Prudential treatment of software investments

In today’s digital era, the current approach of the EU-Legislator to the capital treatment of software assets is a disadvantage in comparison with non-EU banks and FinTech Companies and must be tackled in order to achieve a level playing field, preserve fair competition and advance technological innovations and digitalisation in the financial (banking) sector. Furthermore, banks can be encouraged to foster investment in digital solutions and/or IT systems only if software is not treated differently than other (e.g. tangible) assets and can be non-deductible.

Additionally, we advocate that the exemption rule for avoiding capital deduction should be optional (opt-out) for certain institutions. For institutions that have hardly any software assets capitalised, the cost of implementing the prudential amortisation approach would be disproportionate to the capital savings. The institutions in question should therefore have the option of continuing to deduct the software assets in full from CET 1.

The EBA provides some relief when it comes to the capital treatment of software, but it is still far too restrictive and inefficient in comparison to the US/Swiss Model. The prudential treatment of software assets in Europe should not penalize innovation. At the same time, banks need flexibility in cases where the benefits do not compensate the cost, Therefore, an option to not apply the RTS would be welcomed by certain institutions. This may lead to situations where implementation of the new approach will not be completely supported and continuation of complete deduction of the software from CET 1 would be preferred instead. If the RTS is too burdensome a possibility to opt out and not apply, it may become important for some financial institutions. Another possibly not very well accepted point is the proposed time period for the prudential amortization which is deemed extremely short.

Identified Concerns​

Article 36 (1) (b) CRR 2 states that the decisive criterion for the exception is that the value of software assets is not negatively affected by resolution, insolvency or liquidation. This provision could be interpreted that the exception applies to software assets, where the value does not materially suffer in a crisis. In addition, the Art. 36 (4) CRR 2 mandates EBA to define a threshold below which the software is affected to an extent that it cannot be deducted from the CET 1 Capital. Banks should focus on the turning point from which the software assets would be negatively affected by the resolution, insolvency or liquidation to a degree that the exemption in Art. 36 (1) (b) CRR2 would not be applicable.

We do not see a simplification but rather a complication having another amortization for prudential purposes. In our view, a pragmatic approach is, as stated above, to trust in the work of external auditors and apply the accounting amortization rules for prudential purposes as well.

If regulators want to include a certain margin of conservatism or prudence in the valuation of software assets, an easy-to-implement haircut on top of the accounting amortization would be the most efficient way for implementation.

Why Policymakers Should Act​

Therefore, it needs to be ensured that EBA develops clear criteria to specify the materiality of negative effects on the values, which do not cause prudential concerns, and provides comprehensive guidance on how to perform this assessment in a way that is not unnecessarily burdensome and complex.

Furthermore, we would prefer the RTS to enter into force already on the day following its publication in the OJ (instead of twenty days thereafter; see Article 2 of the Draft RTS on p. 28). This would ensure that banks can apply these provisions as early as possible (as intended by the CRR Quick Fix). Alternatively, we propose a (possibly also retroactive) application of the provisions as of 30 September 2020 and therefore we request such a provision to be added to Article 2.

Finally, in light of the short consultation period as well as the CRR Quick Fix, we would like to express the need to prioritize the work on this RTS and faster finalization of the RTS. Otherwise, the process would counter the efforts of EU legislators and wouldn’t allow for fast relief for banks.


As part of the Risk Reduction Measures (RRM) package adopted by the European legislators, the Capital Requirements Regulation (CRR) has been amended and introduced, among other things, an exemption from the deduction of intangible assets from Common Equity Tier 1 (CET1) items for prudently valued software assets, the value of which is not negatively affected by resolution, insolvency or liquidation of the institution. In addition, the EBA was mandated to develop draft RTS to specify how this provision shall be applied.

These EBA draft RTS specify the methodology to be adopted by institutions for the purpose of the prudential treatment of software assets. In particular, these draft RTS introduce a prudential treatment based on their amortisation, which is deemed to strike an appropriate balance between the need to maintain a certain margin of conservatism in the treatment of software assets as intangibles, and their relevance from a business and an economic perspective.​


Financial Reporting (IFRS)

  • IBOR: European legislators should not underestimate issues related to the IBOR reform. We consider that due to the possible extent of the instruments facing this issue it should be in the IASB’s attention. Especially IBOR rates with longer tenors replaced by lagged ’in advance’ rates resulting in time gaps of three and more months would be of a particular concern, due to a high risk of failing the solely payments of principal and interest (SPPI) benchmark test. Central authorities in many jurisdictions decided that no forward-looking term rates will be officially provided and consequently the alternative benchmark rate has an imperfect time value of money element.
  • IFRS 17: ESBG believes that the standard cannot be acceptable without a solution to all issues, as certain business models would not be faithfully portrayed under the current requirements of the standard. A high-quality standard does not correctly reflect certain contracts issued by ESBG members, that represent long-term lifesaving products managed under cash flow matching and, to a certain extent, participating contracts, through its measurement nor its presentation requirements.
  • PFS: Regarding the requirement to disclose tax and non-controlling interest (NCI) effects for each reconciling item, there are strong doubts whether this is substantiated on cost/benefit basis. We consider that the IASB should provide at least 24 months for implementing after the new standard is issued.

