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Bitcoin: Financial Regulatory Developments 11 July – European Banking Authority (EBA)

EBA opines on virtual currencies: EBA has published an opinion addressed to the EU Council, Commission and Parliament, setting out its views on how to regulate virtual currencies. It also thinks regulators should discourage financial institutions from dealing in virtual currencies before there is a credible regulatory regime. EBA identifies some potential benefits in virtual currency, but also more than 70 potential risks. Its research showed potential risks to users and non-user market participants, and risks to financial integrity (financial crime risks), payment systems and regulatory authorities. It also looked at the causes of the risks, which it says should drive the regulatory measures necessary to mitigate the risks. In addition to the proposed overall discouragement of virtual currency trading, EBA suggests bringing market participants who are at the direct interface between conventional and virtual currencies within the scope of the Money Laundering Directive. (Source: EBA Opines on Virtual Currencies)

EBA consults on SREP guidelines: EBA is consulting, until 7 October, on guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP). The proposed common framework covers business model, internal governance, and adequacy of capital and liquidity. The guidelines are flexible but EBA believes they will contribute to a common supervisory culture. The intensity of the assessments will vary according to the systemic and cross-border importance of an institution. Key indicators will be monitored quarterly and scored, based on guided supervisory judgement, using a range of 1 to 4. The resulting Overall SREP Assessment will form the basis for supervisory measures, such as requirements for additional own funds. The guidelines are expected to apply from 1 January 2016. (Source: Guidelines for Common SREP)

EBA consults on home-host cooperation: EBA is consulting on regulatory and implementing technical standards (respectively, RTS and ITS) on colleges of supervisors and on joint approval of internal models. (Source: EBA Consults on Technical Standards on Home-Host Cooperation)

EBA finalises standards on capital for clearing members’ exposures to clients: EBA has published and submitted to the Commission its final draft RTS on the minimum margin periods of risk (MPOR) to be used when calculating clearing members’ capital requirements in relation to the counterparty credit risk posed by their clients. For firms using internal models, the MPOR will be an input into the model. For non-internal method firms, the MPOR will be reflected as a multiplier to the exposure value. MPOR is based on the liquidation periods estimated by central counterparties (CCPs) for margin purposes. (Source: RTS for the Specification of MPOR)

EBA finalises RTS on assessing changes to internal approaches to market risk: EBA has finalised and sent to the Commission its draft RTS on the conditions for assessing the materiality of extensions and changes to the Internal Models Approach for market risk. The RTS include standardised documentation requirements that seek to facilitate assessments. (Source: EBA Publishes Final draft RTS on Market Risk Model Extensions and Changes)

EBA finalises advice on own credit risk in derivatives: EBA has submitted to the Commission an opinion containing its technical advice on the prudential filter for fair value gains and losses arising from the institution’s own credit risk related to derivative liabilities. EBA proposes to retain the Basel approach, whereby an institution’s own credit risk must be fully deducted from capital at inception. (Source: EBA Advises on the Prudential Filter for Gains and Losses from Own Credit Risk Related to Derivatives)

EBA advises on macroprudential rules: EBA has sent to the Commission an opinion on the macroprudential tools available under the new capital requirements rules. EBA’s main recommendations are:

the current 2% cap on the capital buffer for other systemically important institutions (O-SIIs) should be increased;
guidelines should be developed to clarify the use and activation of the systemic risk buffer (SRB);
rules related to the setting of floors to loss given default for exposures secured by mortgages on immovable property should be aligned with the setting of risk weights for these exposures; and
the hierarchy in the activation of the different tools should be clarified.
(Source: EBA Advises Commission on Macroprudential Rules)

EBA publishes significant risk transfer guidelines: EBA has published the final guidelines on significant credit risk transfer for securitisation transactions. The guidelines include requirements for originators and for the authorities that assess whether commensurate credit risk has been transferred in a securitisation. They also provide a template for competent authorities to submit information to EBA on approved transactions. (Source: EBA Publishes Final Guidelines on Significant Risk Transfer)

EBA consults on resolution plans: EBA has launched two consultations on level 2 and level 3 measures under the recently adopted Bank Recovery and Resolution Directive. Both consultations are open until 9 October. The first concerns RTS on the content of resolution plans and the assessment of resolvability, which should include choosing, as the preferred resolution strategy, between a single point of entry and a multiple point of entry approach. The second consultation proposes guidelines on measures to reduce or remove impediments to resolvability. (Source: RTS on Contents of Resolution Plans and Resolvability)