Insights

In this issue:

• Ganado Advocates Monthly Banking & Finance Law Webinars
• MFSA issues document on supervision of banking sector
• EU Commission publishes report on effectiveness of Consumer Credit Agreements Directive
• EBA publishes its methodology for the 2021 EU-wide stress test
• EBA publishes revised final technical standards for global systemically important institutions
• EBA publishes its Opinion on prudential supervisors and ML/TF risks
• MFSA echoes EBA’s call for Brexit Readiness
• MFSA Circular on Regulation No 2015/2365 on Securities Financial Transactions Regulation
• MFSA issues clarification on Circular on Transaction reporting by Non-Financial Counterparties under the
• Securities Financing Transactions Regulation (EU) No 2015/2365
• EBA’s assessment shows a significant use of COVID-19 moratoria and public guarantees
• EU regulators scramble to prepare for post-Brexit derivative scenario

Ganado Advocates monthly banking & finance law webinars

As from 19 January 2021, Ganado Advocates will be holding a series of monthly one-hour technical webinars on banking and finance law and regulation. The webinars will delve into interesting themes, touching upon various aspects of the banking and finance world, such as discussions on the legal and regulatory frameworks relating to credit and financial institutions, both from a national or European level.

MFSA issues document on supervision of banking sector

The MFSA, the national competent supervisory authority in Malta has started issuing a series of publications focusing on the supervision of the Maltese banking sector, specifically credit institutions.

The first volume ‘The Nature and Art of Financial Supervision’ discusses the supervisory work that the MFSA has conducted throughout the past year and describes the methodology that the MFSA used in the oversight of credit institutions based in Malta. It also sets out the strategy that the MFSA will employ in 2021.

Link to the first volume

EU Commission publishes report on effectiveness of Consumer Credit Agreements Directive

On 5 November 2020, the EU Commission issued a report to the European Parliament and the Council on the implementation of Directive 2004/48 on credit agreements for consumers. (“the Directive”). The aim of the report is to assess the effectiveness of the Directive, 10 years after its transposition.

The report states that the Directive has been partially effective in ensuring higher consumer protection and fostering the development of a single market for credit. Additionally, the report also highlights a number of significant shortcomings, including its limited scope as well as the use of certain unclear and ambiguous terms found within the Directive.

The report calls for a review of certain provisions of the Directive, which could also serve as an opportunity to consider remedies for the other shortcomings.

Link to report

EBA publishes its methodology for the 2021 EU-wide stress test

The European Banking Authority (EBA) has published the methodology that it will be adopting next year to carry an EU-wide stress test. The methodology and templates which will be used have undergone some changes in light of the current COVID-19 pandemic.

It will now include the recognition of FX effects for certain P&L items, as well as the treatment of moratoria and public guarantees. The stress test will launch in January 2021 and is aimed to be published by 31 July 2021.

Link to press release

Revised final technical standards for global systematically important institutions published by the EBA

The EBA has published final draft regulatory technical standards (RTS) on the identification of the indicators of global systematic importance as well as revied Guidelines on their disclosure.

A significant change that this revision has bought about, is the introduction of a new trading volume indicator, adding to the other 12 indicators which are already in place. These revised RTS will apply from the 2022 G-SII assessment exercise based on end-2021 information.

Link to new RTS

EBA publishes its opinion on prudential supervisors and ML/FT risks

The EBA has issued its Opinion as to the manner in which prudential supervisors are to consider money laundering and terrorist financing (ML/TF) risks in the context of the Supervisory Review and Evaluation Process (SREP).

The risks that are particularly relevant to prudential supervisors include, amongst others, those that indicate broader deficiencies in the internal governance or internal controls framework, such as ICT-related weaknesses. The EBA will continue developing this subject matter in the revised version of the SREP Guidelines that is planned to be published by end December 2021.

Link to press release

MFSA echoes EBA’s call for Brexit readiness

The MFSA has echoed the EBA’s reminder to its license holders of the importance of finalising and implementing their contingency plans in accordance with the plans communicated to it before the end of the transition period.

Furthermore, it reminded UK licensed entities providing services in Malta that from 1 January 2021, the provision of financial services from the UK in Malta by way of freedom of services and/or freedom of establishment will no longer be possible. To continue providing services they must ensure that they have obtained the necessary authorisation from an EU competent authority and have effectively established themselves before the end of the transition period.

Link to press release

MFSA circular on Regulation 2015/2365 on Securities Financial Transactions

The MFSA has published a Circular addressed to all market participants which fall under the Securities Financial Transactions Regulation (“SFTR”) and enter into securities financial transactions.

The Circular relates to the European Securities Markets Authority (ESMA)’s first publication of Questions and Answers relation to reporting under SFTR. Amongst other matters, the Questions and Answers relates to matters such as the reporting settlement logs as well as the reporting of zero collateral for margin loans.

Link to circular

MFSA issues clarification on circular on transaction reporting by non-financial counterparties under the Securities Financing Transactions Regulation (EU) No. 2015/2365

On 19 October 2020, a Circular addressed to ‘non-financial counterparties’ (“NFCs”) was issued by the MFSA, requesting information about NFCs specifically with respect to their use of Securities Financial Transactions (“SFTs”), by submitting Annex I to the MFSA’s Circular.

The MFSA has additionally requested licence holders to reach out to those entities with which they have a business relationship and advise them about this reporting obligation.

Lastly, the MFSA has issued a recommendation to NFCs that do not enter into SFTs, to carry out an assessment for their business to determine if the possibility of entering into STFs in the future exists.

Link to circular

EBA’s assessment shows a significant use of COVID-19 moratoria and public guarantees

The EBA’ assessment on the current borrowing situation in the EU has revealed that the use of COVID-19 moratoria has become widespread, especially amongst SMEs and commercial real estate. It has also been used widely for mortgage loans in some countries. On the other hand, while public guarantees weren’t as commonly used, they have allowed banks to provide lending to many companies which were impacted by the pandemic.

The EBA’s data shows that in total, 16% of SME loans were granted moratoria, followed by 12% of commercial real estate loans and 7% of residential mortgage loans. A few banks even reported that almost 50% of their loans to NFCs and households were subject to moratoria.

Link to EBA assessment

EU regulators scramble to prepare for post-Brexit derivative scenario

With the end of the Brexit transition period fast approaching and the risk of a ‘no deal’ scenario looming, EU regulators are racing to avoid a scenario where London banks end up abandoning Brussels for trading derivatives, in favour of New York.

As things stand London based branches of EU banks could end up both being bound both by US rules as well as the EU regime. If a solution isn’t found, bank branches in London will have no other option but to use New York to trade derivatives.

The ESMA has held that they are working on solving the predicament.

Link to news item