Call to EBA for equal treatment of actors when accessing consumer payment accounts

The European Savings and Retail Banking Group (ESBG) welcomes the opportunity to respond to the public consultation from the European Banking Authority (EBA) on the amendment of its Regulatory Technical Standards (RTS) on Strong Customer Authentication and Secure Communication (SCA&CSC) under the Payment Services Directive (PSD2) with regard to 90-day exemption from SCA for account access.

ESBG and its members strongly disagree with the EBA’s claim that banks fail to provide user-friendly Strong Consumer Authentication (SCA) methods and that its application often causes friction in the customer journey. Instead, ESBG calls for equal treatment of actors when accessing consumer payment accounts.

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On the EBA guidelines for Anti-Money Laundering Compliance Officers

We welcome both the decision to update the Supervisory Review and Evaluation Process (SREP) Guidelines and the overarching objectives to increase convergence of practices across the EU and to align with other relevant EBA Guidelines.

ESBG calls for several clarifications and amendments.

Particularly, in light of the different transposition of the AML Directive, it is of utmost importance that, where a conflict is unavoidable, national specificities prevail guideline provisions.

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On the EU Commission evaluation of the Mortgage Credit Directive

After the ESBG meeting with the European Commission on 30 September, we have recently shared some documents as a follow-up.

ESBG members finalised a position paper on the MCD review, and shared two briefing documents on the topics of reverse mortgages and green/energy efficient mortgages. These are topics on which the Commission is keen to receive more information from the national level to consider possible actions at the EU level.

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ESBG welcomes EBA's greater emphasis on proportionality

ESBG welcomes that the EBA is placing greater emphasis on proportionality in regulation, and hopes that this will pave the way for more proportionality in future regulations. However, more can be done to improve the proposed classifications, increasing granularity and have a paper which better explains how the ideas could be implemented.

We welcome the EBA’s commitment to using, primarily and as far as possible, already existing data from its database of supervisory reporting. However, if more data is required from financial institutions, we urge the EBA to deliver on the promise that these collections are proportionate to the complexity of the underlying requirements itself and to the burden of institutions and supervisors to deliver such data.

We consider the step-by-step approach to be suitable in principle. However, the procedure in step 2 is not clear. In our view, the proposals for the metrics are not yet fully developed. It is not sufficiently clear how on this basis – without concrete benchmarks – the decisions of a political expert can be better supported.

ESBG very much appreciates the inclusion of a classification for co-operative and savings banks. These banks are by nature local, rather small banks with a low-risk profile and a focus on core banking business. We urge the EBA should ensure that the proportionality considerations are also applied to small and non-complex institutions that are part of a consolidated group, particularly credit institutions that are only locally/regionally active and therefore do not have a systemic impact.

We would like to point out that Classification III has clear disadvantages compared to Classifications I and II. Institutions that are to be subject to the strictest regulation are to be delimited by means of a size criterion (€ 30 billion balance sheet total; point 31 lit. d of the EBA discussion paper). A delimitation on the basis of the balance sheet total would contradict the basic idea of a sufficiently differentiated regulation on the basis of the pro-portionality principle.

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Review of the EBA SREP Guidelines

We welcome both the decision to update the Supervisory Review and Evaluation Process (SREP) Guidelines and the overarching objectives to increase convergence of practices across the EU and to align with other relevant EBA Guidelines. Nevertheless, the draft version of the Guidelines contains specific provisions that go further than the EU Directive (CRD). In addition, the fact that the scope of provisions set out in the Guidelines has been expanded yet again gives rise to fears that proportionality aspects under Pillar 2 will be pushed further into the background.

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Proposal for a Regulation on European green bonds

Proposal for a Regulation on European green bonds

Establishing a European green bond standard (‘EUGBS’) was an action in the Commission’s 2018 action plan on financing sustainable growth and is part of the European Green Deal.

The European Commission adopted its proposal for a EUGBS in July 2021 and later launched a public consultation. In this context, ESBG has recently finalised a position paper that indicated some of the main concerns with the adopted proposal.

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WSBI Innovation Forum 2021 launched

BRUSSELS/BARCELONA, 29 September 2021 – The World Savings and Retail Banking Institute (WSBI) and CaixaBank are launching today the WSBI Innovation Forum 2021 ‘The horizon of banking (r)evolution’, a 3-day online event on the latest trends in the banking sector.

We welcome both the decision to update the Supervisory Review and Evaluation Process (SREP) Guidelines and the overarching objectives to increase convergence of practices across the EU and to align with other relevant EBA Guidelines. Nevertheless, the draft version of the Guidelines contains specific provisions that go further than the EU Directive (CRD). In addition, the fact that the scope of provisions set out in the Guidelines has been expanded yet again gives rise to fears that proportionality aspects under Pillar 2 will be pushed further into the background.

