The CBI announced targeted changes to the mortgage measure framework
On 19 October 2022, the CBI published the conclusions of its review of the mortgage framework and announced a number of targeted changes to the measure. The rule changes will come into force in January 2023 and include:
- First-time buyers will be able to borrow up to four times their gross income.
- Second and subsequent buyers will continue to be able to borrow up to 3.5 times their gross income.
- Loan to value (LTV) for first time buyers will remain at 90%. LTV for second and subsequent buyers will increase to 90%. LTV for buy-to-let buyers will remain at 70%.
- Lenders will continue to be able to lend certain amounts above this limit, in line with their own credit policies.
Some changes were also made to the criteria for being a first-time buyer (FTB). A ‘fresh start’ borrower who has been divorced or separated or has experienced bankruptcy or insolvency may be considered an FTB where they no longer have an interest in the previous property. FTBs who get a top-up loan or remortgage with a principal increase can be considered ‘first time’, provided the property remains their main home.
CBI publishes financial stability note on account migration
On 26 October 2022, the CBI published its financial stability note (the notes) looked at consumer switching, and in particular the potential barriers to consumer engagement, through the lens of behavioral economics. Banks are expected to prioritize the interests of consumers and take steps to ensure consumers are enabled to switch. The note emphasizes the importance of instilling a clear communication strategy, process and support for customers.
The EBA published its report on its analysis of the EU’s dependence on non-EU banks and the dependence of EU banks on funding in foreign currencies
On 3 October 2022, the EBA published a report on the dependence of the EU financial sector on counterparties, operators and funding originating outside the EU single market. The first part of the Report focuses on the role of non-EU entities in the EU banking sector. Findings from June 21, 2021 show that this entity has a market share of 12.2% of total banking assets, 11.4% of loans, 6.6% of debt securities and 31.4% of derivatives.
Regarding the use of EU bank services provided by non-EU operators, 20% of the total fees and commission expenses of EU banks have been credited to operators residing outside the EU. Payment, clearing and settlement services and custody services are among the most common types of activities that EU banks acquire from non-EU operators.
As of June 2021, 19% of total EU bank funding was denominated in significant foreign currencies.
EBA update on monitoring total loss-absorbing capacity and minimum requirements for own funds and eligible liability instruments
On 7 October 2022, the EBA published an updated TLAC/MREL monitoring report. Following the first TLAC-MREL monitoring report, the EBA found that its recommendations had, on the whole, been well implemented. However, it has identified the need for some important new provisions to be recommended and some other provisions to be avoided. This report provides policy insights based on TLAC/MREL instruments assessed until February 2022 with the aim of further strengthening the quality of instruments and obtaining more standardized information across the EU.
The EBA has seen convergence and standardization in terms of legislative notes and programs, also derived from the actual implementation of the EBA recommendations from the first TLAC/MREL monitoring report and the ESG recommendations in the latest AT1 monitoring report.
The EBA issued an opinion in response to the European Commission’s proposed amendments to the EBA’s final draft technical standard on Pillar 3 disclosures on ESG risks
On 17 October 2022, the EBA published an opinion on changes proposed by the European Commission on how the banking book taxonomic alignment ratio (BTAR) should be disclosed by institutions. The EBA recognizes the importance of proportionality and, therefore, although in favor of the original wording asking institutions to disclose this information on a best efforts basis, the EBA accepts the amendment proposed by the European Commission. The EBA also emphasized that the goal of BTAR is to avoid asymmetric treatment of exposures to counterparties that could increase the same level of risk to the institution and emphasized the importance of institutions making every effort to disclose this ratio and collect relevant information from their counterparties.
The Basel Committee reports progress on the implementation of Basel III
On October 4, 2022, the Basel Committee on Banking Supervision issued its progress update on the application of the Basel regulatory framework. The update summary and monitoring dashboard sets out the status of the jurisdiction’s application of the Basel III standards at the end of September 2022. It covers the Basel III post-crisis reforms published by the committee in December 2017 and the finalized minimum capital requirements for market risk in January 2019. These reforms will take effect effective from January 1, 2023, as announced by the Governor and Chief Supervisor in March 2020.
The EBA clarified the status of several disclosure guidelines and ensured continued transparency of credit quality disclosures by all types of credit institutions
The EBA repealed the three implementing technical standards (ITS) disclosure guidelines and amended the scope of application of the guidelines on Pillar 3 disclosures regarding unpaid and accused disclosures. The EBA’s amended guidelines adjust the scope of application of the guidelines on unpaid disclosures and accused disclosures (EBA/GL/2018/10) to clarify that these guidelines will continue to apply to small and non-complex listed institutions and to other institutions. medium-sized unlisted institutions. The amended guidelines will apply from 31 December 2022. The amended guidelines do not introduce any new requirements and only clarify the application of the existing EBA guidelines to ensure that affected institutions continue to disclose information as they have been doing since 2019.
