ESBG response to ESMA’s consultation on guidelines of MiFID II suitability requirements

On 27 April 2022, ESBG submitted its response to the European Securities and Markets Authority’s (ESMA) consultation on guidelines on certain aspects of the MiFID II suitability requirements. Published in January 2022, the paper builds on the text of the 2018 ESMA guidelines, which are now being reviewed following the adoption by the European Commission of the changes to the MiFID II Delegated Regulation to integrate sustainability factors, risk and preferences into certain organisational requirements and operating conditions for investment firms.​

In our response, we stressed that ESMA should give investment firms more flexibility in implementing the new rules. In particular, we consider that the process for collecting client information is too detailed and impractical for both the client and the investment firm, hence we proposed that it should be optional. We also noted that the two-step approach of the suitability assessment is overly restrictive and time-consuming. For these reasons, we urged that the firm be permitted to collect all information from the customer at once.

Moreover, we understand that Level 2 Regulation allows an investment firm to recommend a product that doesn’t meet the client’s sustainability preferences, if the issue is explicitly stated and explained to the client as well as documented in the suitability report. This practice is contrary to the guidelines which require the client to first adapt his or her sustainability preferences before any further discussion. Additionally, we recommended that collecting extensive client’s information should not always be necessary when, for example, an investment firm does not have any financial instruments included in its product range that would meet the client’s sustainability preferences.

Lastly, we proposed an alternative treatment of investment advice with a portfolio approach in terms of collecting client information on sustainability preferences. We believe it would be more beneficial for the client if firms were allowed to collect such information in each advice session rather than for the entire portfolio as in the case of providing portfolio management.​

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ESBG members waive bank transfer costs to support Ukrainian people

European Savings and Retail Banking Group (ESBG) members are standing in solidarity with people in need in Ukraine by waiving fees on bank transfers to the country already or taking steps towards doing it in the near future.

“Social responsibility is in our members’ DNA. This is why I’ve asked our members to bring financial resources at no cost to people in Ukraine during these difficult times”, said ESBG president Dominique Goursolle-Nouhaud.

The ESBG president has communicated about this topic with all 23 members, who represent over 850 banks in 18 European countries serving more than 160 million customers.

“It is a clear signal of solidarity that many ESBG members have been already waiving fees on bank transfers to Ukraine and others are taking steps towards doing it. Our thoughts are first and foremost with the Ukrainian people and these members are willing to leave profits aside to help”, said Goursolle-Nouhaud.

This meets the intention of a recent call by the European Central Bank (ECB). On 18 March, Andrea Enria, Chair of the Supervisory Board of the ECB, addressed a letter to ESBG and other main EU banking associations asking to suspend or reduce, on a voluntary basis, transaction costs for bank transfers to Ukraine and Moldova. The latter is considered the country for which the intake of refugees is most challenging. The letter followed a recommendation by Members of the European Parliament.

Press contact:

Leticia Lozano, Senior Communications Adviser

leticialozano@wsbi-esbg.org

Tel. +32 2211 1196

About ESBG

The European Savings Banking Group has 23 members in 18 countries. As some of its members are national organisations, ESBG represents the interests of over 850 banks working responsibly and closely with their communities and SMEs. Together, ESBG members manage assets worth €5,700 billion, serve 162 million Europeans and employ nearly 660,000 people. ESBG is headquartered in Brussels.

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European Commission review of the Mortgage Credit Directive

On February 28, ESBG sent its response to the European Commission questionnaire on what to include in the upcoming Review of the Mortgage Credit Directive (MCD). The consultation, published in November, covered 55 questions. The review of the legislative text is expected to be launched later this year.

In our response, we asked for a limited review on the necessary topics only. Our overall position is that an in-depth review of the Mortgage Credit Directive would be premature, at this time. Since the last review took place in 2016 and it concerns long-term finance, more time is needed to evaluate the impact of the changes included then.

As the mortgage market is not operating much cross-border, we believe that EU level intervention is not necessary. Consumers rely heavily on local expertise of mortgage advisers and working in their own languages and within national legal frameworks.

However, one area we are in favour of a review is the compatibility with other EU texts. For example, the General Data Protection Regulation, the EU Accessibility Act, and the Rome I Regulation will all impact the MCD so alignment is necessary.

As always, ESBG is pleased to see work being carried out on consumer protection. ESBG members have a long history of financial education and welcome the provision in the MCD text to increase financial education for consumers, which is more defined at national level.

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European Commission Banking Package proposal

On February 22, ESBG responded to the European Commission “have your say" consultation on the Banking Package proposal, which transposes the final elements of the Basel III reforms in the EU regulatory framework and pursues other prudential and supervisory objectives.

