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The new guidelines from the European Supervisory Authorities
DEVLHON Consulting decodes: The new guidelines from the European Supervisory Authorities
In a context where the governance of financial institutions is under heightened scrutiny, the European Union is strengthening its regulatory framework. The European Supervisory Authorities (ESAs), including the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), have recently published guidelines aimed at optimizing the fitness and propriety assessments of key leaders and stakeholders in the financial sector. These new measures, which introduce a centralized information exchange system, mark a crucial step toward more harmonized and effective supervision.
A Framework for Strengthened Governance
These guidelines are set within a clear legal framework, stemming from the EU’s founding regulations. Their objective is to ensure that individuals in strategic roles within financial institutions are assessed according to high standards, ensuring their integrity and competence. To achieve this, the ESAs have developed a specific information system, the ESAs Information System, which plays a key role in sharing the necessary data between the competent authorities of various Member States.
The ESAs Information System: A Tool for Authorities
This centralized system allows the essential information on individuals who have undergone an assessment to be cataloged and for the authorities who previously conducted these assessments to be quickly identified. However, to respect data confidentiality, only bilateral exchanges are permitted outside the platform, with information strictly limited to what is necessary. This system ensures a balance between efficiency and personal data protection, complying with the General Data Protection Regulation (GDPR).
Beneficial Harmonization for the Sector
By establishing a common approach across the European Union, these guidelines harmonize supervisory practices between countries and financial sectors. They speed up the assessment process by simplifying access to available information. Additionally, they strengthen the stability of the financial system by ensuring that key individuals in institutions meet the required standards of fitness and propriety, contributing to more robust governance.
Challenges to Overcome
Despite its many advantages, the implementation of this system presents some challenges. Competent authorities must integrate these new requirements without compromising legal evaluation deadlines. Additionally, particular attention must be paid to data security to avoid leaks or misuse. These issues require close coordination between the various sector stakeholders.
A Step Towards the Future
These new guidelines reflect the European Union’s commitment to modernizing financial governance and enhancing transparency in assessment processes. At DEVLHON Consulting, we support our clients in integrating these regulatory changes, helping them comply with the requirements while seizing the opportunities they present.
To learn more about the impact of these guidelines on your organization, contact our experts.
The Withdrawal of French Banks from Africa
DEVLHON Consulting Deciphers: The Withdrawal of French Banks from Africa, a Strategic Turning Point
Africa is undergoing significant changes in its banking sector. For several years, major French banks, such as Société Générale, BNP Paribas, and Crédit Agricole, have been reducing their presence on the continent. This trend is accelerating, with the recent sale of numerous subsidiaries in countries like Congo, Senegal, and Guinea.
Why this withdrawal?
The retreat of French banks is driven by a combination of factors. On one hand, the profitability of operations in Africa remains low: Société Générale, for instance, derives only 7% of its net banking income from the continent. On the other hand, economic, political, and geopolitical risks are on the rise, particularly in unstable regions like the Sahel.
Increasingly stringent European regulations also require banks to maintain significant capital reserves to cover risks associated with their international activities. This context pushes banks to focus their efforts on markets considered more stable and better understood, such as Europe or the United States.
An Opportunity for Local Players
The retreat of European giants creates opportunities for African and regional banks. Institutions such as Vista Bank and Coris Bank are leveraging this reconfiguration to expand their networks. These players, better attuned to local realities, emphasize serving SMEs and mid-sized enterprises, often overlooked by foreign banks.
African states, for their part, are seizing the moment to strengthen their financial sovereignty. For example, Senegal has positioned itself to acquire Société Générale’s local subsidiary, aiming to better finance local projects and small businesses.
The Role of Moroccan Banks
Moroccan banks, such as Attijariwafa Bank, have been pioneers in this transformation. Since the 2000s, they have established themselves as key players in sub-Saharan Africa, targeting sectors often neglected by French banks, such as retail banking and the middle class.
A Beneficial Reconfiguration?
The withdrawal of French banks, though perceived as a retreat, could present an opportunity for the continent. The rise of robust African banks tailored to local needs promotes more inclusive financing, rooted in the region’s economic realities. For European banks, this movement marks a strategic redefinition of their role in Africa.
