Energy Efficiency

BPFI met with the Irish Green Building Council (IGBC) recently to discuss the European Mortgage Federation’s (EMF) Energy Efficient Mortgage Action Plan (EeMAP). IGBC is a member of the World Green Building Council, a partner in the EeMAP consortium (funded via Horizon 2020). The current position of BPFI is that specific constraints of the market in Ireland mitigate against lenders’ proactive participation in developing such a product: These include lack of supply of houses for borrowers with mortgage approval and the Central Bank of Ireland’s macroprudential rules limiting the loan-to-value (LTV) and loan-to-income (LTI) for mortgages for the majority of borrowers.

Recognising the importance of energy efficiency going forward, BPFI and members are keen to consider how the initiative can best be applied in an Irish context. Therefore, BPFI would like to alert members to the IGBC event on 1 March, at which Luca Bertalot, Secretary General, EMF, will be present. This gathering of key stakeholders will facilitate structured national market feedback on the initial energy efficient mortgage proposal. With 20 banks across Europe participating in the EeMAP pilot project, which will consider how best to capture energy efficiency within financial institutions’ lending practices, the initiative has received positive traction. At the One Planet Summit, Commission Vice President Dombrovskis (DG Fisma) noted the Commission would consider lower capital requirements for certain climate-friendly initiatives such as energy-efficient mortgages.

The European Commission’s final report on sustainable finance is expected to be published in the coming weeks. This will likely contain significant recommendations to better integrate sustainability considerations in the EU’s financial policy framework, protect the stability of the financial system from risks related to the environment and its stability, and mobilise capital, notably from private resources, to finance sustainable investments and growth

Stakeholder Engagement

At BPFI’s invitation, delegates  from UK Finance presented representatives from member banks – retail and international – with the position of the British banking sector on Brexit.  Much focus and discussion centred on their thinking around required transitional arrangements.

A large attendance from across the member banks participated in a briefing, arranged by BPFI, by representatives from the office of the Financial Services and Pensions Ombudsman.  A presentation on the new structure and the impact of new legislation, effective from 1st January 2018, provided the basis for a lively Q&A session.

BPFI facilitated a roundtable discussion involving representatives of the Credit Review Office and from the main business lending banks.  It proved a very useful and informative exercise in assessing the factors driving the most recent trends in SME borrowing.

Single Resolution Board Fund

The lack of transparency around the calculation of the amounts which contributing institutions pay into the Single Resolution Fund has been a long-standing issue for BPFI. This process has proved complex for all concerned, including the institutions, the SRB, the European Banking Authority (EBA), the national competent authority in Ireland and the national deposit guarantee scheme. Some of the problems encountered arise from the extremely complex nature of the calculations, which involve a ‘black box’ methodology where authorities must have all the required information from all the institutions before beginning the calculation process (making it impossible for institutions to forecast their contributions with accuracy). Other difficulties arise from timing issues created by the choice of reference and reporting dates in the regulation.

There is also an issue for Irish financial institutions in knowing how much to set aside for the contribution each year, as institutions find it difficult to calculate in advance given their inability to calculate the ex-ante fund contributions. For example, in 2017, institutions were notified of their annual contribution in May, which had to be paid by the end of June. This is a very difficult situation for member banks to account for, given the lack of certainty and transparency over the calculation of contributions.

Both issues have been raised by BPFI with the Single Resolution Board at both the SRB Industry Dialogue meetings and other meeting opportunities. The SRB has acknowledged that, based on the calculation methodology defined in the European Commission delegated Regulation, institutions cannot fully recalculate their ex-ante contributions to the Fund. BPFI continue to actively monitor this.

EC Public Consultation on Supervisory Reporting Requirements

The EU Commission has recently launched a public consultation on supervisory reporting requirements. According to the attached documents, the consultation aims to gather evidence on the cost of compliance with existing EU-level supervisory reporting requirements (in force as of the end of 2016), as well as on the consistency, coherence, effectiveness, efficiency, and EU-added value of those requirements.

More specifically, it aims to collect concrete quantitative evidence on, among others, any investments required to meet the supervisory reporting requirements, and to gather specific examples of inconsistent, redundant or duplicative supervisory reporting requirements (e.g. reporting the same information under different frameworks or to different supervisory and/or regulatory entities). The consultation also seeks feedback on ways in which supervisory reporting could be simplified and streamlined. The Commission notes that the results of the consultation will contribute to possible future efforts to improve the usability and overall consistency of the EU supervisory reporting framework in order to help authorities achieve their objectives in a more effective and efficient way.

