Welcome to our to the point newsletter. Every
month we look back at the most relevant developments in the area of
financial regulation in the CEE region.
Insights waiting for you in this edition:
ESG
LMA – Guidance on sustainability-linked loan terms
Cross-sectoral regulation
EBA – Timeline for the implementation of the IRB roadmap and
final supervisory handbook for the validation of IRB rating
systems
Investment companies and investment funds
Government of the Czech Republic – Amendment to the
Investment Companies and Investment Funds Act
Banks
EBA – Amendments to the Guidelines on the specification and
disclosure of systemic importance indicators
AML
FAO – Updated Guideline No. 8 – Copying ID Cards for
the Purposes of the AML Act
02/08: LMA – Guidance on sustainability-linked loan terms
- Slaughter and May published A Borrower's Guide to Sustainability-Linked
Loan Terms produced for the Association of Corporate Treasurers
(ACT). It aims to equip treasurers with an understanding of the
parameters of a sustainability-linked loan (SLL) and how the
characteristics of such loans are protected in facility
documentation. The Guide provides an overview of the
Sustainability-Linked Loan Principles (SLLP) and the accompanying
SLLP guidance for understanding this financial product and also
explains the role of the sustainability coordinator in the SLL
process. The Guide builds off the ACT Borrower's Guide to the
LMA's Investment Grade Agreements, which includes an
introduction to SLLs. See also the LMA's Model Provisions (with additional explanations
and commentary) for SLLs as a reference point to explaining the
components of SLL terms.
07/08: EBA – Timeline for the implementation of the IRB roadmap and final supervisory handbook for the validation of IRB rating systems
- The European Banking Authority (EBA) has made two significant updates:
- Revision of its roadmap for implementing internal-ratings-based (IRB) model requirements, in which the EBA aims to reduce compliance costs for financial institutions. The EBA is allowing the implementation of IRB repair requirements to be postponed for certain models – Loss Given Default (LGD) and Credit Conversion Factor (CCF) – covering portfolios that are no longer eligible for the revised advanced internal ratings-based approach under Basel III. This postponement aligns with the future Capital Requirements Regulation (CRR 3). During this period, institutions have the option to return to a simpler IRB approach or use the standardised approach for these portfolios. This postponement does not apply to Probability of Default (PD) models or those LGD and CCF models that continue to include exposures under the advanced internal ratings based (AIRB) approach.
- The EBA also published a final supervisory handbook aimed at providing
guidance on the validation function pursuant to Article 185 of CRR. The handbook provides a detailed
description of the areas that the validation function should
assess, covers various aspects, including the validation framework,
model performance assessment, modelling environment (data quality
and model implementation assessment), and the relationship between
the validation function and other corporate governance functions
like the credit risk control unit and internal audit. Additionally,
the handbook clarifies how the validation function operates in
different contexts, including during the model cycle (initial or
ongoing validation), when using external data, when outsourcing
validation tasks, and when dealing with data scarcity. These
updates aim to provide better guidance and flexibility for
financial institutions in implementing IRB model requirements while
reinforcing the role of the validation function in corporate
governance.
07/08: Government of the Czech Republic - Amendment to the Investment Companies and Investment Funds Act
- The Government of the Czech Republic is discussing an amendment to Act No. 240/2013 Coll., on Investment Companies and Investment Funds. The contemplated amendments will be as follows:
- regulation of unlicensed administrators so that their activities do not circumvent the Investment Companies and Investment Funds Act: the information obligation vis-à-vis investors will be increased; a minimum deposit of EUR 125,000 will be explicitly set for each investor, except if the number of investors in a given entity does not exceed 20 persons, and a sanctioned deletion of persons pursuant to Section 15 of the Investment Companies and Investment Funds Act from the list maintained by the Czech National Bank in the event of a serious or repeated breach of obligations will be introduced;
- the introduction of the possibility for limited partnerships on investment certificates to create sub-funds;
- the introduction of the abbreviation "SICAF" for specifically focused funds as this abbreviation is also used worldwide;
- adjustment of administrative fees to reflect the costs associated with the administrative procedure;
- clarification of the adaptation of the legal framework in
relation to Regulation (EU) 2019/1156 of the European Parliament and of
the Council and clarifying the adaptation of the legal framework in
relation to the revision of the European Long-Term Investment Funds
Regulation (ELTIF).
01/08: EBA – Amendments to the Guidelines on the specification and disclosure of systemic importance indicators
- The EBA launched a public consultation (consultation paper here) on amendments to its Guidelines on the specification and disclosure of
systemic importance indicators – the updating of an annex
which replicates the data template issued by the Basel Committee on
Banking Supervision (BCBS) should be managed on a yearly basis. The
EBA's methodology for identifying Global Systemically Important
Institutions (G-SIIs) closely mirrors the approach adopted by the
BCBS to identify Global Systemically Important Banks (G-SIBs). In
January 2023, the BCBS issued a revised data template for the 2023
identification exercise, using data from the end of the 2022
business year. To maintain consistency between the international
standards and the EU regulatory framework, the EBA is proposing
amendments to its Guidelines to replicate the updated Basel
reporting template.
18/08: FAO – Updated Guideline No. 8 – Copying ID Cards for the Purposes of the AML Act
- The Financial Analytical Office has published an updated Guideline No. 8 – Copying ID Cards for the Purposes of the AML Act – available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.