Credit risk, new regulations cyber security and financial transparency are all top of the European Banking Authorities Priorities for 2018.
This month the European Banking Authority published its annual report. It was a chance to highlight some of its achievements in 2017, but more importantly to set a roadmap for its priorities in 2018. As it looks towards a challenging and complicated future, it will plan to step up its work in a number of areas including risk, transparency and the looming implementation of Basel III.
After a year which was dominated by MiFiDII, attention now switches to Basel III. Back in December they endorsed the post crisis Basel III reforms including a revised standardised approach to credit risk, revisions to the CVA framework, and to the internal ratings-based approach to credit risk. 2018 and 2019 will see it start work in earnest towards implementing the final Basel III framework.
Credit risk and bad exposures
The EBA is continuing its focus on risk management and dealing with non-performing loans and exposures. After annual bench marking tests they are looking at a number of key areas including practices on defaulted exposures, the definition of default, the use of global models and for exposures with counter parties from different jurisdictions and unnecessary differences between the approaches of different regulators.
Back in March the EBA launched a consultation process on developing standardised guidelines into how non-performing loans should be managed. This work will continue through the next year with work on enhancing disclosure requirements and monitoring internal governance. They also plan to collaborate on other projects designed to strengthen the infrastructure surrounding NPL management.
There will also be further work on the management of non-performing exposures. The aim here is to sustainably reduce the number NPEs on the balance sheets of credit institutions and they plan to issue guidelines for how credit institutions can effectively manage NPEs. Further guidelines will also emerge on the management of loan origination and internal governance.
Centralised data collection
Data is a major issue for firms of all sizes, so unsurprisingly The European Centralised Infrastructure for supervisory data is one of their top priorities. Working with the EUCLID the EBA is working to improve its platform for the collection of all financial regulatory data. They see this as being crucial to the future strength of the European financial system. Establishing a secure and reliable platform will help regulators manage checks, enhance transparency and mitigate risk for the entire system.
They are looking to expand the statistical sampling from the largest banks across the financial system. Not only will this help to maintain compliance but it will go a long way towards improving their analytical capabilities of the financial sector. Achieving this will not be easy and will require collaboration with national bodies.
FinTech looms large in the EBA’s vision. This rapidly emerging sector is already disrupting the established order, changing business models and creating new risks. They will publish reports following up from their FinTech discussion paper published earlier in 2018 and establish a FinTech knowledge hub.
It’s a recognition of how transformative fintech could be and how quickly it is changing the landscape. The report states:
“Upcoming competition from FinTech firms may result in changes in incumbents’ business models to ensure profitability. This appears to be approached both as a risk to revenues in some business lines, along with amplified risks in cyber and data security, and at the same time as an opportunity to rethink customer interaction, enlarge customer base and improve cost efficiencies.”
The EBA will also be harnessing technology to provide more online training resources. Across Europe and the world there has been a growing emphasis on helping institutions to comply with regulations rather than just enforcing compliance. This is especially important in an environment in which regulations are changing constantly. Their online training courses were well received last year and they hope to build upon that now.