Identified Concerns

The major points of concern identified by the ESBG members are the following:

  • New proposed IFRS do not consider the business models that entities have in place; therefore not portraying faithfully their financial position and limiting the production of useful information.
  • The need to have enough and reasonable time to implement any new requirement on a timely manner.
  • Costs of implementing proposed new requirements and the likely ongoing associated costs and benefits of each new IFRS Standard.
  • The possible broader economic consequences of new financial reporting requirements, particularly on financial stability.

Why Policymakers Should Act


IBOR (Interbank Offered Rate) Phase II – Recent market developments have brought into question the long-term viability of some interbank offered rates (IBORs). IBORs are reference interest rates which are used as benchmarks for a broad range of financial products and contracts. We are of the opinion that it contributes to provide relevant and useful information about financial instruments and hedging transactions presented in the financial statements by avoiding unexpected accounting consequences that the IBOR reform could have caused under the current standards. The proposed amendments will avoid discontinuing hedging relationships when the hedged items and hedging instruments become modified and the related hedging documentation amended accordingly due to the sole IBOR reform. SPPI-CHF is a real problem and shouldn’t be discarded – ‘In advance’ rates bring time lack when working with historical data. In general, the conclusion is that this issue is not related to IBOR, it may be a consequence of it, but mostly it is an issue how do you apply IFRS9 and not directly related to IBOR reform.


IFRS 17 Insurance contracts sets out the requirements an entity must apply when accounting for insurance contracts issued and reinsurance contracts entered into. Ongoing implementation projects, however, have identified the need for more time and for improvements to the standard in order to address issues that impact on meaningful reporting and introduce significant operational challenges. ESBG continues to support a high-quality standard for insurance contract accounting. If a solution for the annual cohorts issue is rejected during the discussion at a global level, careful attention should be given to the conclusions of this topic for European endorsement purposes.


The IASB does not actually address the presentation of the income statement of financial conglomerates (bank and insurance main business activities). The presentation of insurance business within the income statement of a bank-insurer raises the issue of a by-nature or byfunction presentation of operating costs. It is difficult to evaluate which approaches are compliant – the one of IFRS 17 or the one of PFS IAS 1. The P&L presentation issue at group level for a financial conglomerate is a key issue also for financial communication purposes. General disclosure requirements are welcome. But it will be burdensome to prepare the information for reconciliation of Management Performance Measures (MPMs). The definitions of integral and non-integral associates are also questionable. There are not big issues when the associate is located in the same country as the parent. But when it is located in a foreign country, the influence the parent has on the activities of the associate show a certain dependency, but not the same as the IASB proposes. Examples were given also for issues with the new mandatory subtotals for operating activities- they are very formal and not helpful for all institutions. In this case the subtotals are so similar to the overall P&L that creating them would not be of big importance.


International Financial Reporting Standards (IFRS) set common rules so that financial statements can be consistent, transparent and comparable around the world. IFRS are issued by the International Accounting Standards Board (IASB). They specify how companies must maintain and report their accounts, defining types of transactions and other events with financial impact. IFRS were established to create a common accounting language, so that businesses and their financial statements can be consistent and reliable from company to company and country to country. The current suite of IFRS consists of 25 IAS, 17 IFRS and 18 Interpretations. 144 jurisdictions require IFRS or 87% of the world. IFRS are designed to bring consistency to accounting language, practices and statements, and to help businesses and investors make educated financial analyses and decisions.​


​​​Non-financial reporting with a sense for proportion

Companies, including the financial sector, are acknowledging the benefits that an improved non-financial reporting can have in order to improve the competitiveness of the company, CEO engagement in Environmental, social and governance (ESG) matters, accountability; the integration of externalities risk assessments, financial assessments, as well as to mitigate negative impacts on the climate while building trust with stakeholders.

Non-financial reporting has become a more and more important issue. It can improve the competitiveness of a company, the involvement of management and build trust with stakeholders. Reporting and disclosure obligations have to be effective, delivering the data really needed but in a lean and manageable way. Unnecessary administrative burden for citizens and companies should be avoided. Finally, while supportive of the implementation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), savings and retail banks nonetheless draw attention to the issue of data availability in relation to the proposed indicators. 

From a financial perspective, non-financial disclosures from corporates enhance data availability on the market and hence set the path towards reallocation of capital flows to more sustainable economic sectors, while avoiding greenwashing. Indeed, the issue of data availability for banks is recurrent when it comes to disclose non-financial performance of their balance sheet. Another difficulty arises from the implementation of those disclosure requirements: to the diversity of business activities adds the ongoing improvement of assessment methodologies that will require time to develop, test and validate before being effective. For these reasons, non-financial reporting should remain reliable and as flexible as possible and companies should be able to choose the reporting strategy and guidelines that fits better their strategies and position, considering information related to the four main topics – environmental, social and employee matters, respect for human rights, and anti-corruption and bribery matters – and the principle of materiality.

