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BPFI Position on European Commission proposal implementing Basel III

Banking and Payments Federation Ireland (BPFI) warmly welcome the European Commission (EC) proposal transposing Basel III into EU legislation and in particular its consideration for a number of EU specificities. Ensuring full compliance with the internationally agreed standard, while also aiming to limit any significant capital impact on European banks, is a sensible approach and one which we believe will be achieved through the proposed changes to the EU Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD).

In particular, BPFI fully support the EC proposal:

  • implementing the new standardized approach for calculating operational risk capital by setting the Internal Loss Multiplier (ILM) at 1; and
  • retaining the SME and infrastructure supporting factors and the Credit Valuation Adjustment (CVA) exemption from risk capital charges

More broadly, BPFI also supports efforts towards further harmonizing prudential supervisory powers across EU Member States, which will bring enhanced transparency and strengthened supervision. However, we have some reservations to the changes being proposed with respect to the provision of cross-border banking services and third country branches (TCBs), which we fear could have some unintended consequences for European businesses, financial entities and national regimes if not appropriately addressed during the legislative process.

While we understand the rationale behind the proposals, in particular the desire to address divergences in regulatory and supervisory approaches across Member States, we believe some of the proposals are disproportionate given the limited risks involved with TCBs and cross-border activities.

In order to address these concerns, while retaining the overarching objective to strengthen the regulation and supervision of TCBs/cross border services, we would recommend EU policymakers insert more proportionality into the framework through the following changes:

  • Limit the scope of Article 21c so that it only applies to “core banking activities” as defined in Annex 1 CRD;
  • The new requirements relating to TCB subsidiarization should take into consideration the activity carried out by the TCB, even if above €30bn, particularly in cases where the TCB has been established for ECB Euro liquidity purposes;
  • NCAs are permitted to waive the new branch requirements if specific criteria are met, such as the non-EU entity is headquartered in a jurisdiction with equivalent prudential standard and is not on the FATF list of non-cooperative tax jurisdictions, among others;
  • More proportionality is included in the assessment of systemic importance of TCBs, for instance by providing further clarity on the rules around interconnectedness

The BPFI Position Paper on Basel III Cross Border Banking Provisions - 14.03.2022 is available for download below in PDF format.

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