CRD IV – EBA Latest On Regulatory Perimeter Issues

The European Banking Authority (EBA) published its latest opinion and report in early November on regulatory perimeter issues relating to the Capital Requirements Directive/Regulation (CRD IV/CRR).

The EBA made a detailed assessment across EU member states on non-bank (aka other) financial intermediaries (OFIs) to determine whether they are subject to prudential treatment. The results of the assessment are important as legislative proposals to amend the CRD IV/CRR are underway. OFIs are defined as entities that are not credit institutions but execute credit intermediation activities. The EBA’s latest report is an update to its 2014 report on the regulatory perimeter of credit institutions and includes some analysis on the development of FinTech.

In the EBA’s opinion, Article 2(5) CRDIV, which defines entities outside the usual scope, such as central banks, savings banks and post offices, needs only minor updating to include a small number of Dutch and German entities. The EBA has also concluded that Article 9(2) CRD IV, remains relevant for EU member states’ regulatory systems, in particular four countries that allow certain types of OFI to accept deposits from members of the public. In its opinion, any amendment should only be proposed if a thorough impact assessment is first carried out and recommends changes. Other member states do not rely expressly on Article 9(2) CRD IV, but the EBA says its findings should be treated with caution as competent authorities did not provide express confirmation with regard to possible reliance on Article 9(2) CRD IV where OFIs are exempted under Article 2(5) CRD IV.

The EBA is also questioning whether it is worthwhile for member states to continue to have the option to grant an exemption from the licensing requirement as a credit institution for certain persons or undertakings that, one way or the other, take repayable funds from the public but for which it would be unduly burdensome to be licensed as a credit institution. It gives the examples of securitisation vehicles and corporates that issue bonds to the public, and crowdfunding platforms that take repayable funds from the public. It concludes that such entities should be referenced in accordance with the exercise of the member state discretion conferred by Article 9(2) CRD IV rather than in Article 2(5) CRD IV.

The EBA report also presses the EU institutions to give consideration to further possible amendments to the definitions of terms “financial institution” and “ancillary services undertaking” to ensure the consistent treatment of prudential risks and to promote a level playing field. The EBA says that member states interpret these two terms inconsistently and could lead to divergence in how regulations are applied on the ground. The report further notes that urges the EU institutions should consider clarifying and updating Annex I to the CRD IV, which has barely been touched for the last 30 years. The annex lists activities that credit institutions and financial institutions are permitted to carry out throughout the EU by establishing branches or the cross-border provision of services.

‎The EBA has not made any recommendations in its report regarding the scope of individual prudential regulation under EU law, but states it will continue to monitor the situation with the assistance of the European Systemic Risk Board.

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