This newsletter provides a selection of opinions and analysis from our EU legal experts on interesting policy developments, recent case law and new regulatory directions of major industry practices. It is released biweekly and covers areas such as: Competition Law, Sanctions, Trade, Energy, Finance, EU funds, Data IP and Privacy, Life Sciences, Transport and Court of Justice of the European Union news.
The aim is to provide an up–to–date tool for quick and easy consultation on the most current and important topics at EU level.
EUROPEAN CENTRAL BANK (ECB)
July 2024 euro area bank lending survey (16.07.2024) – According to the July 2024 euro area bank lending survey (BLS): (i) credit standards were broadly unchanged at tight levels in the second quarter of 2024; (ii) loan demand continued to decline for firms, while recording the first increase for households since 2022; (iii) credit standards for firms displayed some heterogeneity across economic sectors, tightening strongly in commercial real estate.
Survey on the Access to Finance of Enterprises: moderate tightening in reported financing conditions (15.07.2024) – The survey on the access to finance of enterprises, issued by the European Central Bank, shows that access to bank loans improved in the second quarter of 2024. There was a slight decrease in the need for loans and an improvement in availability, leading to a small decrease in the bank financing gap. Firms reported an increase in turnover and were optimistic about the future. Cost pressures remained widespread, but there were signs of moderation in price and wage increases. Inflation expectations also declined.
The European Central Bank publishes the results of the June 2024 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (10.07.2024) – The June 2024 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets, issued by the ECB, shows that overall credit terms and conditions eased between March and May 2024. The results were anticipated by the March 2024 survey, which showed that markets expected a further easing of terms and conditions. However, expectations were broken by the stillness of non-price terms, which were expected to tighten, but remained unchanged instead. Lastly, when asked about their expectations for the future, survey respondents expected overall price and non-price terms to remain unchanged across all counterparty types for the three months ahead (specifically, the period from June to August 2024).
The European Central Bank publishes the May 2024 Consumer Expectation Survey (28.06.2024) – According to the ECB’s Consumer Expectation Survey for the month of May 2024, median consumer inflation perceptions over the past 12 months and inflation expectations for the next 12 months have all modestly decreased, reaching their lowest point since September 2021. Following the trend of the previous months, median expectations for inflation for three years ahead have also slightly decreased. Another positive result is the decrease of uncertainty about inflation expectations over the next 12 months, which decreased to its lowest level since the invasion of Ukraine by Russia in February 2022. Consumer expectations for nominal income growth decreased slightly, while expectations for nominal spending growth over the next 12 months declined by 0.3%. Economic growth expectations for the next 12 months remained unchanged, while expectations for the unemployment rate for the 12 months ahead slightly decreased. The expectation for the price of housing remained unchanged since April 2024.
EUROPEAN BANKING AUTHORITY (EBA)
The European Supervisory Authorities publish the second batch of policy products under DORA (17.07.2024) – The three European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) published the second batch of policy products under the Digital Operational Resilience Act (DORA). This batch consists of four final draft regulatory technical standards (RTS), one set of Implementing Technical Standards (ITS) and 2 guidelines , all of which aim at enhancing the digital operational resilience of the EU’s financial sector. The package focuses on the reporting framework for ICT-related incidents (reporting clarity, templates) and threat-led penetration testing while also introducing some requirements on the design of the oversight framework, which enhance the digital operational resilience of the EU financial sector, thus also ensuring continuous and uninterrupted provision of financial services to customers and safety of their data.
The European Banking Authority clarifies the operational application of CRR 3 in the area of credit risk modelling (17.07.2024) – The European Banking Authority (EBA) welcomes the entry into force of the new European Banking Package, which implements the final Basel III framework into EU regulation. To ensure a smooth operational implementation of the Banking Package, the EBA encourages institutions and competent authorities to engage in an active dialogue. In particular, institutions should: (i) communicate to their competent authorities the targeted model landscape, in particular following the migration of exposures to the foundation approach (F-IRB) and standard approach. A key aspect is to ensure that rating systems perform adequately on their scope of application; (ii) assess and categorise changes coming from the implementation of the Capital Requirements Regulation (CRR3) that impact the performance of a rating system according to the EU Commission’s Delegated Regulation on materiality of changes to the IRB approach. On the other hand, changes coming from the implementation of CRR3 that do not impact the performance of a rating system should not be considered under the scope of the Commission’s Delegated Regulation on model change to the IRB approach;(iii) share with their competent authority an implementation plan on the foreseen modelling updates that are linked to future EBA supervisory products. In this context, modelling updates in relation to credit conversion factor (CCF) parameters (e.g. 12 months fixed horizon reference date) may not need to be prioritised until the date of application of the EBA Guidelines on IRB-CCF.
