EFRAG Draft Endorsement Advice on IFRS 17 Insurance Contracts
BRUSSELS 1 February 2021 – ESBG issued today a letter commenting on EFRAG's Draft Endorsement Advice on IFRS 17 Insurance Contracts.
ESBG represents the locally focused European banking sector, helping savings and retail banks in 21 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs. ESBG unites at EU level around 900 banks that provide retail banking services, including for certain banks the provision of insurance coverage and related services to their clients. This letter represents the consensus view of ESBG, including the financial conglomerates that are represented.
ESBG supports a high-quality standard for insurance contracts accounting; however, continues to believe that IFRS 17 as amended in June 2020 does not correctly reflect certain contracts issued by ESBG members that represent long-term life-saving products managed under cash flow matching and, to a certain extent, participating contracts, through its measurement nor its presentation requirements.
ESBG previously shared the main accounting deficiencies that IFRS 17 has in its view and acknowledges that the requirement of annual cohorts is the most transversal issue, that creates inconsistencies for almost all entities that issue insurance contracts with how these contracts are managed. However, at this current stage ESBG cannot neglect that the accounting deficiencies not addressed by the IASB in the final standard altogether will lead to negative consequences in the prudential field for financial conglomerates.
More particularly, what worries ESBG financial conglomerates most is the consequences that endorsing IFRS 17 will have on their solvency ratios for the banking groups. This is a significant issue that certain ESBG members – i.e. the financial conglomerates affected by this issue – already highlighted to EFRAG and the European Commission within its letter of 23 July 2020. A copy of this document is provided in Appendix 1 to this letter
ESBG supports the endorsement of IFRS 17 provided that there is (i) an appropriate prudential solution that addresses the volatility arising in OCI for financial conglomerates and (ii) an accounting solution for the annual cohorts issue. Both issues must be resolved as part of the endorsement process, addressing the first issue as a change in the Capital Requirements Regulation (CRR), and both should not impact the 1 January 2023 effective date of IFRS 17.
Regarding the volatility in OCI, given it is an issue arising from the application of IFRS 17 that affects prudential requirements for financial conglomerates, ESBG requests that EFRAG recommend the European Commission to consider specific changes in the CRR made in conjunction with the IFRS 17 endorsement process.
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ESBG responds to ECB public consultation on digital euro
BRUSSELS, 13 January 2021 – ESBG submitted its response to the European Central Bank (ECB) public consultation on a digital euro.
The association representing some 900 savings and retail banks welcomed the opportunity to provide its views on the possible future issuance of a digital euro but at the same time highlighted the need for further information on key aspects of the project, such as the main purpose of a digital euro, its technical implementation and functionalities, the role for savings and retail banks and other Payment Service Providers, who would perform compliance checks, as well as the interplay with SCT Inst, just to name a few. The current ‘one-size-fits-all’ approach cannot be successful in the long run. In this respect, in its response, ESBG invited the ECB to publish a second report that could provide more concrete information on how a digital euro would work, and to run a second public consultation before deciding to proceed with an implementing phase.
The ESBG response to the consultation addresses the following key themes:
Impact on financial stability
Any new form of currency brings about fundamental challenges and the introduction of a digital euro could have severe impact on the entire functioning of the EU economy. Going forward, decisions need to be taken carefully and with a clear view on the main objectives. A digital euro could jeopardize financial and prudential balances of banks, by weighing on their solvency and profitability, and by increasing their risks and fostering more severe bank runs. In times of financial distress, the demand for a digital euro could increase dramatically, since it would constitute a risk-free asset. This could spur the crisis and even incentivise central bank runs. All these elements may threaten financial stability, to the detriment of customers and citizens. It follows that a digital euro must be designed as a means of payment only, thus avoiding its use as an investment tool. To do so, ESBG and its members recommend the use of limits to holding and a no remuneration policy.
Customer and data protection
A digital euro should not only be easy to use, but also easy to understand. Proper safeguards should be in place to ensure all players are protected. For instance, if offline transactions are implemented, there is the risk of loss of only locally stored digital euro in case the device used for storage is lost or damaged. Most importantly, ESBG stressed that under no circumstances a digital euro should undermine the trust in existing means of payments. Privacy should be safeguarded in any case, and some restrictions or enhanced consent requirements may be necessary to protect consumers from certain business models that may use data on transactions to target ads or offers.
