ESBG submits its response to the EBA consultation on the overall recovery capacity in recovery planning.
On 14 March, ESBG submitted its response to the consultation launched by the European Banking Authority (EBA) during mid-December on its draft guidelines which aim to harmonise the observed practices on the overall recovery capacity (ORC) determination and assessment, so as to improve the usability of recovery plans and make crisis preparedness more effective.
The objective of the ORC is to provide a summary of the overall capability of the institution to restore its financial position after a significant deterioration by implementing suitable recovery options.
In its response, ESBG firstly wanted the EBA to specify the requirements regarding the impact assessment of the recovery options and also to clarify the scenario severity. Scenarios are considered severe if they would lead institutions to the ‘near-default point’ in case no recovery options are implemented. Does this ‘near-default point’ refer simultaneously to Total SREP Capital Requirement (TSCR) and Total SREP Leverage Ratio (TSLRR) or alternatively either TSCR or TSLRR? ESBG wanted also to know whether breaching the near-default point corresponds to the Failing or Likely To Fail (FOLTF) point declared by the supervisor and the National Resolution Authorities (NRA) leading to resolution proceedings.
Secondly, ESBG underpinned a lack of level playing field for the determination of the ORC, although, setting a harmonized FOLTF point may appear fair. High reported capital/liquidity ratios of banks increase the starting point for the scenario calculation. Hence, the necessity to decrease from high capital/liquidity starting point to FOLTF point assumes a stronger degradation of the general economic conditions which leads to more severe haircuts on recovery options and a lower ORC. Therefore, this is a clear disadvantage for banks with high or increasing capital/liquidity ratios.
Finally, regarding the ORC score assessed by the competent authorities, ESBG considers that it is not realistic to fulfil all the buffers included into the recovery indicator levels after such severe crisis.
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ESBG submits its response to the EBA consultation on its data collection for the benchmarking exercise in 2024
On 28 February, the ESBG submitted its response to the European Banking Authority (EBA) consultation on its data collection for the benchmarking exercise in 2024. The aim of this supervisory benchmarking exercise to monitor and to assess the variability of institutions’ internal approaches used for the calculation of own funds requirements for market and credit risk as well as the usage of their IFRS 9 models, as well as on the impact of the several different supervisory and regulatory measures, which influence the capital requirements and solvency ratios in the EU.
In relation to the IFRS 9 models benchmarking, the ESBG expressed its support with the EBA approach to collect the whole set of information (“full data collection”) only for a limited number of HDPs asset classes and to use only the more relevant characteristics – i.e., “split” – for defining the homogenous portfolios in scope. Moreover, with respect to the materiality thresholds to be implemented in this case, the ESBG believes that these thresholds should not focus on exposures only, but on allocated provisions as well.
Furthermore, with respect to the EBA template on “Details on exposures to High Default Portfolios” (Template 115), the ESBG requests additional clarity on the probability of default (PD) used to compute the 12-month expected credit loss (ECL) (the ECL represents the weighted average credit loss with the PD as the weight). The ESBG ask for confirmation that if the facility expires before the year considered for a specific data point, the facility’s PD will not be included in the exposure weighted average PD.
Moreover, with respect to the EBA template on “Details on exposures in High Default Portfolios by economic scenarios” (Template 116), the ESBG notes that the guidance provided by the EBA states that the ECL amount associated with the economic scenario 0 shall be the weighted average of the ECL reported for the economic scenarios 1 to 5, while the SICR assessment is done based on weighted average PDs.
As such, the ESBG expects that there will be material differences between the booked ECL amount based on the Significant Increase in Credit Risk (SICR) assessment based on probability weighted PD, and the amount calculated as the weighted average of the ECL reported for the economic scenario 1 to 5 (SICR assessment based on scenario PD).
The ESBG will continue this important topic for its members and stands ready to become involved with regulators in this respect.
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The State of Savings and Retail Banking in Africa
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Micro savings, maximum impact.
The WSBI has conducted two research reports tracking the progress of retail and savings banks in their financial inclusion efforts across Africa (2018, 2019). These reports found that challenges persist around driving client centricity within the institution as well as the formation of partnerships across institutions to offer more low cost effective products.
In 2020 and 2021, the research efforts are focusing on finding solutions to these challenges. The research focus has thus turned to producing a series of case studies, each of which focuses on one theme that an institution may focus on to drive its response to the challenges outlined above. The case studies are:
COVID-19 in Africa – Customer, FSP and regulator perspectives: The first case study looks at the impact of COVID-19 on institutions and the retail financial services market. Whilst it does not propose solutions similar to the other case studies, it helps frame the additional challenges that institutions faced during the upheaval that accompanied the pandemic.