Identified Concerns

Non-financial reporting has to change – it is not broken; but it will be unless it changes. It has gotten better at showing what is valuable for companies. Reporting is important for better business, better society, better information, better transparency and better capital markets.

Why Policymakers Should Act​

The European institutions have identified the need to become active. In June 2017 the European Commission published non-binding guidelines to complement the non-financial disclosure Directive and help companies disclose environmental and social information. These guidelines are not binding and companies may decide to use international, European or national guidelines according to their own characteristics or business environment. They do not extend the scope of current rules in any way. Nor do they add undue administrative burden. Additionally, in March 2018 the European Commission launched a fitness check on public reporting by companies, which aims to assess whether the EU reporting framework (financial and non-financial reporting) is still fit for purpose. Amongst others, this initiative assesses whether the EU public reporting framework is fit for new challenges (sustainability, digitalisation). It is important that the policymakers pursue these activities with foresight. Organisations should be more involved in reporting. The question is not if it should be regulated, but rather when. Initiatives like the European Lab can also bring valuable insight to policymakers: it can give examples of corporate reporting being misused and should help to find best practices.


Directive 2014/95/EU, which elaborates on the disclosure of non-financial and diversity information by certain large undertakings and groups, which amends the Accounting Directive, applies to all public interest companies in the EU (banks and insurance companies are thus included), and to those companies who have more than 500 employees. The Directive is high level and is principles-based. It identifies four main topics: Environmental, Social and employee matters, respect for Human Rights, and anti-corruption and bribery matters. 

The European Commission Action Plan Financing Sustainable Growth requested the European Financial Reporting Advisory Group (EFRAG) in 2018 to establish a European Corporate Reporting Lab (European Lab). The objective of the European Lab is to stimulate innovations in the field of corporate reporting in Europe by identifying and sharing good practices. The European Lab deliverables are not intended to and do not have any authoritative or normative status. The European Lab will initially focus on non-financial reporting, including sustainability reporting. Preliminary projects may include climate-related disclosures in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. Other topics may be environmental accounting and, in the medium term, integrated reporting, digitalisation and innovations in various other aspects of corporate reporting. The work of the European Lab is kept separate from EFRAG’s primary role related to International Financial Reporting Standards (IFRS). EFRAG not only has a close relationship with the European Commission, but the work that EFRAG is producing reaches the Parliament and European Supervisory Authorities (ESAs) as well (e.g. European Parliament resolution of 3 October 2018 on International Financial Reporting Standards: IFRS 17 Insurance Contracts, letter to the ESAs on the indorsement process of IFRS 17). 

In June 2019, the Commission also updated the non-binding guidelines on non-financial disclosure that accompany the Non-Financial Reporting Directive (Directive 2014/95/EU) in order to take into account the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). 


​​​​​​​​​​​​​​​​​​​​​Preventing money l​aundering and terrorist financing

The adoption of an EU Regulation could be a way to help clarify the grey zones in the existing rulebook and would allow banks that operate cross-border to develop common EU-wide AML/CFT policies and processes, create synergies and facilitate effective cross-border supervision. ​

Supervisory fragmentation could be addressed by the creation of an independent EU body/authority with a clear AML/CFT mandate, or by giving an existing EU authority a deeper AML/CFT mandate, always taking into account also the national specificities. ESBG is supportive of harmonised guidance, better coordinated implementation and unified supervisory practices across the EU, leveraging the experience and expertise of national supervisors as well as banking institutions in this field. However, EU policymakers should be very cautious of overlaps with national authorities. It is therefore of the utmost importance that centralisation does not come at the cost of efficiency. ESBG suggests that synergies be tapped into to avoid placing additional reporting burdens and cost efficiencies on the industry, including potential duplicate procedures and overlaps between national and EU entities whilst ensuring that the monitoring regime is strengthened. ​

ESBG believes that the EU supervisor should have indirect powers over some obliged entities, with the possibility of directly intervening in justified cases. ESBG considers that the EBA is the best option due to the following reasons:

  • It already has deep knowledge, expertise and experience in the financial sector, and the appropriate staff to supervise financial institutions.
  • It currently has some coordination powers in terms of the supervision of AML risks in the financial sector, so it could easily build on those competences and responsibilities.
  • Building on the two reasons mentioned above, the costs of implementing a new AML supervisory system based on the EBA would be easier for the EU and the financial sector to assume. In the context of the COVID-19 crisis, costs and sources of funds will need to be seriously taken into account, and the EBA provides a first-best option in that regard.

