to the point: financial regulation | 08/2024

• The EBA has published final amendments to its Regulatory Technical Standards (RTS) related to the Fundamental Review of the Trading Book (FRTB). These amendments are designed to align the RTS with the Capital Requirements Regulation (CRR3) and maintain stability in the regulatory framework. The updates are part of the broader roadmap on the Banking Package, and the key changes include:
  • Profit and Loss Attribution Test: The RTS remove the aggregation formula for market risk capital requirements under the alternative internal model approach, as this is now incorporated into CRR3;
  • Risk Factor Modellability: The RTS clarify how institutions should assess their reliance on third-party vendors when determining the modellability of risk factors; and
  • Foreign Exchange and Commodity Risk: The RTS ensure that institutions properly capture translation risk for non-trading book positions subject to foreign exchange or commodity risk.

• The EBA has published its final draft of Implementing Technical Standards (ITS) for the 2025 benchmarking exercise, focusing on credit risk, market risk and IFRS9 models. The most notable change is the expansion of the Alternative Standardised Approach (ASA) validation portfolios to all asset classes for market risk, compared to the 2024 exercise. Minor adjustments were made in the credit risk area, particularly clarifying mandatory reporting requirements for certain risk parameters. The templates based on the Alternative Internal Model Approach (AIMA) for market risk were not implemented due to the postponement of the Fundamental Review of the Trading Book (FRTB) in the EU. As a result, the content and bank sample for market risk data collection remain unchanged, and the data collection deadlines have been extended. These ITS were developed under Article 78 of the Capital Requirements Directive (CRD) and are used in the EBA's annual benchmarking exercise to assess the quality of internal models used for calculating capital requirements, ensuring consistent monitoring across the EU.

• The ESAs (ESMA, EBA, EIOPA) published a final report on draft regulatory technical standards (RTS) to specify the elements a financial entity needs to determine and assess when subcontracting information and communication technology (ICT) services supporting critical or important functions as mandated by art 30(5) of regulation (EU) 2022/2554 (DORA), focusing on ICT services provided by ICT subcontractors that support critical or important functions, including requirements for the application in a group context. To ensure a sound governance and compliance when managing such ICT-related services and associated risks, the RTS cover the whole life cycle of contractual arrangements with the ICT third-party service providers, starting with the planning phase before entering into an arrangement, including risk assessments and due diligence processes, further covering the ongoing service delivery, monitoring and auditing and ending with the exit from such arrangements.

• The Czech Government has approved a Draft Act on the Digital Economy to ensure the effective operation of the internal market in the digital and data economy. The Act aims to create a clear legal framework to enforce obligations under EU legislation, specifically aligning Czech law with Regulation (EU) 2022/868 (Data Governance Act) and Regulation (EU) 2022/2065 (Digital Services Act). Key elements of the Draft include designating the Czech Telecommunications Office and the Office for Personal Data Protection as the authorities responsible for enforcing these regulations. It also establishes penalties for non-compliance. The Draft revises existing legislation on intermediary services by repealing Act No. 480/2004 Coll., on Information Society Services, to better align with the Regulations.

• The Czech Government is currently discussing a Draft Decree, which has been prepared in connection with the pending amendments to the Payments Act and changes in the relevant European regulations. The amendments to Decree No. 1/2022 Coll. relate to certain licensing conditions as regards requirements for the management and control system of a payment institution, payment account information manager, electronic money institution, small-scale payment service provider and small-scale electronic money issuer. These requirements are newly set out in the DORA In the case of the amendment to Decree No. 7/2018 Coll., the amendment to the details of risk management in the field of information and communication technologies, which is now included in Chapter II of the DORA Regulation, is removed.

• The FAO provides information about the modification of the EU Best Practices for the effective implementation of restrictive measures in Part B. Financial Restrictive Measures, Chapter VIII. Ownership and control and the insertion of a new Chapter IX. Acting "on behalf of". The modification consists in:
  • adding a recital to Chapter VIII. Ownership and control (new paragraph 62);
  • modifying ownership as holding 50 % or more of the ownership of an entity or ownership of a majority share;
  • adding a paragraph on aggregate ownership (in paragraph 63);
  • a new paragraph 67 with a demonstrative list of circumstances indicating control of an undesignated entity; and
  • a new Chapter IX. describing conduct "on behalf of or at the direction of".

The current version of the Best Practices is available for download here.

• The Government of the Czech Republic is now discussing a Draft Act amending Act No. 256/2004 Coll., on Capital Market Undertakings. The Draft transposes Directive (EU) 2024/790, which amends Directive 2014/65/EU on markets in financial instruments (MiFID II), as part of the EU's Capital Markets Union initiative to enhance capital markets investment. It also aligns with Regulation (EU) 2024/791 (MiFIR), which adjusts trading data transparency requirements. Key changes include reducing the obligation to disclose unused pre-trade information in bonds and derivatives, while increasing transparency for shares by consolidating trading data. The Draft also includes technical adjustments, such as removing provisions on trading hour synchronisation and payments for routing orders, which are now covered by the Regulation. It also narrows the definition of systematic internalisers to only cover equity instruments, exempting securities dealers from pre-trade data disclosure obligations for bonds and derivatives. Additionally, the Draft addresses issues exposed by the 2022 energy crisis in commodity derivatives markets by extending information obligations and introducing measures to suspend trading during significant price movements. It also grants the Czech National Bank, as the supervisory authority, the power to suspend trading if the market organiser fails to act during emergencies.

• The Government is discussing in the comment procedure the Draft Decree amending Decree No. 267/2020 Coll., on the reporting of data by the investment fund manager and administrator of an investment fund and a foreign investment fund to the Czech National Bank, which takes into account the reporting requirements for unlicensed asset managers pursuant to Article 15 of the amendment to Act No. 240/2013 Coll., on Investment Companies and Investment Funds, implemented by Act No. 163/2024 Coll. The Draft Decree includes the following changes:
  • the introduction of a national statement for asset managers, specifically the auditor's confirmation of the number of investors;
  • alignment of the interpretation of the ESMA's requirement to submit data in terms of the manager's licence to exceed the applicable limit and the actual state of exceeding the limit.

• The Czech Government is discussing a Draft Decree that amends Decree No. 67/2018 Coll., which outlines requirements for internal policies, procedures and control measures to combat money laundering and terrorist financing. This amendment is a follow-up to a broader Draft Act drafted by the Ministry of Finance, which amends the Czech AML Act. It aligns with the proposed changes in the AML Act and responds to the adoption of EU Regulation 2024/1620, which establishes a new EU anti-money laundering and counter-terrorist financing authority.

• The current Polish regulations on sanctions for free credit make it possible to impose them even for minor formal infringements that do not adversely affect consumer interests. As the President of the Association of Polish Banks points out, such a strict approach violates the principle of proportionality and encourages abuse by compensation channels. Bankers are calling for urgent legislative changes to curb abuses and introduce more balanced rules similar to those applied in other EU countries. Legislative proposals can be expected in the near future.