Recent regulatory developments focussing on banking and finance. This week's edition includes a number of updates from the EBA, the European Commission and the European Central Bank.

Contents

• COVID-19: EBA extends application date of guidelines on moratoria on loan repayments
• EBA interactive single rulebook and Q&A tool updated
• Risk reduction measures package: EBA technical standards timeline
• CRD: EBA final draft RTS and ITS on passport notification
• EU green bond standard: European Commission consultation and impact assessment
• Swaptions impacted by transition to €STR: ECB recommendations
• Deposit guarantee schemes: EBA peer review of stress tests and resilience

COVID-19: EBA extends application date of guidelines on moratoria on loan repayments

On 18 June 2020, the European Banking Authority (EBA) announced 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. The EBA notes that this extension will ensure that adequate treatment for borrowers is available across the EU, considering that COVID-19 has affected EU countries in different ways and at a different pace.

The EBA is aware of the trade-off faced in making the extension, as persistent liquidity shortages under the current circumstances may develop into solvency issues that need to be properly assessed by banks on a case-by-case basis.

It also stresses that the implementation timeline envisaged in its internal ratings-based (IRB) roadmap to repair internal models remains overall unchanged. However, the EBA recognises that there may be institution-specific circumstances requiring more flexibility. Consequently, the EBA notes that supervisors may want to use their supervisory discretion in line with Article 146 of the Capital Requirements Regulation (CRR).

EBA interactive single rulebook and Q&A tool updated

The EBA has announced that it has expanded the scope of its Q&A tool in its online interactive single rulebook (ISRB) to enable questions to be submitted on the Fourth Money Laundering Directive (MLD4) and consumer protection legislation under the EBA's scope. In addition, the ISRB has been expanded to include the MLD4, the Wire Transfer Regulation (WTR), and updates relating to the latest versions of the Capital Requirements Regulation (CRR II), the Capital Requirements Directive (CRD V) and the Banking Resolution and Recovery Directive (BRRD II).

In addition, the EBA has updated its document setting out additional background and guidance for asking questions.

Risk reduction measures package: EBA technical standards timeline

The EBA has published a letter it has sent to the European Commission relating to the submission of technical standards under the risk reduction measures package. The EBA previously submitted a roadmap on the technical standards it is required to produce. In its letter, the EBA sets out amended expected dates for it to submit technical standards to the Commission relating to:

• CRR II: the deadlines have moved from December 2019, March 2020 and June 2020 to various points in 2020, 2021 and 2022;
• CRD V: the deadlines have moved from June 2020 to March 2022; and
• BRRD II: the deadlines have moved from June 2020 to December 2020.

In addition, the letter states that there will be a delay to the initial margin model validation technical standard under the European Market Infrastructure Regulation (EMIR), which is now expected in June 2021.

CRD: EBA final draft RTS and ITS on passport notification

The EBA has published its final draft amending regulatory technical standards (RTS) and implementing technical standards (ITS) on passport notifications under Articles 35, 36 and 39 of the Capital Requirements Directive (CRD). The two sets of amending technical standards increase the quality and consistency of information to be provided by a credit institution notifying its home competent authorities when it intends to open a branch or provide services in another member state, and the communication between home and host authorities.

The EBA states that the amendments focus on:

• requesting the credit institution to indicate as accurately as possible the intended start date of each activity for which the notification is submitted, rather than only the core business activities;
• increasing the granularity of the information on the financial plan to be notified in the case of establishing a branch; and
• providing additional information in case of termination of the branch.

The EBA also provides feedback to responses it received to its related consultation.

EU green bond standard: European Commission consultation and impact assessment

Building on the existing work of the European Commission's Technical Expert Group on Sustainable Finance (TEG), the Commission has published a consultation and impact assessment on its initiative for the establishment of an EU Green Bond Standard (EU GBS). Feedback on the impact assessment can be given until 10 July 2020 and the consultation is open until 2 October 2020.

This consultation builds upon the European Green Deal. As part of the Green Deal and European Green Deal Investment Plan, the Commission previously reaffirmed its commitment to establish an EU GBS. The Commission also committed to developing a renewed sustainable finance strategy, which is the subject of a separate public consultation currently open for submissions until 15 July 2020. That consultation contains several questions on green bonds and respondents are also requested to participate in it.

A decision on the EU GBS will be taken in the context of the renewed sustainable finance strategy. The Commission expects to propose this in Q4 2020.

Swaptions impacted by transition to €STR: ECB recommendations

The European Central Bank (ECB) working group on euro risk-free rates has published a recommendation on swaptions affected by the central clearing counterparties' (CCPs) discounting transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR).

Among other things, the working group recommends that:

• counterparties voluntarily exchange compensation for the legacy swaption contracts affected by the CCPs' discounting transition from EONIA to the €STR; and
• market participants contact their swaptions counterparties to determine whether they intend to consider voluntary compensation. Prompt action is recommended to: (a) avoid an extended period of uncertainty; (b) minimise any valuation difference; and (c) promote responsible risk management and market liquidity and resiliency.

Deposit guarantee schemes: EBA peer review of stress tests and resilience

The EBA has published its first peer review of stress tests and the resilience of deposit guarantee schemes (DGSs). The purpose of the peer review was to assess the resilience of DGSs based on the results of the DGS stress tests, and to identify good practices and areas for improvement.

The EBA is of the view that using the grading system outlined in the Guidelines on stress tests of DGSs, the overall resilience of DGSs across the EU is "fair", which is the second best result, after "optimal". This means that the identified shortcomings are isolated and/or can easily be addressed by the DGSs at the point of failure, and are unlikely to affect the ability of DGSs to perform their tasks in line with the Deposit Guarantee Schemes Directive (DGSD). The report also identifies good practices that were deployed by a number of DGSs and which can be considered by other DGSs.

The EBA highlights some shortcomings and provides early indications on how to improve and enhance the framework. In particular, the EBA found that the divergence in the type of exercises performed and in the way outcomes were reported made it difficult for the EBA to compare the tests between DGSs, thus hampering the desired consistency. Therefore, the EBA gives early indications on how to enhance the comparability for future peer reviews. The EBA notes that these early indications will also serve as input for any potential future revision of the EBA Guidelines on stress tests of DGSs.

In relation to the COVID‐19 pandemic, the EBA includes in the report an early indication of how to improve the 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, power outages or significant operational disruptions.

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