Call for clarification on the Artificial Intelligence Liability Directive

On 28 September, the European Commission published its proposal for the Artificial Intelligence Liability Directive which  complements and modernises the EU civil liability framework by introducing for the first time rules specific to damages caused by AI systems. 

The purpose is to lay down uniform rules in case of damages caused by AI systems and to establish broader protection for victims. The Directive is applicable to both individuals and businesses. The new rules will, for instance, make it easier to obtain compensation if someone has been discriminated against in a recruitment process involving AI technology.

It is proposed that five years after the entry into force of the AI Liability Directive, the Commission will assess the need for no-fault liability rules for AI-related claims if necessary.

Consequently, on 3 October, the Commission enabled relevant stakeholders to provide feedback on the proposed AI Liability Directive. All feedback to be received will be summarised by the Commission and presented to the Parliament and Council with the aim of feeding into the legislative debate.

As part of its mandate, ESBG replied to the Commission’s call for feedback on 2 December. In its response, ESBG supports the protection of consumers as well as adapting liability rules to the digital age, thereby setting out a framework for excellence and trust in AI.

However, ESBG understands from the proposed Directive that the presumption of a causal link in the case of fault is mainly a matter of “non-compliance of due diligence duties”. In this context, ESBG calls for clarification on what could be considered as non-compliance of due diligence duties. In particular, ESBG questions whether the presence of bias or discrimination could be considered a noncompliance of due diligence duties. Furthermore, clarification is necessary on what tools are available to providers and users of AI systems to refute the causal link.

Finally, as the AILD is a directive, members stress the importance to take the cultural and legal differences between member states into account when implementing. Different application across member states can lead to regulatory arbitrage where firms choose where to be domiciled according to the member states legislative application. Therefore, the directive should be aligned with the Rome I Regulation and the Rome II Regulation regarding the conflict of laws on the law applicable to non-contractual obligations.

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Call for clear scope of applicability of the Cyber Resilience Act

On 14 November, ESBG submitted its input to the European Commission’s call for feedback on the proposed Cyber Resilience Act, which was published in September. All feedback received will be summarised by the Commission and presented to the European Parliament and Council with the aim of feeding into the legislative debate.

On 15 September, the Commission published a proposal for a Cyber Resilience Act, which aims to protect consumers and businesses from products with inadequate security features. The Cyber Resilience Act introduces mandatory cybersecurity requirements for products with digital elements. It will ensure that digital products, such as wireless and wired products and software, are more secure for consumers across the EU. In addition to increasing the responsibility of manufacturers by obliging them to provide security support and software updates to address identified vulnerabilities, it will enable consumers to have sufficient information about the cybersecurity of the products they buy and use.

In the position paper, ESBG members welcome the Commission proposal and support the goal of only having secure software on the internal market. However, members believe that the Cyber Resilience Act leaves too much room for interpretation regarding its scope of applicability and therefore proposes that the Commission should make a clear scope-statement that would dissolve any uncertainty whether the software developed, operated, or marketed by financial institutions is in scope of this Act.

In addition, there are vertical initiatives that already regulate the cyber-resilience of hardware and software products used by certain sectors. This is the case of the Digital Operational Resilience Act (DORA) for the financial sector, a regulatory framework specifically designed and developed to ensure the digital operational resilience of the financial sector. Extending the scope of the Cyber Resilience Act to products manufactured by credit institutions may place additional burdens onto banks, on top of the already existing tight regulatory corset.

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ESBG responds to the EBA consultation on the supervisory handbook for IRB systems validation

On 28 October, ESBG responded to the European Banking Authority (EBA) consultation on the supervisory handbook for Internal Rating Based (IRB) systems validation. The handbook aims to clarify the role of the validation function as part of corporate governance, in particular in terms of scope of work and interaction with the credit risk control unit.

As a general comment, we stressed that organizational suspension of the validation function should be independent of the size of the bank. In addition, it should be ensured that the validation manual is free of inconsistencies with existing supervisory regulations such as the ECB Guide on Internal Models.
ESBG stressed that it would be helpful to consider the aspect of proportionality more closely. The validation approach proposed by the EBA hardly differentiates between the materiality of models/portfolios and model changes. On the contrary, the intensity and scope of validation activities must always be based on the expected data situation, the importance of the rating procedure, and the scope and complexity of the changes made.

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TOPIC: Prudential regulation

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Financial Education: A high priority


1 MinutesOctober 11, 2022

ESBG organises regular events promoting financial education, including the global World Savings Day on 31 October each year, as well as sponsor the European Stock Market Learning initiative for youths to simulate investing in the Frankfurt Stock Exchange and learn how to invest wisely.
ESBG works to ensure that financial education is discussed at the EU level and included in EU legislative texts to ensure credit providers are required to ensure their customers understand the product which they are buying, and any associated risks.

