the implementation of COVID-19 policies.
30 July 2020
ESMA decision renewing decision to lower short selling threshold published in OJ EU
On 30 July 2020, the decision renewing its decision of ESMA dated 10 June 2020 (see our update below) to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority if the position reaches, exceeds or falls below 0.1% of the issued share capital was published in the Official Journal of the European Union (OJ EU).
The decision entered into force on 17 June 2020 and applies for a period of three months (until 17 September 2020).
28 July 2020
ESMA prepares new RTS to further postpone CSDR settlement discipline
On 28 July 2020, the European Securities and Markets Authority (ESMA) announced that – at request from the European Commission (EC) – it is working on a proposal to possibly delay the entry into force of the settlement discipline regime under the Central Securities Depositories Regulation (CSDR) until 1 February 2022. This measure is additional to the delay foreseen in the ESMA Final Report on postponing the date of entry into force of the regulatory technical standard (RTS) on settlement discipline until 1 February 2021 and is requested by the EC because the COVID-19 pandemic has seriously impacted the overall implementation of regulatory projects and IT deliveries by Central Securities Depositories.
The RTS on settlement discipline covers measures to prevent and address settlement fails including (i) rules for the trade allocation and confirmation process, (ii) cash penalties on failed transactions, (iii) mandatory buy-ins and (iv) monitoring and reporting settlement fails.
ESMA aims to publish the final report on further postponing the date of entry into force of the RTS by September 2020.
28 July 2020
ECB publishes results of its COVID-19 vulnerability analysis of banks
On 28 July 2020, the European Central Bank (ECB) published a press release in which it announces the publication of an overview of the aggregate results of its COVID-19 vulnerability analysis of banks directly supervised within the Single Supervisory Mechanism (SSM).
The objectives of the analysis were (i) to assess the impact of the COVID-19 pandemic on the financial and prudential position of banks in the Euro area and (ii) to identify potential vulnerabilities at an early stage.
In the overview, the ECB concludes that:
• Overall, the results show that the banking sector is well positioned to take on the pandemic-induced stress impact, but capital depletion in the severe scenario could be material.
• The results of the vulnerability analysis provide valuable insights into banks’ risks under adverse economic conditions and will be an input into the SREP.
The ECB also notes that there will be no automatic supervisory actions solely based on the results of the analysis.
28 July 2020
ECB extends recommendation banks not to pay dividends until January 2021; DNB endorses
On 28 July 2020, the European Central Bank (ECB) extended its recommendation on dividend distributions to preserve banks' capacity to absorb losses and support the economy in the current environment of exceptional uncertainty (see our update of 27 March 2020 below). The ECB recommends that banks should refrain from paying dividends and performing share buy-backs aimed at remunerating shareholders during the period of the COVID-19-related economic shock. Furthermore, the ECB recommends banks to be extremely moderate with regard to variable remuneration. The Recommendation concerns the financial years 2019 and 2020 and applies until January 2021. The ECB states that, amongst other things:
- It will review whether its stance remains necessary in the fourth quarter of 2020.
- It will continue to assess banks' remuneration policies as part of its Supervisory Review and Evaluation Process (SREP).
- It continues to encourage banks to use their capital and liquidity buffers for lending purposes and loss absorption.
- It commits to allow banks to operate below the P2G and the combined buffer requirement until at least end-2022, and below the liquidity coverage ratio (LCR) until at least end-2021, without triggering supervisory actions.
- It does not plan to extend the six month operational relief measures it granted to banks in March 2020, with the exception of non-performing loans (NPL) reduction plans for high-NPL banks. High-NPL banks will receive an additional six months to submit their NPL reduction plans to provide banks with additional time to better estimate the impact of the COVID-19 pandemic on asset quality.
The ECB also issued two letters on 28 July 2020 from Chair of the Supervisory Board Andrea Enria to the CEO of the significant institution. In his first letter, Mr. Enria asks banks to be extremely moderate with regard to variable remuneration, for example by reducing the overall amount of variable pay. In his second letter, Mr. Enria communicates its expectations that banks have in place effective management practices and sufficient operational capacity to deal with the expected increase in distressed exposures.
The same day, the Dutch Central Bank (DNB) announced that it endorses the ECB's recommendation and ECB's expectations regarding buffers and deems it applicable also to less significant institutions that are under its supervision (in Dutch only).
27 July 2020
EIOPA publishes statement on Solvency II supervisory reporting
Following its recommendations on annual and quarterly reporting and publication deadlines published on 20 March 2020 (see our below update of that date), the European Insurance and Occupational Pension Authority (EIOPA) published a statement on 27 July 2020 in which it considers that insurance and reinsurance undertakings should now be in condition to comply with the deadlines provided in the Solvency II framework. In its statement, EIOPA highlights the following:
- At the end of each quarter reference date, insurance and reinsurance undertakings are expected to report a calculation of the Solvency Capital Requirement or at least an estimation thereof, using the Solvency II solo quarterly own funds template with a reference date between 30 June and 31 December 2020.
- Competent authorities are expected to submit the information received quarterly to EIOPA no later than 2 weeks upon receipt.
24 July 2020
IAIS seeks feedback on the implications of COVID-19 on insurance sector
On 24 July 2020, the International Association of Insurance Supervisors (IAIS) has launched a consultation on the implications of COVID-19 on the insurance sector, supervisors and the future work of the IAIS. The issues IAIS is seeking feedback on from stakeholders by the 28th of August are, amongst others:
- the implications of COVID-19 on the financial system and the insurance sector (short, medium and long term);
- key trends, risks an opportunities for the insurance sector arising from the coronavirus pandemic; and
- main areas of focus for the insurance sector in the near future.
24 July 2020
EC adopts Capital Markets Recovery Package as part of its overall coronavirus recovery strategy
On 24 July 2020, the European Commission (EC) adopted a Capital Markets Recovery Package aimed at making it easier for capital markets to support European businesses to recover from the COVID-19 crisis. The package includes amendments to the (i) Prospectus Regulation, (ii) MiFID II and (iii) securitisation rules.
- Amendments to the prospectus regime: the EC proposes the creation of an "EU Recovery Prospectus" for companies with a track record in the public market. The aim of this shorter prospectus is to facilitate the recapitalisation and reduce the debt-to-equity ratios of companies affected by the economic shock of COVID-19. The EC expects the temporary prospectus to be (i) easy to produce for companies, (ii) easy to read for investors and (iii) easy to scrutinise for national competent authorities. Other amendments to the Prospectus Regulation aim at facilitating fundraising by banks that play an essential role in financing the recovery of the real economy.
- Amendments to the MiFID II requirements for European firms: the EC proposes targeted amendments to MiFID II requirements with the aim to reduce the administrative burden of experienced investors in their business-to-business relationships. The EC furthermore proposes to recalibrate requirements to ensure a high level of transparency towards clients, ensuring the highest standards of protection and acceptable compliance costs for European firms. The EC also proposes to amend MiFID II rules affecting energy derivatives markets. The EC has opened a public consultation on amendments to the MiFID II delegated Directive on the regime for research on small and mid-cap issuers and on fixed-income instruments.
- Amendments to securitisation rules: the EC proposes amendments to the Securitisation Regulation and the Capital Requirements Regulation. With these amendments, the EC is aiming for the facilitation of the use of securitisation in Europe's recovery by (i) enabling banks to expand their lending and (ii) to free their balance sheets of non-performing exposures.
The legislative proposal will now be discussed by the European Parliament and the Council of the EU. After the package is adopted and has entered into force, the changes to the Prospectus Regulation and the Securitisation Framework will apply directly in the Member States. The amendments to MiFID II will need to be transposed into national laws before they are applicable.
23 July 2020
EBA guidelines on pragmatic 2020 SREP in the light of COVID-19
On 23 July 2020, the EBA published a final report (EBA/GL/2020/10), which provides guidelines for authorities on the special procedure for the 2020 supervisory review and evaluation process (SREP).
According to the EBA, the risk‐driven approach put forward by these guidelines builds on the existing requirements of the Capital Requirements Directive and the SREP and adapts them to the exceptional circumstances of COVID‐19.
The EBA states that competent authorities may continue to apply the SREP guidelines. However, they also have the option of applying the alternative specific process for 2020, in response to COVID-19.
21 July 2020
Publication of EBA regarding an overview of public guarantee schemes in the light of COVID-19
On 21 July 2020, The European Banking Authority (EBA) published a list of the public guarantee schemes issued in response to COVID-19. EBA states that the main goal of this publication is providing transparency to the public on the existence of public guarantees and responding to the European Commission’s request for a stock-take of such guarantees.
EBA states that this list is part of the EBA’s wider effort to monitor the implementation of COVID-19 policies.
21 July 2020
EIOPA Supervisory Statement on Solvency II recognition of schemes based on reinsurance
On 21 July 2020, the European Insurance and Occupational Pensions Authority (EIOPA) published a press release announcing that it has published a Supervisory Statement on the Solvency II recognition of schemes based on reinsurance with regard to COVID-19 and credit insurance.
With the Statement, EIOPA provides its view on the treatment for Solvency II purposes of schemes based on reinsurance implemented by Member States within the European Commission’s Temporary Framework for state aid measures.
According to EIOPA, the relevant national schemes have significant differences. To ensure a level playing field and consistent treatment of schemes with the same economic consequences as reinsurance, EIOPA outlines the following supervisory recommendations for national competent authorities (NCAs):
- EIOPA recommends NCAs to allow insurers and reinsurers to consider schemes that transfer insurance risk to a Member State's government based on the Temporary Framework as having the same consequences as reinsurance as defined in Solvency II.
- EIOPA recommends NCAs to allow insurers and reinsurers to consider that schemes based in reinsurance implemented through the government of a Member State comply with the relevant requirements regarding the counterparty.
- NCAs should allow insurers and reinsurers to assume that the schemes will be extended in 2021 only where such extension has already been approved.
- Insurers and reinsurers should clearly indicate the assumptions used in the calculation of the Solvency Capital Requirement in their Solvency and Financial Condition Report.
For a more detailed description of the Temporary Framework, we refer to the update dated 19 March and 3 April on our 'State aid: How can governments help?' page.
21 July 2020
Statement of ESMA regarding the coordination on accounting for COVID-19-related rent concessions; AFM implements ESMA’s recommendation
The European Securities and Markets Authority (ESMA), published a Public Statement recommending coordination of supervisory action regarding issuers’ accounting for COVID-19-related rent concessions.
Due to COVID-19, ESMA acknowledges that, issuers encounter difficulties in accounting for the large volumes of lease modifications, which have been granted in many jurisdictions. Therefore, the International Accounting Standards Board (IASB) issued an amendment to IFRS 16 providing a practical relief for lessees.
ESMA recommends that National Competent Authorities should not prioritize supervisory actions on the application of the lease modification requirements contained in IFRS 16 as currently endorsed by the EU to COVID-19-related lease modifications falling within the scope of the IFRS 16 amendment.
On 22 July 2020, the AFM announced (in Dutch only) that it will implement ESMA’s recommendation.
20 July 2020
Minister of Finance decision to a temporary reduction in maximum fee on consumer credit published in Bulletin of Acts and Decrees
On 20 July 2020, a decision of the Minister of Finance amending the Cost of Credits Decree (Besluit kredietvergoeding) was published in the Bulletin of Acts and Decrees (Staatsblad). The amendments provide a temporary reduction in the maximum fee on consumer credit due to the COVID-19 crisis (see our update of 19 May below). The amendments will take effect from 10 August 2020, with the exception of Article II, which shall enter into force on 1 March 2021.
17 July 2020
EIOPA publishes report on impact of ultra-low yields and COVID-19 on insurers
On 17 July 2020, the European Insurance and Occupational Pensions Authority (EIOPA) announced in a press release that it has published a report of the same date on the impact of ultra-low yields on the insurance sector, including the first effects of the COVID-19 crisis.
With regard to the COVID-19 crisis, EIOPA highlights that:
- the outbreak has severely affected the macroeconomic and market conditions worldwide, with the launch of support packages and monetary easing of some central banks and governments taking place to mitigate the negative effects;
- the shock has amplified various risks by pushing risk free rates and high credit quality yields lower while at the same time increasing the uncertainty and risk premia of riskier assets;
- the pandemic and the resulted response measures taken by central banks to alleviate the impact on the economic activity will contribute to the continuation of the low interest rate environment; and
- the shock added additional pressure on solvency ratios of insurers through, amongst other things, increased market volatility and adverse movements in equity prices.
Finally, according to EIOPA, the report confirms EIOPA’s statement regarding prudence on all discretionary dividend distributions and share buy backs (see our below update of 2 April 2020).
15 July 2020
FSB report on financial stability implications and policy measures taken
On 15 July 2020, the Financial Stability Board (FSB) published a report at the request of the G20 in which the FSB provides an update on financial stability developments and risks relating to COVID-19, policy actions taken to date and how they relate to the FSB principles and sets out work to assess their effectiveness and their implementation. The report notes that the FSB will continue to support international cooperation and coordination on the COVID-19 response underpinned by the FSB principles. The FSB will, amongst other things:
- Assess and address financial stability risks from COVID-19, to maximise the benefit of a global policy response.
- Use the flexibility built into existing financial standards to sustain the supply of financing to the real economy, to support market functioning and to accommodate robust business continuity planning.
- Seek opportunities to temporarily reduce operational burdens on firms and authorities, to assist them in focusing on COVID-19 response.
- Act consistently with maintaining common international standards and not roll back regulatory reforms or compromise underlying objectives of existing international standards.
The FSB furthermore published a letter on 14 July 2020 from FSB Chair Randal K. Quarles to G20 Finance Ministers and Central Bank Governors. In this letter Mr. Quarles notes that the FSB is maintaining financial stability during the pandemic. According to Mr. Quarles, the FSB will evaluate financial post-crisis financial reforms, support a smooth transition away from LIBOR and develop a roadmap to improve cross-border payments.
14 July 2020
European Commission published a set of best practices to facilitate the COVID-19 relief measures by financial institutions
On 14 July 2020, the European Commission published a document listing a set of best practices to facilitate COVID-19 relief measures by financial institutions. The European Commission has welcomed the list of ‘best practices', as those were agreed by the financial sector, and consumer and business organisations, following two roundtable meetings facilitated by the Commission.
According to its press release, the best practices cover, amongst others, the following issues:
- Payment moratoria for consumer and business loans;
- Enabling safer cashless payments;
- Ensuring loans aimed at mitigating the impact of coronavirus;
- Legitimating insurance claims are processed and paid out as quickly as possible.
The document includes best practices for bank and non-bank lending to consumers, for bank and non-bank lending to businesses and for insurers.
All participants at the roundtable are encouraged to follow these best practices. The Commission will facilitate a further roundtable in September and will continue the dialogue to support lending during the recovery.
10 July 2020
Remarks of the European Commission on timing of future work on CMU
On 10 July 2020, the European Commission published remarks made by Valdis Dombrovskis, European Commissioner for Financial Stability, Financial Services and Capital Markets Union (CMU), at a press conference. In relation to COVID-19, he noted that:
- the pandemic has injected real urgency into the CMU because the strength of economic recovery will depend on well-functioning capital markets and access to market financing;
- the Commission intends to present its CMU Action Plan in September 2020 in which it considers topics such as access to finance for small and medium-sized enterprises (SMEs), market infrastructure and measures to get savers in Europe to invest more through capital markets;
- the Commission will present a package of targeted amendments or quick fixed to capital markets rules to facilitate economic recovery later in July 2020.
9 July 2020
ECB publishes blog on end-of-year Brexit preparations for banks
On 9 July 2020, the European Central Bank (ECB) published a blog, by ECB Member of the Executive Board and ECB Vice-Chair of the Supervisory Board Yves Mersch, on the preparations of banks for the end of the Brexit transition period. In respect of the COVID-19 pandemic, Mr. Mersch, amongst other things, notes the following:
- The main priority for banks over the past few months has been tackling the consequences of the pandemic. The ECB therefore provided ample support to banks through its monetary policy and supervisory action.
- The measures of the ECB in response to the pandemic focus on maintaining banks' ability to support the economy and do not extend to essential end-of-year Brexit preparations. The impact of not being prepared will be greater in the COVID-19 context, as banks may be weaker and are operating in a more fragile environment.
- The ECB identified three intertwined priority areas, taking into account the operational difficulties created by the pandemic: (i) contingency planning, to ensure banks are prepared for any stresses on funding and trading markets that may accompany stepping into the post-Brexit world, (ii) strengthening risk management and government and governance arrangements to support banks' ability to safely manage their business in and from the continent and (iii) reducing remote booking of EU activities so that banks retain full local oversight of the business they originate and manage.
9 July 2020
EBA publishes statement on resolution planning in the light of COVID-19
On 9 July 2020, the EBA published a statement on resolution planning in the light of the COVID-19 pandemic.
According to its press release, with its statement, the EBA intends to underline the importance of resolution planning in times of uncertainty to ensure that resolution stands as a credible option in times of stress.
Specifically, the EBA states that, Resolution authorities should:
- continue promoting institutions’ efforts to enhance their capabilities and increase their resolvability;
- take into account the impact of COVID-19 on banks and their business models when taking decisions on resolution plans and MREL;
- use and test resolution colleges as the main fora to exchange information and share decisions in these times of stress.
9 July 2020
ESMA clarifies external support under MMF Regulation
On 9 July 2020, the European Securities and Markets Authority (ESMA) announced that it issued a statement of the same date on external support under Article 35 of the Money Market Funds (MMF) Regulation in the context of financial markets authorities recent actions to mitigate the impact of COVID-19 on the EU financial markets.
