Insights

In this issue:

• EBA issues draft technical standards on prudential consolidation
• MFSA publishes Good Practice recommendations for Meetings of Listed Entities
• ECB publishes results of the Public Consultation on the Digital Euro
• MFSA issues Circular on the Restriction on Dividend Distributions or Share Buy-Backs and Variable Remuneration
• Changes to the Capital Requirements Regulation and Directive (CRDV Package)
• MFSA issues Circular to Credit Institutions on the materiality threshold for assessing credit obligations past due
• MFSA issues reminder to Banks regarding COVID-19 Moratoria
• MFSA publishes overview of Banking Rules Reform

EBA issues draft technical standards on prudential consolidation

The EBA has published its final draft Regulatory Technical Standards (RTS) specifying the methods of prudential consolidation under the Capital Requirements Regulation (“CRR”). The RTS seek to ensure that the appropriate method of prudential consolidation is applied for the calculation of the CRR requirements on a consolidated basis. The entities which are to be included in the scope of prudential consolidation are, in particular, institutions, financial institutions and ancillary services undertakings.

The final draft RTS have been based around the amendments emanating from the Risk Reduction Measures package, as well as the feedback which was garnered from the public.

Link to draft RTS

MFSA publishes Good Practice recommendations for Meetings of Listed Entities

Further to the MFSA’s circular regarding the relevant regulations on the holding of Annual General Meetings (“AGMs”) and Extraordinary General Meetings (“EGMs”) remotely, the Authority has published a number of good practice recommendations. Amongst such, the Authority has recommended that meetings are held via live stream so that shareholders are given the opportunity to follow the entire process in real-time. Furthermore, measures should be taken to facilitate shareholder interaction. This can be achieved by live online chat, telephone and email. It is also recommended that companies have planning and contingency plans in place.

Link to the full list of recommendations

ECB publishes results of the Public Consultation on the Digital Euro

On the 14 April 2021, the ECB published the results pursuant to the public consultation that it organised between October 2020 and January 2021 regarding the introduction of a Digital Euro.

The questionnaire contained a total of 18 questions which were aimed at both citizens and professionals.

From the 8,221 responses received, privacy seemed to be the main concern on everyone’s mind. Other issues which were given importance were security, us

The report will serve as an important tool moving forward, especially for the ECB’s Governing Council, which intends to launch a formal investigation phase in view of a possible launch of a digital euro.

Link to report

MFSA issues Circular on the Restriction on Dividend Distributions or Share Buy-Backs and Variable Remuneration

The MFSA has issued a Circular pursuant to the ECB Recommendation on dividend distributions during the COVID-19 pandemic and repealing Recommendation ECB/2020/35 (ECB/2020/62) It was subsequently announced that said recommendation shall apply in its entirety to all credit institutions.

The ECB is advising credit institutions to exercise extreme prudence when deciding if it will be paying out dividends or share buy-backs aimed at remunerating shareholders. The ECB has also published a Letter to Significant Institutions, reminding them that they are expected to act with extreme moderation in regard to variable remuneration.

The policy stance shall apply until 30 September 2021.

Link to circular

Changes to the Capital Requirements Regulation and Directive (CRDV Package)

The MFSA has published a list of the main changes that the CRDV Package has brought about.

Amongst others, these include certain changes to the Anti-Money Laundering sphere, with enhancing cooperation and exchange of information between prudential supervisors, as well as fit and proper checks. They also include changes to capital requirements for infrastructure projects, as well as the inclusion of requirements to hold capital buffers against stress events, aimed at improving balance sheet resilience as well as supporting bank lending in an economic crisis.

It is advisable that Credit Institutions ensure that they are in line with the new requirements of the CRDV Package.

Link to the MFSA’s list

MFSA issues Circular to Credit Institutions on the materiality threshold for assessing credit obligations past due
The MFSA has issued a Circular pursuant to the ECB Guideline on the exercise of discretion under Article 178(2)(d) of the Capital Requirements Regulation with regard to the threshold for assessing the materiality of credit obligations past due.

The materiality threshold consists of two elements a) an absolute threshold (EUR 100 for retail exposures and EUR 500 for other exposures) and b) a relative threshold (1%).

It is expected that credit institutions implement these thresholds and that non-performing loans reflect them.

Link to circular

MFSA issues reminder to Banks regarding COVID-19 Moratoria

The MFSA has issued a stern reminder to banks to follow the EBA Guidelines which allow banks to avoid treating exposures subject to moratoria granted due to the COVID-19 crisis as forborne or defaulted so as to avoid any build-up of NPLs which may arise due to misclassification or misreporting.

The MFSA also reminded Banks of their obligation of keeping their NPL levels low. Should Banks fail to do so, they may risk being subject to supervisory measures in terms of the relevant legislation.

Link to reminder

MFSA publishes an overview of Banking Rules Reform

The MFSA has issued an overview of the main Banking Rules which are expected to be revised and possibly published in 2021.

The possible reforms deal with BR/09 on Non-Performing Loans and BR/12-SREP (Supervisory Review and Evaluation Process). Furthermore, an entirely new Banking Rule dealing with Internal Governance is in the works. This rule aims at transposing the relevant provisions of the CRD as well as fully implementing the EBA Guidelines on Internal Governance (EBA/GL/2017/11).

Link to the reform