Leveraging mobile for the low income market: The mobile phone is becoming ubiquitous across Africa. Its full potential to offer financial services has however not been entirely exploited. What lessons exist for FSPs that are looking at leveraging mobile engagements with their customers in Africa.
Innovative business models and partnerships: Financial services providers have many options to partner with other institutions to enhance their offering to the market and achieve cost effective scale. What have been some of the successful innovative models applied across Africa?
Serving customers effectively through digitisation: Digital is touted as more efficient, simple and effective. How have institutions gone about driving digital transformation of their own internal systems, as well as their client engagements. Are there lessons to be had for institutions embarking on a digitisation journey?
Financial services for a specific market – Agriculture: The African economy has a large agricultural sector that plays a key role in its economic development, as well as the livelihood of its people. What have FSPs been doing to target this key market
Tentative – Client centricity and new data: The final case study is tentatively scheduled to focus on designing truly customer-centric products by leveraging information that has been previously unused by FSPs.
Please join us for a discussion on the third and fourth case studies – where these studies will be presented and debated across the African membership. The agenda for the discussion is outlined below.
PROGRAMME
15.00 – Welcome
15.05 – Introduction
Overview of the State of the Industry research series
15.15 – Business models for the mass market
What options are available for an FSP operating in the low-income market?
When is which option ideally deployed?
15.30 – Digitalisation to serve low-income customers
Digitalisation in context, more than a channel
Take-aways from institutions that successfully implemented digitalisation
15.45 – Case study – ABB
Barid-Cash, a successful case of digitalisation across a business
Partnerships, how has it served ABB?
16.00 – Discussion
16.15 – Conclusions
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Driving Formal Savings: What Works for Low-Income Women?
Scale2Save Campaign
Micro savings, maximum impact.
Insights from MarketShare Associates' customer research in Sub-Saharan Africa
While financial inclusion is expanding globally, the gender gap in access to financial services and products persists. Throughout Sub-Saharan Africa, low-income women remain chronically underserved in their ability to access, use, and benefit from financial products. Although account ownership more than doubled from 23% in 2011 to 55% in 2021, the region lags behind others when it comes to closing the financial inclusion gender gap. According to the 2021 Findex, the gap rose from 5% in 2011 to 12% in 2021. In countries like Cote d’Ivoire and Nigeria, the gender gap is as high as 27% and 20%, respectively.
In an effort to close this gap and to improve women’s meaningful use of financial services, Scale2Save has supported financial service providers (FSPs) to transition toward gender-aware strategies and to build tailored products that create opportunities for women and lower barriers in their lives.
The first step in this process requires a better understanding of the types of savings products and services that women value, prioritize, and need. With this goal in mind, MarketShare Associates conducted customer market research between October 2021 and June 2022 with six of Scale2Save’s partner FSPs in Cote d’Ivoire, Kenya, Morocco, Nigeria, and Uganda. In this post, we highlight the most salient takeaways from this research, which are captured in the recently published learning brief on ‘Driving formal savings: What works for low-income women’.
Women’s savings goals and needs
Women customers’ savings goals can be organized into three distinct categories: household expenses, planned investment, and unexpected emergencies. The research found that over 40% of women primarily set money aside for unexpected emergencies and/or household expenses. Saving for investments in the future was less common among low-income women customers – representing only 26% of those surveyed.
Women’s specific savings goals are influenced by a range of internal and external factors:
Women’s economic status is often a determining factor. For instance, women with irregular incomes have a more acute need to save for consumption smoothing, while those with greater financial stability are more likely to save for future investments.
Beyond income, women’s life cycles influence their savings goals. Young women entering the workforce, while a diverse group, have a clear propensity to save for unexpected emergencies. Those in the ‘motherhood’ stage tend to prioritize savings for education and other occasions.
Other external factors also influence women’s savings goals, such as the effects of the COVID-19 pandemic, which reinforced the importance of accumulating sufficient savings to cope with unexpected shocks and stressors.
Lastly, the design of the savings product can considerably influence savings goals. More specifically, commitment or goal-based savings accounts that restrict access until reaching a particular date or balance are more likely to be used for long-term or specific goals.
Product value proposition that drives uptake and use among women
The research identified five important factors that women consider when adopting formal savings products: place, price, people, security of savings, and product features. ‘Place’ – or the ability to access financial services and products easily and conveniently – plays a pivotal role in women’s uptake and use of savings products, as reported by 43% of those surveyed. A further 32% and 27% of the women, respectively, identified ‘price’ (i.e., the cost of using financial products and the monetary benefits derived from using them) and ‘people’ (i.e., customer service) as two important drivers. The ability to securely keep savings in a formal account was also a factor in the uptake and use of products, while product features were identified by fewer women.