This statement is intended to:
- coordinate the supervisory approaches of national competent authorities in the light of liquidity challenges for MMFs in the context of the COVID-19 pandemic; and
- clarify the potential interaction between the intermediation of credit institutions and the requirements of Article 35 of the MMF Regulation on external support.
ESMA first highlights that MMFs faced significant liquidity challenges in the second half of March 2020. The market liquidity brought by measures taken by central banks and securities and markets regulators was beneficial for MMFs, including through the intermediation of credit institutions purchasing short-term assets held by MMFs. ESMA confirms that MMFs may enter into transactions with third parties, including affiliated or related parties, but recalls that this is subject to the requirements of the MMF Regulation, including Article 35.
8 July 2020
EIOPA clarifies supervisory expectations on product oversight and governance requirements
On 8 July 2020, the European Insurance and Occupational Pensions Authority (EIOPA) published a press release announcing that it has issued a statement of the same date in which it calls on insurance manufacturers to review their product oversight and governance measures in the light of the potential impact that the COVID-19 pandemic may have on products and their utility for customers.
To ensure the continuing fair treatment of customers, insurance manufacturers are asked by EIOPA to (i) identify their products affected as a result of COVID-19 (taking into account the extent of lockdowns, other ongoing measures in different Member States and their impact on consumer’s habits and behaviours), (ii) assess possible unfair treatment of customers for these products on a medium to longer term basis and (iii) consider proportionate remedial measures in order to mitigate the situation and preventing further occurrences of detriment.
This statement builds on EIOPA’s statement of 1 April 2020 urging insurers and intermediaries to take steps to mitigate the impact of COVID-19 on consumers. See for further details our below update of the same date.
7 July 2020
EBA publishes report providing clarity on the implementation of the prudential framework in the context of COVID-19
On 7 July 2020, the European Banking Authority (EBA) published a report on the implementation of selected COVID-19 policies. This report provides clarifications on the application of the prudential framework that have been raised as a consequence of COVID-19.
According to EBA’s accompanying press release, the report provides clarity on the implementation of the Guidelines on legislative and non-legislative moratoria on loan repayments by addressing a number of interpretative questions and presents an overview of the general payment moratoria in place in the EU. Furthermore, the report includes:
- considerations on the COVID-19 issues, which can arise in applying the operational risk framework;
- common criteria that aim at providing clarity on the supervisory and regulatory expectations regarding the treatment of COVID-19 operational risk losses in the capital requirement calculations;
- encouragement of credit institutions to collect information on data losses, even when these are not expected to be part of the setting of capital requirements.
The EBA expects to update the Report at a later stage.
6 July 2020
DNB resumes assessment dividend proposals of insurers
On 6 July 2020, the Dutch Central Bank (DNB) highlighted in a press release that the recommendation of the ESRB on restraints on dividend payments, share buybacks and other pay-outs (see our below updates dated 8 and 29 June 2020) is being implemented in different ways in Europe and that the direct impact of the coronavirus crisis on insurers in a general sense has so far been limited. Against this background, DNB announced in this press release that it will again assess dividend proposals from insurers as per usual. According to DNB, insurers who, despite the ESRB’s call, are considering distributing dividends or buying back shares will in any case need to make a thorough, forward-looking analysis of the uncertain outlook based on the supervisory framework and their own capital policy.
6 July 2020
DNB calls on investment firms and institutions to carefully consider dividend payments, share buy backs and variable remuneration
On 6 July 2020, the Dutch Central Bank (DNB) published a press release (in Dutch only) announcing that it supports the purpose of the recommendation of the ESRB on restraints on dividend payments, share buybacks and other pay-outs (see our below updates dated 8 and 29 June 2020). DNB invites investment firms and investment institutions when considering such payments, buybacks and variable remuneration to take into account the current crisis, forecasts and potential other scenarios that may affect the conduct of their business, profitability and financial buffers. Such firms and institutions should reconsider the necessity of these distributions, according to DNB, to prevent any recovery actions at a later time. Furthermore, DNB expects investments firms and investment institutions to monitor their own financial buffers closely and to report any developments that could lead to prudential deficits in the short term.
3 July 2020
European Parliament publishes answer to written question on European Commission's 2020 review of Solvency II Directive in light of COVID-19
On 3 July 2020, the European Parliament (EP) published an answer given by Valdis Dombrovskis, Executive Vice-President of the European Commission (EC), to a written question of the EP on the EC's review of the Solvency II Directive.
The EP asked (i) whether the EC intends to take any measures to facilitate cash flow to the insurance sector in order to deal with the COVID-19 emergency and (ii) in the context of the Solvency II review, if the EC intends to find short-term solutions to the functioning of the national component of the volatility adjustment, the reduction of the current risk margin and the treatment of equity and deferred taxes.
In its answer, the Executive Vice-President explains on behalf of the EC that:
- despite the extreme market events linked to the COVID-19 pandemic, the insurance sector has remained overall healthy with solvency positions above the regulatory requirements;
- this is largely due to the robustness and prudence introduced by the Solvency II regime;
- the EC has not identified any urgent issues that would require the adoption of short-term exceptional amendments to the Solvency II framework;
- the EC will keep monitoring the solvency and liquidity of the sector and evaluate the need for possible mitigating actions in case the situation will change in the near future.
3 July 2020
Due to COVID-19 a notice of information on MiFIR open access published in OJ
On 3 July 2020, a notice of information on the delay of open access provisions with regard to exchange-traded derivatives in the Markets in Financial Instruments Regulation (MiFIR) was published in the Official Journal of the EU (OJ) (see also our update of 23 June below).
The notice explains that the extension is required as the current market environment, due to the COVID-19 pandemic, increases operational risks to central clearing counterparties (CCPs) and trading venues. It extends the transitional period during which certain open access requirements do not apply to those CCPs or trading venues that made a request to their competent authorities benefit from this transitional arrangement. The transitional period has now been extended until 3 July 2021, with effect from 4 July 2020.
1 July 2020
FSB statement on global benchmark reform
On 1 July 2020, the Financial Stability Board (FSB) issued a statement on the impact of COVID-19 on the benchmark transition. The FSB notes that the pandemic has disrupted or delayed some firms’ transition plans and emphasizes that removing dependency on LIBOR remains an essential task. It calls on firms to ensure that their transition plans enable them to transition before the end of 2021.
According to the FSB, the pandemic has highlighted that markets underlying LIBOR have become insufficiently active. These underlying markets are furthermore not the main markets relied upon by banks for funding. The FSB also observes that increased use of the most commonly used LIBOR rates in March 2020 led to an increase of the financing costs for borrowers paying LIBOR-based rates.
A report by the FSB on remaining benchmark transition challenges will be issued later this month. Meanwhile, the FSB will continue to monitor developments.
29 June 2020
Meeting between ESMA and SMSG: summary of conclusions in respect of COVID-19
On 29 June 2020, the European Securities and Markets Authority (ESMA) published a summary of a phone conference between the Securities and Markets Stakeholder Group (SMSG) and ESMA on 6 May 2020.
In respect of the COVID-19 crisis, ESMA’s Executive Director Verena Ross, amongst others, discussed the following:
- It would be useful to have a common liquidity management toolkit consistent between Member States. This should be picked up in Level I Legislation, but ESMA will try to achieve progress based on supervisory convergence. Regular stress-testing in the asset management sector is key;
- ESMA has already extended consultation deadlines and will consider doing the same in the future, but this may stretch the timelines set out in Level 1 legislation;
- In respect of MiFID and certain issues raised by the SMSG, ESMA will await correct data picture to learn lessons from the crisis;
- Regarding the CSDR, ESMA referred to the outstanding question on timing of the settlement discipline implementation and whether this requires a legislative change.
29 June 2020
ESRB recommendation on restriction of distributions published in EU Official Journal
On 29 June 2020, the European Systemic Risk Board (ESRB) recommendation to temporarily restrict distributions was published in the Official Journal of the European Union. The recommendation had been issued by the ESRB on 8 June 2020 (see our update on that date below) and calls on competent authorities to urge financial institutions under their supervision to refrain from dividend distributions and share buy-backs until at least 1 January 2021.
26 June 2020
CRR 'Quick fix' published in the Official Journal of the European Union
On 26 June 2020, Regulation (EU) 2020/873 was published in the Official Journal of the European Union, amending the CRR, which includes several adjustments in response to the COVID-19 pandemic.
This 'quick fix' makes changes to ensure that the prudential regulatory framework will interact with several measures that address the COVID-19 pandemic. See, notably, our update dated 24 June below.
The Regulation enters into force on, and applies from, 27 June 2020, except of the amendments to the calculation of the leverage ratio which will apply from 28 June 2021.
25 June 2020
European Commission publishes Delegated Regulation on revisions to RTS on prudent valuation under CRR
On 25 June 2020, the European Commission published a Delegated Regulation, which amends the RTS on prudent valuation under Article 105(14) of the CRR (Delegated Regulation (EU) 2016/101). The European Commission adopted the Delegated Regulation on 28 May 2020 (see our update below).
The Delegated Regulation will enter into force on the day following that of its publication in the Official Journal of the European Union (on 26 June 2020).
24 June 2020
Council adopts text of CRR Amending Regulation to facilitate bank lending
On 24 June 2020, the Council of the European Union published a press release announcing that it has adopted the text (see our update dated 19 June 2020 below) of the Regulation amending the CRR as regards certain adjustments in response to the COVID-19 pandemic. The legislative proposal had been published on 28 April 2020 by the EC and was adopted by the EP on 19 June 2020 (see our updates of the same dates below). In its press release, the Council highlights that the targeted amendments concern:
- changes to the minimum amount of capital that banks are required to hold for non-performing loans under the "prudential backstop".
- the extension by two years of transitional arrangements related to the implementation of the international accounting standard IFRS 9.
- the temporary reintroduction of a prudential filter for sovereign bond exposures.
- additional flexibility for supervisors to mitigate negative effects of the extreme market volatility observed during the COVID-19 pandemic.
- targeted changes to the calculation of the leverage ratio and a delay in the introduction of the leverage ratio buffer by one year to January 2023.
- transitional arrangements for exposures to national governments and central banks denominated in a currency of another member state.
- the earlier introduction of some capital relief measure for banks under CRR II, most notably with respect to preferential treatment of certain loans backed by pensions or salaries and their SMEs and infrastructure loans.
The CRR Amending Regulation will enter into force on the day following its publication in the Official Journal of the European Union and at the latest by the end of June 2020.
24 June 2020
ECB Member of the Executive Board Philip R. Lane speech on 'ECB's monetary policy response to the pandemic: liquidity, stabilisation and supporting the recovery '
On 24 June 2020, ECB Member of the Executive Board Philip R. Lane held a speech titled 'ECB's monetary policy response to the pandemic: liquidity, stabilisation and supporting the recovery' at the Financial Center Breakfast Webinar, organised by Frankfurt Main Finance.
Mr. Lane, amongst other things, noted that:
- As a result of the recalibration of the monetary policy measures announced in September 2019, sizeable monetary accommodation was already in place when Europe was confronted with the COVID-19 shock.
- While euro area financial conditions remain tighter than the levels that prevailed before the pandemic, a measurable loosening in broad financial conditions has been seen since the adoption of the ECB's policy package introduced in response to the COVID-19 crisis.
- The PEPP has played a crucial role in market stabilisation by attenuating the severe financial stress resulting from the COVID-19 crisis and helped to avert a full-blown market panic.
23 June 2020
Due to COVID-19, one year delay for the start of open access requirements for trading venues and CCPs
On 23 June 2020, the European Parliament (Parliament) and the Council published a press release which states that the Parliament and the Council agreed, to amend the Markets in Financial Instruments Regulation (600/2014) (MiFIR).
In light of the developments related to COVID-19, trading venues and CCPs offering trading and clearing of exchange traded derivatives (ETDs) are given one additional year to start applying open access requirements until 4 July 2021 (see also our update below of 11 June 2020).
22 June 2020
ECB speeches on 'Financial stability and the pandemic crisis' and 'The banking union in action'
On 22 June 2020, ECB Vice-President Luis de Guindos and ECB Member of the Supervisory Board Pentti Hakkarainen both held a speech at the Frankfurt Finance Summit.
Mr. Guindos held a speech titled 'Financial stability and the pandemic crisis' and, amongst other things, noted that:
- The monetary policy measures taken by the ECB in March were of critical importance in removing the tail risk of the pandemic and that the risk has receded materially since March 2020.
- The ECB’s Governing Council will constantly evaluate the PEPP as the economic consequences of the pandemic unfold (see our update on 4 June 2020 below).
- Macroprudential policy can play an important role in safeguarding the resilience of the financial system and supporting the recovery. This includes banks using their capital buffers now and avoiding excessive deleveraging that would be harmful for the economy, to help reduce losses later.
- European-wide supervision of capital markets and a macroprudential framework for the sector is needed.
Mr. Hakkarainen held a speech titled 'The banking union in action' and, amongst other things, highlighted the following measures taken by the ECB in response to COVID-19:
- Banks are allowed to temporarily operate below the level of capital defined by the Pillar 2 guidance, the capital conservation buffer and the liquidity coverage ratio.
- The qualitative market risk multiplier is temporarily reduced to stabilise the impact of increased market volatility on capital requirements for market risks.
- Banks are recommended to avoid procyclical assumptions in their provisioning models and apply the IFRS 9 transitional rules in full.
- Supervisory flexibility is introduced with regard to the treatment of NPLs, in particular by allowing banks to fully benefit from guarantees and moratoria put in place by public authorities.
- Banks are recommended to refrain from dividend payments and share buy-backs aimed at maintaining healthy balance sheets.
- Banks are provided with significant operational relief by taking a pragmatic approach to this year's SREP.
19 June 2020
EC answers COVID-19 related questions
On 19 June 2020, the European Commission (EC) answered certain questions raised by a member of the European Parliament on 7 April 2020 about (i) the steps that have been taken to alleviate the extreme costs and disadvantages faced by financial investment institutions due to the COVID-19 crisis (notably, cash balances held for clients have increased, which balances are subject to fees charged by banks) and (ii) the actions that are proposed to manage the liquidity situation in the market and to steer interest rates during these extraordinary times. On behalf of the EC, the Executive Vice-President Dombrovskis answered those questions, by amongst others stating that:
(i) The prudential framework does not set limits on interest rates or fees. Banks determine the conditions applicable on clients’ accounts based on prevailing market conditions.
(ii) Steering interest rates is not a competence of the EC. Interest rates are set by the central banks in the EU. Actions taken by them in response to COVID-19 are expected to contribute to market liquidity.
(iii) To help facilitate bank lending to households and businesses throughout the EU, the EC has adopted an Interpretative Communication as well as a proposal (see also our update of 28 April 2020 below) in order to ensure that banks can continue to lend money to support the economy and help mitigate the significant economic impact of COVID-19.
19 June 2020
EP adopts “quick fix” to CRR to boost bank lending; text of CRR Amending Regulation published
On 19 June 2020, the European Parliament (EP) published a press release in which it announced the adoption by the plenary session of a “quick fix” to the CRR aimed at boosting EU banks’ lending activities. The legislative proposal had been published on 28 April (see the update of that date under ‘Amendments to EU banking rules’) and an ECB opinion thereon followed on 20 May (see the update on that date below). The final text that was adopted by the EP is available here.
The adopted changes include (i) a one year deferral of the application of the leverage ratio buffer, (ii) more favourable borrowing conditions for persons with a permanent contract by allowing for such loans to be backed by the person’s salary/pension, (iii) advanced application of both the SME and infrastructure supporting factors, resulting in more favourable treatment of exposures on SMEs and parties in the infrastructure sector, (iv) the possibility – sooner than planned – for banks to treat some software as their own capital and (v) the effective channeling by banks of the liquidity measures provided by central banks to the economy.
On 22 June 2020, the Council of the European Union published the text of the Regulation amending the CRR as regards certain adjustments in response to the COVID-19 pandemic.
18 June 2020
EBA extends application date of guidelines on moratoria on loan repayments in response to the COVID-19 crisis
On 18 June 2020, the EBA published a press release announcing that it is extending the application date of its guidelines on legislative and non-legislative moratoria on loan repayments by three months to 30 September 2020 (see also our update of 2 April 2020 and 14 May 2020 below)
According to EBA, the extension illustrates the importance of continued support for the measures taken by banks to extend loans in response to the COVID-19 crisis. However, EBA is aware of the fact that persistent liquidity shortages may develop into solvency issues that need to be properly assessed by banks on a case-by-case basis.
Furthermore, the EBA highlights that the implementation timeline envisaged in the EBA’s IRB roadmap to repair internal models remains overall unchanged. The EBA states that, to have more flexibility, supervisors may want to use their supervisory discretion in line with Article 146 of the Capital Requirements Regulation (CRR).
17 June 2020
EBA publishes first peer review of the stress tests and the resilience of DGSs
On 17 June 2020, the European Banking Authority (EBA) published a report on its first peer review of stress tests and the resilience of Deposit Guarantee Scheme (DGSs). EBA conducted a peer review to assess the resilience of DGSs and to identify good practices and areas for improvement.
The report also includes comments in relation to the COVID-19 pandemic. For instance, the report includes an early indication of how to improve the DGS stress testing framework by exploring how to incentivise DGSs to perform ‘special’ tests that allow them to assess scenarios resulting in severe business continuity problems, such as a pandemic, in addition to tests of ‘standard’ scenarios. The report furthermore outlines lessons learnt from a real-life payout case during the COVID-19 pandemic. These lessons include, amongst others:
- that the outbreak affected the operational aspects of the payout, such as the compensation process, but the funding aspects were not affected because the DGS had sufficient ex ante funds; and
- that complicating circumstances, such as the restrictions in connection with COVID-19, can result in a partial standstill of the payout procedure. According to EBA, this is, because the improvement of the data quality, which often requires the involvement of employees of the failing bank, is not possible in the short term. It highlights the importance of robust single customer view (SCV) file testing.
