|
IN BRIEF
|
The financial services sector in the EU has been subject to significant regulatory developments during the period from August to September 2024. This timeframe has witnessed updates that impact various aspects, including anti-money laundering, asset management, and banking practices. Stakeholders must stay informed about these changes to ensure compliance and navigate the evolving landscape effectively.
This article highlights important regulatory updates affecting financial services in the EU during August and September 2024. Key developments encompass changes in anti-money laundering (AML) practices, sustainable finance regulations, and updates regarding EU banking transparency, along with significant insights from the European Central Bank (ECB) and the European Banking Authority (EBA). These updates reflect ongoing efforts to enhance compliance and stability within the EU financial landscape.
Anti-Money Laundering Developments
FATF Updates Methodology
On August 29, 2024, the Financial Action Task Force (FATF) updated its methodology for assessing compliance with its recommendations. This revision focuses on two key areas: effectiveness and technical compliance. Effectiveness evaluations will prioritize how laws and policies protect the financial system from abuse while examining specific frameworks tailored to each country’s risks. On the other hand, technical compliance assessments will ascertain if nations have established necessary legal frameworks aligned with the FATF’s standards.
The updated methodology aims to provide a more accurate framework for evaluating national AML systems, ensuring that countries not only meet technical standards but also effectively combat financial crimes. The FATF began its fifth round of evaluations using the improved methodology this year.
Sustainable Finance Insights
EFAMA’s Report on Sustainable Equity UCITS
On September 24, 2024, the European Fund and Asset Management Association (EFAMA) published a report titled “Sustainable Equity UCITS: Promoting Sustainable Business Models“. This document presented significant findings regarding sustainable equity funds in Europe, revealing that these funds represented 24% of all sustainable UCITS in 2023, an increase from 15% in 2019. Notably, net assets of sustainable equity funds have more than doubled over five years, reaching EUR 1.3 trillion.
The report emphasizes the resilience of sustainable equity UCITS amid market fluctuations, particularly showcasing their robust performance despite recent economic challenges. It indicates a lasting demand for these funds, denoting a shift in investor confidence toward sustainable investment practices.
Expansion of European Fund Classification System
EFAMA also announced significant expansions to the European Fund Classification (EFC). This extensive classification now covers approximately 180,000 fund share classes across European countries, introducing new categories such as crypto asset funds, FX funds, and ultra-short bond funds. The EFC operates on a non-commercial basis, ensuring free access to both fund managers and data users, ultimately promoting transparency within the fund industry.
Banking and Finance Transparency
EBA Launches EU-Wide Transparency Exercise
On September 9, 2024, the European Banking Authority (EBA) initiated its annual EU-wide transparency exercise. This exercise aims to enhance public understanding of the stability of the EU’s banking sector ahead of 2025 stress tests. Collaborating with over 100 major EU banks, the EBA will compile data exclusively from supervisory reporting to assess various factors such as capital positions and risk exposure.
The results will be published at the end of November, coinciding with the release of the Risk Assessment Report (RAR) and playing a crucial role in strengthening public confidence in the resilience of the EU financial system.
Risk Dashboard Summary for Q2 2024
On September 19, 2024, the EBA released its quarterly Risk Dashboard for Q2 2024, detailing key statistics from major EU and EEA banks. The report indicated a stable return on equity (RoE) of 10.9% year-on-year with slight quarterly increases driven by improved operating income. Despite this stability, declining net interest margins (NIM) present concerns about future profitability, underlining the importance of continuous monitoring of market conditions.
European Securities and Markets Updates
ESMA’s Report on Risk Monitoring
On August 29, 2024, the European Securities and Markets Authority (ESMA) published its second risk monitoring report for 2024. It revealed that external events significantly impact market dynamics, creating heightened risks within financial markets. Market conditions have exhibited signs of a “gentle slowdown,” characterized by a stable availability of capital despite volatility in equity issuance and challenges in corporate bond markets.
This report stresses the need for vigilance in monitoring potential risks and the ongoing adaptation of strategies by financial institutions to navigate the evolving landscape.
