Compliance report of Country-specific Recommendations of the European Systemic Risk Board of 27 June 2019 – part III September 2023

On October 25, 2023, the European Systemic Risk Board (ESRB) published its latest evaluation report on compliance with the Board’s recommendations as regards the „assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (ESRB/2015/2. To recall, the recommendations specifically set out „recommendations“ for national competent authorities (NCAs) as to the implementation of policy measures so as to ensure that there’s a level playing field for financial institutions across European borders in terms of capital requirements, capital buffers, or related issues (e.g. exposures). The recommendations contain four key principles which should be observed by national competent authorities in the implementation of own measures to maintain financial stability in the local market:
(1) Recommendation A: Recommendation A advises relevant NCAs responsible for enacting macroprudential policies to evaluate the cross-border impacts of their proposed macroprudential policy measures before implementing them. Furthermore, it recommends that NCAs continuously monitor and track the emergence and development of cross-border effects resulting from the macroprudential policy measures they have introduced. A review and assessment should take place at least once a year.
(2) Recommendation B: Recommendation B stipulates that NCAs should notify the ESRB as soon as they adopt a macroprudential policy measure. The recommendation also specifies the necessary formalities and information to include in these notifications. If an NCA requests reciprocation, this must be indicated in the notification.
(3) Recommendation C: Recommendation C focuses on the reciprocation of macroprudential policy measures adopted by relevant authorities and recommended by the Board. Specifically, it suggests that relevant authorities reciprocate the macroprudential policy measures recommended by the ESRB in a similar timely fashion as the NCA that requested reciprocation. If no national legislation is available for reciprocation, the NCAs should consult with the ESRB and implement an alternative measure with an equivalent effect. Recommendation C also includes a list of seven macroprudential policy measures recommended for reciprocation, along with their specific details to help authorities understand the measures in question and facilitate the reciprocation process.
(4) Recommendation D: Recommendation D simply sets out the notification process for NCA informing the ESRB of reciprocation of various national measures.
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The evaluation report examines how well NCAs have adhered to these recommendations during the time period from July 1, 2017 to June 30, 2021, thereby briefly describing the used compliance „grading“ (assessment) methodology and presenting the final findings. These are briefly noted below:
– Overall, the majority of NCAs have fully implemented the Recommendation. This means they have adopted and activated macroprudential measures and have set up arrangements, powers, and accountability structures in line with the ESRB’s recommendations.
– Out of the 30 countries assessed, 26 received the highest compliance grade of „fully compliant“ with the Recommendation, indicating a strong alignment with the ESRB’s principles and requirements. Four countries were rated as „largely compliant,“ suggesting they met most of the criteria but had some room for improvement.
– As far as compliance with Recommendation A pertaining to the assessment of cross-border effects of macroprudential measures is concerned, 26 countries were considered to be fully compliant. The four countries with lower ratings could have conducted more thorough analyses of the cross-border impact of their measures.
– In the case of Recommendation B which relates to notifying the ESRB of activated measures, 21 countries were fully compliant, while seven were largely compliant. However, two countries received a „partial compliance“ rating due to delays in notifying the ESRB about the activation of measures.
– All but one country were fully compliant with Recommendation C concerning the reciprocation of macroprudential measures. However, the ESRB also found that several countries had considerable delays in adapting the measures locally.
– Finally, as far as Recommendation D is concerned which addresses the notification of reciprocation decisions, the analysis showed varying outcomes. While some countries notified the ESRB promptly of (non)reciprocation decisions, others did not notify non-reciprocation decisions at all. Also, there was quite some delay in notifications.
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As a consequence of the findings, the assessment team of the ESRB suggested several measures to improve compliance:
– Recommendation D should explicitly state that decisions not to reciprocate should also be notified or explained. This would enhance transparency and help monitor policy practices.
– Recommendation A should explicitly define the types of measures that need to be assessed and notified by NCAs which would ensure a consistent understanding and application of the Recommendation.
– Recommendation A should further provide clear guidance on the level of analysis of cross-border spillovers expected from national authorities.
– the Recommendation should incorporate notification templates and clarify that these are to be used for ESRB notifications.