In addition to the European Commission AML/CFT Action Plan, European institutions could incorporate some of these additional reflections on policy action: ​

  • NCAs and obliged entities to start building up respective know-how. ESBG believes that there is a need to develop an additional new set of skills and capabilities such as statistics, mathematics and IT, including Big Data and transaction monitoring.
  • Sharing innovative technologies/approaches as best practices in the EU.
  • Enhance the AML regulatory framework to regulate more and grant controlled personal data access and exchange between and within public authorities and financial services to fight crime (even without explicit customer consent). Enhance exchange between banking groups, and between banking groups and public authorities. ESBG calls on the European Commission to develop a communication on the usage of Big Data in anti-financial crime analytics and production, which will include an assessment and proposal to adapt the legal framework.
  • Evaluate EU centralized AML sanction utility, which gathers all necessary/transaction data and apply advanced analytics to detect financial crimes. ​

Identified Concerns

ESBG has always supported preventing money laundering and curbing terrorist financing. Furthermore, ESBG very much supports cooperation between national supervisors and regulators and sees room for further improvements in this area. ESGB also insists that cooperation between supervisors and the private sector should be reinforced as the main flaws in AML and CTF mechanisms are caused by a lack of cooperation and communication between the market operators and the supervisory authority. An ongoing dialogue needs to be fostered between policy and industry.

ESBG encourages EU regulators to continue identifying AML risk related to crypto-assets, wallet services providers and other assets providing a high level of anonymity, and also encourages the establishment of an appropriate legal framework. Moreover, ESBG considers that the GDPR and AML rules still are not coherent enough, especially when it comes to innovation in digital onboarding and the remote digital identification of clients.

Why Policymakers Should Act​

As reported by diverse reports from blockchain analysis, a large part of crypto-assets markets is linked to activities related to financial crime. We consider that novel issues arising from the use of new technologies in financial services require a proper regulation under a new approach. For example, new ​economic operators should be included in the list of obliged entities, as done by some member states when transposing the AMLD 5 into their national rules. Crowdfunding platforms are different types of services related to crypto-assets, including miners and issuers, should be included among the obliged entities. ​​

​Policymakers should remain vigilant regarding other assets providing a high level of anonymity (e.g., pre-paid payment cards which are issued without bearing the cardholder’s name), and lack of an appropriate legal framework.

In addition, our members still observe some cases where applying AML and CTF measures is difficult. For instance:

  • International transfers, amounts of which are increasing, from/to countries with low levels of bank secrecy protection or from/to offshore jurisdictions;
  • Schemes using payment accounts of newly incorporated legal entities, which spark big investment interest in order to transfer big cash flows all at once for money laundering purposes.


Recent developments in legislation have aimed to strengthen the EU anti-money laundering and countering the financing of terrorism (AML/CFT) framework. These include amendments to the 4th Anti-Money Laundering Directive (4AMLD) introduced by the 5th Anti-Money Laundering Directive (5AMLD), an upgraded mandate for the European Banking Authority, new provisions that will apply to cash controls starting from June 2021, amendments to the Capital Requirements Directive (CRDV), new rules on access to financial information by law enforcement authorities and a harmonised definition of offences and sanctions related to money laundering.

More recently, the European Commission presented its political strategy on 7 May 2020 and invited authorities, stakeholders and citizens to provide their feedback. Its action plan is built on six pillars, each of which is aimed at improving the EU’s overall fight against money laundering and terrorist financing, as well as strengthening the EU’s global role in this area. According to the European Commission, these six pillars, when combined, will ensure that EU rules are more harmonised and therefore more effective. The rules will be supervised more closely and there will be better coordination between member state authorities.

In addition, the Commission plans to propose a package of legislative proposals in the first quarter of 2021, with the objective of bringing about an integrated EU AML/CFT system by 2023.​


Benchmark Regulation (BMR)

As hinted at above, we would welcome the extension of the powers of the NCAs or ESMA, so that they can determine the replacement rate and also allow the use of non-compliant benchmarks in legacy contracts, particularly in those contracts that do not contain a specific fallback provision (silent contracts) or the applicable clause is either not appropriate or not workable.

Benchmark users should be allowed to continue using such benchmark in certain circumstances avoiding its automatic cessation, in order to ensure the continuity of the contracts using such benchmark as a reference. This provision could be established either for users of certain products or transactions that may prove impossible to modify (e.g. mortgage loans), or for a sufficient period of time which allows its replacement by another benchmark.

Identified Concerns

ESBG supports the Commission’s approach on a revision of the Benchmark Regulation (BMR). The main objective should be granting broader powers to competent authorities at national or European level to ensure an orderly cessation of a critical benchmark. These powers should include the mandate to continue granting the provision of a critical benchmark using a different methodology or a replacement rate. The introduction of those powers is crucial in order to avoid significant market disruption and extensive litigation and reduce legal risk. For legacy contracts, competent authorities should decide the replacement rate or the maintenance of the old IBOR rate. Without providing these measures, the IBOR transition process can result in a risk to financial stability, a major legal risk for financial entities due to contract frustration and, without doubt, could cause detriment to investors.

