Joint Committee

The European Supervisory Authorities (ESAs) published today joint draft Regulatory Technical Standards (RTS) to amend the Delegated Regulation on the risk mitigation techniques for non-cleared OTC derivatives (bilateral margining) as well as a joint statement on the introduction of fallbacks in OTC derivative contracts and the requirement to exchange collateral. Both RTS and the statement were developed to facilitate further international consistency in the implementation of the global framework agreed by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO).

First of all, in view of the clarifications and changes of the global framework made over the past months by the BCBS and IOSCO, the report and related RTS clarify the expectations in relation to the threshold above which initial margin is expected to be exchanged, as well as introduce a further phase-in of one year for the smaller counterparties in scope for the initial margin requirements. Secondly, taking into account the progress made globally towards the implementation of the international framework as well as the risks that the BCBS and IOSCO framework was developed to address, a few amendments have been included in relation to the treatment of physically settled FX forward and swap contracts, intragroup contracts and equity option contracts. Lastly, the statement clarifies the view of the ESAs that amendments made to outstanding uncleared OTC derivative contracts for the sole purpose of introducing such fall-backs should not create new obligations on these legacy contracts.

Legal basis and next steps

The ESAs have developed the RTS under Article 11(15) of Regulation (EU) No 648/2012 of the European Parliament and Council on OTC derivatives, central counterparties and trade repositories (EMIR).

The ESAs have now submitted the draft RTS to the Commission for endorsement in the form of a Commission Delegated Regulation, i.e. a legally binding instrument applicable in all Member States of the European Union. Following the endorsement, they are then subject to non-objection by the European Parliament and the Council.

The ESAs cannot disapply EU law. However, in view of the remaining steps mentioned above that the draft RTS need to go through before being finalised and entering into force, and in light of some of the soon approaching deadlines, with regards to the bilateral margin requirements and the treatment of physically settled FX forward and swap contracts, intragroup contracts, equity option contracts and the implementation of the last phase of the initial margin requirements as proposed in the draft RTS, the ESAs expect competent authorities to apply the EU framework in a risk-based and proportionate manner until the amended RTS enter into force.

Lastly, with regards to the statement in relation to fall-backs, the ESAs believe it useful to ensure legal certainty on this issue, in case or to the extent this is not already provided in some jurisdictions. While, neither the ESAs nor competent authorities possess any formal power to disapply directly applicable EU legal text, the ESAs are in contact with the co-legislators to see how a legislative change could be achieved to ensure this legal certainty.

The European Supervisory Authorities (ESAs) have today issued a Supervisory Statement in order to promote a consistent application by national competent authorities (NCAs) of the scope of the Regulation for packaged retail and insurance-based investment products (PRIIPs Regulation) to bond markets.

The statement responds to uncertainty as to the scope of the PRIIPs Regulation. This uncertainty risks divergent applications by NCAs, with negative consequences for achieving uniform levels of retail investor protection and a level playing field amongst product manufacturers and distributors within the EU. NCAs are recommended to apply the supervisory guidance included in the Statement. The Statement follows an exchange between the ESAs and the European Commission.

The European Supervisory Authorities (ESAs) have today issued a Consultation Paper on amendments to existing rules underpinning the Key Information Document (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs).

The aims of the review are to:

  • Address issues that have been identified by stakeholders and supervisors since the implementation of the KID in 2018;
  • Make specific changes to allow the rules to be applied to investment funds that are expected to have to prepare a KID from 1 January 2022 onwards.

The consultation paper proposes changes relating to the following topic areas:

  • Illustrations of what the retail investor might receive in return from their investment (performance scenarios);
  • Information on what the costs of the investment are;
  • Specific issues for different types of investment funds;
  • Specific issues for PRIIPs offering a range of options for investment (so-called “Multi-Option Products”).

As part of this review, the European Commission, in cooperation with the ESAs, is undertaking a consumer testing exercise to assess the effectiveness of different presentations of performance scenarios. The results are expected in the first quarter of 2020.

When deciding on their final proposals, the ESAs will take into account the feedback from respondents to this consultation, as well as the results of the consumer testing exercise.

The deadline for submission of feedback is 13 January 2020.

The Consultation Paper and template for comments can be accessed via the following webpage.


The KID for PRIIPs is a mandatory, three-page A4 information document to be provided to consumers before purchasing a PRIIP. PRIIPs include, for example, investment funds, structured products and unit-linked and with-profits life insurance contracts.

