A single banking regulation : the principle of proportionality should not mean derogation.
The Single Rulebook aims to provide a single set of harmonised prudential rules which institutions throughout the EU must respect. Its virtue is the harmonisation of the identification, the measurement and the monitoring of the risk. To achieve this goal, these standards may apply in all juridictions even though financial sectors is composed of a variety of actors, providing a wide range of products and services.
Thus, the principle of proportionality is not a synonym of derogatory regime or the promotion of fragmented rules, related to the same field, at national and regional level. The proportionality is primarily the assurance that banking prudential requirements are properly calibrated to the nature, the size and the complexity of inherent risks in the activity of an institution, to avoid the « too specific / small to comply ».
To respond to the diversity of the issues encountered, the principle of proportionality aims to adapt banking regulation to the size and the incurred risks by different actors. In order to take advantage of this principle, various criteria may be assessed. These criteria focus on nature of business, business scope and complexity, the size of the institution in terms of outstanding amounts, production, number of employees, capital allocation,…Many features have been taken into account in banking regulation : the adapted regulatory framework applicable to e-money institutions, the French status for credit and lending business – financing companies, SSM supervisory practices proportional to the size, systemic importance, nature, scale and complexity of the activities…
As the EC programme REFIT (Regulatory Fitness and Performance Programme), several ideas are under studies by the authorities to identify adequate adaptation rules following :
- the costs of non-proportionality (compliance costs, IT costs associated with more demanding reporting standards, regulatory agency costs, costs related to customer products and services,…) compared to the benefits ;
- the business model differentiation ;
- the inclusion of size or threshold effect ;
- the exceptions / waivers.
Application scopes are the adjustment of several compulsory ratios (LCR, NSFR, leverage,…), capital adequacy, requirements for recovery and resolution plans,…
In the finalisation of the Single Rulebook, there will not be a complete overhaul of the banking regulation but rather greater precisions and modulated requirements.
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We will give you an overview of the main implementation challenges ahead and will be an operationnal partner in compliance works.