BPCE - 2019 Universal Registration Document

6

RISK REPORT

KEY FIGURES

6.1.2

Regulatory changes

BPCE considers CRR3/CRD6 (transposition of Basel IV) and EDIS to be the priorities for 2020. Meanwhile, in France, the findings of the Financial Sector Assessment Process (FSAP) commissioned by the IMF revived the debate on macro-prudential risks and the overheated real estate market, amid persistently low interest rates and the ongoing quest for bank profitability.

Multiple regulatory developments took place in 2019, along with the announcement of yet another very busy timetable for the next few months on both the European and international front. International developments: The Basel Committee for Banking Supervision (BCBS) has begun working to recalibrate the prudential framework on CVA risk, while continuing the Regulatory Consistency Assessment Program (RCAP) aimed at evaluating the transposition of the Basel III reform, both in terms of content and timetable. The “Finalization of Basel III” involves the revision of methods used to measure credit risk, CVA risk and operational risk, as well as the application of an RWA floor. The finalization was published in December 2017 and calls for all reforms, including the FRTB, to take effect in 2022. The Financial Stability Board (FSB) is assessing the impact of the reforms: after issuing reports on the OTC derivatives market and infrastructure financing (11/2018), the FSB recently published a report on SME financing (11/2019) and is planning to conduct another consultation on “too-big-to-fail” risk (6/2020). The FSB is also fostering discussion on the fragmentation of the financial market, particularly in the 06/2019 report (updated in 10/2019) examining whether it would be appropriate to differentiate the implementation of the reform by jurisdiction and ring-fencing measures. European developments: Once the Risk Reduction Measures (RRM) package was finalized, CRR 2, CRD 5, BRRD 2 and SRMR 2 entered into force in 06/2019, and the deployment of Level 2 (calls for advice and other requests for reports and guidelines) was launched by the European Banking Authority (EBA), which incidentally moved to Paris La Défense in 06/2019. The work plan spans several years, prioritizing in particular the implementation of the standardized approach for measuring credit and counterparty risk (SA-CCR) and the reform of the Fundamental Review of the Trading Book (FRTB) for market risk. Another important development is the review of the European Deposit Insurance Scheme (EDIS), which is central to the compromise between “host” and “home” countries on the revision of the Capital Requirements Regulation (CRR) and was taken up by a dedicated working group on the Council in order to present a roadmap at the ECOFIN meeting of 12/2019. Fast-track developments include a reinsurance project in the short term, aimed at promoting cross-border mergers and protecting depositors in countries dependent on banks based in another European Union Member State.

RISK REDUCTION MEASURES (“BANKING PACKAGE”)

The final versions of CRR 2, CRD 5, BRRD 2 and SRMR were published in the EUOJ on June 7, 2019, confirming the following points as expected by the banking industry at large and BPCE in particular: the Danish compromise was upheld as-is (pertaining to the weighing of bank investments in insurance companies), fairness was introduced in terms of subordination requirements (re: Resolution) between the 37 Top Tier Banks and GSIBs, the FRTB was introduced while being initially limited to the reporting requirement only, and repo/trade finance/factoring activities will be subject to more favorable treatment with respect to the NSFR. A compromise was reached regarding leverage ratio window dressing, calling for the calculation of the leverage ratio to remain unchanged, with banks “simply” required to submit additional reports (on average daily) on securities financing transactions (SFTs) and derivatives to supervisors (2019 program). TRANSPOSITION OF BASEL IV The EBA answered the sections of the European Commission’s May 2018 Call for Advice on credit risk, operational risk, the output floor and treatment of securities financing transactions. The EBA will subsequently be answering the sections of the August 2019 Call for Advice on CVA risk and treatment of specialized lending transactions. The application of the output floor (at the consolidated or individual level) is shaping up to be a hot-button issue, given the ongoing controversy surrounding the treatment of cross-border banking groups and the opposition between “home” and “host” EU Member States.

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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