17 June 2020
SRB presentation on milestones and challenges in light of the COVID-19 crisis
On 17 June 2020, a blog post was published on the Single Resolution Board’s (SRB) website discussing measures previously taken by the SRB in respect of the MREL requirements for banks (see also our update of 20 May 2020 below). The post includes a link to a presentation held by the SRB on 15 June 2020 during a banking industry dialogue meeting. The presentation sets out the main milestones and challenges for the Resolution Planning Cycle 2020. According to the SRB, given that the ultimate effect of the COVID-19 outbreak is still uncertain, it will continue to monitor the situation of the banks and will take the necessary measures to support the EU banking sector. At the same time, the SRB invites banks to continue to put all the efforts in order to become fully resolvable.
15 June 2020
ESMA updates its annual work programme in light of COVID-19
On 15 June 2020, the European Securities and Markets Authority (ESMA) published its 2019 Annual Report. To reflect the challenging times for the financial markets due to the COVID-19 outbreak, ESMA also published a revised version of its 2020 annual Work Programme. According to its accompanying press release, the updated programme includes ESMA's immediate reaction to the crisis and indicates potential deprioritization with regard to ongoing and future mandates.
11 June 2020
Statement of ESMA published on MiFIR open access for exchange traded derivatives
On 11 June 2020, the European Securities and Markets Authority (ESMA), issued a public statement to clarify the application of the MiFIR open access provisions (OAP) for exchange traded derivatives in light of the developments related to COVID-19.
The public statement is issued with a view to certain national exemptions from the OAP for exchange traded derivatives expiring on 3 July 2020.
ESMA recalls that access requests may be denied in certain cases, including where access would threaten the smooth and orderly functioning of markets or would adversely affect systemic risk. ESMA states that the uncertainty and volatility driven by the COVID-19 pandemic, may negatively influence the operations of central counterparties (CCPs) and trading venues, and increase their operational risk. With its statement, ESMA informs the market that competent authorities are expected to take into consideration, to the extent relevant, the aforementioned adverse developments when taking decisions on open access requests.
ESMA expects CCPs and trading venues to have the necessary operational capacity to process access requests once the exceptional market circumstances have cleared up.
10 June 2020
ESMA renews decision on lower short selling threshold
On 10 June 2020, ESMA published a decision renewing its decision to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority (NCA) if the position reaches or exceeds 0.1% of the issued share capital.
In a related press release, ESMA states that it considers that its renewed measure will maintain the ability of NCAs to deal with any threats to market integrity, orderly functioning of markets and financial stability at an early stage, allowing them and ESMA to timely address such threats in case of signs of market stress.
The renewal will be for a period of three months. The measure will as a result continue to apply until (at least) 17 September 2020.
10 June 2020
AFM calls for extra attention to diligent customer care in product development and evaluation
On 10 June 2020, the AFM published a press release (in Dutch only) in which it emphasizes the need for diligent treatment of customers against the background of the pandemic. The AFM notes that a mismatch between a consumer’s needs and a financial product can result in a customer suffering financially. Focus should according to the AFM now more than ever be on product development and evaluation as the crisis may have changed the functioning of a financial product from a customer’s perspective. Also, some customers may be in need of certain (amendments to) financial products to mitigate the impact of the crisis. Providers of financial products should employ the product development and evaluation framework set out by the AFM and assess from a client’s perspective a product’s (i) cost efficiency, (ii) use, (iii) security and (iv) understandability.
10 June 2020
ECB publishes its report on banks' credit underwriting standards
On 10 June 2020, the European Central Bank (ECB) published its report on trends and risks in credit underwriting standards of significant institutions in the Single Supervisory Mechanism. With this report, the ECB examined the quality of banks' lending practices in order to mitigate a potential build-up of excessive credit risk. In its accompanying press release, the ECB states that the report highlights a number of vulnerability's in relation to the way banks have granted and priced new loans in recent years. According to the ECB, a crisis such as COVID-19 emphasizes the importance of adequate lending standards and risk-based pricing as losses materialise.
Although the report covers banks’ practices in 2016-2018, the ECB also refers to COVID-19 in respect of certain of its findings:
- Portfolios with above-average maturities accompanied by high percentages of bullet loans with a high likelihood of unexpected losses are particularly prone to challenging macrofinancial conditions, such as the conditions resulting from the COVID-19 crisis.
- The stress on the economy caused by the COVID-19 crisis could increase default rates and push down collateral values.
- The economic shock caused by the COVID-19 crisis, weakens the borrower's ability to repay debt. Overleveraged borrowers could lead to an increase in payment arrears and loan defaults and to declining collateral values. The ability to strengthen capitalisation and absorb potential future non-performing loans therefore becomes relevant.
The ECB furthermore states in its press release that proper credit underwriting is essential to the stability of banks and is a part of its supervisory priorities to strengthen the resilience of banks.
9 June 2020
ESMA extends EMIR REFIT consultation
On 9 June 2020, the European Securities and Markets Authority (ESMA) has decided, in view of the effects of the ongoing COVID-19 pandemic on stakeholders and market participants, to extend the response date for the consultation on the technical standards on reporting, data quality, data access and registration of Trade Repositories under EMIR REFIT from 19 June to 3 July 2020.
9 June 2020
Letter to the EC and ESMA regarding EMIR clearing requirements for intragroup transactions, also in view of the COVID-19 crisis
On 9 June 2020, ISDA and certain other trade associations published a letter which was sent to the European Commission (EC) and ESMA.
The letter notably pertains to the temporary intragroup exemption from the mandatory clearing obligation for OTC derivative contracts. The exemption applies where an EU counterparty and a third-country counterparty to an OTC derivative subject to the clearing obligation meet the conditions for an intragroup transaction and no equivalence decision has been adopted in respect of the relevant third country. The temporary derogation is set to expire at 21 December 2020, with no equivalence decisions having been taken at this time.
In view of, amongst others, the COVID-19 crisis, the trade associations ask that:
- the necessary equivalence decisions should be adopted as a matter of urgency in relation to all jurisdictions that have implemented clearing rules in line with the G20 commitments and;
- the Clearing RTS should be amended to extend the current temporary derogation from clearing requirements for intragroup transactions with non-EU affiliates for a further 3 years for all other jurisdictions.
9 June 2020
EP approves revised rules to encourage banks to lend to the COVID-19 stricken economy
On 9 June 2020, the European Parliament (EP) published a press release announcing that it approved the amendments to the banking package that were proposed by the European Commission (see our update of 28 April below). The amendments intend to temporarily ensure favourable conditions for banks in order to support credit flows and absorb losses, mitigating the severe economic consequences of the COVID-19 pandemic. In its press release, the EP notes that the adopted changes include, amongst others:
- Extension by two years of the transitional arrangements for IFRS 9.
- Alignment of minimum coverage requirements for non-performing loans guaranteed by the public sector with those guaranteed by official export credit agencies.
- Deferred application of the leverage ratio buffer by one year to January 2023.
- Advanced application of the SME and infrastructure supporting factors.
- Liquidity measures provided by central banks in a crisis context will be effectively channelled by banks to the economy.
Furthermore, the EP agreed to introduce a temporary prudential filter to calculate unrealized losses accumulated on public debt since 31 December 2019 and to neutralise their impact.
On 10 June, the Economic and Monetary Affairs Committee (ECON) of the European Parliament published its report on the above amendments.
8 June 2020
ESRB takes second set of actions in response to the COVID-19 pandemic
On 8 June 2020, the European Systemic Risk Board (ESRB) published a press release announcing that its General Board (GB) has agreed on a second set of actions in response to the coronavirus emergency at its extraordinary meeting on 27 May 2020. This second set of actions relate to:
- Implications for the financial system of guarantee schemes and other fiscal measures to protect the real economy: The GB decided to establish an European framework to monitor the financial stability implications of the support measures. Furthermore, the GB adopted a recommendation, dated 27 May 2020, that introduces minimum requirements for national monitoring and establishes a framework for reporting to the ESRB.
- Market illiquidity and implications for asset managers and insurers: The GB notes that the monitoring of liquidity risk in the insurance sector needs to be improved and has, in a letter dated 8 June 2020, strongly encouraged EIOPA to finalise and operationalise the liquidity monitoring framework promptly.
- Impact of large-scale downgrades of corporate bonds on markets and entities across the financial system: The GB highlighted that the ESRB will continue to monitor developments in the corporate bond market, including possible implications of large-scale corporate bond downgrades across the financial system.
- System-wide restraints on dividend payments, share buybacks and other pay-outs: The GB decided to support and complement previous initiatives of the ECB, EBA, EIOPA and national authorities by issuing a recommendation, dated 27 May 2020, on the restriction of distributions during the pandemic. The GB recommends that at least until 1 January 2021 authorities request financial institutions to refrain from, in short, (i) making a dividend distribution or giving an irrevocable commitment to make a dividend distribution, (ii) buying back ordinary shares and (iii) creating an obligation to pay variable remuneration to a material risk taker. The authorities may exempt a financial institution from this restriction if that financial institution is legally obliged to undertake an action under (i), (ii) or (iii).
- Liquidity risks arising from margin calls: The GB issued a recommendation, dated 25 May 2020, together with a background report, in order to (i) limit cliff effects in relation to the demand for collateral, (ii) enhance central counterparty stress test scenario’s, (iii) limit liquidity constraints related to margin collection and (iv) promote international standards related to the mitigation of procyclicality in the provision of client clearing services and in securities financing transactions.
For the first set of actions taken by the ESRB, please refer to our update of 14 May 2020 below
8 June 2020
According to DNB, the COVID-19 crisis could severely hit the Dutch financial sector
On 8 June 2020, the Dutch Central Bank (DNB), published a press release stating that the economic crisis brought about by the COVID-19 pandemic is also affecting the financial sector. DNB highlights that there are however two key differences as compared to the 2008/2009 financial crisis, namely that this time the cause lies outside the financial sector and that the banks currently have significantly higher buffers. DNB stresses this in its semi-annual Financial Stability Report (FSR) (only in Dutch);
DNB furthermore highlights the following in its press release:
- Uncertainty about the economic impact of the pandemic is still exceptionally high. DNB concludes that the longer social distancing measures have to remain in place, the greater the impact will be;
- Financial markets have recovered after the initial sharp market correction, but financing conditions remain less benign than at the start of the year;
- Banks are being hit, but thanks to higher buffers they are better able to maintain their lending to healthy businesses;
- Insurers and pension funds are also being affected by developments in financial markets, particularly as they see the prices of their assets drop. Most notably, the pension funds’ already vulnerable financial position has deteriorated further;
- In a “severe” scenario, which assumes a lengthy lockdown period with strict social distancing rules, Dutch banks’ capital ratios could drop by one-third, with the average CET1 ratio sliding from 16.5% at year-end 2019 to 11% at end-2022. Loan losses could reach EUR 23 billion. In a so-called “perfect storm” scenario, the banks’ loan losses could rise to around EUR 40 billion;
- The biggest risks are an economic and financial crisis, financial market volatility and insufficient market liquidity, pressure on banks, sustainability of public sector and private sector debt, vulnerabilities of insurers and pension funds, and risks in the commercial real estate market.
4 June 2020
ECB publishes its monetary policy decisions
On 4 June 2020, the European Central Bank (ECB) published a press release summarising certain monetary policy decisions taken by the Governing Council of the ECB during a meeting on the same day:
- the increase of the Pandemic Emergency Purchase Programme (PEPP) by €600 billion to a total of €1,350 billion, which will further ease the general monetary policy stance;
- the extension of the period for net purchases under the PEPP until at least the end of June 2021;
- the reinvestments of the maturing principal payments from securities purchased under the PEPP until at least the end of 2022;
- the continuing of net purchases under the Asset Purchase Programme (APP) with a monthly pace of €20 billion;
- the reinvestments in full of the principal payments from maturing securities purchased under the APP, continuing for an extended period of time; and
- the interest rate on the main refinancing operations and the unchanged interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.
These decisions amend and extend the monetary policy decisions taken by the Governing Council of the ECB on 7 April 2020 (see our update below).
2 June 2020
EBA publishes Guidelines to address gaps in reporting data and public information
On 2 June 2020, the European Banking Authority (EBA) published a final report (EBA/GL/2020/07) on guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 pandemic.
According to EBA’s press release, these guidelines follow the implementation of a broad range of measures, such as legislative moratoria on loan repayments and public guarantees in Member States, with the aim to support the operational and liquidity challenges faced by borrowers. The Guidelines have been developed to address data gaps associated with such measures to ensure an appropriate understanding of institutions’ risk profile and the asset quality on their balance sheets both for supervisors and the wider public.
EBA states that the additional reporting and disclosure requirements introduced in these guidelines are put forward strictly in the context of the COVID-19 pandemic and are therefore expected to be time-limited.
The first reporting reference date and the disclosure reference date will be 30 June 2020. The reporting guidelines will be part of the version 2.10 reporting framework release that will be published in June 2020.
29 May 2020
Public statement of IOSCO: encouraging fair disclosure about COVID-19 related impacts
On 29 May 2020, IOSCO issued a public statement noting the importance to investors and other stakeholders of having timely and high-quality information about the impact of COVID-19 on issuers´ operating performance, financial position and prospects. In the accompanying press release, the public statement is summarized as follows:
- It reiterates the importance of disclosure of the impact on amounts recognized, measured and presented in the financial statements.
- It highlights the importance of transparent and complete disclosures, noting that in an environment of heightened uncertainty, disclosures should be entity-specific and transparent, particularly when involving significant judgments and estimates.
- It restates that in the current environment, it is important that issuers are mindful of the elements of reliable and informative non-GAAP measures.
- It notes that interim financial information will require more robust disclosures of material information and management’s response to the changing circumstances.
- It reminds auditors of their responsibilities to report on Key Audit Matters (KAM), including how the auditor addressed the matters.
- It encourages issuers to balance the flexibility provided by regulators extending the period to file financial information with the responsibility to provide timely and comprehensive financial information that includes reasonable and supportable judgments.
28 May 2020
DNB calls for green recovery from COVID-19
On 28 May 2020, the Dutch Central Bank (DNB) published a news item (in Dutch only) to discuss the opportunities resulting from the corona crisis for the implementation of the Paris Climate Agreement. DNB states that it is necessary to focus on the structural reduction of CO2 emissions in order to meet the climate targets. As the crisis will have a great impact on the economy and the financial sector, DNB supports the acceleration of the transition to a climate-neutral economy, combined with an economically sustainable recovery. DNB states that governments, financial institutions and central banks play an important role and makes a number of observations in this respect:
- Governments can strengthen the EU Emission Trading Scheme (ETS) and place the necessary investments in sustainability on a medium-term stimulus agenda.
- Financial institutions can take advantage of the current crisis by (i) increasing their understanding of the impact of the climate and sustainability risks on their balance sheet and (ii) amending their investment policy and lending in line with the Paris Climate Agreement. The European Banking Authority (EBA) is currently exploring whether sustainability risks can be included in capital requirements for banks.
- Central Banks can play a supporting role through monetary policy. The European Central Bank (ECB) is currently investigating the role of climate change in monetary strategy.
28 May 2020
European Commission adopts Delegated Regulation on revisions to RTS on prudent valuation under CRR
On 28 May 2020, the European Commission adopted a Delegated Regulation, which amends the RTS on prudent valuation under Article 105(14) of the CRR (Delegated Regulation (EU) 2016/101). It introduces a temporary adjustment aimed at mitigating increases in the additional valuation adjustments under the CRR’s prudent valuation framework, and their excessive effect on the own funds of banks, as a result of the current period of extreme market volatility due to the COVID-19 pandemic. According to the EC, the amendments to the RTS should only apply until 31 December 2020. The amendments are adopted further to a proposal by the EBA on 22 April 2020 (see our update below).
28 May 2020
European Commission approves €713 million Dutch aid scheme to support small and medium sized enterprises (SMEs) affected by the coronavirus outbreak
On 28 May, the European Commission announced in a press release that it has approved a €713 million Dutch aid scheme to support SMEs affected by the coronavirus outbreak. The scheme was approved under the State Aid Temporary Framework. The scheme takes the form of guarantees on loans with a nominal loan amount between €10,000 and €50,000. The guarantee issued by the Dutch State will cover 95% of the loan. The main goals of the schemes are providing liquidity to SMEs affected by the coronavirus outbreak and enabling them to continue their activities, start investments and maintain employment. The measure is expected to support 30,000 enterprises. The Dutch aid scheme has been published in the Government Gazette (Staatscourant) of 29 May 2020 (only in Dutch).
27 May 2020
DNB extends ECB relief measure for market risk to all Dutch less significant institutions
Following the recently announced temporary reduction in capital requirements for significant institutions using internal models for market risk by the European Central Bank (ECB), the Dutch Central Bank (DNB) published a news item announcing that it extends this relief measure to all Dutch less significant institutions. This relief measure will now also allow these banks to adjust the supervisory component (the qualitative market risk multiplier) of their capital requirements for market risk. DNB states that this decision will be reviewed after six months on the basis of observed volatility.
25 May 2020
EBA publishes preliminary assessment of the impact of COVID-19 on the EU banking sector
On 25 May 2020, EBA published a thematic note with first insights into the impact of COVID-19 on the EU banking sector. The accompanying press release can be found here.