At DEVLHON Consulting, we closely monitor these changes as they redefine economic dynamics and investment opportunities across the continent. Through our expertise, we assist our partners in understanding these transformations and seizing the opportunities they bring.
DEVLHON Consulting Deciphers: The Confidential ECB Report
DEVLHON Consulting Deciphers: The Confidential ECB Report Shaking Up European Banking Regulation
An internal report from the European Central Bank (ECB) has ignited heated debates within the European banking landscape. According to this unpublished document, major EU banks would face significantly stricter capital requirements if subjected to U.S. standards. This revelation emerges amid regulatory tensions as international frameworks, such as Basel III, continue to divide opinions.
Striking Discrepancies Between Europe and the United States
The report, finalized in 2023, concludes that leading European banks would need to increase their minimum capital levels by 10% to 20% to align with current U.S. prudential standards. These figures starkly contrast with a previous report from the European Banking Federation, which predicted a more moderate increase of 5% to 15%. This discrepancy highlights significant divergences in how internal risk evaluation models are applied across the two regions.
The gap primarily stems from the use of internal models, which are more tightly regulated in the U.S. These tools enable European banks to maintain high capital ratios but are sometimes criticized for artificially minimizing risks.
A Fragmented European Response
European authorities have been quick to respond. The European Banking Authority (EBA) has already proposed an average 9.9% increase in Tier 1 capital requirements for European banks, with phased adjustments to mitigate sectoral impacts. However, the ECB’s report underscores that, despite these efforts, European banks still operate with lower capital requirements than their U.S. counterparts.
Furthermore, ongoing reforms, such as the integration of climate-related risks and adjustments to address digital disruptions, add further complexity to the regulatory landscape. According to the ECB’s 2023 Annual Report on Supervisory Activities, European supervisors continue to closely monitor governance weaknesses and risks in vulnerable sectors, such as commercial real estate.
The Impact of Geopolitical and Economic Changes
With the potential arrival of deregulation policies in the United States under a new administration, European banks fear a loss of competitiveness. This concern is amplified by rising geopolitical risks and macroeconomic uncertainties. The ECB’s annual report also notes an increase in non-performing loans within specific portfolios, adding further pressure on the resilience of banks.
An Opportunity to Rethink Banking Regulation
Faced with these challenges, the report’s publication could mark a turning point for the industry. Some advocate for greater transparency to counteract aggressive banking lobbying, while others call for methodological adjustments to avoid direct confrontations with the sector.
This debate underscores an unavoidable reality: harmonizing international regulatory standards remains a distant goal but is essential to ensure a resilient and competitive banking sector in a rapidly changing world.
Conclusion
The question of capital requirements highlights the structural differences between Europe and the United States while emphasizing the need for European banks to adapt to an ever-evolving environment. This regulatory debate should be seen as an opportunity to strengthen the sector’s resilience while meeting growing societal expectations for sustainability and transparency. DEVLHON Consulting is here to assist you in navigating these complex strategic and regulatory challenges.
DEVLHON Consulting Deciphers: The State of French Insurers
DEVLHON Consulting Deciphers: The State of French Insurers in the First Half of 2024
In the first half of 2024, French insurers subject to Solvency II encountered significant developments in both life and non-life insurance, according to a detailed report from the ACPR. Here are the main insights and trends.
Life Insurance: Record-Breaking Gross and Net Collections
Life insurance collections reached unprecedented levels. Total gross collections across all types of life insurance amounted to €80.6 billion, reflecting a 12.9% increase compared to the first half of 2023. This growth is particularly strong for euro-denominated products, which brought in €48.9 billion, a 19% rise.
Net collections also saw a remarkable increase, totaling €15.4 billion—4.6 times the 2023 level. This dynamic is due to a significant drop in redemptions on euro-denominated products, while unit-linked products (UL) continued to show high net collections, albeit with a slight decline.
Non-Life Insurance: Growth in Premiums and Claims
Non-life activity experienced stable growth. Premiums rose by 5.6%, driven mainly by auto insurance (+6.4%), medical expenses (+5.9%), and property damage insurance (+7%). Claims also rose, albeit moderately, with an increase of 4.1% over the period.
