Banking Package

CRD6 and CRR3 Text

The final texts of the Capital Requirements Regulation 3 (the ‘CRR3’) and the Capital Requirements Directive 6 (the ‘CRD6’) were published in the EU Official Journal on 19 June 2024. With the publication of the banking package, the final Basel 3 reforms are implemented in the European Union (EU).

The CRR3 entered into force on 9 July 2024 and will largely apply directly in all EU Member States from 1 January 2025, with the exception of specific amendments, which already apply as of 9 July 2024. These exceptions mainly concern the update of definitions or the establishment of mandates for the European Banking Authority (the ‘EBA’) to develop Level 2 and 3 legislation. Institutions are expected to comply with the new legal requirements as of the application date.

The CRD6 also entered into force on 9 July 2024, but as a Directive the changes will need to be transposed into national law in each Member State before they become applicable. The Authority has eighteen (18) months to implement the CRD6 into Maltese legislation. The provisions of the CRD6 must largely be applied from 11 January 2026, with a few exceptions related to the third-country branches framework which shall apply as from 11 January 2027.

EBA Mandates

The EBA has already initiated its work on several mandates within the banking package, as outlined in the EBA roadmap on strengthening the prudential framework.

• Update of the Pillar 3 Disclosure Framework and the Supervisory Reporting Framework

 In June 2024 the EBA published the final draft Implementing Technical Standards on Public Disclosures by institutions that implement the changes in the Pillar 3 disclosure framework introduced by the CRR3. These technical standards will ensure that market participants have sufficient information to assess the risk profiles of institutions and understand compliance with CRR3 requirements, thereby promoting market discipline.

Subsequently, in July 2024 the EBA published the final draft Implementing Technical Standards on Supervisory Reporting by institutions which implement new and amended reporting requirements as introduced by CRR3. These technical standards are essential for supervisors to monitor the institutions’ compliance with the new CRR3 requirements and for ensuring strengthened and harmonised supervision across the EU.

These products are key milestones in the implementation of the latest Basel III reforms as laid down in the banking package and constitute the first Pillar 3 and Supervisory Reporting deliverables included in the EBA Roadmap on strengthening the prudential framework, respectively. The alignment of the reporting and disclosure requirements with the Basel III framework, and their integration will promote comparability and consistency of the information. These ITS implement the CRR3 prudential disclosures by including new requirements on:

• Output floor,
• Credit risk,
• Market risk,
• CVA risk,
• Operational risk,
• Leverage risk, and
• Exposures to crypto-assets.

The two ITS are designed to repeal Commission Implementing Regulation (EU) 2021/637 and Commission Implementing Regulation (EU) 2021/451 aiming at making the technical standards more user-friendly for institutions.

• Amendments to Credit Risk Standards

The EBA published on 24 June 2024 its final draft amending Regulatory Technical Standards on the standardised approach for counterparty credit risk (SA-CCR). The CRR3 expanded the EBA mandate to specify the formula to calculate the supervisory delta of options under the SA-CCR framework. The mandate also requires the specification of the supervisory delta formula for commodity options compatible with negative commodity prices. In this regard, the existing RTS on SA-CCR have been amended to include the formula for commodity options.

The Authority encourages credit institutions to keep abreast of such developments and to participate in public consultations that are published from time to time on the EBA website.

FRTB Framework

On 18 June 2024 the EU Commission announced that it intends to make use of the provision under Article 461a of the CRR, as amended by CRR3, and postpone the entry into force of the market risk (FRTB) framework by one year. The corresponding Commission Delegated Act has been adopted by the European Commission on 24 July 2024, and will enter into force upon its publication in the EU Official Journal. Through this Delegated Act, the FRTB standards shall apply as from 1 January 2026.

Following such developments, the EBA published on 12 August 2024 a no-action letter whereby it recommends to competent authorities not to prioritise any supervisory or enforcement action in relation to the amendments to the CRR3 provisions setting the boundary between the banking and trading books, or those provisions defining internal risk transfers between books.