We welcome both the decision to update the Supervisory Review and Evaluation Process (SREP) Guidelines and the overarching objectives to increase convergence of practices across the EU and to align with other relevant EBA Guidelines. Nevertheless, the draft version of the Guidelines contains specific provisions that go further than the EU Directive (CRD). In addition, the fact that the scope of provisions set out in the Guidelines has been expanded yet again gives rise to fears that proportionality aspects under Pillar 2 will be pushed further into the background.

This Forum offers an in-depth view of some of the most relevant topics impacting the sector such as artificial intelligence, data mining, cloud, instant payments and other fintech trends.

“Banks are perfectly situated at the intersection of customer interaction, big data and sheer IT-power. We have the potential to go to the forefront of innovation and I hope that this Innovation Forum will be one of the catalysts that help release this potential”, said Chris De Noose, Managing Director of the World Savings and Retail Banking Institute (WSBI).

“One very important lever at our disposal to tackle the challenges the financial sector is facing is the use of technology and digitalisation, bearing in mind that technology only becomes a competitive advantage when it is used to serve citizens”, said José Ignacio Gorigolzarri, Chairman of CaixaBank.

This event, open to the public, will foster insightful discussions among top executives, renowned academics, and high-level decision makers. Among the speakers: Peter Simon, WSBI Managing Director; Carme Artigas, Secretary of State for Digitalisation of the Government of Spain; Ulku Rowe, Google Cloud CTO Office Technical Director; Miguel Alava, Amazon Web Services Iberia Managing Director; and Alba Ruiz Laigle, Senior Director of Business Development of Alipay and Alibaba Group in Spain and Portugal.

The full programme and registrations are available here.

About WSBI

The World Savings and Retail Banking Institute (WSBI) is a global network of 100 members in 70 countries over four continents. Founded in 1924, it represents the interest of banks working responsibly and closely with their communities and SMEs. Together, WSBI members manage assets worth nearly $12,000 billion, serve 1.3 billion clients and employ over 2 million people.

About CaixaBank

CaixaBank is the leading financial group in Spain and one of the most significant in Portugal, where it controls 100% of BPI. The bank, chaired by José Ignacio Goirigolzarri and directed by Gonzalo Gortázar, has 21 million customers in the Iberian market, and the largest commercial network on the peninsula. It has more than 6,100 branches and more than 15,000 ATMs, and is the industry leader in the digital banking sector with a percentage of digital customers of 70.6%.

CaixaBank is committed to a socially responsible universal banking model, based on trust, quality, and specialised products and services adapted to each segment. Its mission is to contribute to the financial well-being of its clients and to support the progress of society.

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BRAC Uganda working in Covid times

Maintaining customer and investor confidence during Covid

Improved liquidity position allows financial service providers to focus on pandemic recovery

The Covid-19 pandemic is the latest crisis that is putting pressure on financial service providers (FSPs) globally. Lockdowns and regulatory moratoriums on loan repayments, together with a lower business activity are putting serious constraints on FSP’s liquidity positions. Early in the Covid pandemic, there was widespread concern that liquidity constraints could wipe out many of the financial institutions that serve low-income customers and small- and medium sized enterprises.

Two recent reports issued by CFI/e-MFP and CGAP point to the vital importance of managing liquidity in the midst of a crisis. After all, the quickest path to failure of an FSP is running out of cash. Available liquidity should be used to retain the confidence and trust of both customers and creditors while continuing to operate and paying staff.  Once stability is achieved, an FSP can start its recovery, but this cannot be achieved without retaining the confidence of customers, investors, staff, and the regulator.

Evidence of successful crisis response

Scale2Save is a partnership between WSBI and the Mastercard Foundation to establish the viability of small-scale savings in six African countries. To analyse the impact of the Covid crisis on the liquidity profile of our partner FSPs, we compared the pre-crisis liquidity position at end of year 2019 with that at end of 2020 when a cautious and gradual recovery of the Covid pandemic had set in. Across our programme partners, we collected liquidity gap reports from four banks and three deposit taking microfinance institutions in four countries: Ivory Coast, Nigeria, Morocco, and Uganda.

Liquidity risk arises from both the difference between the size of positions of assets and liabilities and the mismatch in their maturities. When the maturity of assets and liabilities differ, an FSP might experience a shortage of cash and therefore a liquidity gap. A liquidity gap report profiles assets and liabilities into relevant maturity groupings based on contractual maturity dates and is an important tool in monitoring overall liquidity risk exposure. A liquidity gap report is a standard disclosure included in audited financial statements of our project partner institutions.