Building on the existing payments infrastructures
Europe is at the forefront of innovation for retail payments, and especially banks and payments institutions, together with the Eurosystem and National Central Banks (NCBs), provide European citizens with the most efficient payments systems available, including via digital means. ESBG believes that allowing banks to maintain their role of intermediaries and distributors of money to the public – as this is currently the case with cash – by building on existing infrastructure will ensure a high level of consumer protection, user experience and trust, as well as financial stability. At the same time, this will ensure the efficiency of the retail payment system and transformation mechanism are preserved. Instead of building a brand-new payment system, the association recommends a digital euro be integrated in the current payment system. Finally, to ensure a level playing field, it is crucial to ensure the principle “same functionalities, same liabilities, same rules”.
ESBG and its member banks stand ready to further engage with the ECB on these strategic issues in the weeks and months to come.
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ESBG stresses economic impact of data flows outside European Union
BRUSSELS, 22 December 2020 – ESBG, together with 17 other European associations recently signed a joint statement on the European Data Protection Board supplementary measures. ESBG points to the impact of data flows for Europe: Whether for consumers buying products or services through their bank accounts, medical research or suppliers collaborating to overcome a health crisis, paymasters remunerating employees, travellers booking a flight or a hotel.
ESBG considers that the current draft recommendations released by the European Data Protection Board (EDPB) will make Europe’s ability to operate within the global economy unreasonably impractical. The draft recommendations are overly prescriptive, mandate specific technical measures in all situations and focus on unworkable end-to-end encryption. The draft recommendations create legal uncertainty and hamper the free flow of data, causing a negative impact on digital trade and the benefits it offers Europe’s society.
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ESBG statement on dividends
The following statement by ESBG reacts to the European Central Bank 15 December recommendation on bank dividends.BRUSSELS, 18 December 2020 - ESBG appreciates the broad and open public debate, which took place over the past months, on banks’ dividends distribution, and we were pleased to see that the ECB recommended a less restricting approach earlier this week. This underlines once again that European banks are solid. We also welcome the review clause, which indicates that the path towards “normalisation” can possibly be continued next year.
Moreover, we fully agree with the authorities’ intention to ensure that lending to households and corporates is maintained during these challenging times. Savings and retail banks in Europe have a provable track record of fulfilling this duty in an excellent way during the Covid-19 crisis.
Nevertheless, we would like to point out a few more aspects, which might have been overlooked in the public debate.
First, we would like to make reference to savings and retail banks’ “Foundations”. These are socially committed bodies which are nourished by banks’ dividends. Hence, at the end of the day, a too restrictive dividends policy may be to the detriment of those who usually benefit from the Foundations projects. The fight against poverty, the fight for better financial literacy, and the support of small and regional projects are examples of what is being channelled through the valuable work of ESBG members’ Foundations.
Furthermore, we would like to recall the large number of small shareholders of savings and retail banks that hold bank equity. A bank dividend can, to a certain extent, sustain these shareholders’ income and facilitate that money flows back in the local economy.
Last, but not least, even if savings banks’ business model is characterised by a very regional focus, financial services, financial markets and the flow of money are global. No savings and retail bank can avoid this global dimension. If European banks are becoming less attractive to investors than non-European peers, the cost of capital for EU banks will become higher.
ESBG members have been standing by their customers since day one of the crisis, for example by issuing a great number of additional loans and by swiftly agreeing with their customers on payment moratoria. It goes without saying that ESBG members will continue to do their utmost to reduce the negative effects of the crisis for their customers, who often are households and SMEs. However, savings and retail banks – as well as their Foundations and their beneficiaries – also depend on a well-balanced regulatory framework provided by the legislators and authorities, which might have counterproductive effects.
Note to editors:
The European Central Bank (ECB) recommended that banks exercise extreme prudence on dividends and share buy-backs. To this end, the ECB asked all banks to consider not distributing any cash dividends or conducting share buy-backs, or to limit such distributions, until 30 September 2021.
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ESBG statement: EU Commission NPL action plan
ESBG appreciates strongly the active approach contained within the Action Plan on Non-Performing Loans (NPLs) published today by the European Commission and the tools it contains to manage NPLs. We see a lot of good ideas within the plan that arrives when Europe’s economy and people struggle.
Helping Europeans stay resilient since the Covid-19 crisis began, ESBG members have supported their customers in a resolute way on many fronts. Amongst those, an added batch of new loans granted to businesses and households who found themselves short on liquidity. Nevertheless, the ongoing Covid-19 crisis takes a heavy toll on real-economy companies and private households. Some will lose their fight for financial survival, that’s unavoidable. As a consequence, it seems likely that bank balance sheets will take a hit. We are optimistic, however, that NPL levels of ESBG member banks will not rise to unsustainable levels in the savings and retail banking sector.