Asset Allocation and Performance: Enhanced Liquidity Management
Insurers’ assets reached a market value of €2,626 billion, a slight increase compared to the end of 2023. Insurers continued to prioritize liquid and high-quality investments to prepare for potential liquidity crises. Sovereign bonds make up 19% of assets, and equities account for 23%, with a large share of investments directed toward French or Eurozone entities.
Solvency: High Overall Ratio Despite a Slight Decline
The overall solvency ratio for insurers remains solid at 246%, despite a slight drop compared to the end of 2023. This decline is due to an increase in the required solvency capital, particularly for bancassurers.
In Conclusion
The results from the first half of 2024 demonstrate the notable resilience of French insurers in the face of current economic challenges. The sector remains robust, adapting to inflationary pressures and fluctuations in interest rates.
DEVLHON Consulting Decodes: The Challenges and Best Practices of SFDR
DEVLHON Consulting Decodes: The Challenges and Best Practices of SFDR Disclosures According to the Latest ESA Report
In the context of sustainable finance, disclosures on Principal Adverse Impacts (PAI) of investment decisions play a crucial role in ensuring transparency and accountability among financial actors. Published by the European Supervisory Authorities (ESA), the 2024 annual report on PAIs, in line with Article 18 of the SFDR regulation, provides an overview of disclosure practices and offers recommendations for improving their clarity and accessibility.
Context and Scope of the Report
The ESA report assesses the status of PAI disclosures at both the entity and product levels, based on a survey conducted with National Competent Authorities (NCAs). PAI disclosures are mandatory for market participants with more than 500 employees, while smaller entities may opt for voluntary disclosure, provided they use the Level 2 regulatory template.
Current Status: Notable Improvement, but Gaps Remain
According to the report, disclosure practices have improved, especially in terms of accessibility and quality of information, although compliance with SFDR requirements remains uneven. Significant progress has been noted in making information more accessible to retail investors and improving the quality of product-level disclosures. However, certain entities continue to face challenges, particularly regarding the application of PAI indicators and explanations for disclosure choices.
Best Practices and Recommendations
The ESA highlighted several examples of best practices that could inspire the entire financial sector:
Increased Accessibility: Disclosures are easier to locate thanks to dedicated sections on websites, facilitating information access for investors.
Clarity of Information: Entities that provide contextual explanations and use clear language offer a better understanding of their sustainable impacts.
Details on PAI Indicators: Comprehensive disclosures include required environmental and social indicators, along with explanations of actions taken to reduce negative impacts.
Challenges and Areas for Improvement
The report also underscores key areas for improvement. Among the challenges encountered:
Insufficient Explanations: Some entities provide little to no explanation for their choice not to consider PAIs, often citing resource issues without offering a plan for compliance.
Inconsistencies in Methodologies: Divergent methodologies used for calculating certain indicators make comparisons between entities difficult.
Engagement Policies: ESA noted that many engagement statements remain generic and require more detail to ensure transparency regarding actions taken with investee companies.
Conclusion
With clear recommendations for NCAs and market participants, the ESA report aims to enhance the coherence and quality of sustainability information. By adopting these best practices, companies can not only comply with SFDR requirements but also strengthen their sustainable impact and investor confidence.
DEVLHON Consulting Decodes the Distribution of AMC
DEVLHON Consulting Decodes the Distribution of Actively Managed Certificates (AMC)
The distribution of Actively Managed Certificates (AMCs), complex financial instruments, is gaining traction. These products are attracting interest from various financial players—from private banks to investment advisors—looking to diversify their offerings to retail clients. However, the French Financial Markets Authority (AMF) highlights recommendations to regulate this distribution, as AMCs carry unique characteristics and specific risks.
Understanding AMCs: Complex Instruments
AMCs are structured debt securities or financial instruments issued under foreign laws. Their distinctiveness lies in the discretionary management of the underlying asset basket, which can be modified during the instrument’s lifecycle without the investor’s consent. This complexity makes them unsuitable for less experienced investors, requiring specific recommendations to protect retail clients.