Increased customer deposit balances

All partner financial institutions increased their customer deposit volume at the end of 2020 compared to pre-Covid crisis level. Perhaps more importantly, they also mostly managed to increase the proportion of customer deposit funding as part of total liabilities, as seen in the graph below.

The partner banks seem to have been more successful in increasing deposit volume compared to microfinance institutions. However, caution needs to be taken in generalising this conclusion as country and institution specific factors are also at play.

Lower dependency on borrowed funds

International creditors have been very supportive to banks and microfinance institutions during the Covid crisis, granting waivers for breaches of loan covenants, providing for temporary suspensions of interest and loan repayments, restructuring of loan terms and new financing. However, given the ample liquidity available from customer funding and the higher cost associated with international borrowings and debt issuance, most partner institutions chose to run-off these borrowings during 2020 lowering the proportion of borrowings in the funding mix. The average maturity of outstanding debt dropped as a result, as the following graph reveals.

Improved liquidity profile

The maturity of customer loans and advances increased during the crisis due to loan moratoriums and the related rescheduling and restructuring. The loan maturity loan terms of all partner FSPs extended, with one example of a 216% increase, seen below, in the case of an institution which generally has extremely short loan maturities.

On the liability side, contractual maturities of funding decreased for all partner FSPs, except one.  This was mainly the result of international borrowings that expired or that were not rolled over.

When considered from the perspective of contractual maturities, the combination of lengthening loan terms and shorter funding maturities would suggest a worsening of the structural liquidity position of an FSP. However, the anticipated maturity of retail customer current accounts, security and savings deposits is often much longer than their contractual maturity, when taking into account the behavioural characteristics of a large and diversified pool of individual accounts that exhibit “stickiness”. Only a proportion of these retail customer balances will be drawn down on contractual maturity date and the entire pool provides a more stable, long-term source of funding.

This point can be illustrated with reference to the international liquidity standards issued by the Basel Committee on Banking Supervision for the calculation of expected cash outflows for two key liquidity risk indicators, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The Basel standards assume that between 3% and 10% of retail deposits[1] would actually run-off over the next 30 days under an adverse liquidity scenario. The corollary of this is that 90-97% of retail deposit funding can be considered to be stable in nature and of longer duration. As short-term customer account funding (<30days) of our partner institutions make up a significant proportion of the total customer funding (between 30% and 90%), a large part of these funds can therefore be considered as “core” and provide a stable funding base to compensate for the extended loan maturities from Covid impacted loan rescheduling.

The Basel global liquidity standards are meant as guidance and FSPs operating in less developed markets and more volatile environments may experience higher deposit run-off rates in case of liquidity stress.  Nevertheless, a significant proportion of our partners’ customer account and savings balances can be considered as stable.

Institutional resilience in face of the Covid crisis

At the outset of the Covid crisis, our partner institutions invoked their pandemic crisis management plan and took protective measures for customers and staff to prevent infection and transmission.  Partner institutions granted credit relief to borrowers in the form of loan moratoriums in line with regulatory forbearance measures.  Digital access to customer accounts was stepped up, so customers could meet household consumption expenditure during the lockdown.

Our partners have withstood the liquidity stress induced by the Covid crisis and successfully retained the confidence of customers and investors.  With a cautious and gradual recovery from the Covid pandemic underway, FSPs can now focus on recovery steps higher up the hierarchy of financial institutions crisis management needs.  These needs were described in the CFI/e-MFP report in the following order of priority: liquidity, confidence, portfolio and capital.

With stability restored, FSPs can now shift their recovery efforts to managing the loan portfolio by balancing collections of overdue loans with the need to continue lending to reliable low-income customers and small- and medium-sized enterprises and maintaining capital adequacy levels when Covid-related regulatory forbearance measures will expire.

Through surveys and case studies the Scale2Save programme continues to investigate the driving factors that influence the different outcomes of Covid crisis management.

A blog published on the European Microfinance Platform (e-MFP). To read the original version (including graphs) visit this page.

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For transparent and efficient NPLs secondary markets

The additional disclosure requirements will not necessarily increase the efficiency of secondary markets for Non-Performing Loans (NPLs). The proposed solutions, such as the mandatory NPLs templates and the establishment of an EU Data Hub, bring additional complexity, costs and efforts to all market participants.

BRUSSELS, 9 September 2021 – The European Savings and Retail Banking Group (ESBG) replied yesterday to the European Commission’s targeted consultation on improving transparency and efficiency in secondary markets for Non-Performing Loans (NPLs).

With this consultation, the Commission wants to be informed on the remaining obstacles to the proper functioning of secondary markets for NPLs as well as actions that it could take to foster these markets by improving the quantity, quality and comparability of NPL data. The consultation will also enable the Commission to decide on whether EU coordinated action and/or policy measures would be taken. This in order to limit market failures in terms of information asymmetries, to increase market liquidity, to lower bid/ask spreads and hence to enable more efficient NPL markets.