These key regulatory updates reflect ongoing efforts by EU authorities to enhance compliance, promote transparency, and adapt to evolving market conditions within the financial services sector, influencing both industry practices and investor behavior.
| Regulatory Area | Key Update |
| Anti-Money Laundering | FATF updated methodology for assessing compliance and effectiveness of AML systems. |
| Asset Management | EFAMA reported significant growth in sustainable equity UCITS, with assets rising to EUR 1.3 trillion. |
| Banking & Finance | EBA launched EU-wide transparency exercise, assessing capital positions and risk exposure across major banks. |
| Securities & Markets | ESMA detailed the selection process for Consolidated Tape Providers (CTPs) for bonds and equities. |
| Sustainable Finance | EU Commission released FAQs on implementing Corporate Sustainability Reporting Directive (CSRD). |
| Payment Fraud | EBA and ECB report highlighted a decrease in fraud rates due to strong customer authentication measures. |
| Market Risk | EBA amended technical standards for benchmarking credit risk and market risk for 2025 exercise. |
| Investment Funds | EFAMA expanded European Fund Classification System, adding 880 new fund subcategories. |
| Regulatory Framework | New EU regulations aim to enhance transparency and resilience within the financial system. |
This article provides a comprehensive overview of the latest regulatory developments impacting the financial services sector within the European Union for the months of August and September 2024. Key areas of focus include updates on anti-money laundering, asset management, banking, and sustainable finance, highlighting important changes and implications for compliance professionals and stakeholders in the industry.
ANTI-MONEY LAUNDERING
FATF Updates Methodology
On 29 August 2024, the Financial Action Task Force (FATF) revised its methodology for assessing countries’ technical compliance with FATF recommendations, as well as the effectiveness of AML/CFT/CPF systems. This updated framework focuses on two key assessment areas: effectiveness and technical compliance. Countries must demonstrate robust frameworks tailored to their unique risks to combat financial crime effectively.
ASSET MANAGEMENT
EFAMA Publishes Insights on Sustainable Equity UCITS
On 24 September 2024, the European Fund and Asset Management Association (EFAMA) published a report titled “Sustainable Equity UCITS: Promoting Sustainable Business Models”. This report highlights the growth of sustainable equity UCITS, which represented 24% of all sustainable UCITS in 2023, a significant increase from 15% in 2019. It showcases the resilience of these funds despite market volatility and draws attention to investor preferences towards sustainability.
Expansion of European Fund Classification System
EFAMA has expanded the European Fund Classification (EFC), now including nearly 180,000 fund share classes across various countries in Europe. This expansion introduces new fund categories that reflect emerging market trends, including crypto asset funds and ultra-short bond funds. The EFC initiative aims to enhance transparency and accessibility within the investment fund landscape.
BANKING & FINANCE
EBA Launches Annual EU-wide Transparency Exercise
The European Banking Authority (EBA) initiated its annual EU-wide transparency exercise on 9 September 2024, focusing on bank stability leading up to the 2025 stress tests. This exercise collaborates with over 100 major EU banks to gather supervisory data on capital positions, risk exposure, and asset quality, reinforcing public trust in the resilience of the EU financial system.
Quarterly Risk Dashboard Publication
On 19 September 2024, the EBA released its Q2 2024 Risk Dashboard. This document includes aggregated data for major EU/EEA banks, showcasing a return on equity at 10.9%. The dashboard signifies minor fluctuations in net interest margins and improvements in liquidity coverage ratios, indicating a relative stability in the banking sector.
SUSTAINABLE FINANCE
EU Commission Releases FAQs on Corporate Sustainability Reporting
On 7 August 2024, the EU Commission published FAQs to aid in the implementation of the EU Corporate Sustainability Reporting Directive (CSRD). The FAQs cover essential topics such as reporting obligations, timing, and exemptions, and include flowcharts and tables to facilitate adherence to the new standards.
The developments in these key regulatory areas underscore the dynamic landscape of financial services regulation in the EU. Stakeholders are encouraged to remain vigilant and informed about these changes to ensure compliance and leverage opportunities within the evolving regulatory framework. For more details on broader regulatory insights, please refer to resources available at Eurofi and JD Supra.
Key Regulatory Updates for Financial Services in the EU (August – September 2024)
- Anti-Money Laundering: FATF updated its compliance assessment methodology to enhance effectiveness and technical compliance.
- Asset Management: EFAMA reported significant growth of sustainable equity UCITS, now comprising 24% of total sustainable UCITS.
- Banking Transparency: EBA’s EU-wide transparency exercise commenced, focusing on capital positions and risk exposures.
- Payment Fraud: EBA and ECB released joint report highlighting a decrease in payment fraud due to strong customer authentication measures.
- Sustainable Finance: EU Commission published FAQs on the Corporate Sustainability Reporting Directive.
- Market Risk Regulation: EBA amended technical standards for the 2025 benchmarking exercise.
- Consolidated Tape Providers: ESMA announced the timeline for selecting CTPs for bonds, shares, and ETFs.
Overview of Key Regulatory Updates
From August to September 2024, significant regulatory updates have emerged in the EU financial services sector. These updates, driven by advancements and challenges within the economy, are essential for ensuring financial stability and compliance. The changes reflect the EU’s commitment to fostering transparency, enhancing anti-money laundering measures, and addressing asset management regulations. This report aims to outline the most pivotal updates affecting the financial landscape in Europe.
