Regulatory Products Published by the European Banking Authority under the Banking Package

Based on the mandates within the Banking Package, as outlined in the EBA roadmap on strengthening the prudential framework, the EBA has published the following final draft technical standards:

• On 13 August 2024, the final amendments to the regulatory technical standards (RTS) on the FRTB. The revisions mostly aim to align these RTS with the CRR3 and ensure stability in the applicable regulatory framework. The CRR3 introduced a number of changes to the FRTB and included mandates for the EBA to amend existing RTS for them to fit with the new Level 1 text.
• On 6 December 2024, the RTS on the method for identifying the main risk drivers and determining whether a transaction represents a long or a short position. The proposed general method to identify the main risk drivers hinges on sensitivities defined under the market risk standardised approach (FRTB-SA) or on add-ons defined under the standardised approach for counterparty credit risk (SA-CCR). For the determination of the direction of the positions, the methodology is aligned with the one set out in the RTS on SA-CCR. A simplified method has also been included, covering relatively simple instruments, such as fixed-rate bonds, floating-rate notes, stocks, forwards, futures, simple swaps and plain vanilla options.
• On 17 December 2024, the RTS on the conditions for determining whether an instrument attracting residual risk acts as a hedge. One of the pillars of the standardised approach/sensitivity-based method (SA/SbM) under the FRTB framework is the residual risk add-on (RRAO). The EU Banking Package introduces a provision in the RRAO framework allowing the exemption from the RRAO charge for those instruments bearing residual risks that are, in turn, used to hedge instruments bearing residual risks. These RTS specify when an instrument qualifies as a hedge for the purpose of the exemption and when not.
• On 12 February 2025, the implementing technical standards (ITS) on the Pillar 3 Data Hub (P3DH) for large and other institutions, which will centralise prudential disclosures by institutions through a single electronic access point on the EBA Website. The ITS includes the IT solutions to be used, the data exchange formats to be considered and the technical validations to be performed by the EBA. The EBA will provide additional detailed information to the submitters of Pillar 3 information in the onboarding communication plan it expects to publish by the end of the first quarter of 2025. These ITS shall apply from 30 June 2025, the first disclosure reference date on the P3DH.

While the above technical standards still need to be published in the Official Journal of the EU, credit institutions are expected to take note of these developments and start preparing for the implementation of these new and/or updated requirements.

Furthermore, on 9 January 2025 the EBA published its final Guidelines on the Management of Environmental, Social, and Governance (ESG) Risks. These Guidelines outline requirements for institutions to identify, measure, manage, and monitor ESG risks, including through strategic plans to ensure resilience over the short, medium, and long term.

The Guidelines define the internal processes and ESG risk management frameworks institutions must establish in accordance with the CRD6. They aim to enhance the safety and soundness of institutions as ESG risks continue to grow, thereby supporting the EU’s transition to a sustainable economy. The Guidelines also detail the content of plans institutions must prepare to monitor and address financial risks stemming from ESG factors, particularly those linked to the transition toward achieving the EU’s climate neutrality objective by 2050. These plans must align with transition plans disclosed under other EU legislation to ensure a consistent approach.

The Guidelines apply from 11 January 2026, while small and non-complex institutions are required to comply by 11 January 2027. The Authority intends to implement the Guidelines into banking rules, however credit institutions are expected to make the necessary plans and amend their internal processes and risk management framework to ensure compliance by the stated application date.

Credit institutions are encouraged to continuously follow developments at EBA level and participate in public consultations to provide their views and stances on upcoming regulation.

EBA’s 2025 Work Programme

On 2 October 2024 the EBA published its work programme for 2025 outlining the key priorities and initiatives for the year. The main priorities are as follows:

• implementing the EU Banking Package and enhancing the Single Rulebook,
• enhancing risk- based and forward-looking financial stability for a sustainable economy,
• enhancing data infrastructure and launching a data portal,
• starting oversight and supervisory activities under DORA and MiCAR, and
• developing consumer-oriented mandates and ensuring a smooth transition to the new anti-money laundering and countering the financing of terrorism (AML/CFT) framework.

Sustainable Finance

Report on Disclosures of Principal Adverse Impacts under SFDR

The European Supervisory Authorities - comprising of the EBA, the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) published, on 30 October 2024, their third annual Report on disclosures of principal adverse impacts (PAI) under the Sustainable Finance Disclosure Regulation (SFDR). The Report aims to assess the PAI disclosures under SFDR at both entity and product-level. Such disclosures intend to show the negative impact of financial institutions’ investments on the environment and people, as well as the actions taken by credit institutions, investment firms, and financial institutions to mitigate them.

The findings of the Report indicate that financial institutions have improved the accessibility of their PAI disclosures, and positive progress was evident regarding the quality of the information disclosed by financial products, and, in general, in the quality of the PAI statements. Some national competent authorities also reported slight improvements in the compliance with SFDR disclosures in their national markets. The Report also includes recommendations to competent authorities to ensure convergent supervision of practices and to the European Commission for their comprehensive assessment on the SFDR.

