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EBA Publishes Action Plan on Sustainable Finance

On December 6, the European Banking Authority (EBA) published its action plan on “Sustainable Finance” (the Action Plan), available here.

In March 2018, the European Commission (EC) published its action plan on “Financing Sustainable Growth”, which is available here, in which it requested follow-up work from the three European Supervisory Authorities (ESAs). The EBA is the last ESA to meet the EC’s request: the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) published their technical advisory papers on May 3, which are available here and here respectively. For more information on the ESMA advisory paper, please see the May 10 edition of the Corporate & Financial Weekly Digest.

As part of its action plan, the EC made changes to the regulations from which the ESAs get their powers and, as such, the EBA is required to:

  • EBA Regulation: Develop a monitoring system to assess material Environmental, Social and Governance (ESG) risks; develop common methodologies for assessing the effect of economic scenarios on an institution’s financial position; and

  • Capital Requirements Regulation (CRR 2) and Capital Requirements Directive (CRD 5): Assess the potential inclusion of ESG risks in the Supervisory Review and Evaluation Process (SREP); develop a technical standard for the disclosure of ESG risks; and assess the potential inclusion of ESG risks as a Pillar 1 capital requirement.

The EC has proposed (but is yet to publish) amendments to the Investment Firms Regulation (IRF) and the Investment Firms Directive (IFD). The EC has also proposed a new regulation aimed at integrating ESG considerations into the investment and advisory process.

To this end, the EBA’s Action Plan sets out the timelines and milestones for delivering this work. The EBA has grouped the work into four stages:

  1. Strategy and Risk Management: First discussion paper to be published in Q2/Q3 2020; final report to be published before June 28, 2021;

  2. Key Metrics and Disclosure: EBA to submit technical standards to the EC by June 2020; ESG technical standards to apply from June 2022;

  3. Stress Testing and Scenario Analysis: A climate change stress test may be trialed with a sample of banks in H2 2020; and

  4. Prudential Treatment: First discussion paper to be published from 2022-2024; final report to be published before June 2025.

The three ESAs are also tasked with gathering evidence on the short-term pressures on corporations from capital markets, which could impact the preparation for long-term risks such as climate change. The EBA intends to publish the outcome of this work before the end of 2019.

©2020 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
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Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
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Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
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Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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