Anti-Money Laundering Enhancements
FATF Methodology Update
On August 29, 2024, the Financial Action Task Force (FATF) revised its methodology for assessing compliance and effectiveness of Anti-Money Laundering (AML), Counter Financing of Terrorism (CFT), and Counter Proliferation Financing (CPF) systems. This update emphasizes a comprehensive understanding of countries’ risks and effectiveness in achieving AML outcomes. The assessment now focuses on two primary areas: effectiveness and technical compliance. This shift poses new compliance requirements for financial institutions operating within EU borders, making it imperative for organizations to review their frameworks and enhance their operational capacities accordingly.
Asset Management Regulations
EFAMA Insights on Sustainable Equity UCITS
The European Fund and Asset Management Association (EFAMA) published insights regarding the growth of sustainable equity UCITS on September 24, 2024. These sustainable funds have grown significantly, now representing 24% of all sustainable UCITS, a steep rise from 15% in 2019. The report highlights the importance of adapting to evolving investor preferences while adhering to sustainable practices. Financial firms should focus on enhancing their offerings in sustainable finance, as demand continues to surge amidst market volatility.
Banking Regulations
Transparency Exercise and Risk Dashboard
The European Banking Authority (EBA) initiated its annual EU-wide transparency exercise on September 9, 2024, which is crucial in assessing the health and stability of the EU banking sector prior to the upcoming stress tests. The findings, expected to be published by the end of November, will provide insights into capital positions, risk exposures, and overall asset quality. Additionally, the EBA released its Q2 2024 Risk Dashboard on September 19, showcasing key statistics for major EU/EEA banks, including stable return on equity and improved liquidity ratios. Financial institutions must ensure accurate data reporting to facilitate comprehensive assessments essential for maintaining the sector’s resilience.
Payment Fraud and Security Measures
Joint Report by EBA and ECB
A report released on August 1, 2024, by the European Banking Authority (EBA) and the European Central Bank (ECB) revealed concerning trends regarding payment fraud, which amounted to €4.3 billion in 2022. The findings highlight the effectiveness of strong customer authentication measures in mitigating fraud risk, particularly concerning card payments. As payment models evolve, financial services must adopt stringent security measures and monitoring protocols to protect against increasing fraud threats while satisfying regulatory expectations.
Corporate Sustainability Reporting
EU Corporate Sustainability Reporting Directive Updates
The EU Commission’s publication of FAQs regarding the Corporate Sustainability Reporting Directive (CSRD) implementation on August 7, 2024, provides clarity on the reporting obligations for various entities. The FAQs detail significant aspects such as the scope, timing, and the necessary compliance provisions of the directive. Financial service providers should prioritize compliance with the CSRD to align with EU sustainability objectives and enhance transparency in reporting. Effective communication of sustainability measures will become an essential criterion for investors when evaluating financial institutions.
FAQ on Key Regulatory Updates for Financial Services in the EU: Insights from August to September 2024
Q: What significant updates occurred in anti-money laundering regulations during this period?
A: On 29 August 2024, the Financial Action Task Force (FATF) updated its methodology for assessing compliance and effectiveness of AML/CFT/CPF systems, emphasizing the importance of understanding country-specific risks.
A: The report indicated that sustainable equity UCITS represented 24% of all sustainable UCITS in 2023, showcasing significant growth in net assets, particularly despite economic challenges.
A: On 9 September 2024, the European Banking Authority (EBA) launched its annual EU-wide transparency exercise to assess the health and stability of the banking sector.
A: The Risk Dashboard reported a stable return on equity (RoE) of 10.9%, while the common equity tier 1 (CET1) ratio rose to 16.1%, indicating stable performance metrics for major EU banks.
A: On 10 September 2024, the EU Commission published a report by Mario Draghi addressing challenges and outlining a vision for the future of European competitiveness.
A: ESMA announced the selection process for bond Consolidated Tape Providers (CTPs) will commence on 3 January 2025, with further selections for shares and ETFs planned for later in 2025.
A: The report indicated that external events significantly impact market trends, leading to high risks within the market, emphasizing heightened sensitivity to interest rate changes and political events.
A: The EU Commission released a set of FAQs on the implementation of the EU Corporate Sustainability Reporting Directive, addressing key provisions and application dates across various directives.
Related posts:
November Update on Global Regulations: A Focus on Digital Finance
Navigating the Regulatory Landscape: The EU’s Path Towards ESG Rating Standards
Case studies: Successful navigation of regulations
May Update: Global Regulations on Risk, Capital, and Financial Stability Insights from Bloomberg Professional Services