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The ESAs' response to the Coronavirus pandemic at-a-glance

Chris Hamblin, Editor, London, 2 August 2020

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In the months of June and July, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority made several pronouncements on the Coronavirus crisis. This is a brief summary of them.

Guidelines to close gaps in reporting data and public information appeared at the beginning of June. On 2 June the EBA issued guidelines to deal with data gaps in supervisory reporting and disclosure that have opened up because of national regulators taking steps to deal with the outbreak. These measures include legislative moratoria on loan repayments and public guarantees, with the aim of helping beleaguered borrowers with their operations and liquidity.

The guidelines consist of a set of templates (which national authorities should introduce when exercising their relevant supervisory powers) that cover the following things:

  • reporting requirements to do with exposures subject to moratoria on repayments in accordance with paragraph 10 of EBA Guidelines on legislative and non?legislative moratoria on loan repayments applied in the light of the Covid-19 crisis;
  • reporting requirements regarding exposures subject to Covid?19?related forbearance measures;
  • requirements to report data involving newly-originated exposures that are subject to public guarantee schemes designed to respond to the Covid?19 crisis;
  • requirements to disclose information about exposures subject to moratoria on repayments in accordance with paragraph 10 of EBA Guidelines on legislative and non?legislative moratoria on loan repayments designed to respond to the COVID?19 crisis; and
  • requirements to disclose details of newly-originated exposures that are subject to public guarantee schemes designed to respond to the Covid?19 crisis.

The reporting requirements apply on a quarterly basis, with the first reference date having passed on 30 June, and for an expected period of 18 months.

On 9 June ESMA postponed the response date for its consultative exercise regarding technical standards for reporting, the quality of data, access to data and the registration of trade repositories in accordance with EMIR Refit, although this only moved the date from 19 June to 3rd July. EMIR is the revamped European Markets Infrastructure Regulation.

On 11 June ESMA said that it expected central counterparties and trading venues to have the necessary operational capacity to process requests for access once the exceptional market circumstances have cleared up.

The current exemptions to be found in the Markets in Financial Instruments Regulation or MiFIR, which allow national regulators to temporarily exempt trading venues and central counterparties from MiFIR's open-access provisions for exchange traded derivatives, expired on 3 July. On 4 July the open access provisions for exchange-traded derivatives began to apply.

Then, on 18 June, the EBA decided to activate its guidelines for legislative and non-legislative moratoria three months later than planned, on 30 September. With EU economies not yet fully opened, it thought it prudent to do this to support banks in their efforts to extend loans in response to the ravages of the pandemic. In granting this extension, the EBA said that it was "highly aware of the trade-off faced in making the extension, as persistent liquidity shortages under the current circumstances may develop into solvency issues that need to be properly assessed by banks on a case-by-case basis."

The implementation timeline envisaged in the EBA’s "Internal-ratings-based roadmap to repair internal models" remains unchanged but the super-regulator knows that some financial institutions might require more flexibility. It has invited national supervisors to use their discretion here in line with Article 146 of the Capital Requirements Regulation (CRR).

The EBA, whose new executive director is François-Louis Michaud, made some pronouncements on 7 July about prudential issues that had been raised as a consequence of the worldwide plague.

Most recently, on 30 July, the EBA published its quarterly Risk Dashboard together with the results of its Risk Assessment Questionnaire (RAQ). The updated data shows that the effect of the Coronavirus was mainly shown in a contraction of banks’ capital ratios and profitability, the cost of risk increased, whereas non-performing loans (NPL) ratios remained stable, confirming that the effect of the pandemic on asset quality can be delayed. The EBA also published a thematic note on debt-ridden finance which suggested that the expansion of this market in recent years has come along with a significant easing of credit standards.

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