Why Policymakers Should Act​

​The BMR should grant customised powers to competent authorities to ensure the orderly transition from a critical benchmark to a replacement rate. ESBG is convinced that the public sector can play a role in helping the private sector to manage the risk associated with reference rate transition, in particular requiring a shift from one reference rate to another by law. We think that the problems of contract law can indeed be better compensated by a legal replacement.​


The European Commission proposed in September 2013 a draft regulation on indices used as benchmarks in financial instruments and financial contracts (the “Benchmarks Regulation” or “BMR)). The Regulation was published in the Official Journal on 29 June 2016, and applied as of 1 January 2018. It introduced a common framework to ensure the accuracy and integrity of indices used as benchmarks in financial instruments and financial contracts, or to measure the performance of investment funds in the Union. The Regulation provides that by January 2020, the Commission should review and submit a report to the European Parliament and to the Council on this Regulation and in particular on (a) the functioning and effectiveness of the critical benchmark, mandatory administration and mandatory contribution regime; (b) the effectiveness of the authorisation, registration and supervision regime of administrators and (c) the functioning and effectiveness of Article 19(2) (commodity benchmarks as critical benchmarks), in particular the scope of its application. The formal review process was meanwhile launched. The Commission published on 24 July 2020 a proposal for a regulation amending the EU Benchmarks Regulation. In this proposal the Commission would be able to designate a statutory replacement benchmark. ​


​​​​​Markets in Financial Instruments Directive (MiFID) II review

Both, industry and investors, have clearly expressed their dissatisfaction with several measures that have been implemented in 2018 in order to comply with the new requirements under MiFID II. ESBG has several times asked to use the upcoming review of MiFID II to adjust the current requirements.

Against this background, ESBG welcomes the Commission’s proposals for a MiFID “quick fix” providing quick solutions for some of the major problems that are inter alia:

  • Proposal for an exemption for eligible counterparties and professional clients with regard to costs and charges disclosure – the exemption should also cover the disclosure of inducements since they are regularly disclosed in the cost information.
  • Exemption for the product governance requirements for corporate bonds with make whole clause – the exemption seems too narrow and should be widened.
  • Introducing electronic format as the new standard for the provision of information (replacing paper-based information which is rather antiquated).

Despite the proposal of the quick fix, which is very much appreciated, there are other important issues that should be addressed in the regular review that should follow the quick fix:​

  • EBSG would be in favour of including a further category, between professional investors and retail investors, for people who are not professionals, but trade very frequently within a certain reference period.​
    ​We would recommend reviewing the requirement to record all telephone conversations, taking into account the fact that ESBG members have learned that their clients do not like that their conversations are being recorded and the recordings stored.
  • The review should be used to remove existing differences between the provision of information on costs of financial products according to PRIIPs and MiFID II. E.g., both legal bases use the wording ‘total cost’, but they provide different results on the same financial instrument, as the total costs according to PRIIPs just refer to product costs and the total costs according to MiFID II refer to service costs and product costs. To avoid further confusion amongst clients, we strongly suggest using different wordings in the context of PRIIPs and in the context of MiFID. A possible solution to the problem of reconciling the PRIIPs Regulation and the Delegated Regulation with MiFID II would be to dispense with the presentation of costs in the KID if the product in question was a financial instrument within the meaning of MIFID II. This would avoid giving clients contradictory information while nevertheless informing them about the costs in accordance with the requirements of MiFID II.
  • Clarification that the ex-ante cost information can in certain cases (products with no product costs or sale orders) be done in a standardised format via a cost grid so that investors do not have to receive redundant cost information.

Identified Concerns

ESBG identified several issues in the implementation of MiFID II:

A tremendous client dissatisfaction with the flood of information. Data shows many investors are of the opinion that they do not need all the information foreseen under MiFID II. They feel overwhelmed about all the paperwork for (often simple) investment products. Regulators should therefore take into consideration a further client category, between professional investors and retail investors (and understood as sub-category of retail as argued below), in order to differentiate sophisticated retail clients (who trade frequently and usually undertake a great number of investments, and who may not need the full set of information every time they become active) and less sophisticated retail clients (who do just few investments in a lifetime and who should always be provided with the full set of information).

Telephone conversation: option to waive voice recording. Many clients complain about the obligation to record telephone conversations. If the client contacts the institution by phone, the parts of the conversation that are relevant for securities must be recorded, and the voice files have to be stored for between five and seven years (for investment advice and advice-free orders). Clients feel patronised and feel that the relationship of trust with their advisors has been impaired.

Costs: Harmonisation of legislation such as MiFID II and the PRIIPs Regulation. The largest problems for clients is, that they are provided with differing product costs for the same product (if it is both a PRIIP and a financial instrument under MiFID II), even if the information in both cases is based on the same investment amount of €10,000. This discrepancy, which has to be explained to clients and is difficult for them to understand, is a result of contradictory calculation requirements in EU legislation.

Information requirements in the wholesale business. Professional clients and eligible counterparties are familiar with the way capital markets function. They have significantly more knowledge and experience than retail clients. Both their need for information and their need for protection are significantly lower than those of retail investors. These client groups frequently include banks and institutional investors (which are usually classified as eligible counterparties, though sometimes as professional clients), which meet the investment firm on an equal footing. In many cases these market participants are not only familiar with the market conditions and prices of the various providers but specify the conditions of the transaction in question themselves.