EBA notes that the pandemic presents unprecedented challenges to the global economy, adding that uncertainty on the severity and length of the crisis and the speed of the recovery make it difficult to assess the potential impact of the crisis on the EU banking sector. EBA emphasizes that banks entered the crisis in better shape than they did in 2008/2009, with capital buffers rising well above the regulatory requirements. It also warns for vulnerabilities and challenges in certain areas, notably low interest margins and reduction of operating expenses, which may be prolonged and exacerbated by the current crisis. EBA further mentions that banks’ operational capacities are tested by the closing of banks’ branches and the forced switch to digital channels.
EBA also refers to the measures it has taken to provide operational relief to banks, including postponing 2020 stress tests and recommending NCAs to use the flexibility embedded in the regulatory framework. EBA finally sets out that key concerns are the impact of the pandemic on asset quality (the likely rise of NPL volumes) and funding conditions (widening of spreads, increased reliance on central bank funding and expected use of liquidity buffers).
25 May 2020
EC approves Dutch guarantee scheme to stabilise trade credit insurance market
On 25 May 2020, the European Commission (EC) published a press release announcing that it has approved a Dutch guarantee scheme to support the trade credit insurance market in the light of the coronavirus pandemic. Since the risk of insurers not being willing to issue trade credit insurance has become higher due to the economic impact of COVID-19, the Dutch government has notified to the EC a State guarantee scheme. This scheme ensures that trade credit insurance continues to be available to all companies and reduces their immediate liquidity needs. The EC assessed the scheme under EU State aid rules and concluded that it is compatible with EU law. Furthermore, the EC acknowledges that the scheme is well targeted to remedy a serious disturbance in the Dutch economy caused by the coronavirus.
22 May 2020
AFM resumes inquiries to financial institutions as of 1 June 2020
On 22 May 2020, the Netherlands Authority for the Financial Markets (AFM) has announced in a press release (in Dutch only) that it will resume its information inquiries to financial institutions as of 1 June 2020. Some inquiries will start before the summer, but most of the inquiries will take place in the third or fourth quarter of 2020. The AFM furthermore announced that it will restart so-called on-site investigations when necessary. Due to the impact of COVID-19 on financial institutions, the AFM will apply longer reaction periods than usual and can grant postponement if a supervised institution has difficulty answering the inquiries on time.
22 May 2020
ECB publishes overview of its decisions taken in the past month
On 22 May 2020, the European Central Bank (ECB) published a press release summarising the decisions taken by the Governing Council of the ECB in the past month. A number of these decisions were taken in response to the COVID-19 pandemic, including in the areas of market operations, banking supervision and legislative advice on amendments to the EU prudential framework. A more detailed explanation of the individual COVID-19 related measures in the ECB's overview can be found in this tracker.
20 May 2020
ECB publishes opinion on proposed amendments of EU banking rules
On 20 May 2020, the ECB published an opinion on the proposed amendments to the CRR and CRR II in response to COVID-19. Through this opinion the ECB responds to requests from the Council of the European Union and European Parliament on 6 and 12 May, respectively.
The ECB expresses its support for the European Commission’s initiative to increase banks’ lending and loss absorption capacities while ensuring their resilience during the pandemic. The ECB also welcomes the proposed amendments, noting that they will support banks in mitigating the economic impact of the crisis while preserving the key elements of the prudential framework. The ECB makes the following specific observations on the proposed amendments:
- Transitional arrangements for mitigating the impact of IFRS 9 provisions on regulatory capital. The ECB notes that the CRR contains transitional arrangements allowing institutions to add back to their CET1 capital a portion of any increase in provisions due to the introduction of expected credit losses (ECL) accounting under IFRS 9. The ECB backs an amendment of this article in order to allow credit institutions to add back to their CET1 capital an amount limited to the increase attributable to the dynamic component of the ECL provisions after 31 December 2019;
- Treatment of publicly guaranteed loans under the NPE prudential backstop. The ECB considers it appropriate to extend the more beneficial treatment of non-performing exposures (NPEs) under the NPE backstop (as laid down in the CRR) to NPEs guaranteed by national government or other public entities. The ECB notes that the proposed extension removes an arbitrary distinction between guarantees given by different public entities with a similar credit standing;
- Date of application of the leverage ratio buffer. The ECB refers to the BCBS announcement on 27 March 2020 (covered below) and expresses its support for the decision to use the extended deadline for implementation of the Basel III reforms. The postponement notably applies to the application of the leverage ratio buffer for global systemically important banks;
- Offsetting the impact of excluding certain exposures from the calculation of the leverage ratio. The BCBS leverage ratio standards allow for a temporary exemption of central bank reserves from the leverage ratio exposure measure in exceptional macroeconomic circumstances. Where such exemption is used, the standards require a recalibration of the leverage ratio requirement to offset the exclusion of central bank reserves. This option to set a temporary exemption is laid down in the CRR and will become applicable on 28 June 2021. The amendment, which is endorsed by the ECB, introduces the option for competent authorities to set the reference date for the recalibration to the beginning of the period of ‘exceptional circumstances’, including where that date is before 28 June 2021;
- Possible further changes to certain aspects of market risk requirements. The ECB finally notes that EU competent authorities have fewer measures at their disposal in case of extraordinary circumstances than their non-EU equivalents. The ECB therefore advocates additional measures, giving national competent authorities further flexibility allowing them to temporarily adjust the number of overshootings (resulting from both actual and hypothetical losses) or take other appropriate action.
20 May 2020
SRB publishes MREL Policy under the Banking Package and a Feedback Statement
On 20 May 2020, the Single Resolution Board (SRB) published a press release announcing that it has published on the same day its Minimum Requirement for Own Funds and Eligible Liabilities (MREL) Policy and a Feedback Statement to the industry consultation. The Policy is structured around 6 topics: (i) calibration, (ii) subordination for resolutions entities, (iii) internal MREL for non-resolution entities, (iv) MREL for cooperative groups, (v) eligibility of liabilities under the law of a third country and (vi) transition arrangements.
In its press release, the SRB highlights that the MREL decisions implementing the new framework will be taken based on the Policy in the 2020 resolution planning cycle. In this cycle, MREL targets will be set according to the transition period in the Single Resolution Mechanism Regulation II, which means setting the first binding intermediate target for compliance by 2022 and the final target by 2024. The SRB furthermore acknowledges the challenges that banks currently face due to the coronavirus pandemic. In that regard, the SRB notes that, for MREL targets already set in the 2018 and 2019 resolution planning cycles, it will take a forward-looking approach for banks that may face difficulties meeting those MREL targets, before new decisions take effect.
20 May 2020
ESMA issues public statement on half-yearly financial reports
On 20 May 2020, the European Securities and Markets Authority (ESMA) issued a public statement to address the COVID-19 implications on the half-yearly financial reports of listed issuers. The public statement provides recommendations on certain areas of focus identified by ESMA. According to ESMA’s accompanying press release, the statement highlights:
- the importance of providing relevant and reliable information, which may require issuers to make use of the time allowed by national law to publish half-yearly financial reports while not unduly delaying the timing of publication;
- the importance of updating the information included in the latest annual accounts to adequately inform stakeholders of the impacts of COVID-19, in particular in relation to significant uncertainties and risks, going concern, impairment of non-financial assets and presentation in the statement of profit or loss; and
- the need for entity-specific information on the past and expected future impact of COVID-19 on the strategic orientation and targets, operations, performance of issuers as well as any mitigating actions put in place to address the effects of the pandemic.
The public statement is also applicable to financial statements in other interim periods (when IAS 34 Interim Financial Reporting is applied). ESMA calls on the issuers and, where applicable, their auditors, to take due consideration of these recommendations.
19 May 2020
Minister of Finance announces temporary reduction in maximum fee on consumer credit
In a letter (only in Dutch) to the Lower House published on 19 May 2020, the Dutch Minister of Finance announced a temporary reduction in the maximum fee on consumer credit due to the COVID-19 crisis. The statutory maximum credit fee applicable to all forms of consumer credit will be reduced from 14% to 10%, consisting of a statutory interest rate of 2% and a surcharge of 8 percentage points. As a result of this measure, credit providers can temporarily only charge consumers a maximum annual credit fee of 10%. The reduced maximum credit fee will apply to new loans granted after the measure takes effect. Withdrawals under existing revolving loans after the new measure takes effect will also be subject to the reduced maximum credit fee. For existing loans and the outstanding balances of revolving loans, the previous maximum fee will continue to apply.
The temporary reduction in maximum fee on consumer credit is implemented by amending the Cost of Credits Decree (Besluit Kredietvergoeding). The proposed text of the amendment was submitted for consultation on the same day. The consultation is open for feedback until 3 June 2020. The measure is expected to take effect on 1 August 2020 and will apply until at least the end of this year. In the coming months it will be examined whether a reduction in the maximum credit fee can be implemented structurally.
18 May 2020
ESMA notes lifting of short-selling bans by NCAs in six Member States
On 18 May 2020, ESMA published a press release announcing the lifting as of today of short-selling bans by national competent authorities (NCAs) in Austria, Belgium, France, Greece, Spain. ESMA further notes that the Italian NCA announced the termination of its ban, which was initially set to expire on 18 June. The NCAs mention a fall in market volatility, a downward trend in the number of people infected with COVID-19 and a better view of the impact of COVID-19 on listed companies as the main reasons to lift the bans.
The bans had been put in place after ESMA’s decision on 16 March to lower the short position notification threshold to 0.1% (see below). ESMA notes that this lower threshold will remain in place until 16 June and may be renewed.
15 May 2020
AFM asks companies to be extra alert to increased information security risks due to COVID-19
On 15 May 2020, the Netherlands Authority for the Financial Markets (AFM) published a statement (in Dutch only) asking companies to pay more attention to increased risks in the area of information security due to the coronavirus. The AFM made this appeal in response to a risk-driven assessment it conducted into the impact of the COVID-19 pandemic on business operations and how companies deal with increasing information security risks. In this context, the AFM has identified six important risks that require extra attention:
- The risk of data leaks due to working from home;
- The risk that corporate IT systems are unsafe due to the postponement of the installation of patches;
- The risk that the service provision of companies will decrease due to employee absence;
- The risk that the quality and continuity of the services of (external) service providers decreases;
- The risk of cyber criminals gaining access to systems through phishing activities; and
- The risk of companies becoming victims to DDoS attacks.
The AFM shares insights about these risks in a special appendix (in Dutch only), which is published alongside the statement.
14 May 2020
ESRB takes first set of actions to address the impact of the coronavirus on the financial system
On 14 May 2020, the European Systemic Risk Board (ESRB) published a press release announcing it has discussed a set of actions in five priority areas to address the impact of the coronavirus emergency on the financial system from a macroprudential perspective:
- Implications for the financial system of guarantee schemes and other fiscal measures to protect the real economy: the ESRB has sent a letter (dated 14 May 2020) to the Economic and Financial Affairs Council (ECOFIN) in which it explains that it strongly encourages cooperation and information exchange between the relevant national fiscal and macroprudential authorities in order to help understand the effects the implemented measures have on financial stability.
- Market illiquidity and implications for asset managers and insurers: the ESRB has adopted a recommendation (dated 6 May 2020) and published a statement (dated 13 May 2020). See for further details our below update dated 14 May 2020.
- Impact of large-scale downgrades of corporate bonds on markets and entities across the financial system: the ESRB has published an issues note that discusses liquidity in the corporate bond and commercial paper markets, the procyclical impact of downgrades and implications for asset managers and insurers. In addition, it has decided to coordinate a top-down analysis, with the ESAs and the ECB, to assess the impact of a common scenario of large-scale downgrades across all parts of the financial sector.
- System-wide restraints on dividend payments, share buybacks and other pay-outs: a number of ESRB member countries and institutions at the European level have encouraged banks and insurance corporations in the European Union to restrain voluntary pay-outs. ESRB’s General Board supports these measures.
- Liquidity risks arising from margin calls: the General Board of ESRB stresses the importance of (i) mitigating procyclicality that could be linked to the provision of clearing services and to the exchange of margins in bilaterally cleared markets; (ii) enhancing central counterparty stress test scenarios for the assessment of liquidity needs; and (iii) limiting excessive liquidity constraints related to margin collection.
14 May 2020
ESRB recommendation on liquidity risks in investment funds; ESMA expresses support
On 14 May 2020, the European Systemic Risk Board (ESRB) published a recommendation (dated 6 May 2020) on liquidity risks in investment funds. In this recommendation the ESRB states that its General Board will focus on five priority areas where coordination between authorities in the EU is likely to be particularly important to safeguard financial stability, one of them relating to financial market liquidity and implications for asset managers and insurers. See also our above update of the same date.
The ESRB has furthermore identified two segments of the investment funds sector as particularly high-priority areas for enhanced scrutiny from a financial stability perspective: (1) investment funds with significant exposures to corporate debt and (2) investment funds with significant exposures to real estate. In this context, its recommendations for ESMA are to (i) coordinate with the national competent authorities (NCAs) to undertake a focused piece of supervisory exercise with investment funds that have significant exposures to corporate debt and real estate assets to assess the preparedness of these two segments to potential future adverse shocks and (ii) report to the ESRB on its analysis and on the conclusions reached regarding the preparedness of the relevant investment funds.
Together with its recommendation, the ESRB has published a statement (dated 13 May 2020) in which it emphasises the importance of the availability and timely use of liquidity management tools, especially in times of stressed market conditions. It states that the timely use of liquidity management tools is a key element for prudent liquidity risk management by investment funds and reduces the risk of forced sales of less liquid assets in periods of stress.
On the same day, the European Securities and Markets Authority (ESMA) has published a statement in which it expresses its support for the abovementioned ESRB recommendation and statement. ESMA notes that it has intensified the exchange of information among NCAs on the use of liquidity management tools by EU/EEA UCITS and AIFs in response to the coronavirus outbreak and that it has launched on 30 January 2020 a common supervisory action on UCITS liquidity risk management.
14 May 2020
DNB requests Dutch credit institutions to notify applied payment moratoria
Following the EBA Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis published on 2 April 2020 (see below), the Dutch Central Bank (DNB) published a news item on 14 May 2020 calling on Dutch credit institutions to notify DNB of payment moratoria applied. As a result of the EBA Guidelines, DNB needs to be notified when a Dutch credit institution seeks recognition of its moratorium as a general moratorium. Such recognition can prevent that credit institutions need to classify loans falling within the scope of the moratorium as forborne or non-performing exposures due to distressed restructuring.
In view of the limited application period of the EBA Guidelines, DNB requests credit institutions to send in their notifications as soon as possible. Credit institutions that have already publicly communicated their moratorium are asked to send in their notification no later than 29 May 2020. Credit institutions that are preparing new moratoria are asked to send in their notification no later than 5 working days after the public announcement of a moratorium.
13 May 2020
Interview with Mr Enria, Chair of the ECB's Supervisory Board: "The current crisis is a wake-up call"
On 13 May 2020, the European Central Bank (ECB) published an interview with Mr Enria, Chair of the ECB's Supervisory Board, discussing how European banks are managing amid the COVID-19 crisis, whether they are using the recently announced supervisory relief measures, what risks lie ahead and what it all means for Europe.
Enria states that banks are responding to the ECB’s recommendation that they should not pay out dividends or buy back shares. Of the EUR 35 billion in dividends that were planned to be paid, the ECB expects that more than EUR 27 billion are being retained as capital on banks’ balance sheets. Planned share buy-backs have also been cancelled. Enria calls for banks to take seriously the ECB’s recommendation for extreme moderation on variable remuneration.
In response to concerns that the ECB might also consider other restrictions, including on additional Tier 1 instruments, Enria makes clear that the ECB is not planning to put any constraints on payments of such instruments.
Enria also points out that the measures the ECB has announced, in particular with regard to the use of capital and liquidity buffers, will remain in place for as long as needed. Once the situation improves, the ECB will allow a very gradual return to pre-crisis capital and liquidity levels.
13 May 2020
ESMA highlights challenges for rating Collateralised Loan Obligations
On 13 May 2020, the European Securities and Markets Authority (ESMA) has published a Thematic Report on Collateralised Loan Obligations (CLOs) credit ratings in the European Union. The report provides an overview of CLO rating practices and identifies the main supervisory concerns, and medium-term risks, in this asset class. These include (i) credit rating agencies’ (CRAs) internal organisation, (ii) their interactions with CLO issuers, (iii) operational risks, (iv) commercial influence on the rating process and (v) the need for proper analysis of CLOs. The report also highlights the impact that COVID-19 may have on CLO methodologies.
12 May 2020
DNB publishes a press release on immovable property valuation and capital requirements
On 12 May 2020, the Dutch Central Bank (DNB) published a press release (in Dutch only) in which DNB notes that despite the uncertainties related to COVID-19 in the valuation of immovable property, the appraised market value determined by an independent and qualified appraiser remains, in accordance with the CRR, the starting point for determining the capital requirements. This applies to loans secured by mortgages on commercial or non-business immovable property. Despite the current uncertainties, no haircut needs to be applied to the market value. This applies to banks using either the Standardised Approach or the Internal Model Approach. However, due to the material changes in the market conditions, DNB emphasizes that more frequent valuation monitoring is appropriate. Furthermore, DNB notes that:
- COVID-19 may hinder the carrying out of appraisals and causes uncertainties in the valuation;
- Appraisers should perform the valuation in accordance with the relevant valuation standards; and
- Institutions are free to apply more stringent measures to the valuation of immovable property than those required by regulation if it is considered appropriate for risk management reasons.
12 May 2020
EP publishes updated state of play of EU/EA measures to mitigate the effects of COVID-19
On 12 May 2020, the European Parliament (EP) published an updated overview regarding the measures proposed and taken at EU or Euro Area level to mitigate the economic, financial and social effects of COVID-19. The overview includes monetary policy measures taken by the ECB and measures with impact on banking and macro-prudential policies taken by the EC, SSM, ECB, SRB and EBA.
