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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.
DEVLHON Consulting Deciphers: Banking Crisis Resolution
DEVLHON Consulting Deciphers: Banking Crisis Resolution – Assessment and Outlook Based on Banque de France Analysis
Since the 2008 financial crisis, the management of banking crises has significantly evolved, with banking resolution now central to strategies that secure the financial sector without systematically relying on public funds. In this article, DEVLHON Consulting presents an analysis from Banque de France, offering an assessment of the banking resolution framework in Europe and insights from recent financial crises.
Foundations of Banking Resolution: Protecting Public Finances
The 2008 crisis left financial systems with complex challenges. At the time, governments had no choice but to bail out struggling banks at the taxpayers’ expense or let them fail, risking prolonged economic instability. Since then, banking resolution mechanisms have been implemented, allowing authorities to restructure or even liquidate failing banks in a controlled manner, minimizing public impact.
The Banque de France’s analysis highlights the central role of banking resolution within the European Union, which rests on three pillars: the resolution mechanism itself, centralized banking supervision, and harmonized deposit insurance. These tools allow authorities to secure banks while ensuring that shareholders and creditors are the primary contributors in case of bank failures.
Banking Resolution Instruments in Europe
European banks can be placed in resolution through two main avenues:
Bail-in: This internal recapitalization mechanism requires shareholders and creditors to absorb the losses of a struggling bank before public funds are mobilized. This preferred approach limits the impact of banking crises on public finances.
Transfer Operations: In certain cases, it is possible to transfer healthy assets and activities to an acquirer or a “bad bank,” thereby isolating compromised assets and stabilizing the remaining institution.
Funding Banking Resolution Through Mutualization
Funding resolution efforts is essential to limiting the impact of banking crises. The Single Resolution Fund (SRF), funded by bank contributions, is used in Europe to limit direct state intervention. In its analysis, Banque de France points out a significant difference with the American model, where authorities have access to a more flexible federal fund, enabling quicker interventions.
In Europe, authorities favor an approach that breaks the link between banks and states, requiring national banking sectors to pool their efforts within the SRF, which may limit intervention speed. Thus, before public funds can be used, banks must demonstrate their loss-absorbing capacity, in accordance with MREL (Minimum Requirement for Own Funds and Eligible Liabilities) standards, which are more stringent than the American TLAC (Total Loss Absorbing Capacity) standards.
Lessons from the 2023 Banking Turmoil
The recent bank failures in Europe and the United States in 2023 provide valuable lessons for the European resolution framework, according to Banque de France. While European mechanisms have proven effective, certain aspects require adjustment. Recent crises, such as the acquisition of Credit Suisse, demonstrated that interventions must be able to proceed swiftly, especially when facing massive deposit withdrawals driven by digital tools.
In this context, the United States was able to intervene quickly using federal liquidity facilities. In Europe, however, banks lack access to such liquidity facilities in times of crisis, which could jeopardize the stability of the European financial sector.
Banque de France Recommendations to Strengthen Banking Resolution
To address current challenges, the Banque de France’s analysis recommends improvements to the European resolution framework:
Strengthening Capital Requirements: Imposing higher loss-absorption capacity on small and medium-sized banks, in addition to large institutions, to reduce contagion risks.
Diversifying Resolution Tools: Using a combination of resolution instruments (bail-in, asset transfers) to adapt to new forms of crises, including geopolitical, climate, and digital risks.
Establishing a European Emergency Liquidity Facility: Creating a dedicated European liquidity facility would support banks without threatening market stability during periods of massive deposit withdrawals.
Conclusion
In just over a decade, banking resolution has solidified its place in the architecture of the European Banking Union. However, as Banque de France points out, the current framework must evolve to adapt to new vulnerabilities in the banking sector. Reinforcing loss-absorption standards, adopting a more flexible approach, and providing emergency liquidity would ensure the financial sector’s resilience in the face of future crises.
EBA publishes its programme for 2025
DEVLHON Consulting deciphers: The priorities of the European Banking Authority’s (EBA) 2025 work program
The European Banking Authority (EBA) recently released its 2025 work program, part of a long-term strategy covering the period 2025-2027. This program reflects the EBA’s ambitions to adapt European Union (EU) banking regulations while ensuring financial stability in an evolving economic environment. Here are the key priorities of the EBA for the coming years, deciphered by DEVLHON Consulting.
Strengthening the EU regulatory framework
One of the EBA’s main priorities for 2025 will be implementing the “EU banking package,” which includes Basel III reforms aimed at enhancing the resilience of banks in the face of crises. This framework introduces more risk-sensitive approaches to determining capital requirements, especially for credit, market, and operational risks. The EBA will develop regulatory standards to finalize this framework and ensure consistent application across the EU.
