Worldwide: Financial Regulatory Developments Focus — Issue 17, May 2, 2018

Bank Prudential Regulation & Regulatory Capital

European Banking Authority Consults on Draft Guidelines on Disclosure of Non-Performing and Forborne Exposures

On April 27, 2018, the European Banking Authority launched a consultation on draft Guidelines on disclosure of non-performing and forborne exposures. Since the 2007/08 financial crisis, there has been a build-up of non-performing loans in the EU, which impacts banks' viability and lending capabilities. The European authorities have agreed various actions to tackle NPLs in Europe, resulting in several recent steps being taken by the European Commission, the European Central Bank and the EBA.

The proposed Guidelines set out the content, format and frequency of disclosures for non-performing exposures, forborne exposures and foreclosed assets.

The draft Guidelines would apply to all banks that are subject to any of the disclosure requirements under the Capital Requirements Regulation and would apply to all exposures that fall within the definition of either non-performing or forbearance in the ITS on Supervisory Reporting (Commission Implementing Regulation (EU) No 680/2014). The level and frequency of disclosure will depend on the significance of a firm and the level of NPEs. The draft Guidelines should be read with the EBA's proposed Guidelines on sound risk management practices for banks for managing NPEs, FBEs and foreclosed assets.

As with the proposed risk management Guidelines, the EBA intends to publish the finalized disclosure Guidelines before the end of 2018 and for the Guidelines to apply from January 1, 2019.

Feedback on the proposed Guidelines can be provided by June 27, 2018. The EBA is holding a public hearing on the draft Guidelines on June 27, 2018.

The consultation paper is available at: http://www.eba.europa.eu/documents/10180/2200407/Consultation+Paper+on+Guidelines+on+disclosure+of+ non-performing+and+forborne+exposures+%28EBA-CP-2018-06%29.pdf, the EBA's proposed Guidelines on sound risk management practices for NPEs are available at: https://finreg.shearman.com/european-banking-authority-seeks-feedback-on-draf  and the Commission's proposals to address the build-up of NPLs are available at https://finreg.shearman.com/european-commission-launches-package-to-address-n.

European Commission Adopts Revised Technical Standards on Mapping of External Credit Ratings

On April 24, 2018, a Commission Implementing Regulation was published in the Official Journal of the European Union. This Amending Regulation, which takes effect on May 15, 2018, revises a Commission Implementing Regulation adopted in October 2016 under the CRR.

Under the CRR, firms that use the Standardised Approach for the purposes of calculating their capital requirements for credit risk can use external credit assessments to determine the credit quality of exposures.These external credit assessments must be made by External Credit Assessment Institutions. ECAIs are either credit rating agencies registered under the CRA Regulation or central banks that issue credit ratings (which are exempt from the application of the CRA Regulation). The 2016 Implementing Regulation set out Implementing Technical Standards for the mapping of the credit quality of exposures (obtained from ECAIs) to their corresponding risk weights.

The Joint Committee of the European Supervisory Authorities consulted in July 2017 on the need to make changes to the 2016 Implementing Regulation to reflect the fact that, since it was adopted, five additional ECAIs had been recognized and one ECAI had been de-registered. The Joint Committee submitted draft revised ITS to the Commission in December 2017 and the Commission has adopted them in the Amending Regulation. The Amending Regulation ((EU) 2018/634) is available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R0634&from=EN  and details of the July 2017 consultation are available at: https://finreg.shearman.com/european-banking-authority-proposes-revised-techn.

Basel Committee on Banking Supervision Progress Report on Basel III Implementation

On April 23, 2018, the Basel Committee on Banking Supervision published its 14th progress report on implementation of the Basel III prudential framework, based on responses from Basel Committee member jurisdictions, and reports the status as of the end of March 2018. The Report sets out in tabular form the results of the Basel Committee's monitoring of the adoption progress of all Basel III standards agreed to date, which will come into effect by 2022. The table omits details of those Basel III standards that have already been implemented by all Basel Committee member jurisdictions. It sets out the ongoing implementation progress of each member jurisdiction on aspects of the risk-based capital standards, leverage ratio requirements, liquidity requirements, the requirements for systemically important banks, interest rate risk in the banking book, the supervisory framework for large exposures and the Pillar 3 disclosure requirements.

The Basel Committee notes that, since the last report published in October 2017, member jurisdictions have made further progress in implementing standards whose implementation deadlines passed at the start of 2018, but limited progress has been made in the implementation of some standards whose implementation deadlines passed in 2017. The Basel Committee urges member jurisdictions to strive for full, timely and consistent implementation of Basel III and will keep monitoring closely the implementation of the reforms.

The progress report is available at: https://www.bis.org/bcbs/publ/d440.pdf.

Please click here to view the full report.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.