11 May 2020
ECB Guideline on additional temporary collateral easing measures published in OJ EU
On 11 May 2020, the ECB Guideline on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral was published in the Official Journal of the European Union (OJ EU). The additional temporary measures set out in this Guideline result from the collateral easing measures the ECB already adopted on 7 April 2020 and 22 April 2020 (see both below) in response to the COVID-19 pandemic. Pursuant to these measures, the Eurosystem may temporarily continue to admit as collateral marketable assets and the issuers of these assets that fulfilled minimum credit quality requirements on 7 April 2020 notwithstanding a deterioration in the credit ratings decided by the credit rating agencies accepted in the Eurosystem, as long as the ratings remain above a certain quality level.
This Guideline shall take effect on the day of its notification to the national central banks and shall remain in effect until 29 September 2021.
11 May 2020
ESMA updates webpage with information on supervision of CRAs
On 11 May 2020, the European Securities and Markets Authority (ESMA) published an updated webpage on the coronavirus pandemic with information about its supervision of credit rating agencies (CRAs). ESMA explains that, as the single EU direct supervisor of credit rating agencies (CRAs), it is continuing to engage with CRAs to assess the impact of COVID-19 on their businesses and operations. ESMA is focusing on business continuity and compliance with key requirements of the CRA Regulation (the proper application of methodologies, conflicts of interest, internal controls, transparency and governance). In addition, ESMA is closely monitoring CRAs' rating actions through enhanced data analytics to assess the possible impact of ratings actions on financial stability. This information is shared with national competent authorities (NCAs) and other stakeholders. Furthermore, ESMA discusses CRA actions in the context of COVID-19 with regulators around the globe.
8 May 2020
ECB publishes blog on digitalisation of banking businesses
On 8 May 2020, the European Central Bank (ECB) published a blog, by ECB Supervisory Board Member Pentti Hakkarainen, on the first lesson from the COVID-19 pandemic, which is that the sustainability of banking businesses has hinged decisively on technology. Mr. Hakkarainen explains the following:
- Most banks seem to have concluded that investing in innovation and building their digital presence is critical for the sustainability of their business models, but that ambitious plans are not always matched by the size of banks' innovation budgets. In addition, banks need to ensure that they allocate sufficient resources to data and cyber security.
- As banks become more digital, supervisors must be prepared to deal with heightened operational and cyber risks. ECB Banking Supervision is working hard to adapt its methodological toolbox and adjust its supervisory recommendations across all prudential risk categories to this new, fully digital reality. It will continue to monitor banks' capability to implement their business continuity plans and is keeping a close eye on new emerging risks.
- Banks' boards and internal control functions must fully understand the main risks related to innovative technologies and the operational challenges associated with this new and more digital normal. Their IT systems must be resilient enough to withstand the current heavy reliance on remote working and servicing. There must be robust cyber-incident protection procedures in place.
7 May 2020
IAIS facilitates global coordination on financial stability and policyholder protection
On 7 May 2020, the International Association of Insurance Supervisors (IAIS) published a press release outlining how it is facilitating global coordination on financial stability and policyholder protection during the COVID-19 pandemic. The IAIS has been closely monitoring developments and actively coordinating with other standard-setting bodies and the Financial Stability Board (FSB) to assess the impact of COVID-19 on the global insurance sector. The IAIS is also committed to supporting the FSB’s recently published principles (see our below update of 15 April 2020) for ensuring international cooperation and coordination of responses to COVID-19.
The IAIS welcomes the variety of proactive steps taken by insurance supervisors and insurers in support of policyholders. The IAIS considers that efficient claims handling and clear communication with policyholders regarding coverage for losses arising from COVID-19 should help deepen confidence and trust in the insurance sector and contribute to longer-term economic recovery efforts.
At the same time, the IAIS cautions against initiatives seeking to require insurers to retroactively cover COVID-19 related losses that are specifically excluded in existing insurance contracts. Requiring insurers to cover such claims could create material solvency risks and significantly undermine the ability of insurers to pay other types of claims.
6 May 2020
ESMA issues public statement on MiFID II conduct of business obligations in the context of increasing retail investor activity
On 6 May 2020, the European Securities and Markets Authority (ESMA) issued a public statement to draw attention to the risks for retail investors when trading under highly uncertain market circumstances due to the COVID-19 pandemic and to remind investment firms of their conduct of business obligations under MiFID II. In the current environment, ESMA believes that firms have even greater duties when providing investment or ancillary services to investors, especially when these investors are new to the market or have limited investment knowledge or experience. ESMA therefore reminds firms of their obligation to act in accordance with the best interests of their clients and points to the most relevant conduct of business obligations under MiFID II (product governance, information disclosure, suitability and appropriateness).
4 May 2020
FATF publishes paper on COVID-19 related AML/CFT risks
On 4 May 2020, the Financial Action Task Force (FATF) published a paper on challenges, good practices and policy responses to new money laundering and terrorist financing threats and vulnerabilities arising from the COVID-19 crisis. In particular, the paper finds that:
- the increase of coronavirus-related crimes, such as the exploitation of government funds or international financial assistance, is creating new sources of proceeds for illicit actors;
- the measures to contain COVID-19 are impacting on the criminal economy and changing criminal behaviour;
- the COVID-19 pandemic is impacting government and private sectors' abilities to implement AML/CFT obligations;
- certain AML/CFT risks, such as criminals bypassing customer due diligence measures and the increased use of the unregulated financial sectors, are emerging; and
- AML/CFT policy responses can help support the swift and effective implementation of measures to respond to COVID-19, including domestic coordination to assess the impact of the virus on AML/CFT risks and systems, strengthened communication with the private sectors, and supporting electronic and digital payment options.
4 May 2020
ESAs issue joint RTS on amendments to the bilateral margin requirements under EMIR; trade associations send letters to EC and ESA’s on margin exemptions
On 4 May 2020, the European Supervisory Authorities (EBA, ESMA, EIOPA; the ESAs) published a statement, Final Report and updated draft RTS announcing amendments to the RTS on risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty (EMIR Margin RTS). The updated draft RTS fully replace the first draft RTS, which had been published on 5 December 2019.
The updated draft RTS incorporate, notably, a one-year deferral of the implementation phases of the initial margining requirements in response to the outbreak of COVID-19, in line with an agreement of the BCBS and IOSCO of 3 April 2020 (see below). Implementation of the final phases should now take place on 1 September 2021 (entities whose aggregate average notional amount (AANA) of OTC derivatives positions exceeds EUR 50 billion) and 1 September 2022 (entities whose AANA exceeds 8 billion). Furthermore, the RTS (i) clarifiy that no exemption from the legal/operational arrangements will be introduced in the RTS for parties below the 50 million initial margin exchange threshold, (ii) introduce an exemption from the variation margin requirement for physically settled FX swaps, in addition to the existing exemption for forwards, (iii) introduce a one-year extension of the exemption for single-stock equity options and index options and (iv) introduce a one-year extension of the exemption for intragroup transactions with third-country entities.
In two letters published on the same date, ISDA and certain other trade associations call on the EC and ESAs for additional measures. In the first letter, the organisations request a further extension or permanent exemption for single-stock equity options or index options (as mentioned under (iii) above). In the second letter, the EC is requested (a) to as soon as possible implement the necessary equivalence decisions in relation to all jurisdictions that have implemented margin rules in line with the BCBS-IOSCO framework and (b) to amend the updated draft EMIR Margin RTS such that the current temporary derogation from margin requirements for intragroup transactions (as mentioned under (iv) above) is extended for a further three years.
30 April 2020
EIOPA postpones its advice on Solvency II Review until end December 2020
In coordination with the European Commission (EC), the European Insurance and Occupational Pensions Authority (EIOPA) has decided to postpone the submission of its advice to the EC from June 2020 to the end of December 2020, to take into account the importance of assessing the impact of the current COVID-19 situation on the Solvency II Review. The new timing will allow an update of the holistic impact assessment in view of the impact of the pandemic on the financial markets and insurance business and to take that impact into account in EIOPA’s advice. The deadline of the information request for the holistic impact assessment had already been extended by two months, to 1 June 2020 (see our below update of 17 March 2020). In order to update the holistic impact assessment EIOPA will complement the ongoing information request with a collection of data with a reference date of 30 June 2020. That information request will be carried out from July to 15 September 2020.
On 12 May 2020, the Dutch Central Bank (DNB) announced in a press release (in Dutch only) that it will select the same insurers for this additional impact assessment as for the ongoing holistic impact assessment. These insurers will receive further information about this.
30 April 2020
ECB announces recalibration of targeted lending operations
In an effort to further support the real economy, the ECB published on 30 April 2020 a press release and decision in which it sets out modifications to the terms and conditions of all of its targeted longer-term refinancing operations (TLTRO III). The changes will be implemented by amendment to the Decision of the ECB of 22 July 2019 on TLTRO III (ECB/2019/21; as previously amended by Decisions ECB/2019/28 and ECB/2020/13).
The modifications are as follows:
- The interest rate on TLTRO IIIs is reduced by 25 basis points to 50 basis points below the average rate applied in the Eurosystem’s main refinancing operations / on the deposit facility prevailing over the same period. The interest rates will be applied from 24 June 2020 and will apply for one year;
- The start of the period over which banks’ lending performance will be assessed in order to ascertain whether they qualify for this lower rate will be brought forward to 1 March 2020, from 1 April 2020;
- Banks that reach the lending threshold of 0% between 1 March 2020 and 31 March 2021 may apply the most favourable conditions throughout the life-cycle of the operations. For banks that do not reach the lending threshold of 0% but do meet a threshold of 1.15% during that period, the original TLTRO III interest rates and lending threshold will apply.
30 April 2020
ECB announces new emergency longer-term refinancing operations
On 30 April 2020, the European Central Bank (ECB) published a press release announcing a new series of seven additional longer-term refinancing operations, called pandemic emergency longer-term refinancing operations (PELTROs). These operations are intended to provide liquidity support and contribute to preserving the smooth functioning of money markets, by providing an effective backstop after the expiry of the bridge longer-term refinancing operations (LTROs) that have been conducted since March 2020. Counterparties participating in PELTROs will be able to benefit from the collateral easing measures in place (see our below update of 7 April) until the end of September 2021. The PELTROs will be conducted according to the indicative calendar published as part of the press release.
29 April 2020
ECB communication on extension of statistical information reporting deadlines
On 29 April 2020, the ECB published a communication to reporting agents announcing the extension of deadlines for the reporting of statistical information. The communication follows publication on 15 April 2020 of Regulation (EU) 2020/533 (in which the Governing Council of the ECB provides factors to be considered by the ECB Executive Board in deciding to extend reporting deadlines) and a statement (in which the ECB calls on national central banks and reporting agents to find pragmatic solutions in relation to data reporting).
The ECB has decided to postpone the following remittance dates:
- Insurance Corporations statistics (Regulation (EU) No 1374/2014): the remittance date of the annual data (reference 2019) was postponed by 8 weeks, from 7 April 2020 to 2 June 2020. Quarterly remittance dates were delayed by 1 week, from 5 May 2020 to 12 May 2020;
- Pension Funds statistics (Regulation (EU) 2018/231): the remittance date of the annual data (reference 2019) was postponed by 8 weeks, from 16 June 2020 to 11 August 2020. Quarterly remittance dates were delayed by 2 weeks, from 2 June 2020 to 16 June 2020;
- Payment statistics (Regulation (EU) No 1409/2013): the remittance date was postponed by 4 weeks from 29 May 2020 to 26 June 2020.
28 April 2020
EC adopts banking package to improve banks' capacity to lend and to absorb losses related to COVID-19 pandemic
On 28 April 2020, the European Commission (EC) adopted a banking package aimed at facilitating bank lending to support the economy and help mitigate the economic impact of the Coronavirus. The package includes an Interpretative Communication on the application of the EU's accounting and prudential frameworks, as well as targeted amendments to EU banking rules.
The Interpretative Communication confirms the recent guidance given by European authorities (see below) and international bodies (see below) regarding the flexibility in the EU's current accounting rules and prudential requirements, and further clarifies how EU rules should be applied by banks and supervisors in a flexible but responsible manner, so that they can continue to lend to businesses and households in the current context. The areas of flexibility in the EU's regulatory framework include:
- The rules on how banks assess the risk that a borrower will not repay a loan and the effect that has on the amount of money the bank needs to set aside for any possible losses;
- The prudential rules on the classification of non-performing loans in the context where relief measures such as guarantee schemes and moratoria have been provided; and
- The accounting treatment of delays in the repayment of loans.
Amendments to EU banking rules
The EC published a legislative proposal for a Regulation containing amendments to the Capital Requirements Regulations (CRR and CRR II) as regards adjustments in response to the COVID-19 pandemic. The EC proposes to make targeted "quick fix" amendments intended to improve banks' capacity to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. They relate to, among other things:
- Extending the current transitional arrangements for expected credit loss (ECL) accounting under IFRS 9 by two years.
- More favourable treatment of publicly guaranteed loans under the prudential backstop for non-performing loans (NPLs).
- Offsetting the impact of excluding certain exposures from the calculation of the leverage ratio.
- Deferring the application date for the leverage ratio buffer to 1 January 2023.
The legislative proposal will now be discussed by the European Parliament and the Council of the EU. The EC calls on them to adopt the amending Regulation before the end of June 2020.
On 5 June 2020, the Dutch Minister of Finance expressed its support for the above developments in a letter (only in Dutch) to the Dutch Lower House.
28 April 2020
FATF announces extension to mutual evaluations and follow-up deadlines
On 28 April 2020, the Financial Action Task Force (FATF) has published a press release announcing that it has extended its assessment and follow-up deadlines in response to the COVID-19 outbreak. The COVID-19 situation has significantly impacted countries' ability to actively participate in FATF mutual evaluations and related follow-up processes. As a consequence, the FATF Plenary has agreed to temporarily postpone all remaining evaluations and follow-up deadlines. A new mutual evaluation schedule has been published alongside the press release.
The FATF has also decided to pause the review process for the list of high-risk jurisdictions subject to a call for action and those subject to increased monitoring. Jurisdictions are being given an additional four months. As a result, the FATF will not be reviewing them in June 2020.
27 April 2020
EP publishes state of play EU/EA measures to mitigate the effects of COVID-19
On 27 April 2020, the European Parliament (EP) published an overview regarding the measures proposed and taken at EU or Euro Area level to mitigate the economic, financial and social effects of COVID-19. The overview includes monetary policy measures taken by the ECB and measures with impact on banking and macro-prudential policies taken by the SSM, ECB, SRB and EBA.
27 April 2020
Trade associations publish joint letter to ESMA on mandatory delegated reporting under EMIR Refit
On 27 April 2020, the Association for Financial Markets in Europe (AFME) published a joint letter to ESMA on behalf of itself and certain other associations (including the International Swaps and Derivatives Association (ISDA)) regarding the mandatory delegated reporting effective date under EMIR Refit in the context of the COVID-19 pandemic.
The letter sets out that the COVID-19 crisis is creating impediments to the ability of market participants to comply with the EMIR Refit requirement for financial counterparties (FCs) to be responsible and legally liable for reporting (as of 18 June 2020) on behalf of non-financial counterparties that are not subject to the clearing obligation (NFCs-) with which they trade. The issues arise where (i) those NFC- clients are unable to provide the data needed by the FCs in order to report or (ii) FCs have been unable to make the required preparations to support taking on this additional reporting obligation.
The associations request ESMA to state an expectation to the National Competent Authorities (NCAs) not to prioritise supervisory actions in relation to this reporting requirement and that they should apply their risk-based supervisory powers in day-to-day enforcement of this requirement in a proportionate manner for a period of just over 5 months (i.e. until 21 November 2020).
27 April 2020
ECB webpage: ‘Our response to the coronavirus pandemic’
On 27 April 2020, the ECB launched a webpage providing an overview of the ECB’s measures to support the euro area economy in response to the COVID-19 pandemic. The measures are categorized as follows: (i) helping the economy absorb the shock of the current crisis, (ii) keeping borrowing affordable, (iii) supporting access to credit for firms and households, (iv) ensuring short term concerns do not prevent lending, (v) increasing banks’ lending capacity and (vi) preserving financial stability through international cooperation. The webpage will be updated as new measures are taken.
24 April 2020
AFM publishes 10 principles for mortgage lenders
On 24 April 2020, the Netherlands Authority for the Financial Markets (AFM) published 10 principles (only in Dutch) to provide mortgage lenders with guidance on how to help clients that have payment problems due to the COVID-19 pandemic. In finding a solution together with their clients, mortgage lenders should - among other things - focus on their clients’ interests, check individually whether a (re)payment moratorium is appropriate, inform their clients about the consequences of the chosen solution and stay in contact with them.
22 April 2020
ECB adopts temporary measures to mitigate impact of possible rating downgrades on collateral availability
On 22 April, the European Central Bank (ECB) published a press release announcing that it has adopted temporary measures to mitigate the effect on collateral availability of possible rating downgrades resulting from the economic fallout from the COVID-19 pandemic. These measures complement the broader collateral easing package that was announced on 7 April 2020 (see below). The following measures were adopted:
- Marketable assets and issuers of these assets that met the minimum credit quality requirements for collateral eligibility on 7 April 2020 will continue to be eligible in case of rating downgrades, as long as their rating remains at or above credit quality step 5 on the Eurosystem harmonised rating scale. To be grandfathered, the assets need to continue to fulfil all other existing collateral eligibility criteria. Future issuances from grandfathered issuers will also be eligible provided they fulfil all other collateral eligibility criteria.
