At the end of each month, the SAFE Regulatory Radar highlights a selection of important news and developments on financial regulation at the national and EU level.
TARGET system: New rules on access by central counterparties to Eurosystem overnight credit
On 31 July 2025, the European Central Bank (ECB) adopted Decision (EU) 2025/28, which amends the existing Guidelines (EU) 2022/912 regarding the TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer System) system. The amendment reflects the Eurosystem’s policy to allow non-bank payment service providers access to TARGET and central bank accounts, provided they satisfy prescribed risk-mitigation requirements. Access for non-banks remains discretionary, not automatic; but central banks across the Eurosystem may only refuse participation if applicants fail to meet the criteria under Decision 2025/222 or the original TARGET Guideline.
The new text also caps central bank account balances held by payment service providers: balances must be limited to amounts necessary for settlement obligations, and the methodology for calculating and monitoring these holdings must be reviewed periodically to prevent sustained increases.
Additionally, the amendment streamlines the process through which central counterparties, especially those without banking licenses or access to marginal lending facilities, can access a dedicated overnight credit facility. Eligible central counterparties that have not repaid intraday credit by the end of the day may now have that exposure automatically rolled over, subject to compliance with safeguards set out in a complementary ECB Decision (EU 2025/29).
This Decision sets out safeguards for access of the Eurosystem’s overnight credit facility within TARGET and clarifies the conditions under which central counterparties may automatically roll over outstanding intraday credit at the end of the business day without requiring separate Governing Council approval.
The decision establishes forward-looking requirements for central counterparties, covering financial soundness, liquidity risk management, and crisis preparedness. Notably, central counterparties are expected to maintain robust capital, margining, and pre-funded resources, as well as practical arrangements for timely reimbursement of overnight credit. At the same time, the Governing Council retains the power to intervene if central counterparties fail to comply. It may apply proportionate and non-discriminatory measures such as restricting or rejecting collateral, limiting the amount of credit available, or ultimately suspending access if deficiencies persist beyond a defined period of up to sixteen weeks.
Also, the decision introduces a system of penalties to discourage misuse. Penalty interest rates may be charged if a central counterparty exceeds restricted access levels or uses the facility for purposes unrelated to its euro-denominated settlement obligations, with higher charges applying to repeated infringements within twelve months.
National central banks must integrate these safeguard provisions, discretionary powers, and penalty mechanisms into their contractual arrangements with eligible central counterparties. The new framework will apply from 6 October 2025, aligning with the broader updates made to the TARGET Guideline. This development is intended to provide central counterparties with a predictable backstop while ensuring that access to central bank credit remains consistent with financial stability objectives.
Artificial Intelligence: AI governance and risk management in the insurance sector
On 6 August 2025, the European Insurance and Occupational Pensions Authority (EIOPA) issued an Opinion on AI Governance and Risk Management addressed to national supervisors and an accompanying Impact Assessment evaluating costs, benefits, and policy options. While it does not introduce new obligations, the opinion aims to clarify how insurance-sector rules, namely the Solvency II and Insurance Distribution Directives, apply when AI is used and how the AI Act applies to the insurance sector. In this regard, the opinion’s scope does not cover AI, which is prohibited or classified as high-risk under the AI Act.
It further sets out a risk-based and proportionate framework. Insurers and intermediaries across the value chain are expected to start with an impact assessment for each AI application, considering factors such as data sensitivity, the degree of system autonomy, whether the system is customer-facing, the involvement of vulnerable consumers, and possible effects on fundamental rights.
Prudential aspects, including business criticality, implications for solvency and compliance, and reputational risks, are also considered. Based on this assessment, firms should tailor their governance and risk-management measures. These may cover ethical and fairness considerations, robust data governance, documentation and record-keeping, transparency and explainability, as well as appropriate human oversight.
The impact assessment concludes that additional costs for firms and supervisors should remain limited since the framework builds on established structures. The benefits include greater supervisory convergence, more responsible use of AI, and enhanced trust from consumers and markets. In practice, insurers must now systematically map their AI applications, document impact assessments, and strengthen internal governance mechanisms to ensure AI is fully integrated into risk-management systems.
In an article, Bridge Professor Katja Langenbucher discusses the use of high-risk AI in credit scoring and financial services raises regulatory challenges, and how legal tools can help balance innovation and oversight in the financial sector. You can find the full text here.
Single Supervisory Mechanism: Report on the provision of banking services from third-country entities
On 23 July 2025, the European Banking Authority (EBA) published its Report on the direct provision of banking services from third countries. In line with the mandate conferred under Art. 21(c) of CRDVI (Capital Requirements Directive VI) whereby the EBA is required to review whether any financial sector entity in addition to credit institutions should be exempted from the requirement to establish a branch for the provision of banking services by third-country undertakings in accordance with this Article, the report aims to assess whether it is opportune to extend the possibility for third-country undertakings to provide core banking services directly from third countries not only to EU credit institutions, but to any EU financial institution.
The analysis, which included quantitative and qualitative elements, did not identify evidence to justify amending the recently introduced Article 21c. This provision defines the conditions under which core banking services may be provided within a Member State, generally requiring the establishment of a third-country branch for direct service provision.
However, the EBA notes that measuring the prohibition’s impact remains difficult because Article 21c already contains a range of flexibilities. EU financial sector entities can still obtain core banking services from third-country undertakings through solicitation, and existing EU branches or subsidiaries may also provide services.
Overall, the report concludes that the current regime under Article 21c should remain unchanged, while emphasizing the value of further interpretative guidance to reduce uncertainty. The findings reflect the EBA’s consultation with ESMA (European Securities and Markets Authority) and EIOPA, as required under its mandate, and intend to balance considerations of financial stability with the competitiveness of the EU financial sector.
Updates:
- On 21 August 2025, the European Commission adopted a recommendation introducing a voluntary sustainability reporting standard for small and medium-sized enterprises (SMEs) after the adoption of the Omnibus I simplification package, as presented in February’s edition of the Regulatory Radar. The recommendation aims to provide an interim framework for SMEs outside the Corporate Sustainability Reporting Directive (CSRD)’s scope, which applies to large companies with more than 1,000 employees. SMEs are faced with increasing requests for sustainability information from larger companies and financial institutions. This recommendation is temporary until a Delegated Act on the voluntary standard is adopted.
During the Sustainability Standards Conference 2025, jointly organized by SAFE, the International Sustainability Standards Board, the German Accounting Standards Committee, and the Goethe University Frankfurt, some of the speakers called for proportionate and scalable disclosure requirements that reflect the capacities of smaller companies without compromising the information needs of investors. More information on the conference may be found here.
Public consultations
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Pietro Chiarelli is Financial Policy Analyst at the SAFE Policy Center.
