European Supervisory Authorities Highlight Cross-Sectoral Collaboration in 2023 Annual Report

In an era marked by geopolitical tensions, technological disruptions, and an increasing focus on sustainable finance, the Joint Committee of the European Supervisory Authorities (ESAs) has released its 2023 Annual Report, highlighting a year of significant cross-sectoral collaboration. The report, issued by the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), underscores their joint efforts in safeguarding the stability and integrity of the European financial sector.

Under the EBA's chairmanship, the Joint Committee served as a critical nexus for dialogue and coordination among the ESAs, the European Commission, and the European Systemic Risk Board (ESRB). Their work spanned several key areas:

1. Joint Risk Assessments: The ESAs issued two comprehensive risk reports in 2023. The Spring report cautioned about increased economic and geopolitical risks, urging vigilance despite relatively stable EU financial markets. It emphasized the need for preparedness against asset quality deterioration, impacts of policy rate increases, and inflation risks. The Autumn report highlighted high concerns over interest rate, liquidity, and credit risks across various financial sectors, referencing the U.S. and Swiss banking turmoils as examples of the need for robust risk management and governance.
2. Sustainable Finance: The ESAs made significant strides in the realm of sustainable finance, particularly concerning the Sustainable Finance Disclosure Regulation (SFDR). They published final draft Regulatory Technical Standards (RTS) on Principal Adverse Impacts (PAI) and financial product disclosures, proposing extensions to social indicators, refinements in adverse impact definitions, and amendments regarding decarbonisation targets. In response to the European Commission's SFDR consultation, the ESAs are preparing a joint opinion and published their second annual report on voluntary PAI disclosures.
3. Digital Operational Resilience: A major focus was the implementation of the Digital Operational Resilience Act (DORA). The newly established Joint Committee Sub-Committee on Digital Operational Resilience (JC SC DOR) developed several policy products, including RTS on ICT risk management, incident classification, and ICT services. They also published consultation papers on sub-contracting, threat-led penetration testing, and oversight cooperation. Additionally, they produced reports on ICT third-party providers and a pan-European systemic cyber incident coordination framework.
4. Consumer Protection and Financial Innovation: The ESAs published a thematic report on national financial education initiatives focused on cybersecurity, scams, and fraud. They also developed interactive consumer factsheets on inflation, rising interest rates, and sustainable finance, translated into all EU languages. The annual Joint Consumer Protection Day in Madrid addressed greenwashing, crypto-asset regulation, and cross-selling.
5. Securitization: In the securitization domain, the ESAs published final RTS on ESG impact disclosure for Simple, Transparent and Standardized (STS) securitizations, aiming for consistency with SFDR. They also issued 11 joint Q&As on various securitisation issues and initiated preparatory work for a report on the functioning of the Securitization Regulation.
6. Financial Conglomerates and Central Clearing: The annual list of identified financial conglomerates was published, and work progressed on reporting templates for intra-group transactions and risk concentration. In central clearing, the ESAs proposed a two-year extension to the equity option exemption from bilateral margining under EMIR.
7. European Single Access Point (ESAP): Following the publication of the ESAP legislative package, the ESAs collaborated closely to develop Implementing Technical Standards (ITS) for setting up the ESAP system, aimed at facilitating access to publicly available information on financial services, capital markets, and sustainability.
8. Other Notable Achievements:

• Publication of joint criteria on supervisory independence.
• Amendments to Joint ITS on mapping of ECAI's credit assessments.
• Progress on guidelines for the exchange of fit and proper assessment information.
• The Joint Board of Appeal handled four appeals against ESAs' decisions.

The 2023 report not only highlights the ESAs' agility in responding to evolving financial challenges but also their commitment to fostering innovation, enhancing consumer protection, and ensuring market stability. Their collaborative efforts, spanning from the nitty-gritty of regulatory standards to broad educational initiatives, underscore the importance of coordinated supervision in an increasingly interconnected and complex financial landscape.

As the financial sector grapples with the dual challenges of digital transformation and the transition to sustainable finance, the Joint Committee's work in 2023 sets a robust foundation. By aligning regulatory frameworks, enhancing operational resilience, and prioritizing transparency and consumer education, the ESAs are not just reacting to change but proactively shaping a financial ecosystem that is resilient, innovative, and aligned with European values.

The report serves as a testament to the power of regulatory cooperation in navigating the complexities of modern finance. As the financial landscape continues to evolve, the Joint Committee's role in harmonizing standards, identifying risks, and fostering innovation will remain crucial for the stability and competitiveness of Europe's financial sector.

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