- Currently eligible covered bond programmes will also be grandfathered, under the same conditions.
- Assets that fall below the minimum credit quality requirements will be subject to haircuts based on their actual ratings.
All measures will enter into effect as soon as the relevant legal acts enter into force. The measures will apply until September 2021.The same end date will also apply to the collateral easing measures announced on 7 April 2020.
22 April 2020
EBA provides further guidance on the use of flexibility and calls for heightened attention to risks
Following up on its earlier communications of 12, 25, 31 March and 2 April (see below), the European Banking Authority (EBA) has issued further guidance on 22 April 2020 on additional flexibility in supervisory approaches in relation to market risk, the Supervisory Review and Evaluation Process (SREP), recovery planning, digital operational resilience and ICT risk and securitisation.
In relation to market risk, this guidance consists of a statement on the application of the prudential framework on targeted aspects in the area of market risk and an amended RTS on prudent valuation. In relation to the other topics, EBA issued a combined statement:
- SREP: EBA recognizes the need for a pragmatic approach to SREP assessments in 2020, focusing on the most material risks and vulnerabilities driven by the crisis.
- Recovery planning: EBA believes the focus should be placed on understanding which recovery options are necessary and available under the current stressed conditions.
- Digital operation resilience and ICT risk: EBA calls on institutions to ensure business continuity, adequate ICT capacity and security risk management. The new EBA ICT and security risk management Guidelines will guide financial institutions and supervisors to focus on priority areas.
- Securitisation: EBA provides further clarity on the prudential application of the definition of default and forbearance as well as how the EBA Guidelines on legislative and non-legislative moratoria on loan repayments apply to securitisations.
At the same time, the EBA notes the need for stringent attention by supervisors and financial institutions in relation to key risks in these areas.
22 April 2020
EC approves Dutch guarantee scheme
On 22 April 2020, the EC published a press release announcing its approval of the Dutch loan guarantee scheme of up to EUR 10 billion to support the economy. The scheme was approved under the EC temporary state aid framework (as amended on 3 April). The Dutch scheme is aimed at helping Dutch companies meet their liquidity needs by boosting working capital and investment lending by banks. The scheme only covers loans granted after 24 March 2020. It provides that the Dutch state guarantees 90% of SME loans and 80% of loans to large enterprises. It also obliges banks to grant a six month moratorium on loan repayments before invoking the state guarantees. The EC concludes that the Dutch scheme complies with all conditions set out in the framework and is necessary, appropriate and proportionate to remedy a serious disturbance of the economy.
For a more detailed description of the temporary state aid framework, we refer to the updates dated 19 March and 3 April on our ‘State Aid: How can governments help?’ page.
21 April 2020
DNB President speech on ‘Entering and exiting the frozen-state economy’
On 21 April 2020, DNB President Klaas Knot addressed the economic challenges posed by COVID-19 at a virtual session organized by Danske Bank in a speech titled ‘Entering and exiting the frozen-state economy’. Knot: “Irrespective of the many unknowns, the immediate economic policy response has been decisive and comprehensive. However, many policy challenges remain.” Knot notes that the current ‘frozen-state’ of the economy causes difficulties and warns that challenges associated with the exit of that state should not be underestimated either. As regards the EU banking sector, Knot notes that EU banks are generally in a better position than in 2008, adding that “The diverging resilience of households, firms, banks and governments implies that there is no onesize-fits-all policy advice as to how best preserve and restore the economy.”
20 April 2020
DNB clarifies framework for health insurers liquidity support to health care providers
On 20 April 2020, the Dutch Central Bank (DNB) published a press release (only in Dutch) announcing that it has sent a letter (dated 15 April 2020) to Zorgverzekeraars Nederland (ZN) (an association of ten health insurers in the Netherlands) to clarify that financial buffers above the Solvency Capital Requirement (SCR) could be deployed during the COVID-19 crisis to provide health care providers with (pre-)financing of the extra healthcare costs resulting from the crisis. Because of the expected temporary duration of this situation, DNB will not require any immediate recovery measures from health insurers who, as a result, temporarily see their solvency fall below their own internal target standard, provided that they continue to meet the regulatory capital requirements and they will focus their capital policy on this situation. DNB further sets out that it is not in favour of insurers setting off claims advances to healthcare providers against their technical provisions as such set off is not in line with Solvency II.
17 April 2020
EIOPA issues statement on principles to mitigate the impact of COVID-19 on the pensions sector; DNB publishes press release on EIOPA’s statement
On 17 April 2020, the European Insurance and Occupational Pensions Authority (EIOPA) issued a statement on principles to mitigate the impact of COVID-19 on the occupational pensions sector in Europe. This statement recognises the stabilising role that institutions for occupational retirement provision (IORPs), such as pension funds, can play as long-term investors in the current climate. In that regard, EIOPA expects national competent authorities (NCAs) to adhere to the principles set out in EIOPA’s statement using a risk-based and proportionate approach. These principles relate to (i) business continuity and operational risk, (ii) liquidity position, (iii) funding situation and pro-cyclicality, (iv) protection of members and beneficiaries and (v) communication.
DNB issued a press release (only in Dutch) on the statement of EIOPA.
17 April 2020
ESMA issues new Q&A on alternative performance measures; AFM publishes press release on ESMA Q&A
On 17 April 2020, the European Securities and Markets Authority (ESMA) announced that it has issued a Q&A to provide guidance to issuers on the application of the ESMA Guidelines on Alternative Performance Measures (APM Guidelines) in the context of the COVID-19 pandemic. This Q&A:
- highlights the main principles of the APM Guidelines;
- encourages issuers to use caution when adjusting Alternative Performance Measures (APMs) and when including new APMs to address the impact of COVID-19; and
- invites issuers to provide (i) narrative information regarding the modifications made, the assumptions used and the impact of COVID-19 and (ii) information on measures taken or expected to be taken by issuers to address the impact that the COVID-19 outbreak may have in their operations and performance.
The AFM issued a press release on the new Q&A on the same day.
17 April 2020
DNB regulation to lower banks’ systemic buffer requirements published in Dutch Government Gazette
On 17 April 2020, a regulation of the Dutch Central Bank (DNB) amending the Specific Provisions CRD and CRR 2019 Regulation (Regeling specifieke bepalingen CRD en CRR 2019) was published in the Dutch Government Gazette. The amendments provide DNB with a legal basis for its measures to lower systemic risk buffers for certain Dutch banks to support lending (see 17 March update below). The amendments will take effect from 18 April 2020.
16 April 2020
EU ministers of finance statement on banking and insurance sector measures
Following a Council of the EU meeting on 16 April 2020, the EU ministers of finance issued a statement on continuing bank lending and on maintaining a well-functioning insurance sector during the pandemic.
- Banks: the Council notes the necessity to make full use of the flexibility provided for in the prudential and accounting framework and commends supervisors’ initiatives to this effect. It further stresses that supervisors should continue to take a coordinated approach and ensure a level playing field amongst Member States. In line with earlier supervisory statements (see below) the Council urges banks to refrain from making (dividend) distributions and use the available capital to support customers’ business continuity;
- Insurance companies: the Council also urges insurance companies to follow EIOPA’s statements (see below) and take measures to preserve their capital position while continuing to act in the best interest of consumers.
16 April 2020
EC publishes press remarks after ECOFIN meeting on EU's response to economic impact of COVID-19
On 16 April 2020, the European Commission (EC) published press remarks made by Mr Dombrovskis, the European Commission’s executive vice-president (EVP), following the meeting of European finance ministers (ECOFIN) which discussed the EU's response to the economic impact of the coronavirus pandemic. In one of the remarks, the EVP invites banks to make full use of the flexibility within EU prudential and accounting laws. In this context, the EVP notes that by the end of the month the EC will present a communication to identify where this flexibility is available and how it can be used. At the same time, the EC will present targeted legal proposals in line with recent decisions of the Basel committee with the aim to free further lending capacity of banks.
16 April 2020
ECB provides temporary relief for capital requirements for market risk
On 16 April 2020, the European Central Bank (ECB) announced a temporary reduction in capital requirements for market risk, by allowing banks to adjust the qualitative market risk multiplier which is set by supervisors and is used to compensate for the possible underestimation by banks of their capital requirements for market risk. With this decision, the ECB is responding to the extraordinary levels of volatility recorded in financial markets since the outbreak of the coronavirus. As well as smoothing procyclicality, it aims to maintain banks’ ability to provide market liquidity and to continue market-making activities. This decision will be reviewed after six months on the basis of observed volatility.
16 April 2020
DNB update on supervisory reporting
In addition to previously published statements from EBA (see 31 March update below) and the ECB (see 15 April update below), the Dutch Central Bank (DNB) published an update (only in Dutch) on 16 April 2020 to inform banks about the delayed submission deadlines for supervisory reporting due to the coronavirus pandemic.
16 April 2020
AFM publishes its 2019 annual report
On 16 April 2020, the AFM published its 2019 annual report in which it addresses the priorities and focus areas of its supervision in 2019. The AFM notes that it is not yet clear how COVID-19 will impact the AFM’s supervision and emphasizes that financial institutions have an important responsibility in helping businesses, self-employed professionals and consumers through the crisis.
In the accompanying press release, the AFM clarifies that it will focus on institutions’ duty of care towards consumers and will monitor whether institutions are able to manage the flood of consumer requests for postponements effectively. AFM Chair Laura van Geest is quoted stating: ”The financial markets are still so far robust, despite the huge price volatility. It is good to see that the sector is taking the initiative to help consumers encountering temporary problems as a result of the crisis. The AFM is monitoring that this happens in a responsible manner, so that solutions for today do not become problems later on.” The AFM further states that it understands that listed companies may fail to publish their annual reports on time, as long as disclosure requirements relating to price-sensitive information are met.
15 April 2020
ECB supports macroprudential policy actions taken in response to COVID-19 pandemic
On 15 April 2020, the European Central Bank (ECB) published an overview of the macroprudential measures taken by euro area authorities (including central banks and banking supervisors) in response to the COVID-19 pandemic and their impact on banks' regulatory capital. The overview highlights the measures taken by macropudential authorities to reduce capital requirements, including the Countercyclical capital buffer (CCyB), the Systemic risk buffer (SyRB), Other Systemically Important Institution (O-SII) buffer and postponing the phase-in or introduction of announced measures.
These macroprudential measures complement and reinforce the measures announced by the ECB since 12 March 2020 (see below). The overall impact of these measures will be to free up more than EUR 20 billion of Common Equity Tier 1 capital held by euro area banks. The ECB endorses the macroprudential measures taken by euro area authorities so far.
15 April 2020
ESMA decision on lowering net short position reporting threshold published in OJ EU
On 15 April 2020, the decision of ESMA dated 16 March 2020 (see below) to require natural or legal persons who have net short positions in relation to a share admitted to trading on a regulated market to notify to a competent authority details of any such position if the position reaches or exceeds 0,1% of the issued share capital was published in the Official Journal of the European Union (OJ EU). This Decision enters into force immediately upon its publication on ESMA’s website. It shall apply from the date of its entry into force for a period of three months.
15 April 2020
FSB report on financial stability implications and policy measures taken
On 15 April 2020, the Financial Stability Board (FSB) published a report in which the FSB provides an overview of the financial stability implications of COVID-19 and policy actions taken by governments and national authorities in response, as well as measures taken by the international standard-setting bodies (SSBs). Furthermore, it sets out principles that have underpinned the official community's response to support the real economy, maintain financial stability and minimise the risk of market fragmentation. Under these principles, authorities will, among other things:
- Use the flexibility built into existing financial standards, including through the use of firm-specific and macro-prudential buffers, to sustain the supply of financing to the real economy.
- Seek opportunities to reduce temporarily operational burdens on firms and authorities. This may include delaying implementation deadlines, reprioritising timetables for initiatives in other policy areas or providing flexibility in technical compliance rules.
- Act consistently with international standards and not roll back reforms or compromise the underlying objectives of existing international standards.
The FSB states that it is using these principles to support international co-operation and co-ordination on the COVID-19 response by (i) sharing information about financial stability threats and authorities' policy measures, (ii) assessing potential vulnerabilities and (iii) co-ordinating policy responses to COVID-19. See below its letter to the G20 published on 14 April 2020.
15 April 2020
ESMA issues positive opinions on short selling bans in several jurisdictions
In a press release published on 15 April 2020, ESMA announced that it has issued opinions agreeing to the renewal of short selling restrictions imposed by supervisory authorities in Austria, Belgium, France, Greece and Spain. The restrictions are set to remain in place until 18 May with the option of a further renewal. ESMA notes that the proposed measures are justified by current adverse events and developments which constitute a serious threat to market confidence and financial stability. It further notes that the restrictions are appropriate and proportionate to address the existing threat to market confidence.
15 April 2020
DNB statement on public consultation regarding systemic buffer measures
On 15 April 2020, DNB issued a statement (in Dutch only) on the results of the public consultation held regarding proposed changes to the Specific Provisions CRD and CRR 2019 Regulation (Regeling specifieke bepalingen CRD en CRR 2019). The changes were necessary to provide DNB with a legal basis for its measures lowering banks’ systemic buffer requirements (see 17 March update below). DNB notes that the proposal needs no change in light of the only reaction to the proposal, which was sent by the Dutch Banking Association (NVB). The NVB had noted that compensation of the lowered systemic buffer by raising the countercyclical capital buffer (CCyB) should be done in a ‘capital neutral’ manner, especially for those banks to which the systemic buffer does not (yet) apply. DNB responds that buildup of the CCyB will begin once conditions have normalized and will result in buffer requirements returning to the pre COVID-19 level. It emphasizes that introduction of the CCyB for banks not subject to systemic buffer requirements will be a point of attention, so as to ensure that the measures are also broadly capital neutral for those banks.
15 April 2020
ECB introduces supervisory reporting measures
On 15 April 2020, the European Central Bank (ECB) introduced certain supervisory reporting measures in light of the coronavirus pandemic to reduce the operational burden on banks and enable them to report with an adequate level of data quality:
- Significant banks will be allowed to delay submission of their supervisory data (under the ITS on supervisory reporting and the ITS on benchmarking of internal approaches) by one month for remittance dates between March 2020 and May 2020. Excluded from this decision are (i) the Liquidity Coverage Ratio (LCR) and Additional Liquidity Monitoring Metrics (ALMM) templates, which should be reported as planned and (ii) the submission of information on funding plans, which can be delayed by two months.
- ECB expects significant banks to apply the EBA harmonised reporting framework version 2.9 with the reference date 31 March 2020, in accordance with the adopted Implementing Act amending Regulation (EU) No 680/2014.
- The remittance dates for most ECB-specific recurring requests falling between March 2020 and May 2020 will be postponed by one month.
According to the ECB, the same grace period of one month should be granted to less significant institutions that are subject to EBA and ECB reporting obligations under the ITS, the ECB FINREP regulation and other rules.
14 April 2020
FSB updates G20 finance ministers and central bank governors on ongoing COVID-19 work
On 14 April 2020, the Financial Stability Board (FSB) published a letter (dated 11 April 2020) to G20 finance ministers and central bank governors setting out details of work that it has taken to maintain financial stability and support the real economy during the COVID-19 crisis. These relate to:
- assessing current vulnerabilities in the financial system and providing risk assessments to policymakers;
- promoting information-sharing concerning financial policy responses taken by its members to address COVID-19; and
- coordinating responses to global financial policy questions. This includes guiding authorities on ways to use the existing flexibility built into international standards, while preserving collective support for these standards.
The letter also sets out ongoing FSB policy work in several areas to promote a global financial system that supports a strong recovery after the pandemic. This includes non-bank financial intermediation (NBFI), LIBOR transition, FinTech and promoting efficient and resilient cross-border payments.
The FSB has already reprioritised its work programme for 2020 in light of COVID-19. See below its letter published on 2 April 2020.
9 April 2020
Eurogroup report on economic policy response, including financial stability measures
On 9 April 2020, the Eurogroup released a report on the economic policy response to COVID-19. The report covers existing and upcoming fiscal, monetary and regulatory measures and was called a ‘significant breakthrough’ by European Council President Michel on 10 April. Specifically in relation to the financial sector, the Eurogroup notes that it welcomes the measures taken to ensure financial stability, including supervisory authority guidance and the release of capital buffers. It emphasizes that full use of the flexibility provided for in the regulatory framework is essential in overcoming the financing pressures faced by companies and households. The Eurogroup further states that it will closely monitor developments and take further (legislative) actions if appropriate to mitigate the impact of the pandemic on the financial sector.
9 April 2020
ESRB overview of EU financial stability policy measures
On 9 April 2020, the European Systemic Risk Board (ESRB) announced in a press release that it has published an overview of policy measures taken by the European supervisory authorities (i.e. EBA, ESMA and EIOPA), as well as those taken by individual member states' governments, central banks, supervisory and resolution authorities in response to COVID-19. The ESRB intends to update the overview regularly.
In the same press release, the ESRB announced that following the COVID-19 pandemic, it has decided to focus its attention on five priority areas, specifically:
- implications for the financial system of guarantee schemes and other fiscal measures to protect the real economy;
- market illiquidity and implications for asset managers and insurers;
- impact of procyclical downgrades of bonds on markets and entities across the financial system;
- system-wide restraints on dividend payments, share buybacks and other payouts; and
- liquidity risks arising from margin calls.
