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1) Disclosure for the leverage ratio
EBF questions the relevance the detailed disclosures that institutions are expected to provide at moment in time at which the regulatory status of the leverage ratio has not yet been clarified. Particularly the qualitative information that institutions are expected to provide in Table “LRQua” would need to be reviewed.
As an example, the LRQua template is excessive where it requires institutions to make extensive disclosures on the processes used to manage the risk of excessive leverage including information on how maturity mismatches and asset encumbrance are taken into account. It needs to be highlighted in this regard that the Paper entitled “Basel II leverage ratio framework and disclosure requirements” that the BCBS published in January 2014 does not include any requirement to disclose qualitative information.
EBF fails to understand why the market should be provided with such granular information relating to the management of leverage. Moreover, EBF does not understand how this measure - which is subject to supervisory review but not accompanied by quantitative requirements for several years to come - can already be assumed to impact on the institutions’ risk management to an extent that internal strategic decisions and processes be directly linked to the leverage ratio.
EBF’s main concern is that the proposed ITS will require institutions to disclose information which is difficult to link directly to leverage ratio and which, in addition, could be sensitive. It would be more appropriate to require institutions to disclose general information about the way in which they manage the leverage ratio (e.g. on the process that they have set up to follow up to the leverage ratio) or related to information already disclosed (e.g. due to a strategic decision taken by one reason or another of such significance that disclosure is made anyway).
Article 499, paragraph 1, CRR requires institutions to calculate and report the leverage ratio during the period between 1 January 2014 and 31 December 2021 by using as the capital measure (a) Tier 1 capital and (b) Tier 1 capital, subject to the derogations laid down in Chapters 1 and 2 of the Title “Transitional Provisions, Reports, Reviews and Amendments”. Article 499, paragraph 2, adds that institutions may choose whether to disclose the information on the leverage ratio based on either just one or both the definitions of the capital measure specified in points (a) and (b) of paragraph 1.
The templates that are being proposed do not, however, allow institutions to disclose a leverage ratio based on both methods laid down in Article 499, paragraph 1, at the same time, notwithstanding that this should be possible according to Article 499, paragraph 2. It must be reminded that institutions need to inform supervisors of their leverage ratio based on both methods within the supervisory reporting framework.
The proposed ITS require institutions to disclose both point-in-time and quarterly average leverage ratios. EBF believes that it would be more appropriate requiring a point-in-time figure only until the leverage ratio will have been finalised and will have become a legal requirement in 2018 on the ground that the calculation will be subject to change during the review period.
Full comments (22.1.14)
EBA-consultation paper, 24.10.13
2) Own funds multiple dividends and differentiated distributions (part four)
The Consultation paper provides some preliminary observations, answers to selective questions and in final remarks states that differentiation of voting rights and distributions should be treated as one instrument and that there is need for an impact assessment.
The Consultation paper distinguishes between joint stock companies and non-joint stock companies by making a reference to institutions mentioned (or “not referred to”) in Articles 3 to 6 of Regulation xx/xx (OF part 1/2 to be understood as draft RTS on own funds EBA/RTS/2013/01 as published on the EBA website). As a matter of fact, reference should have been made here to EBA/RTS/2013/02.
It is unclear from the text of the proposed Regulation if, and to what extent, paragraphs 5 to 10 of Article 7b apply to joint stock companies as well. There would be a merit for the final text to lift any ambiguity in this regard.
Further the Consultation paper provides answers to following questions:
Differentiation of Voting Rights and Distributions should be treated as one instrument: In some jurisdictions, it is common for co-operatives to differentiate between voting rights and distributions by means of different instruments: the instruments with voting rights normally generate zero distributions whilst the instruments generating distributions have no voting rights. Furthermore, in such cooperatives, ownership of the instrument qualifying for distributions is limited to members only.
Considering that such voting instruments do not generate distributions, they cannot possibly be qualified as “multiple distributions”. Also the drag on own funds which they entail is comparable to single instruments since only one instrument receives distributions. In these circumstances, the principle of substance over form should prevail: these instruments should be scoped out of the RTS.