The EBA published peer review conclusions on how competent authorities supervise institutional ICT risk management and have implemented the EBA guidelines on SREP
On 17 October, the EBA published their analysis, suggesting that competent authorities across the EU have applied a risk-based approach to the supervision of ICT risk management. The EBA did not identify any significant concerns regarding supervisory practices but made some general recommendations for further improvement. The peer review did not raise significant concerns about supervisory practices over ICT risk management, but the EBA made some general recommendations to further strengthen supervisory practices. The peer review also included a recommendation to the EBA to incorporate some of the good practices identified into the guidelines on ICT risk assessment under SREP when those practices are reviewed in the future.
The EBA publishes an opinion on the European Commission’s amendments related to the final draft of the implementation of the technical standard (ITS) on prudential disclosure of ESG risks in accordance with Article 449a CRR
On 17 October 2022, the EBA delivered an opinion, accepting two substantive changes proposed by the Commission to increase the proportion. The Commission has proposed amendments to emphasize:
- that institutions ‘may’ choose to disclose this information, rather than being required to do so on a ‘best endeavours’ basis
- that the collection of information from business partners will be made on a ‘voluntary’ basis, including that institutions must inform business partners of the voluntary nature of this information request
The EBA has insisted that institutions should make every effort to collect and disclose the highly relevant information shown in the BTAR, but accepted the amendment proposed by the European Commission, recognizing the importance of proportionality.
The EBA publishes final standards and guidelines on interest rate risk arising from non-trading book activities
On 20 October 2022, the EBA published a final set of guidelines and two final draft regulatory technical standards (RTS) specifying the technical aspects of the revised framework that captures interest rate risk for the banking book position (IRRBB). This regulatory product complements the EU legal adoption of the Basel standards on IRRBB and is particularly important given the current interest rate environment. The guidelines on IRRBB and credit spread risk arising from non-trading book activities (CSRBB) will replace the current guidelines on technical aspects of interest rate risk management arising from non-trading activities under the supervisory review process (SREP) published in 2018 Guidelines this will be used from 30 June 2023, except for the CSRBB section, which will be used from 31 December 2023.
Regulation (EU) 2022/2036 (a ‘daisy chain’ regulation introducing targeted adjustments to improve bank resolvability) has been published in the Official Journal of the European Commission
The ‘daisy chain’ regulation was formally adopted by the co-legislators on 19 October 2022. It introduces amendments to Regulation (EU) No 575/2013 and Directive 2014/59/EU on the prudential treatment of globally systemically important institutional groups with multi-entry point settlement strategy and methodology for indirect subscription of eligible instruments to meet minimum requirements for own funds and eligible liabilities. The Act was published in the Official Journal on 26 October 2022. The Regulation amends the EU bank resolution framework by:
- incorporating special treatment for indirect subscription of eligible instruments for internal minimum requirements for own funds and eligible liabilities (MREL)
- further aligning the treatment of the group of global system important institutions (G-SII) with the multiple entry point (MPE) settlement strategy with the treatment outlined in the Financial Stability Board (FSB) international total loss-absorbing capacity term sheet (TLAC standard )
Amendments to the CRR relating to the indirect subscription of internal MREL-eligible instruments in the resolution pool will apply from 1 January 2024. The remaining provisions of the CRR-related regulations will apply from 14 November 2022.
Consequential changes to Articles 45d(4) and 45h(2) of the BRRD relating to indirect subscription of internal MREL-eligible instruments in the resolution pool must be implemented by Member States by 15 November 2023. Other amendments to the BRRD will apply from 14 November 2022 .
The EBA sets examination program priorities for prudential supervisors for 2023
On 27 October 2022, the EBA published the European Supervisory Program (ESEP) for 2023 which identifies key topics for supervisory attention across the EU. Key topics include:
- macroeconomic and geopolitical risks
- operational and financial resilience
- risk of transition towards sustainability and digitization
- money laundering and terrorist financing (ML/TF) risks in the supervisory review and evaluation process (SREP) and internal control/governance
The EBA also publishes the European Resolution Examination Program (EREP), which is a similar initiative in the resolution domain. Although both exam programs are independent, they are part of a coordinated initiative to increase convergence in the EU.