World Savings Day 2022

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Financial education is another high priority topic in ESBG. Members have long-running mandates to provide financial education not just to our members, but also to the communities in which they serve.

European Stock Market Learning Website

ESBG keeps a close eye on prudential treatment of crypto assets

On 30 September 2022, ESBG responded to the second public consultation of the Basel Committee on Banking Supervision (BCBS) on the prudential treatment of banks' crypto asset exposures, which is built on the proposals in the first consultation issued in June 2021.

The basic structure of the proposal in the first consultation is maintained, with crypto assets divided into two broad groups: Group 1 includes those that are eligible for treatment under the existing Basel Framework with some modifications. Group 2, on the other hand, includes unbacked crypto asset and stable coins with ineffective stabilisation mechanisms, which are subject to a new conservative prudential treatment.

In the response to the second consultation in 2022, we advocated for the removal of the technological risk add-on from the proposed prudential framework.

The first reason for this would be the principle of technological neutrality. The regulation should focus on regulating the services but not the applicable technology in order not to prevent the adoption of a specific technology and to neither prefer nor prejudice a specific business model or service provider. Secondly, technological risk already exists in all asset classes. If persistent technological risks are detected, the supervisor could require actions for their mitigation or apply a Pillar 2 Requirement (P2R) surcharge. Finally, a common surcharge of capital would reduce institutions’ incentives to mitigate inherent risk.

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OCTOBER 2022 | TOPICS: Prudential, Supervision and Resolution | Public Consultation | Crypto Assests | Basel Framework | Technology Neutrality

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Joint letter to Commissioner McGuiness on the EFRAG consultation regarding its first set of draft ESRSs

Topic

October 5, 2022

On 27 September, the ESBG, together with the European Banking Federation (EBF), the European Association of Co-operative Banks (EACB), Insurance Europe, Accountancy Europe, Business Europe and European Issuers, has submitted a joint industry letter to Commissioner Mairead McGuinness regarding the European Financial Reporting Advisory Group (EFRAG) public consultation on its first set of draft European Sustainability Reporting Standards (ESRS).

In the letter, ESBG strongly emphasized the necessity to phase-in the submission of the disclosure requirements from EFRAG to the Commission. In this respect, it is considered that EFRAG should deliver a limited set of crucial ESRS by November 2022. After this, EFRAG and the Commission should agree on a detailed plan to deliver the rest of the first set of standards and all the other deliverables required by the Corporate Sustainability Reporting Directive (CSRD). All these will constitute the minimum requirements to be delivered within the pre-set deadlines by the Commission.

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ESBG Event

Topic

25 OCTOBER

HYBRID EVENT

ASK FOR THE RECORD OF THE EVENT

constantin.vicol@wsbi-esbg.org

REGISTRATIONS

Promoting financial education among women and highlighting the need to focus a few more efforts in improving female financial literacy. This is the aim of the upcoming ESBG event “My World, My Knowledge, My Future: A Female Approach To Financial Education”.

Studies show that women are less likely to be financially literate than men – especially when it comes to investing. Men are statistically more likely to take risks, but also research their activities and understand what they are doing. A basis in financial education is key to our future success in saving, investing, and growing wealth in a safe environment – calculating the risk and understanding what could go wrong, or right.
Empowering consumers – in particular women, who are less engaged than men – with the knowledge to make sound financial decisions and build a better future is important in an era of low savings rates, pandemic recovery and an ever-changing digital world. Every day we find new challenges and face new risks, and we need to be armed with up-to-date information and simple knowledge how to navigate through the financial world.

Join us and be part of a pivotal debate on topics like :

• How can financial institutions raise awareness among women of the risks and responsibilities when investing?
• What can school curricula do to engage more girls in money topics?
• Where can financial institutions improve their financial education plans to appeal to a female audience?
• What can policy makers do to provide support when targeting this group?

SPEAKERS & PANELLISTS

Mairead McGuinness

EU Commissioner for Financial Services and
Capital Markets Union

Keynote Speaker

Petra Hielkema

Chairperson of the European Insurance and
Occupational Pensions Authority (EIOPA) 

Panellist

Dominique Goursolle Nouhaud

President ESBG and
National Federation of Savings Banks

Keynote Speaker

Verena Ross

Chairperson, European Securities and
Markets Autorithy ( ESMA)

