Financial Services Regulation and Compliance – Bank January 2022

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National

CBI introduces revised standard financial statement to help borrowers in financial difficulty

On January 5, 2022, the BCI published a revised simplified standard financial statement to help borrowers in financial difficulty following its review of the EFS. The revised SFS must be used by all regulated companies from 1 January 2022.

The SFS is used by regulated companies to collect information from distressed borrowers about their current financial situation. Once completed, their lender can assess whether they can offer a borrower an alternative method of repayment.

Protecting borrowers in financial difficulty is a key priority for the CBI. The existing regulatory framework provides a significant number of protections and supports for borrowers who have or are facing mortgage arrears. The CBI has reviewed, defended and strengthened these rules, where necessary, to ensure that the regulatory framework remains fit for purpose and continues to protect consumers in their dealings with their financial institutions.

European

EBA publishes its opinion on the scale and impact of risk reduction in the EU

On 5 January 2022, the EBA published its opinion on the extent and impact of risk reduction in the EU (the opinion). Risk reduction can be a legitimate risk management tool, but it can also be a sign of ineffective money laundering (ML) and terrorist financing (TF) risk management, with sometimes serious consequences.

Following consultation with relevant competent authorities and relevant stakeholders across the EU, EBA found that risk reduction has a negative impact on the achievement of EU objectives, in particular with regard to the effective fight against financial crime and the promotion of financial inclusion, competition and stability.

The opinion identifies a number of measures that competent authorities and the European Commission could take, in addition to permanent EBA guidance on ML/FT risk management. In particular, the EBA encourages competent authorities to engage more actively with institutions that reduce risk and users of financial services that are particularly affected by risk reduction, in order to raise their awareness of their respective rights and responsibilities. The opinion complements the EBA’s guidelines on ML/FT risk factors and the guidelines on risk-based supervision, which were both revised and published in 2021.

The EBA has published guidelines for institutions and resolution authorities on improving bank resolvability and consults them on portability

On 13 January 2022, the EBA published its final guidelines for institutions and resolution authorities on improving bank resolvability (the guidelines). On the same day, the EBA launched a consultation document on guidelines for institutions and resolution authorities on the transferability of parts or the whole of a bank in the context of resolution in order to complete the resolvability assessment for transfer strategies (the consultation).

The guidelines set out requirements to improve resolvability in the areas of business continuity in resolution, access to financial market infrastructure, funding and liquidity in resolution, bail-in execution , the reorganization of activities and communication.

Institutions and authorities should fully comply with the guidelines by 1 January 2024. The guidelines should be seen as the minimum steps that institutions should take towards resolvability.

The consultation aims to assess the feasibility and credibility of transfer strategies and encompasses the requirements for implementing transfer tools when considered as preferred or alternative strategies for institutions. The consultation is open for contributions until April 15, 2022.

EBA confirms continued application of reporting and disclosure requirements related to COVID-19 until further notice

Following the uncertainty surrounding the evolution of COVID-19, the EBA confirmed on 17 January 2022 the need to continue monitoring the exposures and credit quality of loans benefiting from various public support measures.

The guidelines on the reporting and publication of exposures subject to measures applied in response to the COVID‐19 crisis (EBA/GL/2020/07) have applied since 2 June 2020. They have established a frequency quarterly declaration and a half-yearly publication of exposures in payment. moratoriums as well as on exposures under public guarantee schemes related to COVD-19. The EBA’s announcement confirmed that, unless instructed otherwise by their competent authorities, credit institutions should continue to report and disclose data related to COVID-19 beyond December 2021. The EBA will continue to monitor developments and will consider repealing the guidelines in the future. when the COVID-19 situation allows and the credit outlook for loans under public support measures improves.

EBA publishes binding standards on Pillar 3 information on ESG risks

On 24 January 2022, the EBA published its final draft Implementing Technical Standards on Pillar 3 disclosures on environmental, social and governance aspects (ESG) risks. Disclosure of ESG risks is an essential tool to promote market discipline, allowing stakeholders to assess ESG-related risks and banks’ sustainable finance strategy.

The EBA ESG Pillar 3 package will help close the gaps in institutions’ current ESG disclosures at the EU level by establishing mandatory and consistent disclosure requirements, including granular templates, tables and associated guidance.

ECB launches climate risk stress test for 2022

On 27 January 2022, the ECB launched a prudential stress test on climate risk to assess the extent to which banks are prepared to face financial and economic shocks stemming from climate risk. The exercise will be conducted in the first half of 2022, after which the ECB will publish the aggregated results.

The purpose of the test is to identify vulnerabilities, best practices and challenges that banks face in managing climate-related risks. The test is a learning exercise that consists of three distinct modules: (i) a questionnaire on banks’ climate stress testing capabilities, (ii) a benchmark peer analysis to assess the sustainability of banks’ business models. banks and their exposure to emissions-intensive companies, and (iii) a bottom-up stress test. To ensure the proportionality of the exercise, smaller banks will not be asked to provide their own stress test projections.

From March 2022, banks will submit their climate risk stress test models to the ECB for assessment. The supervisor will then engage with the banks and provide feedback. The results will feed into the supervisory review and assessment process (SREP) from a qualitative point of view. This means that the stress test could indirectly impact Pillar 2 requirements via SREP scores, but will not directly impact capital via Pillar 2 guidance.

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