Social Partners call for Parliamentary support in review of the Sectoral Social Dialogue Framework
On 26 May, 35 European Social Partners from a wide range of sectors requested support from the European Parliament in the review of the Commission of its Sectoral Social Dialogue.
The Commission review is heading in a direction which puts more responsibility on the social partners, and less on the Commission secretariat which is currently the norm. These proposed changes (among others) will put a lot of pressure on the social partners, in particular from the smaller sectors.
In the letter, social partners from more than 12 sectors are requesting that the Parliament supports social partners in calling on the Commission to maintain both its logistical and financial, legal and political support for sectoral social dialogue committees. Additional requests for more transparency of the Commission review are in the pipeline.
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ESBG responds to the Commission’s consultation on its Taxonomy Environmental Delegated Act
On 3 May, ESBG responded to the Commission’s consultation on its new set of EU taxonomy criteria for economic activities that contribute substantially to one or more of the following environmental objectives: sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems
As a background information, the EU Taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. It could play an important role helping the EU scale up sustainable investment and implement the European green deal. The EU taxonomy would provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable.
It is part of the European Green Deal strategy.ESBG has always been supportive of a workable EU Taxonomy. While the technical screening criteria of the taxonomy must remain consistent and encourage capital reallocation towards a sustainable economy, they should be selected so that they may be applied to all relevant financing activities without creating an excessive administrative burden for some players.
In other words, all financial institutions should have the tools at hand to play a vital role in financing the transition to a more sustainable EU economy. Definitions should therefore be clear, and applicable indicators should ensure a sufficient degree of comparability.
Nonetheless, ESBG sees some shortcomings in the Commission’s draft.
Indeed, ESBG is not totally satisfied when it comes to the Green Asset Ratio (GAR). On top of that, ESBG believes that there is a disparity among annexes or criteria. Indeed, there is very little specificity or granularity in some objectives, especially regarding the biodiversity, whereas other annexes are very granular or specific.
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ESBG revises its position paper on the CSDDD in accordance with the recent negotiations
Given the developments of the recent political negotiations, ESBG has decided to update its position paper on the Corporate Sustainability Due Diligence Directive (CSDDD) with five main recommendations to be considered.
First of all, ESBG calls for reconsidering the scope(s) and supports lifting the employee threshold to 1000. Moreover, for competitiveness purposes, ESBG calls to narrow the gap between the suggested thresholds for EU and non-EU companies. ESBG has also concerns regarding the scope of the “adverse impact” listed in the annexes and ask to narrow it. Finally, ESBG strongly opposes the inclusion of the financial entities in the list of high-risk-sectors.
ESBG insists on limiting the value chain to the direct customers receiving loans or credits only, not to their subsidiaries or business partners. Also, loans or credits provided to SMEs, natural persons and households should not be covered by the value chain.
ESBG is in favour of the implementation of a risk-based approach when conducting the due diligence for financial undertakings. ESBG proposes including a differentiation between simplified and enhanced due diligence rules depending on the risk profile of a customer. For instance, it could make sense to prioritize identification of entities established in countries/regions more likely to generate “high adverse impacts”.
Regarding the specific role of financial undertakings, ESBG strongly urges to keep the identification obligation limited to before providing loans or credits. Finally, ESBG stresses the need to consider the specific structure of mutualist banking groups.
A coherent frame that makes the rules work will also be welcomed. Overall, ESBG encourages the legislators to coordinate their progress with other current projects, such as the EU taxonomy, corporate sustainability reporting directive, deforestation regulation and conflict minerals regulation.
Finally, ensuring legal certainty is key. Therefore, ESBG discommends the inclusion of specific provisions related to civil liability under the proposed CSDDD, notably because it could lead to a permanent litigation risk as well as the directors’ duty of care. In this regard, ESBG also recommends that the substantiation of concerns is eliminated.
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ESBG responds to SRB consultation on its future strategic review
ESBG has recently shared its feedback with the Single Resolution Board (SRB) on its future strategic review which aims to enter into a new era after the completion of the construction phase. This phase was marked by the build-up of the Single Resolution Fund (SRF) and by the introduction of tools improving the resolvability. As part of the second phase, priority will be given on operationalisation with a focus on the resolution plans.
