In this issue we provide an overview of recent regulatory updates, including the new German Council Presidency and developments covering green taxonomy, payment moratoria, consumer redress, GDPR and AML.
Germany took over the European Council’s rotating presidency at the start of this month. The presidency’s key priority is what the German transport ministry has labelled their “New Mobility Approach”, which is a direct response to the European Green Deal as well as the ongoing COVID-19 pandemic. It encompasses three issues, climate change mitigation, mobility, and the digital transformation, and the presidency hopes their work in this area will feed into the European Council’s upcoming Strategy for Sustainable and Smart Mobility. In the context of climate change mitigation, a key priority for this presidency is the use of hydrogen as a means to boost decarbonisation, in line with Germany’s national hydrogen strategy. The transport minister has also called for EU-wide deployment of electric charging infrastructure, and the presidency hopes to begin discussions on the Alternative Fuels Infrastructure Directive (AFID) due to be revised in 2021. In the context of the digital transformation, Germany will also aim to promote the shared use of data within the transport sector. You can find more information on the German Presidency’s programme here.
The European Parliament adopted a new taxonomy regulation which sets out six environmental objectives and states that an activity can be considered environmentally sustainable if it contributes to any of them without significantly harming any of the others. The objectives are: (i) Climate Change Mitigation, (ii) Climate Change Adaptation, (iii) Sustainable Use and Protection of Water and Marine Resources, (iv) Transition to a Circular Economy, (v) Pollution Prevention and Control and (vi) Protection and Restoration of Biodiversity. The legislation also includes a clear mandate for the European Commission to start defining environmentally harmful activities. Activities that are incompatible with climate neutrality but considered necessary in the transition to a climate-neutral economy are labelled transition or enabling activities, which must have greenhouse gas emissions levels corresponding to the best performance in the sector. Although leasing and automotive rental services are not explicitly recognised within the taxonomy framework, Leaseurope will seek to ensure the benefits offered by our sector in supporting industries which do provide green, transition or enabling activities is recognised.
The European Commission has recently announced, within the EU Recovery Plan, their proposal to grow the Just Transition Fund (JTF) up to €40 billion, more than five times the initial €7.5 billion put forward. The EU executive did not specify how this amount will be split between countries but in its previous proposal it prioritised regions whose economies and jobs depend on polluting industries. Based on this, Poland was set to get the largest slice of the fund at €2 billion, followed by Germany with €877 million, due to carbon-heavy businesses, especially coal.
After receiving hundreds of amendments, the Just Transition Fund draft report was voted on by the REGIO Committee on 6 July. It supports that projects receiving this funding be considered “sustainable” according to the EU Taxonomy Regulation and in line with the do no significant harm principle. On 29 June, the Just Transition Platform (JTP) was launched to help Member States draw up their territorial just transition plans and access funding.
The European Commission published the EU hydrogen strategy on 8 July, which aims to promote “green” hydrogen produced from renewable electricity over “grey” hydrogen obtained from natural gas steam reforming. The Commission is also launching a “Clean Hydrogen Alliance” to build up a robust pipeline of investments. The priority for the EU is to develop renewable hydrogen, produced using mainly wind and solar energy in line with the EU’s climate neutrality and zero pollution goal in the long term. The hydrogen ecosystem in Europe is envisioned to develop gradually, with a final phase from 2030 onwards.
In the strategy, industrial applications and mobility are mentioned as two main lead markets where hydrogen use can be gradually developed cost-effectively. In transport, hydrogen is seen as a promising option where electrification is more difficult and hydrogen infrastructure should be accessible to all on a non-discriminatory basis. The Commission expects that support schemes are likely to be required for some time to achieve this, subject to compliance with competition rules. You can read more here.
The European Parliament and Council have recently reached an agreement on the collective redress proposal, part of the New Deal for Consumers package, which would allow customers to bring a joint action in cases where numerous customers have been impacted by a company or organisation’s conduct. The agreement makes a number of notable changes to the proposal, taking into account many of the concerns highlighted by industries since the proposal was issued a few years ago. This includes introducing more stringent criteria on which entities can be regarded as a “Qualified Representative Entities” and are therefore able to bring a case on behalf of consumers. The updated version of the proposal also introduces the “loser pays principle”, in an attempt to discourage unfounded/unnecessary litigation. The proposal still needs to be voted on at a full European Parliament plenary session.
The European Banking Authority (EBA) has decided to extend the application date of its Guidelines on legislative and non-legislative moratoria to 30 September 2020. With many EU economies not yet fully opened, this extension demonstrates the importance of continued support for the measures taken by banks to extend loans in response to the extraordinary nature of the current situation. This extension would ensure that adequate treatment for borrowers is available across the EU, especially in light of the differences amongst Member States on the impact of the COVID-19 crisis.
The European Commission has published its first evaluation report on the functioning of the General Data Protection Regulation (GDPR). It assesses to what extent the GDPR has achieved its aims and how it may be improved in the future, finding that the objectives have broadly been met, although some issues remain surrounding enforcement and consistent application across the EU. The Commission also notes that it is too early to draw definitive conclusions on the impact of GDPR, and they believe many of the problems identified by member states and relevant stakeholders will improve following further application. You can find the final report here.
