Monday, March 4

European Union revises the level of control over the branches of foreign banks

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Controls over branches of foreign banks in the EU will be strengthened

The European Union has decided to tighten control over the branches of foreign banks. While the new law is under consideration, experts are studying the feasibility of stricter rules. In addition, the EU notes the possibility of turning foreign financial institutions into subsidiaries.
This issue was raised by the EU government against the background of the Basel III rules, which regulate the banking sector and provide their recommendations on how the sector should be supervised. The law pays serious attention to control over bank capital. Under Basel III, regulatory standards have been revised to help regulate liquidity.
The rules are designed to meet international requirements, but they have specifics of the processes in banking adopted in the EU. The authors of Basel III note that all recommendations set forth in the document should foster cooperation and mutual assistance between services that supervise banking activities. Both large financial institutions and small branches are in need of control. First of all it concerns questions of bank capital formation and liquidity of branches, which belong to foreign financial institutions.

Control over the branches of foreign banks

At the moment, the regulators have announced a thorough analysis of the work of representative offices of foreign banks. Based on the information received, the authorities will decide how effective the process of transferring such branches to the status of subsidiaries will be. If the activities of representative offices of foreign banks operating in the EU are designated as risky and with large volumes, then the financial regulators have every right to demand the transformation of branches into full-fledged subsidiaries. Such an option is quite possible, and it all depends on the decision of financial regulators.
Basel III was approved in 2011, and it includes guidelines for better regulation in the banking industry. This revision is the third, it was adopted after the financial crisis of the 2000s. At that time, the shortcomings of the system and rules of control became apparent, especially in issues of bank capital. Basel III strengthens the rules in the risk management sector, which generally reflects positively on the functioning of the entire financial system.
Initially, central banks were to transition to the new regulatory standards during 2012-2019, with a full transition scheduled for 2020. But the pandemic had made its adjustments, and the Basel Council decided to move the deadline to 2023.
At the same time, a number of central banks, including Russia, believe that it is quite realistic to introduce standards before the specified period. The point is that the new rules allow for more effective risk assessment for financial institutions, which is extremely important for stimulating markets after the pandemic.

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