Keynote Speaker


Ellen Bramness Arvidsson

Executive Director, Finance Norway

Panellist

Magdalena Brier

Chief Executive Officer, Profuturo

Panellist


Ann Cairns

Executive Vice Chair
Mastercard

Panellist

Gabriele Semmelrock-Werzer

President, Austrian Savings Banks Association

Panellist


Karolin Schriever

Executive Board Member
DSGV

Panellist

Prof. Dr. Bettina Fuhrmann

Vienna University of Economics and Business

Panellist


Weselina Angelow

Programme Director on
Scale2Save

Speaker

Michelle Schonenberger

Advisor at European Savings and Retail Banking Group – ESBG

Speaker


Jacki Davis

Moderator


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New taxes on banks can affect economic growth

In the current context of high inflation and economic slowdown, and with the possibility of a recession in the horizon, it is more important than ever that savings and retail banks preserve their solvency. In this respect, the recent decision in some EU countries to impose new windfall taxes on the banking sector will further reduce the latter’s lending capacity to corporates and individuals.

BRUSSELS, 6 September 2022 – European savings and retail banks played a very relevant role during the Covid-19 pandemic, contributing to sustain businesses and families during lockdown periods and beyond, while closely cooperating with the authorities to avoid a credit crunch. They have also been publicly recognised in many jurisdictions as a relevant part of the solution to the post-pandemic economic recovery.

While the effects of the Covid-19 pandemics are still being felt, the EU economy is now facing a new crisis arising from supply chain shortages and the war in Ukraine, in which savings and retail banks continue to support their customers and economic activities in general. Even further, they are actively contributing to helping Next Generation EU funds reach the real economy, by providing additional funding through their extended network of branches covering the whole EU territory and through their expertise in risk assessment.

In the current context of high inflation and economic slowdown, and with the possibility of a recession in the horizon, it is more important than ever that savings and retail banks preserve their solvency. In this respect, the recent decision in some EU countries to impose new windfall taxes on the banking sector will further reduce the latter’s lending capacity to corporates and individuals.  These sectorial taxes are discriminatory and unjustified, as the expected increase in interest rates is unlikely to lead to extraordinary profits in the banking sector (they can even decrease if NPLs start to grow). In fact, marginally higher rates simply represent the return to a normal situation after many years of very low profitability due to the negative interest rate environment, which, in turn, has also negatively affected returns to shareholders. These new taxes have also placed financial institutions in a difficult situation with their supervisors, as the requirement of not transferring their cost to customers goes against EU legislation (“EBA Guidelines on Loan Origination” state that loan pricing should include all the costs supported by banks, including taxes).

A tax on the banking sector may also undermine the social work undertaken by savings and retail banks. Social responsibility is a core value of our members; towards their clients, employees, communities, and the environment. In this context, policy makers should carefully consider the negative impact of taxation on banking foundations which have historically been involved in investing in local communities, fighting poverty, and helping those who are the most vulnerable in society.

The EU financial sector already contributes significantly to EU national budgets under the current tax framework, and it is ESBG’s view that what is needed in these uncertain times is a strong and competitive retail banking sector in Europe that continues to fulfil its key function as credit provider to companies (especially SMEs) and families alike. Therefore, any measure that can weaken the recovery of the EU economy should be carefully considered.

Finally, we are also warning against the risk of a fragmented EU tax system and calling for more tax harmonisation across EU countries. Additional taxation at national level is detrimental to a level playing field by distorting competition within the EU internal market. A particular source of distortion arises from shadow banking activity (e.g.: hedge funds) and other non-bank financial players (e.g.: big techs or credit cooperatives) which generally remain outside the scope of windfall taxes applied to the banking sector. For this reason, we believe that uncoordinated national initiatives in the field of taxation should be avoided at all costs in order to provide the necessary conditions for a fair and even distribution of financial services to European citizens and companies; especially SMEs.

 

Press contact:

Leticia Lozano, Senior Communications Adviser

leticialozano@wsbi-esbg.org

Tel. +32 2211 1196

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State Aid rules for banks in difficulty

The European Savings and Retail Banking Group (ESBG) welcomes the initiative of the European Commission to launch a targeted consultation aiming at reviewing the State Aid rules for banks in difficulty.

The potential revision will assess the fitness of the current rules regarding burden-sharing, market discipline, financial stability, and the protection of taxpayers among other things. The modernized framework should ensure that the State Aid rules are applied proportionally, are adapted to the crisis management and deposit insurance (CMDI) legislation and are specifically targeted at different kinds of bank crises.

ESBG argues that all DGS measures available under the CMDI framework applied in accordance with the rules established by the DGSD and the BRRD/SRMR, regardless of national specificities in the design, the governance, and the functioning of DGSs, should be exempted from the application of the regular State Aid control rules. It should be made clear that when DGS funds are used for support measures, State Aid rules should not be applicable and no notification to the Commission be required. Exempting the application of the State Aid rules on actions under the CMDI framework will allow the effective and undisturbed use of measures foreseen under DGSD/BRRD/SRMR.
Furthermore, and until such improvements are effectively achieved, ESBG finds it important to avoid any increase in contributions to the national DGS and to the Single Resolution Fund (SRF).