The European Supervisory Authorities establish framework to strengthen coordination in case of systemic cyber incidents (17.07.2024) – The three European Supervisory Authorities (EBA, EIOPA and ESMA) will establish the EU systemic cyber incident coordination framework (EU-SCICF), in the context of the Digital Operational Resilience Act (DORA), that will facilitate an effective financial sector response to a cyber incident that poses a risk to financial stability, by strengthening the coordination among financial authorities and other relevant bodies in the European Union, as well as with key actors at international level. Over the coming months, the ESAs will kickstart the implementation of the framework by setting up: (i) the EU-SCICF Secretariat, supporting the functioning of the framework; (ii) the EU-SCICF Forum, working on testing and maturing the functioning; (iii) the EU-SCICF Crisis Coordination, facilitating during a crisis the coordination of actions by the participating authorities. The ESAs will identify legal and other operational hurdles encountered during the initial set up and report these to the European Commission. The further development of the framework will be subject to the availability of resources and other measures taken by the European Commission.
The European Banking Authority publishes the report on the application of derogations to the deferral and pay out in instruments under CRD (16.07.2024) – The European Banking Authority (EBA) published a report on the application of derogations to the requirements to pay out a part of the variable remuneration for identified staff under deferral arrangements and in instruments that are available to small and non-complex institutions and for identified staff receiving only a relatively small amount of variable remuneration. This report forms part of the EBA’s contribution to the review to be performed by the European Commission. The report aims to assess the implementation and application of derogations within the EU and their impact on the costs, risk alignment of variable remuneration to the risk profile of the institution as well as on the ability to recruit and retain staff. Notably, prior to the explicit introduction of CRDV derogations, the national implementations of the CRD permitted small and non-complex institutions and staff receiving relatively low variable remuneration, to waive specific requirements based on proportionality grounds. Consequently, assessing the impact of CRDV changes remains challenging as it is limited to marginal changes to the regime that applies with more harmonised thresholds.
The European Banking Authority publishes the report on the application of gender-neutral remuneration policies (16.07.2024) – The European Banking Authority (EBA) published the report on the application of gender-neutral remuneration policies by institutions and investment firms. The report is based on the information collected from institutions, investment firms and competent authorities. The report shows that the industry faces no major hurdles in adopting and implementing gender-neutral remuneration policies, but that some entities still have not yet adopted remuneration policies that explicitly contain measures that ensure that remuneration is awarded gender neutrally and that this aspect is monitored over time. While the review focusses on the principle of equal pay, it also looked at the gender pay gap and the monitoring of indicators in the area of equal opportunities and equal pay. Despite some progress made by the industry, it has been observed that a gender pay-gap persists and that monitoring and transparency on those topics could be further improved. The persistence of a gender pay gap indicates that further work is needed to ensure ‘equal opportunities’ and that there are biases that require further attention. The EBA emphasises the importance of the consistent implementation of gender-neutral remuneration policies across all financial institutions.
The European Banking Authority reflects on EU stacking orders and provides insight into EU institutions’ management buffers (15.07.2024) – The European Banking Authority (EBA) published a Report on the stacking orders of capital, leverage and MREL/TLAC requirements and related capital buffers, as well as on reflections about management buffers practices in the European Union (EU). The Report describes the role of regulatory stacks, both going and gone concern, with a focus on micro-prudential elements. It also summarises the differences between the EU, the UK and US frameworks. The Report highlights institutions’ practices on management buffers. Further work of the EBA will include efforts to continue to clarify, where necessary, the interaction between the different stacks.
The European Supervisory Authorities publish a report on the use of behavioural insights in supervisory and policy work (11.07.2024) – The three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published a joint report following their workshop on the use of behavioural insights by supervisory authorities in their day-to-day oversight and policy work. The report provides a high-level overview of the main topics discussed during the workshop held on 14-15.02.2024 for national supervisors and other competent authorities, where participants explored the added value of behavioural insights in their work by exchanging their experiences and discussing the challenges they face. The report includes a catalogue of various studies carried out at both the European and national levels on the use of behavioural insights in supervisory and policy work. Behavioural insights are instrumental in helping financial markets deliver better products and services to consumers while also mitigating potential detriments they might face. Leveraging behavioural science and evidence-based practices when designing and implementing policies can further strengthen supervision and improve outcomes for consumers. The workshop and the subsequent report have been developed in accordance with the tasks defined in the Joint Committee Work Programme for 2024.
The European Banking Authority updates list of other systemically important institutions (11.07.2024) – The European Banking Authority (EBA) updated the list of other systemically important institutions (O-SIIs) in the EU, which, together with global systemically important institutions (G-SIIs), are identified as systemically important by the relevant authorities according to harmonised criteria laid down in the EBA Guidelines. This list is based on year-end-2023 data and includes the overall score calculated according to the EBA Guidelines and the capital buffer rate that the relevant authorities have set for the identified O-SIIs. The list is available also in a user-friendly visualisation tool.