FIGURE 1. PRODUCT VALUE PROPOSITION THAT DRIVES UPTAKE AND USE AMONG FEMALE CUSTOMERS
Figure showcasing product value proposition that drives uptake and use among women customers
How can we best meet the needs of women?
The following key takeaways emerged regarding women’s needs and preferences for savings products:
Increased accessibility and proximity through branchless banking models are critical enablers of women’s use of core banking services, whose access to these services is often hampered by limited mobility and time poverty.
Simplified account opening processes characterized by expediency, convenience, and reduced Know Your Customer (KYC) requirements, as well as interoperability and integration with other payment or banking services are product features that some women greatly appreciate. Albeit important, the relatively small proportion of women who identified product features as a key driver suggests that efforts to communicate and sensitize customers to such features need to be bolstered.
Women customers place greater importance on customer service than men, particularly first-time users of formal financial products. While women appreciate quick and convenient delivery channels, they also value those that enable face-to-face interactions and provide trust, information, and assistance, such as agents.
Cost and affordability are important drivers of assessing savings products, particularly as the cost of using formal financial products often puts banking out of reach for low-income women.
Keeping savings in a formal account provides women customers with peace of mind. Women highly value the security that formal savings accounts offer, reducing incidences of both theft and impulsive spending.
Women appreciate savings products that are affordable, accessible, reliable, and safe. However, certain types of women customers value certain aspects of a product’s value proposition more so than others. Women’s needs and preferences for savings products vary based on a range of factors including where they live and work, their level of trust and financial literacy, and their age. While it may not always be possible to design products that meet the specific needs of all women, where possible, customer centricity and smart design can bring substantial benefits to financial service providers and customers alike.
This blog post was originally published on the FinDev Gateway Blog
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ESBG responded to the ESMA consultation about the use of ESG terms in funds’ names
On 17 February, ESBG submitted its response to the ESMA consultation about the use of ESG terms in funds’ names. ESBG’s answer is built on the following three key points:
- ESBG underlines the need to establish, first and foremost, a clear and uniform methodology for “sustainable investments”.
- ESBG does not believe that introducing ESMA’s suggested quantitative thresholds to assess funds’ names would be the best solution.
- Instead of introducing the suggested thresholds, ESBG would like to call for a better implementation of the already existing requirements.
ESBG welcomes ESMA’s objective to tackle greenwashing when it comes to funds’ names. As a prerequisite to any action, there must be a clear and scientifically comprehensible uniform legal definition of “sustainability” to be able to present sustainability features in investment products. EU sustainability-related initiatives, such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation, are already aiming at creating a harmonised cross-border framework for offering sustainable products in the EU. Hence, it is too early to set thresholds until a harmonized methodology for “sustainable investments” is provided.
More specifically, ESBG believes that the proposed threshold of 80% for investments with sustainable and social objectives is too high. There is notably a surprising gap between this threshold and the ones already existing in other EU countries such as Germany or Luxembourg. ESBG is also not in favour of the inclusion of an additional threshold of at least 50% of minimum proportion of sustainable investments for the use of the word “sustainable” in funds’ names for now. This last threshold should be firstly reviewed and tested for its market suitability before being implemented.
Finally, ESBG believes that sustainable finance regulations should rather incentivise asset manager and product manufacturers to increase the taxonomy level of ESG financial instruments since this has not been sufficiently the case so far.
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ESBG responds to EBA consultation on the effective management of money laundering risks when providing access to financial services
In December 2022, the European Banking Authority (EBA) published draft Guidelines on the effective management of money laundering and terrorist financing (ML/TF) risks when providing access to financial services, accompanied by a revision of the non-profit organisation (NPO) provisions in the ML/TF risk factor Guidelines.
This new set of rules shall ensure that customers, especially the most vulnerable ones, are not denied access to financial services without a valid reason.
In response to the respective public consultation, ESBG submitted a position paper to the EBA on 3 February, highlighting some main observations on the definition of ML/TF risk, the situation where a client has been reported for suspicion of ML/TF as well as national jurisdictions that do not provide for accepting alternative identification documents.
Moreover, we stressed that payment and electronic money institutions should be covered by the Guidelines, to avoid loopholes in the system. The Guidelines are expected to be finalised by Q2 2023 and Q4 2023.
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ESBG addresses EU policy makers via a new position paper on instant payments
On 14 February, ESBG sent its position paper on instant payments to key Members of the European Parliament (MEPs) and staff members of the European Commission DG FISMA in charge of the proposed legislative act.
Published in October 2022 by the European Commission, the proposal for a Regulation as regards instant credit transfers in euro aims to make instant payments in Europe the “new normal”.
ESBG collected some main concerns in a position paper over the last months and discussed parts of it with DG FISMA earlier in February. The paper provides some insight into why the adherence to the rules should be based on the number of reached (consumer) accounts and why instant payments, considering it as a “premium” service, should be charged.