Regulation on ESG Rating Activities

On 19 November 2024, the European Council adopted a new Regulation on ESG rating activities. The objective of the new rules is to ensure that ESG rating activities within the EU are more consistent, transparent, and comparable, ultimately boosting investor confidence in sustainable financial products.

ESG ratings offer an assessment of a company’s or financial instrument’s sustainability profile by evaluating its impact on society and the environment, as well as its exposure to sustainability-related risks. Given the growing influence of ESG ratings on capital markets and investor trust, the new Regulation aims to improve the reliability and comparability of these ratings. Specifically:

• ESG rating providers established within the EU will be required to obtain authorisation and will be subject to supervision by the European Securities and Markets Authority (ESMA);
• Providers must comply with strict transparency requirements, including the disclosure of methodologies, models, and assumptions used in determining ratings;
• Non-EU ESG rating providers wishing to operate within the EU will be required to secure an endorsement from an EU-authorised ESG rating provider;
• The Regulation introduces mandatory separation of business activities to prevent conflicts of interest.

The Regulation will become applicable 18 months after its entry into force, providing stakeholders time to adapt to the new framework.

European Commission Notice on Disclosures Delegated Act

The Third Commission Notice on the interpretation of the legal provisions of the Disclosures Delegated Act under the EU Taxonomy Regulation was published on November 8, 2024. The purpose of the Notice is to provide further interpretative and implementation guidance to financial undertakings in the form of replies to frequently asked questions (FAQs) on the reporting of their key performance indicators (KPIs) under the Disclosures Delegated Act. The notice aims to promote clarity and consistency across financial and non-financial reporting entities, enabling better alignment with the EU’s sustainability goals.

EBA Report on ESG-Related Data

The EBA published, on 24 February 2025, a Report examining the availability and accessibility of data on ESG risks, as well as the feasibility of establishing a standardised approach to identifying and assessing credit exposures to these risks. The findings indicate that, while data availability has improved in recent years, gaps remain. Key regulatory initiatives, such as the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), along with increased transparency in ESG scoring methodologies and credit risk ratings by External Credit Assessment Institutions (ECAIs), are expected to strengthen the ESG data landscape and help address existing challenges.

The Report also highlights that credit institutions are increasingly assessing ESG risks, though progress varies across exposure types. Data availability, quality, and granularity remain key challenges, particularly for developing advanced methodologies. Some standardisation is emerging in corporate portfolios and mortgage exposures, mainly through sector classifications, emissions data, and property energy efficiency. However, methodologies for other exposure classes are still evolving, with environmental risks beyond climate, as well as social and governance risks, largely assessed qualitatively. While some institutions consider ESG factors in credit risk assessment, standardisation remains limited. Given the current data landscape, the EBA notes that a phased approach would likely be needed for the development of any standardised methodology.

Credit Risk

On 11 December 2024, the Basel Committee for Banking Supervision issued the final Guidelines for counterparty credit risk (CCR) management. These Guidelines will replace the Committee’s “Sound Practices for banks’ interactions with highly leveraged institutions” that were published in January 1999. The recent Guidelines bring about key practices that aim to resolve long-standing industry weaknesses in CCR management, including the need to conduct a comprehensive due diligence of counterparties as well as credit risk mitigation strategy, to measure, control and limit CCR using a wide variety of complementary metrics, and to build a strong CCR governance framework.

These Guidelines are a supervisory response to the shortcomings identified in credit institutions’ management of CCR and follow comments from stakeholders as part of the public consultation carried out in April 2024. The Guidelines are designed to be broadly applicable and shall be applied on a proportionate basis. The greatest potential benefits in terms of improvements in CCR management are expected to be in cases where credit institutions have high-risk exposures to non-bank financial intermediary (NBFI) counterparties.

Interest Rate Risk in the Banking Book

The EBA published, on 6 February 2025, a Report on the short to medium term objectives of its interest rate risk in the banking book (IRRBB) Heatmap, including observations and recommendations to institutions and supervisors. The Report addresses the main areas of scrutiny identified by the short to medium term objectives of the Heatmap following the EBA scrutiny on the IRRBB as published in January 2024. It also provides tools to support the assessment of IRRBB risks, without setting any new requirements or thresholds, with the aim of fostering a common understanding of IRRBB risks.

The key areas of focus of the Report include:

• Non-maturity deposits (NMD) behavioural assumptions,
• a non-exhaustive set of complementary dimensions that supervisors could consider for institutions identified as outliers under the supervisory outliers test (SOT) on net interest income (NII),
• commercial margins of NMD in the SOT on NII in the context of the constant balance sheet assumption, and
• hedging strategies, including a recommendation on the role of interest rate derivatives for prudent IRRBB management and specifying that the repricing modelling of NMD (and its role natural hedging) should be based on the specific features of NMD.