The European Banking Authority updates the supervisory reporting framework (09.07.2024) – The European Banking Authority (EBA) published its final draft implementing technical standards (ITS) on supervisory reporting requirements implementing the changes necessary to keep the supervisory reporting framework relevant and meaningful and aligned with the amending CRR 3, which implements the latest Basel III reforms. These ITS will allow supervisors to have sufficient comparable information to monitor compliance by institutions with CRR 3 requirements, thus further promoting enhanced and consistent supervision.
The European Banking Authority releases technical package for its 3.5 reporting framework (09.07.2024) – The European Banking Authority (EBA) published a technical package for version 3.5 of its reporting framework. This package provides the standard specifications that include the validation rules, the Data Point Model (DPM) and the XBRL taxonomies to support the following reporting obligations: (i) amendments to the technical standards on specific reporting requirements for the Fundamental Review of the Trading Book (FRTB); (ii) diversity benchmarking Guidelines; (iii) the cross-sectoral technical standards on the standard templates for the purposes of the register of information in relation to all contractual arrangements on the use of ICT services provided by ICT third-party service providers under the Digital Operational Resilience Act (DORA); (iv) the amendments to the reporting and disclosure technical standards on minimum requirements for own funds and eligible liabilities and total loss-absorbing capacity (MREL/TLAC), following the final changes introduced by the co-legislators in the level 1 text.
The European Banking Authority publishes the European Supervisory Examination Programme for 2025 (08.07.2024) – The EBA’s European Supervisory Examination Programme for 2025 outlines key areas of focus for supervisory attention across the EU. It aims to drive supervisory convergence by providing supervisory authorities with a unified set of priorities for 2025, including managing increasing economic and financial uncertainties, addressing digital challenges such as digital risk management and the digital transformation, and transitioning towards Basel III and the EU banking package (i.e. the Capital Requirements Regulation III and the Capital Requirements Directive VI, which entered into force on 09.07.2024). The EBA will keep monitoring how these three topics are incorporated into the priorities of the competent authorities and their daily supervisory activities throughout 2025 and use these finding to assess the degree of convergence of supervisory practices.
The European Banking Authority publishes its annual Report on convergence of supervisory practices for 2023 (08.07.2024) – The annual Report on convergence of supervisory practices for 2023 confirms that most supervisory authorities adequately included the key topics identified for attention in the 2023 European Supervisory Examination Programme. These topics include macroeconomic and geopolitical risks, operational and financial resilience, transition risks, and money laundering/terrorism financing risks. However, there is still disparity in the transitions in the areas of Environmental, Social, Governance and data aggregation capabilities. The EBA’s analysis shows that further consistency in the identification and treatment of risks covered by Pillar 2 requirements across the EU can be obtained. Further convergence is expected after the adoption of the Capital Requirements Regulation III and Capital Requirements Directive VI, and the consequent review of the Supervisory Review and Evaluation Process guidelines.
The European Banking Authority publishes Guidelines on the “travel rule” (04.07.2024) – The new Guidelines on the “travel rule”, issued by the EBA, detail which information should be attached to the transfer of funds and certain crypto-assets, and what should intermediaries and service providers do if such information is incomplete or missing. The objective of these Guidelines is to create a uniform and effective approach to trace these transfers, if necessary, and prevent, detect or investigate money laundering and terrorist financing. The Guidelines’ release follows the entering into force of Regulation (EU) 2023/1113 in June 2023, which updates the EU’s legal framework enhancing the transparency of the transfer to crypto-assets service providers.
The European Banking Authority publishes the spring edition of its Risk Assessment Report (02.07.2024) – The spring edition of the Risk Assessment Report of the EBA combines the content of two different reports, that have always been published separated. It now covers the EBA’s common risk assessment as well as the analysis of banks’ asset encumbrance and funding plan data. Results show that the banks involved in the study are currently facing elevated geopolitical risks, compounded by economic and interest rate uncertainty. They are planning to gradually increase their loan exposures, as supported by the increase of non-performing loan ratios across all segments. In terms of funding, banks are planning to significantly increase long-term market-based funding. They have also increased the availability of collateral, which can be used for future funding purposes. Overall, the profitability of banks in the EU and the European Economic Area has increased, although it is expected to slow down in the future.