The PRIIPs Regulation (No 1286/2014) defines the main rules and principles for KIDs. It is supplemented by a Delegated Regulation (2017/653) specifying the presentation and contents of the KID, which is based on Regulatory Technical Standards that the ESAs were mandated to develop.

This Consultation Paper follows a previous ESA consultation on the PRIIPs KID in November 2018 (CP 2018 60). The November 2018 consultation paper proposed more targeted amendments to the PRIIPs Delegated Regulation. Taking into account the feedback to that consultation, in February 2019, the ESAs decided to defer their review and work on more substantive revisions during 2019.

The European Union's (EU) banking, insurance, pensions and securities sectors continue to face a range of risks, the latest report on "Risks and Vulnerabilities in the EU Financial System" published today by the Joint Committee of the European Supervisory Authorities (ESAs) shows.

The 2019 Autumn ESAs' report highlights the following risks as potential sources of instability:

  • Uncertainties around the terms of the United Kingdom's withdrawal from the European Union
  • Persistently low interest rates, which combined with flattening yield curves, put pressure on the profitability and returns of financial institutions, incentivise search-for-yield strategies and increase valuation risks
  • Transition to a more sustainable economy and environmental, social and governance (ESG) related risks, leading to possible challenges to the viability of business models with high exposures to climate sensitive sectors.

In light of the ongoing uncertainties, especially those around Brexit, supervisory vigilance and cooperation across all sectors remains key. Therefore, the ESAs call for the following policy actions by European and national competent authorities (NCAs) as well as financial institutions:

·       Contingency planning: Financial institutions and supervisors should continue their work on contingency planning and assurance of business continuity in the case of a no-deal Brexit. Considering the variety of measures undertaken by the ESAs and national supervisory authorities and other competent authorities, the EU financial sector should be well informed and prepared to manage risks from a micro-perspective. The ESA’s will also continue to closely monitor ongoing political and market developments and consider the need for further communications on that basis.

·       “Low-for-long” scenario: Supervisors and financial institutions should continue taking into account a “low-for-long” interest rate scenario and associated risks. Low interest rates are an important driver of low bank profitability and remain the main risk for the insurance and pension fund sectors. They contribute to the further build-up of valuation risks in securities markets as well as to a move into less liquid and more leveraged investments through search-for-yield strategies. On the investment fund side, a convergent application of the rules on liquidity management and (for UCITS) eligible assets as well as a consistent use of stress testing will be important supervisory tools.

·       Bank profitability: There is a need to further address unprofitable banks and their business models in order to increase the resilience of institutions to a more challenging economic environment. Further investments into financial technologies and exploring opportunities for bank sector consolidation are among responses to low profitability. Transparency and the consistent application of common prudential requirements and supervisory rules across jurisdictions are preconditions, which could contribute to the use of opportunities cross border consolidation, may offer.

·       Leveraged lending market: Risks related to the leveraged loan market and Collateralized Loan Obligations (CLOs) in the financial sector should be further explored and identified. There is a lack of clarity about the total volume of leveraged loans outstanding and about the ultimate holders of risks of many CLO tranches. Supervisors have raised concerns about a possible underpricing of risks.

·       Sustainable finance and ESG risks: Supervisory authorities and financial institutions should continue their work on identifying exposures to climate related risks and facilitate access of investors to sustainable assets. Scenario analysis and stress testing are important tools that can be implemented by supervisors with a goal to incorporate sustainability considerations into risk assessment. Financial institutions should incorporate climate risk and other ESG factors into their risk management framework and should play a stewardship role by taking into account the impact of their activities on ESG factors. Going forward, the ESAs should take a proactive stance in fulfilling mandates on sustainable finance, including on how ESG considerations can be incorporated into the regulatory and supervisory framework of EU financial institutions.



The Joint Committee is the forum for cooperation between the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA), collectively known as the European Supervisory Authorities (ESAs).

Through the Joint Committee, the three ESAs cooperate regularly and closely to ensure consistency in their practices. In particular, the Joint Committee works in the areas of supervision of financial conglomerates, accounting and auditing, micro-prudential analyses of cross-sectoral developments, risks and vulnerabilities for financial stability, retail investment products and measures combating money laundering. In addition, the Joint Committee also plays an important role in the exchange of information with the European Systemic Risk Board (ESRB).