In its consultation response, ESBG has focused on two main elements. Regarding the first part which focuses on how the SRB consultation process can be enhanced, ESBG is of the opinion that both the banking sector and the Resolution Authorities would benefit from a wider framework for SRB consultation. Currently, the number of consultations does not cover the wide spectrum of expectations. It will also be desirable to promote an active participation of the banking industry in advance of implementing modifications on regulations they are subject to. ESBG also believes that banking associations are insufficiently involved in some consultations (e.g. SRB consultation on SRF contributions). A bundling of feedback by associations would be more expedient, as this would avoid receiving hundreds of identical comments for the SRB. Finally, considering the too-short consultation periods in the past (e.g. for MREL Policy), ESBG recommends to extend the deadlines.
On the second part, ESBG commented on how SRB could improve transparency and interactions with the banking industry. ESBG confirms that, in terms of transparency, a great progress has been made over the years; however, a balance must be struck between transparency and over-information. The latter makes reaching the knowledge more difficult; hence ESBG recommends the SRB to add a summary of the most important key points in front. In terms of interactions, ESBG members really appreciate the participation in the industry dialogue meetings initiated by Dr. König which should continue to take place physically. Also, the SRB should, similar to the ECB banking supervision, gradually translate the contents of the website into all official languages and also make important documents, such as policies, expectations or guidelines, available in these languages. Finally, with regards to formal communication on resolution cases, ESBG advocates that confidential information sessions for banks’ head of resolution planning and IRTs could be helpful for knowledge sharing amongst peers.
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A Digital Euro: what does it mean for savings and retail banks?
A Digital Euro: what does it mean for savings and retail banks?
Since its inception, ESBG has been taking an active role in Digital Euro-related discussions and overall, ESBG welcomes the Digital Euro from the viewpoint that having digital money issued by the central bank would provide an anchor of stability for the monetary system.
We also believe that the Digital Euro would strengthen the monetary sovereignty of the euro area. However, we predict that the introduction of a Digital Euro could also have some major unintended consequences impacting savings and retail banks if not addressed properly.
Our position paper, issued in March 2023, reflects on the effect of the Digital Euro on retail and saving banks, we highlight three areas where the introduction of the Digital Euro could have a negative impact on our members.
Firstly, the Digital Euro can severely affect our balance sheet activities – the core business for savings and retails banks. Detailed work is still needed to identify a suitable model for distributing, storing and exchanging digital currencies that balances the needs of maintaining the effectiveness of monetary policy transmission mechanisms, customer service and regulatory compliance.
Otherwise, and if the Digital Euro becomes “too successful”, the deposit outflow could reduce the balance sheets of banks and eventually their capabilities to finance the economy – as a result, possibilities for consumer finance, mortgages and SME financing will be reduced and the potential impact on banks’ liquidity positions is very relevant.
Secondly, lots of obligations and requirements will be put on savings and retail banks as envisioned institutions for the distribution of the Digital Euro, whilst a sustainable long-term business model is questionable.
Finally, cashless payments in the euro area are flourishing and are showing healthy growth rates. Under a push from regulators, banks are already heavily investing in payment solutions (notably based on instant payments) that address the need for European sovereignty in payments.
These new solutions under development will need to find their place in the already competitive payments mix – adding yet another competing payment product by positioning the Digital Euro as such is a game changer. At any rate a level playing field needs to be present.
Therefore, although supportive of the Digital Euro, we are of the opinion that many legitimate and reasonable questions still need to be answered and a successful implementation needs to properly address the above concerns. In order to achieve this, we argue for significantly lower maximum caps on holdings. For the distributors of the Digital Euro, a long-term sustainable business model will be required.
And if the Digital Euro will be positioned as a retail payments product, it should not use its privileged position as a public-money funded product by mandatory acceptance requirements that distort the competitive retail payments market.
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ESBG submits its response to the EBA consultation on the overall recovery capacity in recovery planning.
Position Paper
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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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 submitted its response on resolvability testing to the EBA consultation
Position Paper
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.