Furthermore, the paper supports the streamlining of sanctions screening and supports the European Commission’s approach to leave the design of the confirmation of payee (CoP) to the market.
Finally, it is suggested to reduce the scope of the requirement to offer instant credit transfers to reasonable online customer channels.
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ESBG submitted its response on resolvability testing to the EBA consultation
On 14 February, ESBG submitted its response to the consultation launched by the European Banking Authority (EBA) in November on its amended guidelines, which aim to improve resolvability testing and to promote a deeper involvement of the institutions in the resolution planning process.
In this respect, they are requested to assess whether the arrangements in place are still fit for purpose to support the execution of the resolution strategy through a self-assessment and a master playbook for the most complex banks. The resolution authorities (RAs) will be asked to adopt a multi-annual resolvability testing programme for the institutions under their remit.
In its response, ESBG firstly warns against the risk of duplicated and overlapped requirements. The EBA consultation highlights several areas where the objective to be reached remains unclear. All the requirements that are already covered by the supervision authorities should not be duplicated in these guidelines. Given that the published EBA report on self-assessment is not expected to be complementary, proper, harmonized and stable reporting would be appreciated. Moreover, considering that the master playbook does not replace the other existing playbooks, ESBG also recommends maintaining only one set of documents to avoid unnecessary duplications, or overlaps in updating periods.
Secondly, a deeper cooperation needs to be encouraged between the institutions and the RAs. Such cooperation will lead to a better understanding of the resolvability expectations and thus will benefit financial stability. However, ESBG recalls that the institutions do not have full insight into the resolution plan and that the RAs share information on a ‘need-to-know basis’. The guidelines should be enhanced by the requirement for the RAs to present the authority’s assessment to the banks in order to identify areas for improvement and to avoid miscommunication. In addition, before asking banks to set up a master playbook, any guidance from the RAs on a successful resolution process would be welcome.
Finally, these new requirements should be better proportionated and time phased. The EBA Guidelines should not only provide proportionality for compliance but also for the possibility to adjust the scope of the self-assessment report based on individual requirements given by the group resolution authority. Provided that the non-resolution entities requirement is new, the deadline for the submission of their report should be set to 2025. Besides, keeping in mind the considerable effort required, ESBG deems that an every-two-year submission would be justified for both the self-assessment report and the master playbook.
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EBIC, chaired by ESBG, addressed policy makers ahead of upcoming trilogue negotiations on AML
The AML package was published by the European Commission in 2021. Besides the establishment of an EU-wide AML authority, the package shall create a coherent legislative framework (‘single rulebook’) to improve the fight against money laundering and terrorist financing.
Notably, a first ever AML Regulation shall ensure a coherent set of rules for the private sector, including banks. One and a half years later, the discussions in the European Parliament are coming to an end and the final text will be discussed in trilogue meetings later this year.
To equip negotiators with background information on the banks’ concerns, the European Banking Industry Committee (EBIC) sent, on 7 February 2023, some main considerations to policy makers. The paper highlights selected priority issues of particular concern shared by the wider European banking sector, such as the exchange of information (both between group members of obliged entities and, in certain cases, private entities that operate within networks) and the measures to be taken regarding politically exposed persons.
The letter signed by the newly elected EBIC President Peter Simon also pointed to the importance of outsourcing possibilities, especially regarding the reporting of suspicious activities or threshold-based declarations to highly specialised service providers and elaborates on major concerns in the context of beneficial ownership.
In addition to other important messages, the EBIC stressed to disagree with reducing the percentage threshold serving as an indication of ownership of a legal entity from 25% to 5%, as suggested by some members of the European Parliament.
Read the full letter
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ESBG responds to the Commission consultation on defining violations of Union restrictive measures
Restrictive measures are an essential tool for maintaining international peace and supporting democracy, the rule of law and human rights.
To preserve these values, the EU currently has over 40 sets of restrictive measures in place which are binding on Member States and on any person or entity under their jurisdictions, including banks. While the adoption of Union restrictive measures has intensified over recent decades, national systems still differ significantly in the criminalisation of their violation. Against this background, the European Commission published a proposal for a Directive on the definition of criminal offences and penalties for the violation of Union restrictive measures in December 2022 to support the efficient enforcement of the rules.
In our response to the Commission’s call for feedback on the proposal, ESBG highlighted important points focused on the roles of banks in the sanctions compliance, such as removing the penalization of serious negligent violations. Additionally, a non-punishable voluntary self-disclosure for employees should be introduced to sufficiently protect them when a mistake happens. This shall prevent the criminalisation of human errors in sanction checks. Furthermore, we stressed that criminal liability requires a precise conceptual delineation of rights and obligation of the involved parties, and provided more remarks on the particular provisions.
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