9 April 2020
ESMA publishes statement on the timeliness of fulfilling external audit requirements for interest rate benchmarks under the Benchmark Regulation
On 9 April 2020, the European Securities and Markets Authority (ESMA) issued a public statement regarding the timeliness of fulfilling external audit requirements for interest rate benchmark administrators and contributors to interest rate benchmarks. In light of the effects of the COVID-19 outbreak, ESMA expects NCAs to not prioritize supervisory actions against administrators and supervised contributors relating to these audit requirements where the audits are carried out by 30 September 2020. ESMA encourages NCAs to generally apply a risk-based approach in the exercise of their supervisory powers concerning the timeliness of fulfilling those audit requirements. Nevertheless, where administrators and supervised contributors reasonably anticipate that the fulfilment of those audit requirements will be delayed, they are expected to inform their NCA.
9 April 2020
ESMA extends MIFID II/MiFIR transparency review report consultation
On 9 April 2020, the European Securities and Markets Authority (ESMA) has decided, in view of the effects of the ongoing COVID-19 pandemic on stakeholders and market participants, to further extend the response date for the consultation on the MiFID II/MiFIR review report on the transparency regime for non-equity instruments and the trading obligation for derivatives from 17 May to 14 June 2020.
9 April 2020
ESMA publishes statement on investment funds periodic reporting; AFM announces leniency
On 9 April 2020, ESMA issued a public statement directed at fund managers concerning (semi-)annual reporting obligations under the AIFMD, UCITS Directive, EuVECA and EuSEF Regulations.
ESMA notes that the pandemic may significantly impair fund managers’ ability to publish the required reports before the deadlines set in the regulatory framework. ESMA emphasizes the importance of these reports for purposes of investor protection and expects best efforts to meet the deadlines but notes that national competent authorities (NCAs) should – in the interest of investors – not prioritize supervisory actions in relation to reporting deadlines by applying a one or two month grace period (depending on the date of the deadline and type of report).
ESMA furthermore encourages NCAs to apply a risk-based approach in the exercise of supervisory powers regarding publication deadlines, urges fund managers to inform their NCAs and investors of an anticipated delay of reports and reminds fund managers to continue to adhere to the disclosure obligations laid down in Article 17 MAR.
The statement follows ESMA’s statement dated 31 March 2020 (see below) in relation to reporting by execution venues and investment firms.
On the same day the AFM has announced in a press release (only in Dutch) that it will follow the leniency requested in ESMA’s statement. Fund managers are expected to inform both the AFM and their investors of any delay as soon as possible, indicate the reasons for the delay and, as far as possible, provide an estimate of the expected publication date.
8 April 2020
IOSCO reprioritises 2020 work programme
On 8 April 2020, the International Organization of Securities Commissions (IOSCO) announced in a press release that it has reprioritised its work programme for 2020 in the light of the COVID-19 pandemic. IOSCO is redeploying resources to focus primarily on matters that are directly impacted by COVID-19. Among other things, substantial resources are being devoted to addressing areas of market-based finance, which are most exposed to heightened volatility, constrained liquidity and the potential for pro-cyclicality. These efforts include examining investment funds, as well as margin and other risk management aspects of central clearing for financial derivatives and other securities. IOSCO will also examine any specific investor protection issues, market integrity or conduct risks that may arise in the context of the COVID-19 crisis.
The work being delayed or paused includes IOSCO’s analysis of the use of Artificial Intelligence and Machine Learning by market intermediaries and asset managers, the impact of the growth of passive investing and potential conduct-related issues in index provision, issues around market data, outsourcing and implementation monitoring.
8 April 2020
SRB Chair publishes blog on approach to MREL targets
On 8 April 2020, Elke König, Chair at the Single Resolution Board (SRB) published a blog clarifying the SRB’s approach to minimum requirements for own funds and eligible liabilities (MREL) in light of the COVID-19 crisis. Ms. König notes that the SRB is committed to ensuring that short-term MREL constraints do not prevent banks from lending to the real economy, while carrying on its work on resolvability to ensure stability of the financial system.
To achieve this the SRB will continue to cooperate with banks and national resolution authorities in implementing the 2020 resolution planning cycle, which notably includes changes to MREL decisions under the new banking package (BRRD2/SRMR2). New binding MREL targets, which will in line with SRMR2 be set for 2022 and 2024, will take recent MREL data into account and reflect changing capital requirements. The SRB also intends to take a forward-looking approach to banks that face difficulties in meeting existing binding targets. It will focus on the 2020 decisions and targets and asks banks to provide the necessary data on MREL for the upcoming cycle.
7 April 2020
ECB adopts package of temporary collateral easing measures
On 7 April 2020, the European Central Bank (ECB) published a press release announcing that it has adopted a package of temporary collateral easing measures to facilitate the availability of eligible collateral for banks (Eurosystem counterparties) to participate in liquidity providing operations as a response to the coronavirus crisis. The collateral package contains the following three main features:
Expanding the use of credit claims as collateral by temporarily extending the additional credit claims (ACC) frameworks. This means that:
- the requirements on guarantees are accommodated to include government and public sector guaranteed loans to corporates, SMEs and self-employed individuals and households in the ACC frameworks in order to also provide liquidity against loans benefiting from the new guarantee schemes adopted in euro area member states as a response to the coronavirus pandemic;
- the scope of acceptable credit assessment systems used in the ACC frameworks are enlarged; and
- the ACC loan level reporting requirements are reduced to allow counterparties to benefit from the ACC frameworks even before the necessary reporting infrastructure is put in place.
Reducing other collateral requirements:
- a lowering of the level of the non-uniform minimum size threshold for domestic credit claims to EUR 0 from EUR 25,000 previously;
- an increase, from 2.5% to 10%, in the maximum share of unsecured debt instruments issued by any single other banking group in a credit institution’s collateral pool; and
- a waiver of the minimum credit quality requirement for marketable debt instruments issued by the Hellenic Republic for acceptance as collateral in Eurosystem credit operations.
Increasing risk tolerance level in credit operations through a general reduction of collateral valuation haircuts by a fixed factor of 20%.
These measures are temporary for the duration of the pandemic crisis and linked to the duration of the Pandemic Emergency Purchase Programme (PEPP). They will be re-assessed before the end of 2020.
Some of the above measures were included in decisions and guidelines adopted by the ECB on the same day, both of which have already been published in the Official Journal of the European Union and have taken effect on the day of its notification to the national central banks.
7 April 2020
The Dutch Banking Association and the Dutch Association of Insurers: No forced house sales until 1 July 2020
On 7 April 2020, the Dutch Banking Association (NVB) and the Dutch Association of Insurers (VvV) announced here and here (only in Dutch) that banks and insurers have agreed (only in Dutch) with the central government that no forced house sales will take place due to overdue payments until at least 1 July 2020. The agreement applies when there is a loss of income, turnover or employment, but not if there are criminal activities.
6 April 2020
DNB: update on measures for pension funds in the light of the COVID-19 outbreak
The Dutch Central Bank (DNB) has published a press release in which it provides an update (only in Dutch) on COVID-19 related measures impacting pension funds. The following measures are discussed:
- Postponement of annual reporting: pension funds will have an additional 3 months (until 30 September 2020) for reporting their annual statements.
- Possibility to postpone monthly and quarterly reports: if pension funds cannot submit their monthly and quarterly reports within the given deadlines, DNB may, on request, grant an exemption from the given submission deadlines and can grant temporary postponement thereof.
- Expired examinations: a number of investigations have been cancelled based on the fact that certain types of investigations are difficult to conduct in the current circumstances.
- Prioritize supervisory activities: DNB will prioritize its supervisory activities and shift its attention to certain risks, such as an increased attention to the operation of business continuity management, cyber risks and implications caused by unrest in the financial markets.
- Increased frequency of publication of interest rate term structure: DNB has decided to temporarily publish the nominal interest rate term structure (zero coupon), including the ultimate forward rate (UFR), on a weekly basis.
- Temporarily deviate from the strategic investment policy: pension funds must assess whether the current strategic investment policy is still appropriate and may deviate from their current policy if necessary. There may, however, not be a structural and deliberate increase in the risk profile in a recovery situation.
- Emergency Bridging Measure to Preserve Employment: DNB supports that pension funds make every effort to collect pension contributions from employers who make use of Emergency Bridging Measure to Preserve Employment (Noodmaatregel Overbrugging Werkgelegenheid (NOW)). Employers who are eligible for this emergency measure receive, in addition to an allowance for salary costs, an allowance to continue paying the pension contribution.
- Introductory seminar cancelled: the introductory seminar for new board members on 23 April 2020 is cancelled due to the coronavirus.
6 April 2020
DNB publishes updates for insurers and asset managers
On 6 April 2020, DNB published COVID-19 updates for insurers and asset managers (both in Dutch only). DNB emphasizes the financial sector’s role in supporting the economy and notes that measures have been taken to ensure financial institutions will continue to be able to fulfil that role. DNB has also intensified contact with the institutions under its supervision and calls on those institutions to report problems in a timely manner.
In respect of insurers, DNB:
- repeats its call on insurers to temporarily suspend dividend payments (see the EIOPA update dated 2 April below);
- notes that it has revised its calendar of supervision activities and that it has postponed certain investigations (such as on-site investigations);
DNB states that it expects asset managers to carefully monitor their buffers and to notify DNB of impending prudential deficits straight away. It also urges asset managers to take the current crisis and further developments into account in deciding whether or not to make dividend payments in order to avoid later remedial action.
- announces that it will focus its attention on certain risks, such as the functioning of business continuity management, cyber risks and implications caused by unrest on the financial markets;
- indicates that it will follow EIOPA’s recommendation dated 20 March (see below), resulting in changes to DNB’s enforcement policy in respect of supervisory reporting deadlines for SII insurers and SII Basic insurers.
6 April 2020
DNB provides an update on COVID-19 related measures for banks
In a press release published on 6 April 2020, the Dutch Central Bank (DNB) has provided an update (only in Dutch) on COVID-19 related measures impacting banks. The following measures are discussed:
- Capital relief measures: the capital that has been freed up by the capital relief measures taken by DNB and the European Central Bank should be used to support lending and should not be used to pay out dividends and to buy back own shares. See also the developments on 17 March 2020 (DNB) and 27 March 2020 (ECB) as discussed below.
- Operational measures: various operational measures have been taken, such as postponing some data requests and providing banks with more time to deliver certain reports. DNB emphasizes, however, that it remains important that banks continue to strive to report in a timely and complete manner and to keep an open dialogue with their regulator.
- Ongoing responsibility for money laundering control: banks still have the ongoing responsibility to ensure that the financial system is not misused for money laundering or terrorist financing. In that regard, banks need to take into account new financial crime risks and patterns arising from the corona crisis.
- Further postponement for submitting the Integrity Risks Questionnaire 2020: the deadline for replying to the Integrity Risks Questionnaire 2020 was already extended from 12 May 2020 to 26 May 26 2020. DNB has decided to extend the filing period for all banks once again, which means that this date will shift to 15 June 2020.
3 April 2020
EC extends consultation deadlines
On 3 April 2020, the European Commission (EC) updated its consultation webpage by extending the deadlines for responding to certain consultations because of the COVID-19 situation. The following consultations have been extended:
- The review of the MiFID II / MiFIR regulatory framework will now close on 18 May 2020.
- The review of the Non-Financial Reporting Directive will now close on 11 June 2020.
- The consultation on a new digital finance strategy for Europe / FinTech action plan will close on 26 June 2020.
- The consultation on a retail payments strategy for the EU will close on 26 June 2020.
3 April 2020
BCBS announces deferral of initial margin requirements for non-centrally cleared derivatives and other measures
In a press release published 3 April 2020, the Basel Committee on Banking Supervision (BCBS) has set out additional measures to alleviate the impact of the pandemic, following measures announced 27 March 2020 (see below). The new measures are aimed at supporting banks’ lending activities and providing operational capacity to banks and supervisors to respond to acute financial stability priorities.
The measures are as follows:
- Notably, a deferral by one year of the final two implementation phases of the initial margin requirements for non-centrally cleared derivatives. Implementation of the final phases will now take place on 1 September 2021 (entities whose aggregate average notional amount (AANA) of derivatives positions exceeds EUR 50 billion) and 1 September 2022 (entities whose AANA exceeds 8 billion). A separate press release on this measure can be found here;
- Technical clarifications to guide banks in reflecting the risk-reducing effects of extraordinary support measures introduced by many governments when calculating regulatory capital requirements;
- Guidance on considering the impact of the pandemic in measuring expected credit loss (ECL) under the IFRS 9 accounting standard. In addition, the BCBS amended its transitional arrangements in respect of ECL to allow for greater flexibility at the national level in phasing in the impact of ECL on regulatory capital;
- BCBS will refrain from collecting memorandum data in global systemically important bank (G-SIB) annual assessment. Postponement of the implementation of the revised G-SIB framework by one year, to 2022, was also announced.
2 April 2020
EIOPA urges (re)insurers to temporarily suspend dividend payments and share buy backs; DNB endorses
On 2 April 2020, the European Insurance and Occupational Pensions Authority (EIOPA) announced in a press release that it published a statement on dividends distribution and variable remuneration policies in the context of COVID-19. EIOPA urges (re)insurers to temporarily suspend all discretionary dividend distributions and share buy backs aimed at remunerating shareholders. This approach should be applied by all (re)insurance groups at the consolidated level and also regarding significant intra-group dividend distributions or similar transactions. It should also be applicable to the variable remuneration policies. This statement builds on EIOPA’s statement of 17 March (which is discussed below).
The same day, the Dutch Central Bank announced that it endorses EIOPA’s statement.
2 April 2020
EIOPA provides an update on other measures impacted by the COVID-19 pandemic
The European Insurance and Occupational Pensions Authority (EIOPA) has published an update on other measures impacted by the COVID-19 pandemic, discussing the following topics:
- Currently open consultations/requests to the market: as the capacity of financial institutions to respond to EIOPA consultation papers or calls for evidence is supposed to be affected by the current situation, it is proposed that the consultation period is extended in relation to currently open consultations to the market.
- Public consultations in the process of BoS approval (including discussion notes) to the market: the discussion note on value-chain/insurtech and the second discussion paper on methodological principles of insurance stress testing will be published for public comments on a later date.
- Data requests to financial institutions to start in Q1-Q2: certain information request will be cancelled and some will be postponed.
2 April 2020
EBA publishes Guidelines on legislative and non-legislative moratoria on loan repayments
EBA published detailed Guidelines on legislative and non-legislative moratoria on loan repayments. The Guidelines follow EBA’s statement on the same subject dated 25 March 2020 (see below).
EBA notes that it supports measures taken by Member States to address the economic consequences of the pandemic, but that it is also aware of the need to identify and measure risk accurately. The Guidelines to that end:
- clarify which legislative and non-legislative moratoria do not to trigger forbearance classification while noting that in all other cases the assessment must be done on a case by case basis.
- supplement the EBA Guidelines on the application of the definition of default as regards the treatment of distressed restructuring.
In particular, the Guidelines clarify that payment moratoria do not trigger a forbearance classification and the assessment of distressed restructuring, provided they are based on applicable national law or on an industry- or sector-wide private initiative agreed and applied broadly by relevant credit institutions.
EBA notes that institutions are expected to make use of the general payment moratoria in a transparent manner, collecting information and where relevant providing such information to their competent authorities. EBA furthermore announces that disclosure requirements to the public will be published at a later point in time.
The Guidelines’ scope is limited to moratoria applied before 30 June 2020, but EBA notes that this time limit may be extended if necessary.
2 April 2020
FSB reprioritises 2020 work programme
On 2 April 2020, the Financial Stability Board (FSB) launched a new webpage outlining its work to address the financial stability risks of COVID-19 and explaining how it is reprioritising its work programme for 2020. The main elements of the reprioritisation include:
- Assessment of vulnerabilities. The FSB will focus on monitoring current risks to global financial stability, and in particular the impact of COVID-19 on the resilience of the financial system.
- Non-bank financial intermediation (NBFI). Prioritisation will support timely discussion of policy issues arising from vulnerabilities in NBFI that are surfacing in the COVID-19 crisis.
- Financial innovation. Prioritisation will ensure that the FSB completes initiatives on topics that are likely to remain of policy relevance in the near term.
- Cross-border payments. The three-stage work to develop a roadmap on cross-border payments will continue as scheduled.
- Resolution. Technical work on CCP resolution and the implementation of the Total Loss-Absorbing Capacity (TLAC) standard remains a priority.
- OTC derivatives. Finalising the oversight arrangements for Unique Product Identifier (UPI) and Unique Transactions Identifier (UTI) will continue.
- Benchmark transition. The transition from LIBOR remains a priority as firms cannot rely on LIBOR being produced after end 2021.
- Other work on supervisory and regulatory policies. FSB will prioritise work to focus on policy responses to the COVID-19 crisis, including forward-looking issues concerning crisis management.
The Dutch Central Bank (DNB) is a member of the FSB.
1 April 2020
SRB introduces operational relief measures for resolution planning and MREL
The Single Resolution Board (SRB) published a letter sent to banks by SRB Chair Elke König on 25 March 2020 outlining potential operational relief measures related to the COVID-19 outbreak. In this letter, the SRB states the following:
- Although it is committed to working on the 2020 resolution plans and issuing 2020 MREL decisions in early 2021, it will apply a pragmatic and flexible approach in order to consider postponing less urgent information or data requests.
- The Liability Data Report, the Additional Liability Report and the MREL quarterly template are considered essential and must be delivered on time. The SRB will, however, assess possible leeway in submission dates for other reports.
- The difficulties in achieving work programme updates and in submitting other deliverables will be assessed by the internal resolution teams.
- The SRB will analyse the potential impact of market conditions on transition periods needed for the build-up of MREL. If necessary, it is ready to adapt transition periods and interim targets applied to banking groups, as well as to adjust MREL targets.
See SRB’s blog for further background information on these actions.