From ESBG’s perspective, the statement that an increase of market transparency would have a positive impact on the efficiency of NPL secondary markets is not necessarily true. The proposed data structure of the revised NPL templates is in fact too wide, including a lot of non-essential data. This would make it more time consuming for investors to conduct operations on the NPLs market.

For those reasons, ESBG does not support the obligation to provide data on NPLs, especially not for low NPL banks (with an NPL ratio lower than 5%) who have no or little need to sell NPLs. It would make neither economic sense (the costs will surpass the benefits), nor would it materially support the build-up of an NPL trading market (as low NPL banks would not contribute to it). Furthermore, it would be against any proportionality consideration with regards to NPL size.

About the proposal for the establishment of an EU Data Hub for NPLs, ESBG would like to highlight that the information disclosure via Pillar 3 has been reinforced recently with heightened requirements for high-level NPL entities. These entities already provide all the relevant information they have, to get the best possible price. EBA NPL templates will further increase standardisation of NPL data.

ESBG believes that the risks of leaks of information largely outweighs the potential benefits of increased transparency. Even if data is anonymised, names of distressed companies could be identified, which could have very serious consequences, notably for firms that are still viable but whose debt one bank wants to sell, while other banks may not have recognised it as a non-performing counterpart.

Furthermore, there are many intangible parameters that have an impact on the price and purchase/sales volumes that cannot be collected in a Data Hub. Therefore, a partial analysis of the information provided could lead to infer wrong and undesirable conclusions.

In this context, the obligation to provide data on NPLs would not consider the role of all involved market participants and thus may have a negative impact for some of them – like the templates provide huge administrative burdens on the seller side but do not provide any incentive for buyers.

What must be pointed out is that the lack of a single NPL market is evident, amongst other factors, due to the differences in national insolvency laws and in jurisdictional systems. NPL markets work very differently across EU countries and the creation of a pan-EU Data Hub would not help NPL markets function any better.

ESBG members have a high level of operational readiness to deal with the increase in NPLs, when (and if) the need emerges. Accordingly, ESBG firmly believes that banks – or at least low level NPL banks – should rather be given the discretion to decide on the use of the NPL data templates even in their revised format in case of a sale. As sellers of NPLs, it is in the interest of banks to disclose relevant information in line with the characteristics of the product. Establishing a data hub with standardized data for all market participants could even reduce the liquidity and depth of the NPL secondary markets.

In conclusion, while understanding the rationality of aiming at increasing market transparency, ESBG believes that a solution should be implemented without bringing any additional complexity, investments and effort to all involved, using existing regulatory and legal framework and IT infrastructure.

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ESBG response to consultation on Pillar 3 disclosure of IRRBB

ESBG proposes to further delay the disclosure of the net interest income (NII) risk measures until the EBA requirements for these NII risk measures are specified.

BRUSSELS, 3 September 2021 – The European Savings and Retail Banking Group (ESBG) replied on 30 August to the European Banking Authority (EBA) consultation on draft implementing technical standards (ITS) on Pillar 3 disclosures regarding exposures to interest rate risk on positions not held in the trading book (IRRBB).

The draft ITS puts forward comparable disclosures for stakeholders to assess institutions’ IRRBB risk management framework as well as the sensitivity of institutions’ economic value of equity and net interest income to changes in interest rates. The proposed standards will amend the comprehensive ITS on institutions’ public disclosures, in line with the strategic objective of developing a single and comprehensive Pillar 3 package that should facilitate implementation and further promote market discipline.

ESBG believes that the approach chosen by the EBA for the development of the draft ITS is quite problematic due to the lack of a definition for net interest income (NII) metrics.

The disclosed NII metrics may not be comparable as long as the EBA does not define what it understands by these NII metrics. Moreover, it is very likely that future disclosed NII metrics will be based on different methodologies. Optimally, the methodological requirements for the calculations would be clarified by the EBA before the banks would be forced to disclose the calculated results. If this is not feasible, a clarification that banks may use internal metrics for disclosure until further notice would help.

In other words, the current chronological order of the published standards shows potential for conflict. We understand the EBA’s efforts to create as much clarity as possible for disclosure in a timely manner. However, for understandable reasons, the EBA has not yet defined the requirements under Article 98(5a) CRD to be applied to the metrics to be disclosed. That is why we strongly oppose the EBA’s expectations of institutions to apply the present draft before it enters into force.

Instead, ESBG proposes to further delay the disclosure of NII risk measures until the EBA requirements for these are specified.

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