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Number of unbanked adult EU citizens more than halved in the last four years

Nevertheless, more than 13 million adults, or 4% of the adult population, face financial exclusion, according to an ESBG analysis of the Global Findex Database 2021, recently released by the World Bank.

 

 

BRUSSELS, 14 July 2022 – The number of unbanked citizens more than halved over the past four years, but more than 13 million adult EU citizens still lack access to formal financial services, with room for Europe’s savings and retail banks to continue contributing to financial inclusion.

The European Savings and Retail Banking Group (ESBG) conducted an analysis of the Global Findex Database 2021 recently released by the World Bank, and was pleased to find that the number of banked adults in the EU has climbed.

This significant improvement can be attributed to increased efforts from the banking industry, including notably the ESBG membership serving 162 million Europeans, as well as to an increased move towards digitalisation spurred by the pandemic.

“Financial inclusion is at the core of our members’ vocation and they put great efforts on serving individuals, families and SMEs, with a focus on leaving no one behind, which has surely contributed to the improvement of financial inclusion in the block”, said ESBG Managing Director, Peter Simon.

According to the World Bank Findex (which has no data for Luxembourg over 2021), 3,6 % of Europe’s population remain financially excluded, an improvement from the 8,2% reported in 2017. This percentage translates to some 13 million adult citizens being unbanked in 2021, down from close to 31 million in 2017.

Part of the remaining unbanked are probably less-digital savvy people and banks need to continue cater for that segment. Without any doubt, all the unbanked rely on cash to participate in the economy and therefore banks must play a responsible role regarding cash provision.

Looking at some European countries in detail, Romania suffers the highest no-account rate at 30,9%, while neighbour Bulgaria faces the second highest financial exclusion rate at 16%. Following them are Hungary (11,8%), Croatia (8,2%) and Portugal (7,4%). Compared to the 2017 data, Bulgaria showed nearly an 11 percentage points improvement from 2017 when they reported 27,8% of the population remained unbanked. The Czech Republic and Lithuania significantly improved their unbanked rates over the reported period, dropping out of the top 5 list of EU countries with the highest no-account rates, as Croatia and Portugal replaced the pair.

Best-in-class countries include Denmark, with hardly any unbanked people reported, followed by Germany (0,02% unbanked) and Austria (0,05%). These are followed by the Netherlands (0,3%) and Sweden (0,3%). Austria is the newcomer in this top 5, replacing Belgium. Nevertheless, Belgium, together with 10 other countries have more than 99% of their population participating in banking services.

Table: Financial inclusion in EU Member States, unbanked adults

(Sources and notes: Global Findex – 2021 data on Luxembourg is missing in Global Findex so has been omitted, analysis by WSBI-ESBG)

  2017 2021
Country Unbanked adults 15+ Relative share Unbanked adults 15+ Relative share
Austria 137.700 1,84% 3.761 0,05%
Belgium 128.041 1,36% 95.329 0,99%
Bulgaria 1.697.604 27,80% 947.642 16,03%
Croatia 494.946 13,86% 283.466 8,20%
Cyprus 109.767 11,28% 69.197 6,87%
Czech Republic 1.703.016 19,01% 456.366 5,06%
Denmark 3.947 0,08% 0 0,00%
Estonia 22.137 2,01% 6.929 0,62%
Finland 9.866 0,21% 21.861 0,47%
France 3.270.789 6,00% 419.374 0,76%
Germany 613.053 0,86% 16.765 0,02%
Greece 1.341.302 14,53% 473.335 5,12%
Hungary 2.105.537 25,06% 983.136 11,78%
Ireland 173.372 4,66% 13.310 0,34%
Italy 3.255.366 6,21% 1.401.949 2,71%
Latvia 112.583 6,78% 53.731 3,38%
Lithuania 419.049 17,12% 152.777 6,47%
Malta 10.302 2,64% 15.982 3,55%
Netherlands 51.485 0,36% 39.231 0,27%
Poland 4.292.591 13,27% 1.377.061 4,28%
Portugal 681.086 7,66% 658.625 7,35%
Romania 7.039.982 42,25% 5.031.950 30,88%
Slovak Republic 727.964 15,82% 201.923 4,38%
Slovenia 43.408 2,47% 16.937 0,95%
Spain 2.474.022 6,24% 689.696 1,70%
Sweden 21.133 0,26% 26.545 0,31%
Totals 30.940.048 8,20% 13.456.879 3,54%

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