Shearman & Sterling LLP | FinReg | European Banking Authority Publishes Report on Non-Bank Lending Sector 
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  • European Banking Authority Publishes Report on Non-Bank Lending Sector 

    The European Banking Authority has published a report on the EU non-bank lending sector i.e., the growing number of financial intermediaries operating outside the EU financial services regulatory perimeter, including BigTech firms (e..g, Meta, Amazon and Google) and FinTech firms, which develop innovative technology for financial services.

    The report responds to the European Commission's 2021 call for advice on digital finance, which sought input to advance the EU Digital Finance Strategy. The European Supervisory Authorities (the EBA, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority) published a joint report on digital finance in response to the Commission's call for advice in January 2022. However, the call for advice had also sought analysis specifically from the EBA on the non-bank lending sector and whether there was a need to adjust the regulatory perimeter to address any issues arising from growth in the sector.

    The EBA's report reviews potential risks arising in the non-bank lending sector and makes recommendations on the regulatory approach to the following areas:
    • Prudential aspects and supervision: the EBA supports the potential harmonization of the authorization and supervision requirements under the EU Consumer Credit Directive and Mortgage Credit Directive and amendments to the scope of the consolidation rules under the EU Capital Requirement Regulation;
    • Consumer protection and conduct of business rules: the EBA supports proposals to broaden the scope of the CCD to include a greater range of products (e.g., small value loans and buy-now-pay-later loans) and credit providers (e.g., potentially crowdfunding service providers), as well as improving disclosure, advertising and out-of-court complaint handling for loan agreements that fall outside the traditional banking perimeter;
    • Money laundering/terrorist financing risks: the EBA proposes further consideration should be given to subjecting non-bank lending to AML/CTF obligations;
    • Macroprudential risks: the EBA proposes the consideration of standardized reporting at an EU level, which would enable mapping of risks and vulnerabilities and the development of EU level rules for certain financial intermediation activities; and
    • Microprudential risks: the EBA proposes the investigation of a harmonized EU framework for non-bank lending.