Stringent Product Governance Requirements
Regulations require professionals to precisely define the target market for AMCs, identifying the client profiles for whom these products are appropriate. The AMF emphasizes the importance of thorough evaluation and alignment between the target market and the distribution strategy. Professionals are thus urged to limit AMCs to clients with a high level of financial knowledge and experience.
Transparency and Client Information
The AMF mandates that professionals provide clear, accurate, and up-to-date information on AMCs. Before investing, clients should be informed of the underlying asset composition and associated costs, especially those related to the regular adjustments in the asset basket. This transparency includes an estimation of rebalancing costs, calculated based on underlying assets and anticipated transaction volumes.
Enhanced Suitability Assessment Requirement
Assessing each investor’s profile is crucial to determine the suitability of AMCs for their financial objectives. Given the complexity of AMCs, professionals must ensure that clients fully understand the product’s functionality and inherent risks. The AMF discourages self-assessment methods, instead recommending more rigorous checks to ensure clients’ comprehension.
Regulation of Solicitation and Public Offerings
AMCs cannot be marketed through financial solicitation, and their distribution is subject to strict rules to ensure greater investor protection. Professionals looking to include AMCs in their offerings must comply with the AMF’s transparency and governance obligations.
Conclusion
For DEVLHON Consulting, this AMF recommendation underscores the importance of a cautious and responsible approach to AMC distribution. By following these guidelines, professionals can optimize their practices while strengthening investor trust.
Devlhon Consulting Deciphers : Trade Finance Trends in 2024
Devlhon Consulting Insights: Key Trends in Trade and Trade Finance in 2024
International trade trends and trade finance outlooks are evolving rapidly in the face of global geopolitical and economic challenges. The 2024 ICC Trade Register report, produced in collaboration with Boston Consulting Group (BCG) and Global Credit Data (GCD), offers a comprehensive analysis of the current landscape. This report highlights positive developments for the sector’s future, despite a slowdown in global trade of goods in 2023. Here, Devlhon Consulting explores the report’s key findings and future perspectives for businesses and financial institutions.
Shift Toward Intrablock Trade and Growth of Non-Dollar Transactions
Amid rising geopolitical tensions, trade flows are increasingly shifting within regional blocs. The report highlights an increase in transactions conducted outside the U.S. dollar, particularly with the growing use of the Chinese currency. This change reflects efforts to reduce dollar dependence and respond to more diversified monetary and trade policies.
Sectors in Decline and Those in Strong Growth
Traditional sectors such as energy, metals and mining, and agribusiness experienced a trade decline in 2023, while the automotive and aerospace sectors recorded double-digit growth. Service trade is also expanding, now accounting for a third of global trade, with strong growth in the Middle East and South Asia. These figures suggest opportunities for companies to position themselves in high-growth sectors while diversifying their geographic markets.
Challenges and Opportunities in Trade Finance
Despite high interest rates and international tensions, the trade finance sector continues to show strong resilience. Among the main threats identified, financial institutions cite risks related to trade flows disrupted by geopolitical conflicts and pressure on margins. However, investments in digital technologies and sustainable financing initiatives present sources of optimism for the coming years. In fact, 90% of banks reported a growing interest in digital solutions to enhance customer experience.
Technological Integration as a Growth Driver
The report also emphasizes the increasing importance of artificial intelligence (AI) and generative AI for improving data management, fraud prevention, and document verification. The adoption of these technologies could accelerate supply chain digitization and make trade finance more accessible to smaller companies. The MLETR (Model Law on Electronic Transferable Records) is cited as a key advancement, though 80% of experts believe that successful digitization will depend on collaboration across the entire trade ecosystem.
Risk and Sustainability: Growing Priorities
Sustainable finance is becoming a central focus, supported by environmental regulations like the European Union’s carbon border adjustment mechanism. More than 90% of financial institutions involved in sustainable finance report positive results, indicating that the focus on sustainability will only increase. In terms of risk, financial products such as letters of credit and export financing continue to show resilience to market disruptions, proving their low-risk nature for financial institutions.