1 April 2020
EIOPA urges insurers and intermediaries to mitigate the impact of COVID-19 on consumers
On 1 April 2020, the European Insurance and Occupational Pensions Authority (EIOPA) issued a statement to insurers and intermediaries asking them to take the following actions to mitigate the impact of COVID-19 on consumers:
- Provide clear and timely information to consumers on contractual rights.
- Treat consumers fairly and be explicit in all communications.
- Inform consumers about contingency measures that have been put in place.
- Continue applying product oversight and governance requirements and where necessary carry out a product review.
- Consider the interests of consumers and exercise flexibility in how they are treated.
EIOPA recognizes that there may be boundaries to what the insurance sector can offer. It highlights that, as a general principle, imposing retroactive coverage of claims not envisaged within contracts could create material solvency risks and ultimately threaten policyholder protection and market stability.
On 2 April 2020, the AFM published a press release summarizing EIOPA’s statement.
31 March 2020
ESMA statement on reporting obligations for execution venues and firms; AFM follows recommendations
On 31 March 2020, ESMA issued a statement providing clarification on issues relating to the required publication of best execution reports by execution venues (MiFID II RTS 27) and investment firms (MiFID II RTS 28). The quarterly report on Q4 of 2019 under RTS 27 was due today, while the annual reports under RTS 28 are due by 30 April 2020.
ESMA recommends that national authorities consider the possibility that RTS 27 reports may be published “as soon as reasonably practicable after that date and no later than by the following reporting deadline (i.e. 30 June 2020)” and that RTS 28 reports may be published “on or before 30 June 2020”. ESMA calls on national authorities not to prioritise supervisory action against execution venues and firms which do not meet the deadlines and take a risk-based approach in respect of such parties.
On 1 April 2020, the AFM indicated that it will follow ESMA’s recommendations.
31 March 2020
EBA further clarifies measures to mitigate impact on the EU banking sector; AFM responds with statement regarding AML/CFT
Following statements on 12 March and 25 March (see below), EBA issued statements setting out measures to mitigate the impact of the pandemic on:
- supervisory reporting and Pillar 3 disclosures: EBA – among other measures – allows institutions up to one additional month to report required data (with the exception of certain reporting obligations), urges competent and resolution authorities not to prioritise ad-hoc data collections and encourages flexibility in assessing compliance with Pillar 3 reporting obligations.
- dividends distribution, share buybacks and variable remuneration: EBA – in line with ECB’s 27 March statement – urges banks to refrain from dividends distribution/share buybacks and ensure efficient and prudent allocation of capital within banking groups. EBA also states that competent authorities should ask banks to review their remuneration policies to ensure sound risk management in the current economic situation;
- actions to mitigate financial crime risks in the COVID-19 pandemic: EBA calls on national competent authorities to support credit and financial institutions’ ongoing AML/CFT efforts, urges competent authorities to take measures to identify new and emerging ML/TF risks and adjust AML/CTF supervision where appropriate.
Further to this last statement, on 1 April 2020, the AFM called on institutions to pay specific attention to new forms of ML/FT and to, where necessary, amend their systemic integrity risk analysis.
30 March 2020
AFM in close contact with asset management sector regarding impact of COVID-19 crisis and reminds fund managers of disclosure requirements
The AFM published a statement (in Dutch only) announcing that it is in close contact with fund managers and the Dutch Fund and Asset Management Association (Dufas) regarding the impact of COVID-19 crisis on the sector. Special attention is given to the impact of the crisis on liquidity in the market and the net inflow of assets. The AFM is also keeping an eye on whether fund managers are complying with their requirements to directly inform the AFM and their investors if they are imposing certain liquidity measures, such as the suspension of the repurchase or redemption of participation rights.
27 March 2020
IAIS takes steps to address impact of COVID-19 on the insurance sector
In a statement published 27 March 2020, the Executive Committee of the International Association of Insurance Supervisors (IAIS) announced adjustments to its work programme and steps to safeguard the well-being of its members, stakeholders and staff. The announced measures include a forward-looking risk assessment of the impact of the pandemic and a review of timelines for implementation of the framework for mitigation of systemic risk, data collection exercises, and consultations for supporting material. Further steps may follow, as necessary, to coordinate the actions taken by IAIS members to mitigate the impact of COVID-19 on insurers, safeguard policyholders and contribute to the maintenance of financial stability.
The Dutch regulators - the Dutch Central Bank and the Netherlands Authority on the Financial Markets - are members of IAIS.
27 March 2020
EIOPA announces extraordinary updates for insurers of risk free interest rate term structures and the symmetric adjustment to equity risk
On 27 March 2020, the European Insurance and Occupational Pensions Authority (EIOPA) announced that, due to the COVID-19 outbreak, it will in the coming weeks carry out extraordinary calculations to monitor the evolution of (i) the relevant risk-free interest rate term structures (RFR) and (ii) the symmetric adjustment to equity risk (EDA). The calculations will be done on a weekly basis and the published information is intended to support (re-)insurance undertakings in the monitoring of their solvency and financial positions in accordance with Solvency II.
27 March 2020
ECB recommends banks not to pay dividends until at least October 2020; DNB announces support
The European Central Bank (ECB) has updated its Recommendation on dividend distributions in a further effort to boost banks’ capacity to absorb losses and support lending activities pending the COVID-19 crisis. The ECB recommends that banks should refrain from paying dividends and executing share buy-backs aimed at remunerating shareholders. The Recommendation concerns the financial years 2019 and 2020 and applies until at least 1 October 2020. Dividends already paid out for the financial year 2019 are not affected, but banks are expected to amend dividend distribution proposals for upcoming shareholders’ meetings in line with the Recommendation.
The Recommendation addresses ‘significant’ banks directly but also urges national supervisors to ensure compliance by ‘less significant’ institutions. The same day, the Dutch Central Bank announced (in Dutch only) that it supports the ECB’s recommendation and deems it applicable also to less significant institutions that are under its supervision. Several major Dutch banks have already announced that they will follow the Recommendation.
27 March 2020
The AFM is not yet taking any further short selling measures
On 27 March 2020, the Dutch Minister of Finance published the answers (only in Dutch) to parliamentary questions on monitoring the possible liquidity problems in the financial sector as a result of the impact of COVID-19. It follows from the Minister's answers that, among other things, the Netherlands Authority for the Financial Markets (AFM) does not yet see any reason to take further measures against short selling as the Spanish, Italian, French and Belgian regulatory authorities have done by temporarily prohibiting short selling. The AFM believes that the effects of these measures have turned out to be limited and brought little calm to the volatile markets.
27 March 2020
BCBS announces deferral of implementation of final Basel III standards (‘Basel IV’)
On 27 March 2020, the Basel Committee on Banking Supervision (BCBS) published a press release announcing the deferral of the implementation of certain Basel III standards to provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities resulting from the impact of COVID-19 on the global banking system. The following changes to the implementation timeline of the outstanding Basel III standards have been endorsed:
- The implementation date of the Basel III standards finalised in December 2017 (also commonly referred to as ‘Basel IV’ or ‘Basel 3.5’’, i.e. the revised leverage ratio framework and G-SIB buffer, the revised standardised approach for credit risk, the revised IRB approach for credit risk, the revised operation risk framework and the revised CVA framework) has been deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor has also been extended by one year to 1 January 2028.
- The implementation date of the revised Pillar 3 disclosure requirements finalised in December 2018 has been deferred by one year to 1 January 2023.
- The implementation date of the revised market risk framework finalised in January 2019 has been deferred by one year to 1 January 2023.
Although The EU authorities have yet to formally comment on the impact of the above for the implementation of Basel IV in EU law, Mr Dombrovskis, the European Commission’s executive vice-president, has told the Financial Times it intends to postpone the implementation.
27 March 2020
ESMA keeps application date of equity transparency calculations unchanged
On 27 March 2020, the European Securities and Markets Authority (ESMA) has decided to keep the date of application of the transparency calculations for equity instruments - as required by MiFID II/MiFIR to apply from 1 April 2020 - unchanged. Although the application of new tick-sizes was mentioned as problematic in the current environment due to the COVID-19 pandemic, ESMA considers that delaying the application of the new transparency results would in itself entail some risks and might even create additional operational burdens to all the market participants that have already planned for them.
27 March 2020
ESMA statement on financial reporting deadlines under the Transparency Directive; AFM announces leniency
On 27 March 2020, the European Securities and Markets Authority (ESMA) has issued a statement recommending national competent authorities to apply forbearance powers towards issuers who need to delay publication of financial reports beyond the statutory deadline. At the same time, the statement underlines that issuers should keep their investors informed of the expected publication delay and that requirements under the EU Market Abuse Regulation (MAR) still apply. With reference to the ESMA statement, the Authority for the Financial Markets (AFM) stated (in Dutch only) on the same day that it would seek to take a lenient approach in the event of a late filing of financial reports due to COVID-19.
26 March 2020
The AFM partially suspends inquiries until 1 June 2020
Due to the exceptional circumstances the financial sector is currently facing, the Netherlands Authority for the Financial Markets (AFM) has announced in a press release that it suspends large data inquiries to financial undertakings until 1 June 2020. This suspension does not apply to:
- investigations into interest-only mortgage loans;
- compliance with the Money Laundering and Terrorist Financing (Prevention) Act; and
- the Market Monitor for Advisers and Intermediaries.
However, the AFM confirms that the exceptional circumstances will also be taken into account with these excluded investigations.
26 March 2020
ESMA clarifies earlier statement on approach to reporting obligations of securities financing transactions (SFTs); AFM follows
On 26 March 2020, the European Securities and Markets Authority (ESMA) has published a revised version of its public statement of 19 March 2020. Due to the impact of the COVID-19 pandemic, ESMA expects competent authorities not to prioritise their supervisory actions in respect of the reporting obligations pursuant to SFTR or MIFIR for securities financing transactions (SFT’s, such as repo’s) (i) concluded between 13 April 2020 and 13 July 2020 and (ii) SFTs subject to backloading under SFTR. This essentially postpones the start of the reporting obligation for banks and investment firms in respect of SFTs, which would otherwise apply as of 13 April 2020, to 13 July 2020. Furthermore, backloading is effectively no longer a requirement.
The Netherlands Authority for the Financial Markets (AFM), the relevant competent authority for the reporting obligation of SFT’s by Dutch parties, has confirmed via two press releases (19 March 2020 / 26 March 2020) that it will follow ESMA’s statement. According to the AFM, all the efforts should be made on correct reporting of new transactions as of 13 July for phases 1 and 2 parties (banks, investment firms, CCPs and CSDs and relevant non-EU entities) or later for phases 3 and 4 parties.
25 March 2020
ISDA and other trade associations call for delay to initial margin deadlines
On 25 March 2020, a group of 21 trade associations including the International Swaps and Derivatives Association (ISDA) submitted a letter to the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) requesting a suspension of the current regulatory initial margin (IM) compliance dates for non-centrally cleared derivatives on 1 September 2020 (Phase 5) and 1 September 2021 (Phase 6). As the overall impact of COVID-19 may not be known for some time, the associations suggest that decisions regarding a new timeline for the implementation of further phases of the IM requirements be delayed and reconsidered when relevant facts and circumstances are known.
25 March 2020
ESMA statement on accounting implications of the COVID-19 outbreak on the calculation of expected credit losses in accordance with IFRS 9
On 25 March 2020, the European Securities and Markets Authority (ESMA) has issued a statement in order to promote consistent application of IFRS in the European Union (EU) and avoid divergence in practice on the application of IFRS 9 Financial Instruments in the specific context of the COVID-19 outbreak. Please find the statement here.
25 March 2020
EBA statements on the application of the prudential framework regarding Default, Forbearance and IFRS9 and on consumers and payment issues; AFM reiterates importance of consumer protection
On 25 March 2020, the European Bank Authority (EBA) has published a statement with a view to clarifying to the EU banking sector on how to handle aspects related to (i) the classification of loans in default, (ii) the identification of forborne exposures and (iii) the accounting treatment. Furthermore, it published a statement announcing the need to adopt appropriate measures to contribute to the protection of consumers and the orderly functioning of payment services. These statements can be found here and here, respectively. In a third statement, EBA announced that it will postpone several of its activities, including consultations and data collection projects.
Referencing the EBA statement on consumer protection, the AFM on 3 April 2020 issued a press release (in Dutch only) emphasizing the need to put the customer’s interests first by communicating clearly on COVID 19-related measures.
25 March 2020
DNB announces extension of reporting obligations for insurers
On 25 March 2020, based on recommendations made by the European Insurance and Occupational Pensions Authority (EIOPA) on 20 March 2020 (see development below), DNB has announced that it has sent letters to Solvency II and Solvency II Basis insurers regarding an extension of certain reporting timelines. The letters can be found here (in Dutch only).
23 March 2020
DNB publishes more details on temporary lowering of bank buffer requirements
On 23 March 2020, further to its statement on 17 March 2020 (see the relevant statement below), the Dutch Central Bank (DNB) has provided further information on its measures aimed at supporting lending.
20 March 2020
ECB gives banks further flexibility against COVID-19 impact
In a press release published on 20 March 2020, the European Central Bank (ECB) announced that it will provide further flexibility in order to ensure that banks can continue to fulfil their role in funding households and corporations. On the one hand, the ECB gives banks further flexibility in the prudential treatment of loans backed by public support measures such as NPLs. On the other, the ECB encourages banks to avoid excessive procyclical effects when applying the IFRS 9 international accounting standard. This are additional measures to the capital and operational relief measures announced on 12 March 2020, which are discussed in our update of the same date.
20 March 2020
ESMA statements on call taping under MiFID II, new tick size regime for systematic internalisers
On 20 March 2020, the European Securities and Markets Authority (ESMA) published statements confirming its position with respect to certain issues regarding call taping under MiFID II and the new tick-size regime for Systemic Internalisers.
20 March 2020
EIOPA issues recommendations on supervisory flexibility regarding deadlines of supervisory reporting and public disclosure by insurers
The European Insurance and Occupational Pensions Authority (EIOPA) has issued certain recommendations with a view to (i) providing for flexibility regarding upcoming supervisory reporting deadlines; (ii) enabling insurers to concentrate efforts on monitoring and assessing impact of Coronavirus/COVID-19 and maintaining business continuity. The recommendations are addressed to the national competent authorities to provide for a consistent approach to supervision. The recommendations can be found here.
19 March 2020
The Dutch Banking Association: Banks offer SMEs six months postponement of repayments
The Dutch Banking Association announced that the largest Dutch banks (ABN Amro, BNG Bank, ING, Rabobank, Volksbank and Triodos Bank) are jointly introducing measures which offer their SME clients extra breathing space. Companies which were healthy prior to the COVD-19 crisis and have a credit of maximum EUR 2,5 million are offered a six-months postponement for the repayment of their loans. This offer is a minimum arrangement, which allows banks to provide additional tailored support to its clients. Banks will closely monitor the developments for the group with higher loans, which could result in further steps.
17 March 2020
DNB lowers bank buffer requirements to support lending
The Dutch Central Bank (DNB) has announced that it will take several measures in order to support lending by financial institutions: (i) it will temporarily require lower systemic risk buffers for certain Dutch banks; (ii) it will postpone the introduction of the Mortgage loan risk weighing regulation (Regeling risicoweging hypothecaire leningen). This regulation would introduce a floor for the risk-weighted capital to be held by banks providing mortgage credit. The postponement is estimated to free up a total of EUR 3 billion in assets Dutch banks would otherwise not have been able to lend out.
17 March 2020
EIOPA statement on actions to mitigate the impact of Coronavirus/COVID-19 on the EU insurance sector
The European Insurance and Occupational Pensions Authority (EIOPA) issued a statement with guidance for the EU insurance sector on business continuity and solvency/capital position.
16 March 2020
ESMA decides to lower net short position reporting threshold to 0.1%
The European Securities and Markets Authority (ESMA) has issued a decision requiring any holder of a net short position to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital of a company whose shares are traded on an EU regulated market. Prior to this decision the applicable threshold was 0.2%. Please see the following contribution from our Capital Markets experts for more information.
12 March 2020
ECB provides banks temporary capital and operational relief in reaction to coronavirus
The European Central Bank (ECB) has announced in a press release a number of measures to ensure that the banks it directly supervises can continue to fulfil their role in funding the real economy as the economic effects of the coronavirus become apparent. Banks may first of all temporarily operate below the level of capital defined by the Pillar 2 guidance, the capital conservation buffer and the liquidity coverage ratio. Furthermore, banks may partially use capital instruments that do not qualify as Common Equity Tier 1 capital in order to meet Pillar 2 requirements. These measures follow the letter published on 6 March 2020, as discussed below.
12 March 2020
EBA statement on actions to mitigate the impact of COVID-19 on the EU banking sector
In a statement the European Banking Authority (EBA) has announced that it has postponed EU-wide stress-tests to 2021 to allow banks to prioritise operational continuity and called upon national competent authorities to make full use of the flexibility embedded in existing regulation.
11 March 2020
ESMA recommends action by financial market participants for COVID-19 impact
The European Securities and Markets Authority (ESMA) has issued recommendations to financial market participants due to the impact of COVID-19. ESMA’s recommendations relate to business continuity planning, market disclosure under MAR (including the potential impact of COVID-19 on issuer fundamentals and prospects), financial reporting and fund management.
6 March 2020
What ECB expects from significant banks in the light of the COVID-19 pandemic
The European Central Bank (ECB) published a letter sent to significant banks on 3 March 2020 explaining that it expects those banks to take appropriate actions for preparing and responding to the Corona pandemic. In this letter significant banks were asked to review their business continuity plans and to consider what actions could be taken to enhance preparedness to minimise the potential adverse effects of the spread of the coronavirus.