The Basel Committee has recently updated their Guidelines on Cooperation and Information Exchange among Prudential and AML/CFT Supervisors for Banks. Notably, these guidelines include a new section on the interaction and cooperation between prudential and AML/CFT supervisors, with principles, recommendations, and examples that aim to improve cooperation between these supervisors on a range of issues including authorisation procedures and ongoing supervision.
We are pleased to announce the launch of the new Leaseurope website at www.leaseurope.org. We trust that this new design will modernise communications with our members, the industry in general and the wider public on the work of Leaseurope.
The website has not only changed in appearance but also in content, including a significant amount of new material and a simplified navigation, with many user-friendly features. One significant new feature developed is a dedicated Member Area which provides access to Leaseurope documents as well as being a meeting management system. You can find a press release on the launch here.
On 29 June, Leaseurope participated in the second virtual high-level roundtable on relief measures for consumers and businesses in light of the COVID-19 pandemic, organised by Commissioner Dombrovskis. The roundtable once again brought together representatives from the financial services industry, business and consumer organisations, as well as representatives of the European Supervisory Authorities. The European Commission put forward a proposal for a ‘best practice’ document in relation to consumer and business relief measures, which addressed a variety of measures our industry engages in to support overall economic recovery. Following several rounds of negotiations, the federations representing the financial services industries at European level, including Leaseurope, have agreed to endorse these best practices. Leaseurope will keep members informed regarding the final document and next steps of the European Commission.
Following our meeting a few weeks ago with the Cabinets of European Commission Executive Vice-President Valdis Dombrovskis and Transport Commissioner Adina-Ioana Vălean, we produced a Q&A document to answer a number of questions raised by the European Commission experts on our proposals to provide leasing with lower capital requirements in the upcoming CRR III. The feedback we received form the Cabinets was very positive, as it helped them to better understand our position.
The Q&A includes results of the prudential questionnaire we distributed recently, confirming that more than 80% of leasing in Europe (both operational and financial) is regulated under the CRR directly or indirectly through parent company’s consolidated reporting. The questionnaire also shows that around 60% of leasing portfolios are using the Standardised Approach (SA) and around 40% are on internal models (A-IRB and F-IRB) when calculating their capital requirements. We encourage you to use the Q&A to support your engagement with national ministries and central banks on the topic.
DG FISMA Director General John Berrigan responded to our letter acknowledging the remaining regulatory barriers for the development of European high quality securitisation markets. He emphasized that securitisation is an important source of finance and expressed that European securitisation, with its sound regulatory framework, will play a constructive role in funding the post-crisis recovery and helping banks free up capital through providing sustainable funding to the economy.
The European Commission is currently assessing some measures that could contribute to achieving this objective more effectively in the short term, including initiatives to enhance the legal framework for on-balance sheet securitisations and to remove existing regulatory constraints to securitisation of NPLs.
The European Commission confirmed it will start working on a comprehensive review of the securitisation framework in early 2021, considering all the remaining issues raised by Leaseurope. This includes the capital treatment under CRR and the liquidity treatment under LCR of securitisation exposures, which currently is very punitive compared to the low risk of STS securitisations. In addition, technical work is ongoing at the EBA regarding the recognition of Significant Risk Transfer, which is being following closely by DG FISMA.
Leaseurope regulatory recommendations to boost European securitisation markets have been included in the final report on the EU's Capital Markets Union by the High-Level Forum on CMU. From page 52 to 65, the report discusses 7 main regulatory obstacles for the development of a robust European securitisation market, from the perspective of both issuers and investors. Those issues, as highlighted previously by Leaseurope, include unlocking the Significant Risk Transfer Assessment process, recalibrating capital charges applied to senior tranches in line with their low risk profile, recalibrating capital treatment for securitisation tranches under Solvency II, promoting SME financing via securitisation, applying equivalent treatment to cash and synthetic securitisations of all asset classes, upgrading eligibility of senior STS and non-STS tranches in the LCR ratio and differentiating between disclosure and due diligence requirements for public and private securitisations.
Leaseurope has responded to the European Commission’s consultation on the digital finance strategy, which aims to make the regulation applicable to the European financial industry better equipped to deal with digitalisation developments. In our response, we noted that the regulatory framework needs to be technology neutral and innovation friendly. We also stressed that the framework should be future proof, which can be achieved by creating a framework of general principles as opposed to specific provisions based on today’s technology. We also highlighted the benefits of AI and provided examples of how this technology is used by the leasing industry, based on input provided by members of our AI Task Force.
The Tourism Manifesto, of which Leaseurope is a member, has called for a 12 month delay in the application of strong customer authentication (SCA) requirements obliging customers to provide two forms of authentication when carrying out an online payment. A press release on the topic highlights the problems the current deadline of 31 December 2020 would impose on the tourism industry as many costly adaptations are required at a time when the sector is already facing significant problems as a result of the Covid-19 pandemic, including liquidity shortages.