BANKING PACKAGE (CRR VI AND CRR 3)
The public consultation by the European Banking Authority (EBA) on its draft regulatory technical standards (RTS) under the revised Capital Requirements Regulation (CRR 3) regarding the equivalent mechanism for unfinished property closes on 13 August 2024. The RTS specify the conditions that a legal mechanism should meet in order to recognise a property under construction in the own fund requirements calculation under the standardised approach of credit risk. Those conditions are (a) an entity should be required to or have committed in a legally binding manner to ensuring that the property under construction will be finished within a reasonable timeframe; (b) the entity should have the legal powers and ability to do so; and (c) a counter guarantee should be provided by a central government or assimilated entities.
The EBA's public consultation on draft Guidelines under CRR 3 regarding acquisition, development and construction (ADC) exposures to residential property closes on 19 August 2024. The draft Guidelines go into more detail on the credit risk-mitigating conditions that allow institutions to assign a risk weight of 100% instead of 150% for ADC exposures to residential property: (a) 50% of pre-sale and pre-lease contracts with respectively a cash deposit equal to or higher than 10% of the sale price and equal to or higher than 3 times the monthly lease rate, or sale and lease contracts; and (b) the obligor having substantial equity at risk, represented as an appropriate amount of obligor-contributed equity representing 35% of the residential property value upon completion. The Guidelines also address the specificities of institutions' lending to public housing or not-for-profit entities.
BASEL FRAMEWORK
The Basel Committee on Banking Supervision's consultation on a small number of minor technical amendments to help promote consistent interpretation of the Basel framework closes for comments on 19 August 2024 (the first addresses an inconsistency in the definition of specialised lending between the standardised and internal ratings-based approaches to credit risk; the second relates to the formula for curvature risk positions for Group 2a cryptoasset exposures). A number of FAQs (which are not the subject of consultation) are appended to the consultation document.
The Committee is also consulting on Guidelines for counterparty credit risk management. These guidelines would replace the Committee's Sound Practices for Banks' Interactions with Highly Leveraged Institutions published in January 1999, and include key practices such as the need to (a) carry out comprehensive due diligence at both initial onboarding, as well as on an ongoing basis; (b) develop a comprehensive credit risk mitigation strategy to effectively manage counterparty exposures; (c) measure, control and limit counterparty credit risk management using a wide variety of complementary metrics; and (d) build a strong counterparty credit risk management governance framework. The consultation closes on 28 August 2024.
COMMODITY DERIVATIVES
ESMA's public consultation on proposed changes to the rules for position management controls and position reporting closes for feedback on 21 August 2024. This stems from the changes made to MiFID II earlier this year regarding commodity derivatives which (through changes to Article 57 of MiFID II) extend position management controls to trading venues which trade derivatives of emission allowances and (through changes to Article 58 to MiFID II) amend the scope of position reporting by excluding emission allowances, and introduce a new obligation on trading venues where options are traded to publish a weekly positions report which excludes options (in addition to the existing report which covers futures and options). ESMA will publish a final report towards the end of 2024.
MIFIR REVIEW
ESMA's public consultation on draft technical standards related to consolidated tape providers (CTPs), other data reporting service providers and the assessment criteria for the CTP selection procedure under MiFIR closes on 28 August 2024. ESMA plans to submit the final draft technical standards to the European Commission by 29 December 2024. A feedback statement on the specification of the assessment criteria for the CTP selection procedure is expected to be published by the end of 2024.
ESMA's public consultation on non-equity trade transparency, reasonable commercial basis (RCB) and reference data under MiFIR review also closes on 28 August 2024. ESMA sought input on three topics:
- Changes to RTS 2: relating to the pre-and post-trade transparency requirements for non-equity instruments (bonds, structured finance products and emission allowances).
- New RTS on RCB: to ensure that market data is provided on an RCB, with unbiased and fair contractual terms and in a uniform manner across the EU, the draft RTS set out the conditions that market operators and investment firms operating a trading venue, approved publication arrangements, CTPs and systematic internalisers must fulfil.
- Changes to RTS 23 on financial instruments reference data: these are to address the new requirement that such reference data is also to be used for the purposes of transparency requirements.
ESMA plans to publish a final report and submit the draft RTS to the European Commission by the end of Q4 2024.
OPERATIONAL RESILIENCE/DORA
The voluntary dry run exercise set up by the European Supervisory Authorities (ESAs) on the reporting by financial entities of registers of information in the context of the Digital Operational Resilience Act (DORA) ends on 30 August 2024.
The ESAs have also updated their FAQ on the DORA 2024 Dry Run exercise on reporting of registers of information.
SANCTIONS -AVIATION: NO RE-EXPORT TO RUSSIA/BELARUS
As mentioned in our recent update ( Aviation: Sanctions Update on ‘No Re-Export to Russia' and ‘No Re-Export to Belarus' Clauses), clients should be familiarising themselves with the amended sanctions frameworks in respect of both Russia and Belarus to ensure ongoing compliance. In addition to the existing requirements to include a No Russia Clause, from 1 July 2024 onwards relevant contracts should also include a ‘No Belarus clause'.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.