The EBA also published some considerations on a set of technical questions and implementation issues arising from the postponement of the FRTB framework.

MFSA Work and Progress

The Authority is currently progressing on the transposition of the CRD6 into local legislation, and on the assessment of the options and national discretions present in both texts. Several legislative instruments, including the Banking Act, as well as various Subsidiary Legislation and Banking Rules will be updated as part of the transposition process. Detailed communication to stakeholders is planned as part of a public consultation that the Authority plans to embark on during 2025.

Meanwhile, on 5 June 2024, the Authority issued a Dear CEO letter accompanied by an industry-wide survey for local credit institutions.  The main aim of this survey is to gauge the preparedness of credit institutions to the upcoming changes in CRR3.  The survey is made up of qualitative and quantitative components and will require institutions to assess their eventual status following selected changes that are being brought about by this legislative text.  Overall, the qualitative part seeks to understand the envisaged shifts in the governance frameworks, strategy, risk management, IT infrastructure and training for specified areas.  On the other hand, the quantitative part delves deeper and requires the provision of more granular data in relation to credit risk, operational risk, market risk, leverage and securitisation. The Authority shall carry the necessary evaluation and follow up through bilateral discussions with credit institutions.

Credit Servicers Directive

Directive (EU) 2021/2167, commonly also referred to as the ‘NPL Directive’, has been transposed into local legislation through the publication of the following legal instruments as outlined in a circular published on the MFSA website:

• Credit Servicers and Credit Purchasers Act (Act No. XXXII of 2024) (the ‘Act’),
• Credit Servicers and Credit Purchasers Act (Passporting) Regulations (L.N. 172 of 2024), and
• Conduct of Business Rules on Credit Servicing and Borrower Protection.

Furthermore, the Credit Servicers framework has been complemented with the following legal instruments:

• Credit Servicers and Credit Purchasers Act (Fees) Regulations (L.N. 173 of 2024), and
• Credit Servicers Rule CSR/01 on Application Procedures and Requirements for the Authorisation of Credit Servicers.

The Act, including the Regulations and Rules issued under the Act, are accessible from the dedicated space on the MFSA website.

Instant Payments

On 19 March 2024, Regulation (EU) 2024/886 was published in the EU Official Journal laying down the legal framework for instant credit transfers to become operational.  In general, payment service providers that are located in a Member State whose currency is the Euro shall offer their clients the payment service of receiving instant credit transfers in Euro by 9 January 2025, and the payment service of sending instant credit transfers in Euro by 9 October 2025.  Such transactions need to be carried out within a ten second timeframe and the underlying charges must not be higher than those that apply to normal credit transfers. Credit institutions should ascertain that they adhere to the obligations laid down in the Regulation and that their internal systems and processes are capable of providing such services within the established timelines.

The EU Commission held two workshops during the second quarter of this year to provide clarifications on a number of queries that had been collected from stakeholders in advance. These clarifications have been put together in a document aiming to ensure a consistent implementation across the bloc.

Updates to Banking Rules

On 27 May 2024 the Authority published an amended Banking Rule BR/07 on the Publication of Annual Report and Audited Financial Statements of Credit Institutions authorised under the Banking Act. The Rule, which was first published in November 2014, has been amended to ensure that all the requirements and references to EU and local legislation within the Rule are still relevant and up-to-date.

An updated Banking Rule BR/18 on the Risk-Based Method and the Compensation Contribution Method under the Depositor Compensation Scheme Regulations (S.L. 371.09) was published on 3 June 2024. The Rule, which was first published in 2016, has been amended to implement the EBA’s revised Guidelines on methods for calculating contributions to deposit guarantee schemes (DGS) under Directive 2014/49/EU, repealing and replacing Guidelines EBA/GL/2015/10 (EBA/GL/2023/02).

Circulars issued and published by the MFSA

A number of MFSA Circulars applicable to credit institutions were published during the course of the year in the dedicated MFSA webpage. Institutions are expected to keep note of and address any MFSA Circulars and publications applicable to them.