Why Policymakers Should Act

ESBG welcomes the background to the introduction of MiFID II, e.g. increased transparency and investor protection. However, savings and retail banks experienced that many clients did not welcome the changes that MiFID II introduced and complained about the amount of often unhelpful (and overlapping) transaction-based information they have to go through, in particular ex-ante and ex-post costs disclosures. The administrative burden and the additional steps do not improve the investment experience. Many clients feel ‘misunderstood’ and wish for ‘opt out’ options. They feel overwhelmed by the sheer amount of information and would rather have the possibility to waive parts of it. Many investors want to decide for themselves if they wish to do without certain information (such as constantly repetitive information on costs) or receive information afterwards (following telephone orders, for instance). ESBG urges policy-makers to streamline the respective provisions in the imminent review process and welcomes the proposals by the Commission for a MIFID quick fix. Nevertheless, other issues need to be addressed in the course of the review.


MiFID II (and MiFIR) started to apply in January 2018, with aim of bringing significant improvements to the functioning and transparency of EU financial markets. To assess the overall functioning of the regime after two years of application, MiFID II/MiFIR require that the Commission presents the Parliament and Council with a report on the operation of the new framework, together with a legislative proposal for reform on areas that would merit targeted adjustments. A review proposal for a “MiFID quick fix” by the Commission was published on 24 July 2020. The proposal targets “short-term” amendments to MiFID II (such as exemptions for eligible counterparties and professional clients with regard to costs and charges disclosure and the phase-out of the paper-based default method for communication in favour of electronic format). ​


​​​​​​Packaged retail investment and insurance products (PRIIPs) review

The review of PRIIPs should be a key priority for the Commission. After almost three years of implementation, it is crucial to ensure a consumer-friendly KID.

We strongly encourage policy-makers to improve the methodology to calculate the performance scenarios and costs. In our opinion, new changes should also be subject to consumer testing, meaning that the effects that the amendments will have on consumers’ behaviour and understanding should be assessed.

Furthermore, ESBG believes that the scope of the Regulation should be reviewed in order to provide legal clarity and certainty on which products fall in the scope and to exclude OTC derivatives (as in most cases they are not investment products) from the scope.

The European Supervision Authorities (ESAs) have not been able to agree on a concrete proposal that would address the immense problems deriving from the current legal framework. We doubt that the remaining 15 months until funds will fall in the scope of the PRIIPs regulation will suffice to implement legal requirements that would solve the existing problems and really improve the KIDs.

The intense work by the ESAs, that has not led to a concrete proposal has clearly shown that more time is needed for a thorough review that will lead to comprehensible KIDs. Therefore, the European legislator should prolong the exemption period for funds.

If the European legislator should decide against a prolongment, it should quickly explain the will to abolish the requirement to provide a UCITS KIID for funds so that all market participants know that they only have to set up and provide the PRIIPs KID as the single product information. At the moment, there is the risk that from 1 January 2022 there will be both documents for funds, the UCITS KIID and the KID for funds.

Identified concerns

ESBG believes that there are still open issues in the PRIIPs, in particular in the following areas that need further examination in the review process:

Calculation of the performance scenarios in the KID:

For some products the outcomes of the calculation of the performance scenarios are absurd. KIDs that are drafted in full compliance with the legal requirements could contain information that can be false and misleading for investors The following issues have been identified:

Extravagant short-term results beyond 10 000%;
Misleading procyclical anticipations: such extrapolation from historical data lead to suggest that the short-term trend will most likely continue indefinitely. On the contrary, it would be wiser to counter this naïve view and remind the non-professional client that economic cycles entail unforeseeable mean reversions
For some underlyings like interest rates, whose current five-year historical trend points downwards:
All 3 standard scenarios show nearly identical results – which is absurd
The stress scenario may present the best return, which is counter intuitive
For other underlyings like equities, whose current five-year historical trend points upwards: all three standard scenarios show over-optimistic returns – which make no sense
For some underlyings like EUR/CHF FX rate, whose current five-year historical trend entails sudden jumps: the stress scenario present absurd returns
The Interim Holding Period show better returns than the Recommended Holding Period.
ESBG is very concerned that this information is misleading and goes directly against the obligation to present information to the client that is fair, clear and non-misleading. This creates the situation that manufacturers are urged to provide false information in order to comply with the legal requirements.

Why policymakers should act

The Key Information Documents (KIDs) that are drafted in full compliance with the legal requirements contain information that can be false and misleading for investors. Manufacturers and distributors of PRIIPs are confronted with many questions regarding the contents of the KIDs. The European supervisors have already stated that some of the legal requirements to draw up the KIDs can be misleading for clients. They recommended to manufactures to include a warning statement for the retail investors: ‘in view of the potential risk that the performance scenarios may provide retail investors with inappropriate expectations about the possible returns they may receive, it is recommended to include a statement in the KID warning the retail investor of the limitations of the figures shown’. Policy-makers need to tackle these issues before the PRIIPs regulation will apply to funds which is currently foreseen on 1st January 2022.


