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.
European Commission: strengthening of the EU’s financial risk management framework
On 21 February, the European Commission has adopted a decision expanding the role of the Chief Risk Officer in light of the significant growth of the EU’s financial operations over the course of the present Multiannual Financial Framework. This includes the support of investment and economic recovery in Member States post-Covid (Next Generation EU (NGEU)), and the support of Ukraine and neighboring countries. The decision is even more timely as the European Commission announced a new common debt instrument on 4 March. As part of the ReArm Europe Plan, the EU would issue 150 billion euros in loans to facilitate joint procurement of military materials. Additionally, the repayment of NGEU loans will commence in 2028.
Following the adoption of the decision, the role of the Chief Risk Officer encompasses oversight over all of the Union’s financial operations, including borrowing, debt and liquidity management, lending operations and budgetary guarantees, as well as assets under management.
The framework for risk management is structured around the three lines of defense model, wherein the Chief Risk Officer operates as an independent second line of defense at the administrative level. In this regard, their responsibilities include formulating risk management policies and providing independent risk oversight, as well as assessing and reporting financial risks. Moreover, the first line of defense is the Directorates-General responsible for the Union’s financial operations, while the third line of defense is the Internal Audit Service.
More specifically, this decision regulates the status and the independence of the Chief Risk Officer and their general task. Furthermore, the decision governs its specific tasks in respect of EU borrowing, debt management, liquidity management and asset management operations. It also governs specific tasks related to assessing the financial risks of programs or instruments authorizing budgetary guarantees and loans.
By implementing this framework model and establishing an independent Chief Risk Officer, the Commission intended to fulfill the recommendations outlined in the European Court of Auditors' special report 16/2023 regarding EU debt management.
Banking Union: Updates on internal model authorizations and the methodology of the regulatory and supervisory equivalence of non-EU countries
On 17 March, the European Banking Authority (EBA) updated its Implementing Technical Standards on the joint decision process regarding the authorization of internal models under the Capital Requirements Regulation as part of the first phase of the EBA roadmap for implementing the EU Banking Package. The aim is to update the existing technical standards to reflect changes in the EU legal framework, notably removing the Advanced Measurement Approach for operational risk while streamlining authorization processes and facilitating effective supervisory cooperation in alignment with current legal and regulatory standards.
Additionally, the Implementing Technical Standards detail the steps for competent authorities to assess applications for internal models’ authorizations, further specifying the process for assessing the applications and reaching joint decisions among supervisory authorities. Moreover, the updated technical standards retain the 10-day timeline for forwarding applications to relevant authorities.
On 24 March, the EBA updated the methodology on the regulatory and supervisory equivalence of non-EU countries to reflect the changes in the Capital Requirements Regulation and the Capital Requirements Directive. The methodology entails the assessment of the non-EU jurisdiction’s regulatory and supervisory framework based on two questionnaires. The first questionnaire assesses whether the main requirements are in place in the jurisdiction in question using a preliminary screening. The second questionnaire consists of a more in-depth examination by comparing the provisions of the EU framework with those of the non-EU jurisdiction.
Within the context of this update, the questionnaires were moved to an online platform to which non-EU jurisdiction may request access.
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Pietro Chiarelli is Financial Policy Analyst at the SAFE Policy Center.
