Future focus of the European banking regulator
European banking regulator gives an insight into future areas of focus
The latest annual report by the European Banking Authority (EBA) issued in mid-June gives an overview of the steps taken to date to establish, embed and monitor continued convergence towards a single set of laws and rules across the European banking sector. In particular, this includes enhanced provisions and standards concerning remuneration frameworks, capital and liquidity requirements, depositor protections and also the ongoing viability and resilience of the banking sector to stress events through effective crisis-management and robust resolution and recovery arrangements.
The EBA continues to develop and apply a range of measures and means by which it can supervise and understand sector threats and events, using specific risk dashboards and exercises to stress test organisations against realistic scenarios, but also provisions to promote principles of transparency and fairness when undertaking business and dealing with consumers.
The report also looks ahead to the expected areas of focus in terms of the emerging risks and challenges for the banking sector across Europe. This is expected to include continues active engagement and co-operation with national and international bodies and agencies to provide a contribution and deliver work on cross-border and sectoral matters. Key topics of focus will also include an oversight and contribution to encouraging and securing financial innovations and the efficiency of related products and services e.g. payments, to meet customer and investors needs, circumstances and expectations. In addition, it will consider, develop and implement various tools and mechanisms to maintain a close focus around both micro and macro-prudential issues and risk aspects. For example, it is likely to build-on and further revise the current financial reporting framework and standards embodied within the existing ‘own funds’ (COREP) and ‘balance sheet’ (FINREP) processes.
The EBA’s new ‘Risk Dashboard’ was introduced in early 2016 and its latest assessment (see Figure 16 on p51 of the report) suggests that divergences in global monetary policies and market volatilities could increase propensities for market risks. But also, that pressures on pricing and return spreads across various financial products and investment instruments could impact levels of market and organisational liquidity and funding. And a broad range of other risk areas such as operational, credit, reputational and profitability are considered to current be ‘High’.
The EBA is also expected to advocate and promote its powers and industry visibility through a range of industry and stakeholder engagement measures. Importantly, this includes its training programmes as well as for the first time undertaking on-site review visits to ‘national’ competent authorities to scrutinise and assess their working supervisory practices on certain topics and to cultivate ongoing supervisory convergence. During 2016 this is also expected to inform an update of guidance covering such areas a stress testing but also internal capital risk assessment e.g. ICAAP. Other topics that will be a focus during 2016 include reviews of other specific current arrangements and working aspects e.g. credit risk framework, regulatory proportionality, leverage rations and the proper handling and resolution of legacy assets in respect of non-performing loans (NPL).