We do have our doubts, however, about parts of the plan. One questionable element, the proposed development of secondary markets for distressed assets, figures too prominently as an answer to cleanse financial institution balance sheets. Forced sales of loans gone sour – so-called “fire sales” – fall short as a solution. Suboptimal at best, these fire sales lead to prices plunging far below market level while ceding control over the final debtors to buyers whose only interest focuses on short-term profits, not long-term commercial relationships with borrowers. Going down this path could erode confidence between clients and ESBG member savings and retail banks, whose trust-driven business model has remained intact for families and firms for several generations.
Some 885 members banks provide €1 trillion in financing to businesses of all shapes and sizes. They work with people from start-up phase to jobs-creating, export-driven maturity. A prudent and long-term risk management approach, with customer proximity as a core pillar of savings’ banks business model, already avoids excessive build-up of NPLs.
Public and private sector must continue to work together on solutions to mitigate the negative effects of the Covid-19 crisis. We look forward to a further dialogue with EU institutions and would stand ready to share expertise in an advisory panel foreseen to be set up.
For more information, please contact:
– Dirk Smet on +32 473 423589 or at dirk.smet@wsbi-esbg.org; or
– James Pieper on +32 496 51 72 70 or at james.pieper@wsbi-esbg.org.
Note to editors: About ESBG – The European Savings and Retail Banking Group
ESBG represents the locally focused European banking sector, helping savings and retail banks in 20 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs. An advocate for a proportionate approach to banking rules, ESBG unites at EU level some 885 banks, which together employ 664,000 people driven to innovate at 47,900 outlets. ESBG members have total assets of €5.7 trillion, provide €1 trillion in corporate loans, including to SMEs, and serve 164 million Europeans seeking retail banking services. ESBG members commit to further unleash the promise of sustainable, responsible 21st century banking.
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ESBG response: EBA public consultation on revision of guidelines on major incident reporting under PSD2
The European Savings and Retail Banking Group (ESBG) welcomes the opportunity to respond to this public consultation from the European Banking Authority on the revision of the Guidelines on major incident reporting under PSD2.
ESBG and its Members are highly supportive of the proposed revision. We especially welcome the fact that the amended Guidelines optimise the reporting templates and allow PSPs more time to report major incidents to National Competent Authorities. We also appreciate that the new reporting framework will avoid the reporting of minor incidents, thus shifting banks’ time and resources on the really major ones. At the same time, ESBG and its Members would appreciate further clarity on the interpretation of some criteria and definitions and recommend the various reporting frameworks be further aligned. ESBG and its Members stand ready to further engage with the EBA in the weeks and months to come.
The EBA invites comments on all proposals put forward in this paper and in particular on the specific questions summarised in 5.2. Comments are most helpful if they:
- respond to the question stated;
- indicate the specific point to which a comment relates;
- contain a clear rationale;
- provide evidence to support the views expressed/ rationale proposed; and
- describe any alternative regulatory choices the EBA should consider.
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ESBG statement: EU Commission NPL action plan
BRUSSELS, 14 December 2020 – ESBG submitted today its response to the European Banking Authority consultation paper on the draft revised guidelines on major incident reporting under PSD2.
ESBG and its members are highly supportive of the proposed revision. The association especially welcomes the fact that the amended guidelines will optimise the reporting templates and will allow payment service providers more time to report major incidents to National Competent Authorities. They also appreciate that the new reporting framework will avoid the reporting of minor incidents, thus shifting banks’ time and resources on the really major ones. At the same time, ESBG and its members called for further clarity on the interpretation of some criteria and definitions and recommend the various reporting frameworks be further aligned. They stand ready to further engage with the EBA in the weeks and months to come.
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Irrevocable Payment Commitments
BRUSSELS, 11 December 2020 – ESBG recently called on EU authorities to leverage the flexibility inscribed in the current regulatory framework by increasing the share of irrevocable payment commitments (IPC) to 30% of SRF ex-ante contributions for 2021.
Outlined in a letter sent on 24 November to the Single Resolution Board (SRB) and to the European Commission, ESBG noted that while the IPC is set now at 15%, increasing the share of the commitments would provide some flexibility to banks and would allow them to further support the economy in the Covid-19 outbreak context.
ESBG also noted that it is also essential that IPC amounts remain non-deductible from CET1 to allow this measure to be fully effective and in line with level 1 texts.
IPC are defined as an obligation on the part of credit institutions to pay their contributions in the future through a contract signed between the financial arrangement and an institution that opts for the IPC. This is a perpetual and irrevocable obligation secured by low-risks asset as collateral, such as cash, which should be unencumbered and earmarked for exclusive use by the receiving authority.
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IFRS Foundation: Consultation paper on sustainability reporting
WSBI-ESBG welcomes the opportunity to comment on the IFRS Foundation’s Consultation Paper on Sustainability Reporting.