The consultation is open for comments until 28 February 2018 and the BPFI Supervisory Reporting Working Group is assessing this.

EBA Consultation Paper on methods of prudential consolidation

The European Banking Authority (EBA) has published a consultation paper on draft Regulatory Technical Standards specifying the different methods of prudential consolidation which can be applied when certain conditions and criteria are met. The aim of these draft RTS is to ensure that the appropriate method of prudential consolidation is applied for the calculation of the Capital Requirements Regulation (CRR) requirements on a consolidated basis. The consultation runs until 9 February 2018.

According to the CRR, the entities included in the scope of prudential consolidation are institutions (i.e. credit institutions and investment firms), financial institutions and, when consolidated supervision is required, ancillary services undertakings.

As a general rule, institutions shall apply full consolidation to their subsidiaries, or, where relevant, to the subsidiaries of their parent financial holding company or parent mixed financial holding company. However, under certain circumstances, and depending on the links between the entities, the CRR allows the application of other methods of consolidation, such as proportional consolidation. In addition, when consolidation is not appropriate, the equity method may also be applied. These draft RTS specify the criteria, indicators and conditions that institutions need to meet for the application of different methods of consolidation or of the equity method.

ECB consults on payments statistics requirements

The European Central Bank (ECB) has begun the review of the Regulation on payment statistics. Proposed changes reflect regulatory developments, including the updated Payment Services Directive (PSD2) and the Interchange Fee Regulation (IFR), as well as market developments.

This regulation is one of the first to be reviewed since the ECB committed to an impact assessment of new statistical regulations. The ECB has initiated a fact-finding exercise, which will assess whether or not proposed new data, new breakdowns and changes in reporting timelines are feasible, practical and proportionate. Changes include incorporating data on fraudulent payment transactions. The Central Bank of Ireland (CBI) has invited BPFI to consult with members with a view to providing an overall industry response on these proposals. BPFI will work with relevant member groups with the aim of responding by mid-February.

Interest Rate Risk in the Banking Book (IRRBB)

The European Banking Authority (EBA) has issued an update of its Interest Rate Risk in the Banking Book (IRRBB) Guidelines as a first step in the implementation of the updated Basel Committee on Banking Supervision (BCBS) standards adopted in April 2016. The remaining part will be implemented through the ongoing revision of the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR), and the enactment of a number of technical standards that are expected to be mandated to the EBA in the revised CRD and CRR. If unchanged, the European Commission proposals mandate the EBA to develop regulatory technical standards with specific reference to the standardised methodology, the parameters for the supervisory outlier test, and disclosure requirements related to IRRBB. The BPFI IRRBB Working Group will meet to discuss the BPFI response to the EBA consultation paper and further contributions to the European Banking Federation response.

EBA Recommendations on Cloud Service Providers

The European Banking Authority (EBA) published its Recommendations on Outsourcing to Cloud Service Providers in December 2017. This follows an earlier consultation process into which BPFI fed directly. The final text contains recommendations on Materiality Assessment, duty to inform supervisors, access and audit rights for institutions and competent authorities respectively, security of data and systems, location of data and data processing, chain outsourcing and contingency plans and exit strategies. Recommendations apply from 1 July 2018 on a “comply or explain” basis.

More broadly, the European Commission is looking at the issue of cloud as part of its work on Fintech, with a formal Action Plan due to be published in Q1. The Commission is expected to look further at issues around cloud-data storage and servicing and potential concentration risk among cloud service providers. BPFI is following developments closely and also participating in the European Banking Federation Cloud Forum which is a newly established policy hub for banks and CSPS, with EU institutions invited as observers. The objective is to input directly into policy developments at EU level on cloud computing.

First reporting deadline for Anacredit nears

Banks have had to  submit their AnaCredit counterparty reference data to the Central Bank of Ireland (CBI) by 31 January. AnaCredit is a project to establish a common granular credit database shared between the Eurosystem members, comprising input data for all euro-area member states.

The CBI has been addressing member issues through the BPFI’s AnaCredit issues register, where the CBI agreed to a BPFI request for a workshop in January for members to raise outstanding issues. This interaction complements the bilateral contact between the CBI and reporting banks, as well as banks’ testing on the reporting system.