Promoting sustainable financial stability
Sustainability is becoming a central issue for the banking sector. In a context of geopolitical risks and economic tensions, the EBA is focusing on forward-looking risk assessments, notably through stress tests. In 2025, the authority will launch a data portal to improve risk analysis infrastructure. This will also include initiatives to better monitor risks related to environmental, social, and governance (ESG) factors.
Launching supervisory activities for DORA and MiCAR
The Digital Operational Resilience Act (DORA) and the Markets in Crypto-Assets Regulation (MiCAR) will come into effect in 2025. The EBA will begin overseeing critical IT service providers and supervising crypto-asset issuers, in collaboration with other European authorities. The introduction of these new responsibilities highlights the growing importance of digital technologies and decentralized finance in the European financial landscape.
Transitioning to a new anti-money laundering framework
In 2025, the EBA will support the transition to the new EU Anti-Money Laundering Authority (AMLA). During this transition phase, the EBA will continue to carry out its mandate in this field while preparing to transfer its responsibilities to AMLA by the end of 2025. The focus will be on smooth regulation and integrating innovations in this domain.
Conclusion
The EBA is pursuing an ambitious roadmap for 2025, marked by the rapid evolution of banking regulations and the increasing prominence of digital and ESG-related risks. At DEVLHON Consulting, we closely monitor these developments to provide you with insightful analyses and strategic support in your compliance and financial innovation initiatives.
The EBA’s 2025 program clearly demonstrates that resilience, sustainability, and innovation will be at the heart of European financial regulation in the coming years.
Source : https://www.eba.europa.eu/sites/default/files/2024-09/a5bce431-7793-4b75-bd07-d5741c961fbe/EBA%20Work%20programme%202025.pdf
(Français) Les Étapes Clés pour Mettre en Place une Gouvernance des Données Efficace
Key Steps to Establishing Effective Data Governance
In today’s world, where data plays a central role in the operations and strategy of financial sector enterprises, establishing effective data governance has become a priority. Data governance involves managing the availability, integrity, security, and use of data within an organization. Good data governance maximizes the value of data while minimizing risks. This article explores the key steps to implementing effective data governance.
Assessment of Current Situation
The first step to establishing effective data governance is to conduct a comprehensive assessment of the current situation. This involves auditing existing data to identify data sources, their quality, usage, and potential issues. It is also crucial to identify stakeholders involved in the data governance process, including representatives from various departments, data experts, and compliance officers.
Definition of Policies and Standards
Once the initial assessment is completed, it is necessary to define clear policies and standards for data management. These policies should cover aspects such as data quality, security, confidentiality, access, and use. It is also important to define the roles and responsibilities of different stakeholders in data management. This includes appointing a Chief Data Officer (CDO) or a data governance manager who will oversee the implementation and compliance with data governance policies.
Implementation of Processes and Tools
Implementing data governance also requires the establishment of appropriate processes and tools. This includes selecting and implementing data management software that monitors, manages, and protects data effectively. Processes should include procedures for data cleansing, validation, and updating to ensure data quality. It is also important to train teams on best practices in data management and raise awareness of data governance issues.
Monitoring and Continuous Improvement
Data governance is not a one-time project but a continuous process that requires regular monitoring and continuous improvements. It is essential to establish key performance indicators (KPIs) to measure the effectiveness of data governance. These KPIs may include measures of data quality, compliance with security policies, and end-user satisfaction. It is also important to regularly review data governance policies and processes to ensure they remain relevant and effective in the face of technological advancements and new regulations.
Conclusion
Establishing effective data governance is crucial for maximizing the value of data while minimizing risks. By following the key steps of assessment, defining policies and standards, implementing processes and tools, and continuous monitoring, companies can ensure reliable and secure data management. Good data governance not only improves the quality and integrity of data but also promotes a data-driven culture where decisions are based on reliable and accurate data. In a world where data is a strategic asset, data governance is an essential investment for long-term success.
Transposition of Basel III: Towards a More Resilient Banking Sector
A few days ago, we announced our series of ‘DEVLHON Consulting Decrypts’ articles on the ACPR’s 2023 Annual Report.
Here is our first article on Basel III.
Transposition of Basel III: Towards a More Resilient Banking Sector
In 2023, the European Union took a decisive step with the finalization of the transposition of Basel III standards. After several years of negotiations, the CRR3/CRD6 package was adopted, promising to strengthen the stability of the European banking sector from January 2025.
Strengthening Capital Requirements
Basel III, born in response to the 2008 financial crisis, primarily aims to increase the resilience of banks by raising capital requirements and introducing new risk management measures. Integrating these standards into European legislation harmonizes banking practices across the EU, ensuring a high level of financial stability.