The EU has adopted a Regulation on packaged retail investment and insurance products (PRIIPs) which obliges those who produce or sell investment products to provide investors with key information documents (KIDs). A typical KID will provide information on the product’s main features, as well as the risks and costs associated with the investment in that product. Information on risks aims at being as straight-forward and comparable as possible, without over-simplifying often complex products. The KID is intended to make clear to every consumer whether or not they could lose money with a certain product and how complex the product is.

The PRIIPs Regulation entered into application on 1 January 2018, following a one-year delay. The European Commission was supposed to issue a review of the PRIIPs regulation by year-end 2021 in order to address implementation issues. In the meanwhile, the ESAs have been working on a review of the PRIIPs Delegated Regulation in order to analyse necessary changes in the performance scenario, in the differentiation between different types of PRIIPs and in the costs. In this context, in July 2020, the draft Regulatory Technical Standards (RTS) was adopted at the EBA and ESMA Boards but at the EIOPA Board it did not receive the support of a qualified majority. Hence, the three ESAs were not in the position to present a proposal to the Commission. This clearly indicates that a thorough review that will improve the current KIDs needs more time so that the exemption for funds has to be prolonged. At this point, the Commission could restart the review of the PRIIPs regulation at level 1.


​​​​​​​​​​Capital Markets Union​

Position Paper | Capital Markets Regulation

Month: October 2020

ESBG believes that a new European Commission plan for a ‘CMU 2.0’ should be used to identify and remove burdens presented by bureaucracy with the objectives of ensuring capital markets stability as well as providing capital markets access to all investors. Since the CMU aims at unlocking capital around Europe, increase in the participation of retail investors in EU capital markets is necessary.

Therefore, in our opinion, the ‘CMU 2.0’ should be focused on:

  • Restoring investor trust and raising confidence in capital markets.
  • Increasing financial education. Well-informed investors will make responsible investment decisions from the range of available capital markets products that are more adequately suited for their needs.

Making capital market financing more attractive by reducing “bureaucracy”. In the retail securities markets in particular, numerous regulations have been created in recent years (keyword MiFID II, PRIIPs), which lead to a bureaucratization of securities distribution without creating recognizable added value for clients.

As stated above, ESBG is convinced that it would not be in the interest of the European economy, taking into consideration that is strongly based on SME structures, to favour funding from capital markets over traditional bank lending. While deepening the CMU, which ESBG is fully supportive of, we believe that the European Commission should also ensure the proper functioning of the lending market. Pluralism and diversity in the European banking sector should be preserved in order to have a safer financial market.

​Identified Concerns

ESBG supports the European Commission’s plan to create a CMU. However, the success of the CMU is not conceivable without a properly functioning lending market. SMEs rely significantly on bank loans for funding. 70% of outstanding SME external funding in Europe comes from banks, and evidence shows that bank lending remains the favourite source of SME financing for the majority of SMEs. CMU is a supplementary vehicle, not a primary path to support SME financing.

Why Policymakers Should Act

ESBG believes that a policy of complementarity remains the best way forward to create a stronger and more competitive European Union. This should be borne in mind by policy-makers when further designing the CMU. In our opinion, it is equally important to promote the lending capacity of European credit institutions. This is where savings and retail banks in Europe can help. Backed by their long-standing experience in the regions, their wide network and proximity to the local companies enables them to build irreplaceable knowledge and trustworthy relationships. It also puts savings and retail banks in an ideally placed position to help empower the economy and boost sustainable, inclusive and smart growth by granting loans to SMEs.

ESBG welcomes that the Commission addresses many important issues on MiFID II in the MiFID “quick fix” in a very positive way.


A High-Level Forum (HLF) was set up in November 2019 with the mandate to propose independent policy recommendations that would feed into the Commission’s work on CMU. On 10 June, it published its Final Report, with 17 very granular recommendations (many of them including multiple sub-recommendations for action), with a timeline, on what should be done to achieve a CMU. The Forum emphasised that 17 clusters of recommendations are a package, that they are mutually reinforcing and dependent on each other – and thus all need to be implemented to achieve the CMU. The adoption of the CMU Action Plan is currently foreseen for early autumn 2020.​

Messaging 2019



The Proportionality Card: A needed part of EU regulatory framework​

How can the locally focused sa​vings and retail-banking model contribute to further growth in Europe? On the policy front, financial legislation should weave in the principle of proportionality. That means rules applied to all financial institutions, taking into account a bank’s size, nature of its activities, complexity, risk profile and business model. Proportionate regulation should not be linked to size only.

Less risk must lead to less bureaucratic burden for our 650,000 service-driven employees and for our clients. Different regulatory regimes for different banking models would help local and regional banks – oftentimes smaller and less risky – to compete on an equal footing with other players. Doing so would give Europeans better access to much-needed finance.​

The prudential area remains a cornerstone of the proportionality debate. The Basel agreements provide a perfect example of rules designed for large, internationally active banks. Requiring huge administrative and compliance efforts, Basel rules applied to every bank in the same way will lead to a distortion of a level playing field. EU policymakers have an opportunity to change course, and end the regime that requires every bank on the continent to be compliant with the full Basel rulebook. ESBG members are well capitalised with an average CET1 ration of 15.3 per cent, higher than the industry average in EU markets where our banks are present.