EUROPEAN SECURITIES AND MARKET AUTHORITY (ESMA)
The European Securities and Market Authority publishes 2023 data on cross-border investment activity of firms (15.07.2024) – The European Securities and Markets Authority (ESMA), together with the National Competent Authorities (NCAs), completed an analysis of the cross-border provision of investment services during 2023. The data sets were collected from investment firms across 30 jurisdictions in the EU/EEA. The main findings include: (i) a total of around 386 firms provided services to retail clients on a cross-border basis in 2023; (ii) approximately 8 million clients in the EU/EEA received investment services from firms located in other EU/EEA Member States in 2023; (iii) compared to 2022, the cross-border market for investment services grew by 1.6% in terms of firm numbers, and by 5% in terms of retail clients, while the number of complaints increased by 31%; (iv) Cyprus is the primary location for firms providing cross-border investment services in the EU/EEA, accounting for 20% of the total firms passporting investment services. Luxembourg and Germany follow with 15% and 14% of all firms, respectively; and Germany, France, Spain, and Italy are the most significant destinations (in terms of number of retail clients) for investment firms providing cross-border services in other Member States.
The European Securities and Market Authority publishes the 2024 ESEF Reporting Manual (11.07.2024) – The European Securities and Markets Authority (ESMA), published the update of its Reporting Manual on the European Single Electronic Format (ESEF) supporting a harmonised approach for the preparation of annual financial reports. ESMA has also updated the Annex II of the Regulatory Technical Standards (RTS) on ESEF. The updated Manual provides technical improvements and guidance to facilitate the analysis and comparison of the data, such as: (i) recommendations when tagging empty fields or dash symbols; (ii) clarifying that extension elements should be anchored to core elements sharing the same data type; (iii) advising on practices to further improve the readability of the information extracted from a block tag; and (iv) encouraging the use of unique identifiers for each tagged fact. The Manual intends to promote a harmonised and consistent approach for the preparation of annual financial reports in the format specified in the RTS on ESEF, providing guidance on common issues that may be encountered when creating ESEF documents, and explaining how to address them.
The European Securities and Market Authority’s stress test of Central Counterparties finds clearing system resilient (09.07.2024) – The European Securities and Markets Authority (ESMA) has published the results of its fifth stress test exercise for Central Counterparties (CCPs). The results confirm the overall resilience of European Union (EU) CCPs, as well as third-country Tier 2 CCPs, to core credit and liquidity financial risks under the tested scenarios. In line with the EMIR mandate, where the assessments exposed shortcomings in the resilience of one or more CCPs, ESMA will issue the necessary recommendations.
The European Securities and Market Authority publishes a Final Report on the Guidelines on Enforcement of Sustainability Information (05.07.2024) – After a long consultation with the stakeholders, ESMA issued its Guidelines on Enforcement of Sustainability Information contained in its Final Report. The Guidelines pursue the objective of supporting the consistent application and supervision of sustainability reporting requirements, in order to build convergence on supervisory practices on sustainability reporting. The Final Report is also accompanied by a Public Statement, which is meant to ease large issuers’ initial difficulties in implementing the new requirements. These measures all align with ESMA’s broader mission of promoting EU capital markets as a hub for green finance and improving supervisory consistency amongst EU National Authorities In the future, ESMA will continue to monitor the sustainability reporting practices as well as the application of the guidelines.
The European Securities and Market Authority publishes the second Final Report under the Markets in Crypto-Assets Regulation (04.07.2024) – ESMA’s second Final Report under the Markets in Crypto-Assets Regulation covers eight draft technical standards aimed at enhancing transparency for retail investors, providing clarity for providers on disclosure and record-keeping requirements, and establishing data standards to facilitate supervision by National Competent Authorities. The draft standards also provide market participants with technical requirements to ensure human and machine readability of crypto-asset white papers, as well as templates and formats for crypto-assets service providers to manage their transaction records. The Final Report also analyses public disclosures that enhance investor’s knowledge on the impact on the environment of the technology behind their crypto assets.
COURT OF JUSTICE OF THE EUROPEAN UNION (CJEU)
The European Court of Justice delivers its opinion on so-called “floor clauses” in mortgage loans (04.07.2024) – The European Court has delivered its judgment in the Case C-450/22, which pertains to the examination of transparency in collective actions in relation to floor clauses in mortgage loans. These clauses establish a lower limit for the variable interest rate, ensuring it does not drop below a certain point even if the reference rate does. A collective action against 101 financial institutions in Spain was initiated by the Spanish association of users of banks, savings banks, and insurance, with the objective of discontinuing the use of floor clauses and seeking reimbursement of payments made under them. The case was appealed to the Spanish Supreme Court, which expressed doubts about the appropriateness of collective proceedings for reviewing the transparency of floor clauses. The CJEU clarified that the directive under scrutiny does not exclude judicial review of transparency in the context of a collective action. Therefore, the Spanish Supreme Court will need to determine whether significant events, such as the collapse in interest rates in the 2000s or the court’s own judgment in 2013 declaring floor clauses as non-transparent, could have influenced the average consumer’s level of attention and information when entering into a mortgage loan agreement.