The CRR3/CRD6 package introduces several major reforms, the most significant being the increase in capital requirements. Banks will now have to comply with a strict leverage ratio (a regulatory ratio that limits banks’ indebtedness by imposing a minimum threshold of equity relative to their total assets), limiting their debt relative to their equity. Additionally, a capital floor will be established for institutions using internal models for risk calculation, ensuring a minimum level of equity to withstand potential financial shocks.
ESG Risk Management
Another essential reform concerns the management of environmental, social, and governance (ESG) risks. Banks will now have to integrate these risks into their management and financial reports. This measure responds to the growing need to consider climate and social impacts in banking activities, thereby aligning the financial sector with sustainability goals.
Enhanced Transparency
Transparency is also reinforced with new disclosure obligations. Banks will have to provide detailed information on their risk exposure and the measures taken to manage them. This increased transparency aims to reassure investors and the public about the solidity and prudent management of financial institutions.
Implications for the Banking Sector
These reforms are crucial for strengthening the resilience of European banks. By increasing capital requirements and integrating ESG risks, banks will be better prepared to absorb losses and manage future crises. However, implementing these measures involves considerable challenges, particularly in terms of compliance costs and risk management. Smaller banks may feel the pressure of these new requirements.
Competitiveness of European Banks
The impact on the competitiveness of European banks is also a concern. While the transposition of Basel III is essential for financial stability, it is crucial that the application of the rules is fair across different jurisdictions. A transition period and targeted adjustments are planned to help European market and investment banks adapt without losing their competitiveness.
Conclusion
In summary, the transposition of Basel III marks a significant advance for the European banking sector. The new requirements aim to increase resilience and transparency, but their implementation will require substantial efforts from financial institutions. In the long term, a harmonized and fair application of these standards will be essential to maintain the stability and competitiveness of the European banking sector.
These reforms are detailed in the 2023 annual report of the ACPR, which highlights ongoing efforts to ensure a strong and resilient financial sector in the face of potential crises.
Standard Chartered and Visa B2B Connect Join Forces
A New Era for Business-to-Business Transactions
Standard Chartered, one of the world’s leading financial institutions, has recently announced its partnership with Visa B2B Connect, a groundbreaking cross-border payments platform. This collaboration aims to simplify and expedite business-to-business (B2B) transactions while reducing associated costs.
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Smoother and More Cost-Effective Cross-Border Transactions
By partnering with Visa B2B Connect, Standard Chartered offers its clients an innovative solution for international payments. Through connectivity via application programming interfaces (APIs), transactions are routed directly to Visa for processing, eliminating traditional intermediaries and their fees.
Multilateral Connectivity for Enhanced Efficiency
Visa B2B Connect provides multilateral connectivity to all network members through a single connection, offering transparent timeframes and costs. This innovative approach meets the needs of businesses of all sizes seeking quick, secure, and efficient solutions for cross-border transactions.
Standard Chartered’s Commitment to Financial Innovation
Philip Panaino, Global Head of Cash at Standard Chartered, expresses enthusiasm for this collaboration: “Our engagement in the Visa B2B Connect network demonstrates our commitment to simplifying global business transactions while ensuring optimal security.”
A Strategic Partnership to Reinvent Cross-Border Payments
Ben Ellis, Senior Vice President and Global Head of Visa B2B Connect, shares this enthusiasm: “Visa is committed to modernizing cross-border payments worldwide, and this collaboration with Standard Chartered extends our network even further.”
Conclusion: Towards a Future of Smoother and More Cost-Effective Business Transactions
This joint initiative between Standard Chartered and Visa B2B Connect marks a new era in the landscape of cross-border payments. With smoother, faster, and more cost-effective transactions, businesses worldwide can now envision the future with confidence.
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The Impact of Artificial Intelligence in the Banking Sector
Several months ago, we discussed the potential revolutions that the use of artificial intelligence could bring to the banking and finance sectors more broadly. (article link: https://www.devlhon-consulting.com/fr/breaking-news-entretien-exclusif-avec-chatgpt/)
Today, let’s take stock together of the first concrete uses of AI in these sectors.
Enhanced Customer Experience:
AI analyzes vast amounts of data to offer personalized financial advice and product recommendations. Chatbots ensure efficient customer support 24 hours a day.
Operational Efficiency:
AI automates manual processes, reduces errors, and improves productivity. It helps make informed loan decisions and optimizes resource allocation through predictive analysis.
Detection and Prevention of Fraud:
AI algorithms detect suspicious activities in real-time, enhancing security with technologies such as behavioral biometrics and AI-assisted cybersecurity systems.
Compliance Monitoring:
AI tools automate compliance tasks such as Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, ensuring regulatory compliance.
Challenges:
Adoption challenges include data quality, regulatory compliance, system integration, and customer acceptance.
In summary, the future of AI in banking promises superior services, although ethical considerations such as data privacy remain crucial. Balancing innovation with responsibility is essential for sustainable progress.