Recently, some legislation used proportionality. The latest “risk reduction measures package” included reforms of the Capital Requirements Regulation and Capital Requirements Directive, with some elements of proportionality introduced in the prudential ruleset.

More elements of proportionality should be reflected in existing and future EU banking rules. Relatedly, overabundant regulation affects the financial services workforce too. Proportionality can help boost service levels by reducing the burden faced by bank employees when complying with EU banking rules.

At international level, Basel IV rules were agreed upon several months ago. The big question now is just how will EU decision-makers transpose this agreement into EU legislation? It is imperative that EU decision-makers take into consideration the nature, scale and complexity of the activities of European credit institutions. Given that financing via credit institutions remains by far the most preferred way of external financing for EU citizens and SMEs, Europe must keep a well-functioning banking sector that fulfils its special role in people’s economic lives.

In addition, ESBG favours a break from new waves of regulatory initiatives. It is high time to evaluate the functioning and consequences of current legislation before taking any additional initiatives. One example is MiFID II, where regulation has created a cumbersome process that stifles the commercial process to the detriment of financial institutions and customers alike. Implementing new rules – and complying with them – hit smaller and less-complex institutions particularly hard. 


​Banking resolution: SRF

Due to the COVID-19 related context, ESBG calls for a reduction of contributions made to the Single Resolution Fund (SRF) for 2021. The sharing of information regarding the calculation of the contributions should also be urgently revised for the sake of transparency. Banks have swings in their contribution between 10% and 50% and these amounts are not immaterial for them. They need this information in order to do their budgeting in a better way.

More proactive planning of the SRB cycle and realistic timeframes would also lift a huge burden from the shoulders of the financial institutions. Covered deposits’ information and coefficients could be disclosed at an earlier date in order to help banks modelise their SRF contributions in due time. The calculation of target level could also be shared by the SRB in a timelier manner which would help savings and retail banks for preparing their audit trail. Another aspect of the calculation methodology that would deserve more transparency are linked to the parameters associated to the calibration of the bins for individual risk indicators.

Identified Concerns

The raise of total covered deposits in recent years leading to an increase of the SRF contribution amounts is concerning as it diverts parts of banks’ resources from the real economy channel. This trend is expected to continue in 2020 as covered deposit amounts are predicted to go up in the context of COVID-19. The volatility of the covered deposit amounts is therefore concerning for ESBG members as it creates uncertainty to the annual amount to be contributed by banks to the Fund. Current market conditions are additionally putting pressure on savings and retail banks who are facing liquidity constraints thus weighting on their capacity of transforming deposits into loans to the real economy.​ More than ever, savings and retail banks need to be considered as key players in helping mitigate the impact of the COVID-19 crisis. With many business sectors severely challenged, the demand for business loans and financing is immense, particularly for small and medium enterprises (SMEs). The specificities of the current COVID-19 crisis must push authorities and regulators to respond adequately to the significant pressure put on the financial sector. As much as possible, authorities should re-assess current priorities in the SRF regulatory framework and develop policies that allow financial institutions to direct available resources to the real economy in order to support growth and jobs. Regulatory requirements governing recovery and resolution of banks in distress should be given the necessary flexibility in order to further provide liquidity to the banking sector and contribute to the recovery of the European economy as a whole.​

Why Policymakers Should Act

More than ever, savings and retail banks need to be considered as key players in helping mitigate the impact of the COVID-19 crisis. With many business sectors severely challenged, the demand for business loans and financing is immense, particularly for small and medium enterprises (SMEs). The specificities of the current COVID-19 crisis must push authorities and regulators to respond adequately to the significant pressure put on the financial sector. As much as possible, authorities should re-assess current priorities in the SRF regulatory framework and develop policies that allow financial institutions to direct available resources to the real economy in order to support growth and jobs. Regulatory requirements governing recovery and resolution of banks in distress should be given the necessary flexibility in order to further provide liquidity to the banking sector and contribute to the recovery of the European economy as a whole.​


The Single Resolution Fund (SRF) was established in 2016 in the context of the Single Resolution Mechanism (SRM) and enacted through an intergovernmental agreement (IGA) on the transfer and mutualisation of contributions to the SRF. The SRF pools contributions which are raised on an annual basis at national level from credit institutions within the 19 participating Member States. The objective of the SRF is to finance the restructuring of failing credit institutions at a minimum cost for taxpayers. In this logic, a precondition for accessing the Fund is the application of a minimum amount of creditors’ bail-in (8% of total liabilities) as laid down in the BRRD and in the SRM. The total amount in the SRF currently stands at €42 billion. The target level of the SRF to be reached by the end of 2023 amounts to 1% of the covered deposits of all banks in participating Member States and is expected to exceed €60 billion.​