Conclusion: Opportunities and Outlook for 2024 and Beyond
The findings of the 2024 ICC Trade Register report indicate that despite significant challenges, global trade finance remains a key and relatively secure sector. Banks and companies investing in digitization and sustainability will be best positioned to navigate the complexities of international markets. This report reiterates that low-risk transactions, supported by advanced technological solutions and sustainability initiatives, will drive stability and growth for trade finance players in an increasingly complex economic landscape.
For businesses, understanding these developments enables them to prepare for future opportunities while navigating a shifting geopolitical and economic environment.
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DEVLHON Consulting Breaks Down New Technical Standards
DEVLHON Consulting Breaks Down New Technical Standards for the European Single Access Point (ESAP)
In response to the growing demand for transparency and harmonization of financial information across Europe, the European ESAP Regulation establishes a European Single Access Point—a central, standardized platform designed to facilitate access to financial and investment data. To ensure the efficiency and security of this platform, Implementing Technical Standards (ITS) have been defined. DEVLHON Consulting analyzes the final report from the Joint Committee (JC) of the European Supervisory Authorities (ESA), outlining the responsibilities of collection bodies (CB) and the technical specifications of the ESAP.
Collection Bodies: Roles and Responsibilities
Collection bodies, or “CBs,” are the guardians of the quality and integrity of financial data intended for the ESAP. Designated by national or European organizations, CBs play a crucial role in validating and transmitting information submitted by issuing entities.
Main Tasks of CBs:
– Automatic Validations: CBs are responsible for performing automatic validations for each type of data received. This step ensures data compliance with established standards and prevents duplication across Member States.
– Open Standard License: All data made available on the ESAP must adhere to a CC0 license or its equivalent. However, some protected data, notably credit ratings, may require more restrictive licenses to limit commercial use.
– Data Formats and Metadata: To ensure maximum interoperability, the ESAP mandates standardized data formats that allow for automated extraction and reading of information. The required metadata includes key elements such as the issuing entity, legal framework, and publication dates.
CBs are also required to transmit validated data to the ESAP within a maximum of 60 minutes, ensuring speed and fluidity in the process.
The ESAP: Technical Features and Accessibility
The ESAP is designed as a unified and open platform, meeting accessibility standards and offering advanced user features.
Publication API Features:
– Data Management: The API enables bulk access to information without manual intervention, facilitating efficient system interactions. The adoption of a widely supported RESTful architecture aligns with best practices for data flow.
– Download and Visualization: Users will be able to download large volumes of data, while an integrated viewer will make financial information accessible and easy to interpret.
The ESAP will also guarantee 97% availability each month, ensuring continuous access for users.
Unique Legal Identifier (LEI) and Metadata
The Legal Entity Identifier (LEI), compliant with ISO 17442, has been chosen as the unique identifier for entities listed on the ESAP. This identifier ensures high interoperability, facilitating links between various databases and allowing for enhanced data traceability.
The metadata accompanying each piece of information enables precise categorization and easy searchability. CBs are responsible for transmitting relevant metadata, including the legal framework of the publication, the originating Member State, and references from the Global LEI Foundation (GLEIF).
Market Feedback and Adjustments
As part of a public consultation, market participants suggested adjustments to harmonize validations across CBs to minimize differences between Member States. Other proposals included greater flexibility in formats, notably to allow the inclusion of non-extractable elements, such as graphs.
In response to this feedback, Level 3 (L3) documentation will be established to detail validation procedures and support CBs in their implementation.
Timeline and Implementation
Once adopted, the ITS will provide a clear and precise framework for CBs and the ESAP to manage the centralized collection, validation, and publication of financial information. The ESAP project will proceed in three progressive phases from 2026 to 2030, allowing CBs and companies to adapt gradually to these new requirements.
Conclusion
The establishment of the European Single Access Point (ESAP), supported by the ITS, marks a strategic advancement for European capital markets. By setting rigorous standards for the collection, validation, and accessibility of information, this project aims to provide investors with a reliable and centralized financial database. By optimizing access to information and ensuring its security, the ESAP will serve as a critical tool for transparency and the effectiveness of the European single market.