Source: https://www.tradefinanceglobal.com/posts/ai-in-banking-what-will-it-actually-change/
The Challenges of Adopting ISO 20022
Introduction
The banking industry is buzzing with discussions about ISO 20022, a global standardization initiative already underway. But what exactly is ISO 20022, and what could its implications be for trade finance? Let’s explore its implications and what banks should do to prepare.
What is the ISO 20022 standard?
ISO 20022, defined by the International Organization for Standardization (ISO), offers a unified approach to financial messaging standards, promising richer and structured data compared to previous formats such as MT. Swift, a major provider of financial messaging services, is transitioning to ISO 20022 for cross-border payments and reporting by November 2025.
Its impact on trade finance
In trade finance, where there’s a growing demand for digitization and transparency, ISO 20022 could bring several benefits, including increased data granularity, improved accuracy, and streamlined operations. For example, structured data could aid in compliance checks and automate transaction verifications, resulting in cost savings and enhanced efficiency.
However, the transition to ISO 20022 poses challenges. The trade finance ecosystem is complex, largely reliant on paper-based processes and involving multiple stakeholders. Ensuring that standards address these nuances requires industry-wide commitment and careful consideration.
Additionally, migration incurs significant costs, including adjustments to systems, enhancements to data and business logic, as well as changes to client interfaces. While the exact amount of expenditure remains uncertain, it’s clear that the investment could lead to more efficient trade finance operations in the long run.
Banks need to take immediate steps to meet upcoming migration deadlines to ISO 20022 in payment and treasury management messages. Furthermore, they should prepare for potential adoption of ISO 20022 in trade finance messages by incorporating flexibility and modern architecture into their systems.
Closing thoughts
Ultimately, even if the adoption of ISO 20022 in trade finance doesn’t happen immediately, banks must remain proactive in upgrading their systems to stay competitive in an evolving landscape.
Source: https://www.tradefinanceglobal.com/posts/trade-finance-and-iso-20022-a-matter-of-when-not-if/
(Français) De quoi à besoin Twitter pour se transformer en super-app financière ?
[vc_row][vc_column][vc_column_text]Un intéressant article de Finovate, apporte un ensemble de réponses à cette question.
Depuis qu’Elon Musk a acheté Twitter en octobre dernier, il a laissé entendre qu’il souhaitait transformer le réseau social en une super-app. En ce sens, Twitter vient de nouer un partenariat avec la plateforme de trading eToro (vers laquelle Twitter se contente néanmoins de rediriger ses utilisateurs intéressés, sans internaliser ses services). Musk a également créé une nouvelle société d’IA générative appelée X.AI, qui devrait concurrencer OpenAI, que Musk a cofondé en 2015 mais qu’il a quitté en 2018 pour éviter un conflit d’intérêts. Pour une superapp, un outil d’IA générative propre pourrait être un facteur de différenciation décisif.
Par ailleurs, Musk a plusieurs fois annoncé son projet d’ajouter à Twitter des capacités de paiement P2P de type Venmo (il serait en train d’obtenir les licences nécessaires). D’autres services financiers pourraient ensuite être proposés, tels qu’un compte d’épargne à haut rendement ou une carte de paiement.
Mais avec tout cela, on est encore loin de réunir les éléments d’une superapp, à l’instar de celles que proposent aux États-Unis Walmart ou Paypal (pour ne pas parler des chinoises Alipay ou Wechat). Que manque-t-il ?
- Une gestion de compte. Un tableau de bord intégré à l’application qui aide les utilisateurs à suivre leurs dépenses, leurs économies et leurs investissements.
- Une plateforme de services partenaires. Mais avec quels axes clés ? La mobilité ? L’e-commerce ? Les loisirs ou le tourisme ? Beaucoup de ces secteurs sont d’ores et déjà encombrés, à l’instar de la santé, un secteur auquel Amazon, Walmart et d’autres se sont depuis longtemps attaqués (prise de rendez-vous, télésanté, gestion des dossiers, services à domicile, …). Ce genre de services, de plus, servent moins à amener les utilisateurs d’une marque à utiliser sa superapp qu’à les garder.
- Il en va de même pour les assurances et pour les services administratifs. Mais, avec FedNow et l’ajout potentiel d’une CBDC, le gouvernement américain propose lui-aussi une superapp.
Bref, que manque-t-il à Twitter pour devenir une superapp ? Tout ! On ne voit rien, en termes de leviers, de survaleur (à part l’IA générative si elle se concrétise) ou d’agilité, dont Twitter pourrait particulièrement profiter. C’est à se demander si le réseau social ne rejoindra pas la longue liste de tous les acteurs qui se sont cassés les dents, à croire que faire de la banque est facile et qu’on n’attendait qu’eux !
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