ESBG supports the application of the output floor at the highest level of consolidation. The envisaged single-stack approach however requires that supervisory powers are more clearly framed and that the arrangements mitigating its impact are of a longer-term nature or permanent. The transitional arrangements for residential real estate, unrated corporates and derivatives should be made permanent or at least phased out based on the actual observation of structural changes in the EU banking market. Moreover, these flexibilizations should be extended also to institutions using the standardised approach to maintain a level playing field.

We recognise the proposal to disregard historical operational losses for all institutions within the calculation of capital requirements for operational risk, meaning that the internal loss multiplier (ILM) is effectively being set equal to one. This is a discretion provided in the Basel framework.

As regard to equity exposures, we support the implementation of a new category with a lower 100% risk weight (RW) for long term strategic equity investments.

Regarding specialised lending, we support the proposal to increase the risk sensitivity for unrated object finance exposures.

With respect to real estate exposures, the proposed requirements for non-income producing real estate should not go beyond the Basel standards. We then support the increased risk sensitivity for acquisition, development and construction (ADC) lending.

The threshold to use the simplified credit valuation adjustment (CVA) method should be aligned with the provision in the Basel framework.

We warn against an excessively restrictive application of the credit conversion factor (CCF) to trade finance instruments and to other exposures.

The proposed centralization of the disclosures is appreciated. Small and non-complex institutions should be exempted from reporting and disclosing requirements in the area of Environmental, Social and Governance (ESG). Further proportionality elements could then be envisaged.

Furthermore, the decision to retain important EU features such as the SME and the Infrastructure supporting factors and the CVA exemptions is appreciated.

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Considerations on the BCBS principles for the management & supervision of climate-related financial risks

The Basel Committee on Banking Supervision (BCBS) has published a public consultation on principles for the effective management and supervision of climate-related financial risks. The document forms part of the Committee’s holistic approach to address climate-related financial risks to the global banking system and aims to promote a principles-based approach to improving both banks’ risk management and supervisors’ practices in this area. This new position paper based on our response to the consultation.

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Access to better technology for (Supervisory) Reporting

On 18 February 2022, the four European banking associations (EACB, EAPB, EBF and ESBG) co-hosted the “Access to better technology for (Supervisory) Reporting” workshop that brought together the entire European banking industry, the European Banking Authority and the international RegTech community to openly exchange views and learn from each other on how RegTech solutions could help banks reduce their reporting costs and what are the hurdles to clear along the way.

300 participants across Europe participated in this half-day, targeted workshop. The presentations delivered by the banking industry clearly revealed the many challenges and complexities the industry has been facing for about 15 years due to the flood of additional data reporting requirements to banks. Data has never been as important as it is now with regulatory reporting having shifted from a simple administrative task in the past to a strategic objective high in the agenda of banks and a steering tool, with supervisors placing increasing focus on data quality. The current situation is the result of a layering of successive regulations, by different authorities at national and EU level, with the added complexities of different definitions and shorter delivery times demanding substantial investment by banks in systems, processes, and specialized staff. Banks have been mastering these challenges very well, generally speaking, but there is always room to become even more efficient.

While there are existing cases where banks are already benefitting from the use of technology either from in-house solutions or by creating a shared utility as result of a joint venture or other forms of pooling of resources by a number of banking groups in a country, the discussion revealed there is still ample room to explore and lot of work ahead to benefit from technology at a large scale.

A dedicated panel composed by RegTechs based across Europe confirmed that technology is available or is being developed to support banks with a wide range of services offering from end-to-end to targeted solutions. RegTechs also confirmed complexity is the most challenging aspect in the current reporting environment identifying standardization, infrastructure, and automation as tools to decrease the complexity.

The different ways regulatory reporting is done in Europe also adds complexity. Creating a more functional and interconnected ecosystem is key to start moving towards a much-needed standardization where RegTechs can play a key role. Replying to questions raised by the banking industry, RegTechs stressed that technology should be seen as innovation that could help banks reach beyond the 15-24% cost reduction as estimated by an EBA study last year, rather than a black box that brings its own complexity. RegTechs are also trying to remove barriers by intensively promoting their services for which forums like the workshop organized by the trade banking associations was an ideal setting to bridge the gaps between RegTech and the banking industry.

With a forward-looking perspective, the EBA provided an overview of how the different recently launched initiatives such as the Integrated Reporting System and the Commission’s supervisory data strategy aim to shape the future of supervisory reporting. The challenge is big, but the benefits are worth. The banking industry, RegTech community and supervisory authority agreed events like the workshop are key to foster collaboration and they will stay in close contact.

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