Need for an Impact Assessment: Considering that the proposed standard could potentially have a significant impact on the capital levels of institutions in the scope of the RTS, a thorough impact analysis should be made.
Full comments (23.1.14)
EBA-consultation paper, 27.11.13
3) Draft RTS, ITS and guidelines related to the methodology for the identification of G-SIIs
EBF comments on the four questions raised in the consultative paper (EBA/CP/2013/44), to the acronym G-SII and draws the attention that much emphasis is placed on quantitative aspects and there is no consideration given to individual activities of firms.
EBF is aware that the acronym G-SII may be in use in several other EU publications and regulations. Nevertheless, it is very inconvenient to use an acronym which is already in use by the Financial Stability Board (FSB) with another meaning; it stands for Global Systemically Important Insurers.
EBF draws the attention of the EBA to the fact that much emphasis is placed on quantitative aspects and there is no consideration given to individual activities of firms.
Question 1: Is it adequate to use the same data as used in the BCBS identification process for the scoring?
EBF welcomes the proposal and support using the same data as per the BCBS identification process to determine the scoring, since such an approach clearly simplifies, maximizes and gives continuity to the current data origination and elaboration process.
Question 2: Are the indicators set out in Article 6 adequate for reflecting the systemic relevance of a systemically important institution?
Although in EBF’sview the indicators proposed cannot fully reflect the systemic relevance of systemically important institutions, overall EBF deems the framework proposed by EBA wellfounded, since it fully reflects the guidelines issued by the BCBS and will hence contribute to a level playing field at global level.
Question 3: Are the timelines for the identification process and the coming into force of the buffer requirement adequate, and do they allow for sufficient time for adjusting to it?
Under Basel III, banks are requested to disclose their data in the same timeline as their financial communication. The EBA standard could cause duplication. That situation will be unfortunate as banks will be forced to duplicate internal processes and, moreover, it will only bring about confusion to the recipients of such information, mainly investors and analysts.
Also, considering the degree of discretion granted to national authorities in the current legislative framework, it is not still possible to confirm the full adequacy of the process. If national authorities confirmed the BCBS framework for buffers, then no adjustment problems are envisaged.
The EBF suggests that the Basel III-based disclosure be made at the same time as the G-SIIs' list publication (i.e. November).
Question 4: Are the template and the instructions clear and sufficiently comprehensive for enabling institutions to complete the disclosure process?
With regards to data that are used also for the Leverage Ratio (Basel 3 Monitoring template), it would be useful to define an appropriate mapping between the information that is requested in the SIFI template and the official reporting modules – those for the leverage ratio in this specific case. This seems necessary to guarantee a homogenous and consistent filling of the template by all European banks, without unnecessary burdens in terms of collection and verification of information. Moreover, data on market capitalisation can be easily obtained by external providers (eg. Bloomberg, public financial statements), so there should be no need to ask banks for such figures directly.
Full response (27.2.14)
EBA-consultation paper, 12.12.13
4) Methodology for the assessment of liquidity and funding risk under supervisory review
The establishment of common procedures and methodologies for assessing liquidity and funding risk as part of the single rulebook are important as this will be the first time that the supervision of liquidity and funding risks of credit institutions is required by the Capital Requirements Directive and the Capital Requirements Regulation for the whole of the EU.
These guidelines, which are to be finalised by end 2014, are in keeping with what would be expected in such a review and the requirements. While the guidance is addressed to supervisors, it will affect the supervised institutions initially with increased data requirements, followed by increased dialogue with supervisors on liquidity. These processes may result in institutions being required to implement remedial actions.
It is noteworthy that certain jurisdictions in the EU already have supervisory practice in place to review these risks, and particular attention should be paid to experiences gained in those jurisdictions to the EBA single rulebook in terms operability and feasibility of the guidelines.
Overall, EBF would like to get clarity regarding how new supervisory requirements interact with the SREP processes. For example, EBF would like to be sure that there is no inconsistencies between LCR requirements and supervisory liquidity stress testing.
Full response (28.2.14)
EBA-consultation paper, 19.12.13