The report answers the following questions:
- Question 1: Is there a need for a global set of internationally recognised sustainability reporting standards?
- Question 2: Is the development of a sustainability standards board (SSB) to operate under the governance structure of the IFRS Foundation an appropriate approach to achieving further consistency and global comparability in sustainability reporting?
- Question 3: Do you have any comment or suggested additions on the requirements for success as listed in paragraph 31 (including on the requirements for achieving a sufficient level of funding and achieving the appropriate level of technical expertise)?
- Question 4: Could the IFRS Foundation use its relationships with stakeholders to aid the adoption and consistent application of SSB standards globally? If so, under what conditions?
- Question 5: How could the IFRS Foundation best build upon and work with the existing initiatives in sustainability reporting to achieve further global consistency?
- Question 6: How could the IFRS Foundation best build upon and work with the existing jurisdictional initiatives to find a global solution for consistent sustainability reporting?
- Question 7: If the IFRS Foundation were to establish an SSB, should it initially develop climate-related financial disclosures before potentially broadening its remit into other areas of sustainability reporting?
- Question 8: Should an SSB have a focused definition of climate-related risks or consider broader environmental factors?
- Question 9: Do you agree with the proposed approach to materiality in paragraph 50 that could be taken by the SSB?
- Question 10: Should the sustainability information to be disclosed be auditable or subject to external assurance? If not, what different types of assurance would be acceptable for the information disclosed to be reliable and decision-useful?
- Question 11: Stakeholders are welcome to raise any other comment or relevant matters for our consideration.
About WSBI (World Savings and Retail Banking Institute)
WSBI represents the interests of 6,760 savings and retail banks around the world. WSBI focuses on international regulatory issues that affect the savings and retail banking industry. It supports the aims of the G20 in achieving sustainable, inclusive, and balanced growth, and job creation, whether in industrialised or less developed countries. Supporting a diversified range of financial services to meet customer need, WSBI favours an inclusive form of globalisation that is just and fair. It supports international efforts to advance financial access and financial usage for everyone. WSBI members have total assets of $16 trillion and serving some 1.7 billion customers in nearly 80 countries who seek retail banking services. WSBI members are committed to further unleash the promise of sustainable, responsible 21st century banking.
World Savings and Retail Banking Institute – aisbl
Rue Marie-Thérèse, 11
B-1000 Brussels
Tel: +32 2 211 11 11
Fax : +32 2 211 11 99
Info@wsbi-esbg.org ￭ www.wsbi-esbg.org
About ESBG (European Savings and Retail Banking Group)
ESBG represents the locally focused European banking sector, helping savings and retail banks in 21 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs. An advocate for a proportionate approach to banking rules, ESBG unites at EU level some 900 banks, which together employ more than 650,000 people driv-en to inno-vate at roughly 50,000 outlets. ESBG members have total assets of €5.3 trillion, pro-vide €1 trillion in corporate loans (including to SMEs), and serve 150 million Europeans seeking retail banking services. ESBG members are committed to further unleash the promise of sustaina-ble, responsible 21st centu-ry banking. Our transparency ID is 8765978796-80.
European Savings and Retail Banking Group – aisbl
Rue Marie-Thérèse, 11
B-1000 Brussels
Tel: +32 2 211 11 11
Fax : +32 2 211 11 99
Info@wsbi-esbg.org ￭ www. wsbi-esbg.org
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IASB Discussion Paper 2020 2021 Business Combinations—disclosures, goodwill and impairment
WSBI-ESBG support IASB preliminary views to develop proposals to remove restriction that prohibits firms from including some cash flows in estimating value in use.
BRUSSELS, 7 December 2020 — WSBI-ESBG welcomes the opportunity to comment on the IASB discussion paper 2020/1 Business Combinations—Disclosures, Goodwill.
The two associations can understand the investor’s need to have information about the subsequent performance of an acquisition, however, we do not share how this issue is addressed in the discussion paper and we are concerned about some of the preliminary views being proposed. In a regulated sector, such as the banking sector, subject to a high level of scrutiny, there are to this day several information tools and channels at investor’s disposal that allow them to assess effectively the performance of banks after corporate operations of this kind.
We agree with IASB’s preliminary view that it should retain the requirement for companies to prepare pro forma information in the year of acquisition. However, the IASB may provide alternatives, which could work for preparers from a cost/benefit perspective when preparing current disclosures, by allowing the disclosure of the revenue and profit or loss of the acquiree for the period before the acquisition date, instead of this pro forma information. We support IASB’s preliminary views to develop proposals to remove the restriction that prohibits companies from including some cash flows in estimating value in use
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