Ekmel Cilingir, Chairman of the European Merchant Bank, addresses the critical regulatory frameworks designed to protect the European banking sector from potential economic crises. These regulations, including CRD6, CRR3, and the AI Act, aim to enhance resilience and stability in the face of evolving challenges.
Reflecting on the financial history of the past two decades, Ekmel Cilingir highlights the necessity of robust regulatory measures. The 2008 financial crisis exposed systemic vulnerabilities, leading to the implementation of Basel III and subsequent regulatory frameworks. Today, European banking is fortified by these efforts, but new challenges demand further regulatory evolution.
Key Regulations and Their Objectives
Ekmel Cilingir outlines the essential regulations that will shape the future of European banking. He emphasises that these regulations are designed to address past vulnerabilities and prepare the sector for future challenges.
1. Basel III: Focuses on enhancing capital adequacy, stress testing, and market liquidity to improve banks' ability to absorb shocks. Since its agreement in 2010, banks have increased their Tier 1 capital ratio from 7% to over 12%.
2. CRD6 and CRR3: These latest EU legislations finalise Basel III into EU law, introducing stricter capital requirements and enhanced risk management practices. CRD6 and CRR3 aim to bolster capital reserves by an additional 1-2% of risk-weighted assets, reinforcing risk management and ensuring greater transparency in banking operations.
3. AI Act: Regulates artificial intelligence by classifying AI systems based on risk levels, imposing strict requirements on high-risk AI systems to ensure safety, transparency, and accountability. This promotes trustworthy AI development across the EU, including its use in financial services.
4. MiCA (Markets in Crypto-Assets Regulation): Establishes a regulatory framework for crypto-assets to ensure investor protection and market integrity. As the European crypto market reached €1 trillion in 2023, comprehensive regulation becomes essential.
5. ECB’s Climate Risk Guide and EBA Draft Guidelines on ESG Risks: These frameworks integrate climate-related risks into risk management, emphasising the importance of consistent and comparable metrics like the Green Asset Ratio (GAR) for market discipline and stakeholder assessment.
6. PSD3 (Payment Services Directive): This aims to foster innovation and competition in the payment services sector while enhancing security and consumer protections. EU payment transactions grew by 15% annually, reaching €200 billion in 2023.
7. DORA (Digital Operational Resilience Act): Strengthens financial entities' digital operational resilience to withstand, respond to, and recover from ICT-related disruptions. Cybersecurity spending by EU banks is projected to increase by 10% annually, reaching €55 billion by 2026.
Impact on EU Banks and Financial Entities
The new regulations will significantly impact capital requirements, operational practices, and strategic planning for EU banks. Increased capital holdings and stringent risk management protocols are essential to cushion against potential losses. Non-bank financial entities will face compliance challenges but also innovation opportunities by leveraging these regulatory frameworks.
Global Banking Adaptation
Non-EU banks must also adapt to the new EU standards to continue operations in Europe. This involves restructuring and additional capital requirements, potentially influencing global banking practices by pushing for higher standards of risk management and operational resilience.
Outlook and Future Developments
The regulatory landscape is expected to evolve with increasing integration of technological advancements, focusing on AI, cybersecurity, and climate risks. The EU’s proactive stance will continue to set global standards, influencing banking practices worldwide. Cilingir notes, “EU banks need to view these regulations not as constraints but as opportunities to innovate and lead in the global banking sector.”
About European Merchant Bank
European Merchant Bank UAB (EMBank) is a leading licensed bank in Vilnius, Lithuania. Founded by Dr. Ozan Ozerk, EMBank is dedicated to driving digital transformation and innovation in the banking sector. With a focus on regulatory compliance and customer-centric services, EMBank aims to redefine banking for the modern era.
For a detailed exploration of these insights, they can read Ekmel Cilingir's full article on LinkedIn: Regulations To Shield European Banking From A Perfect Storm.
Media Contact
Company Name: European Merchant Bank (EMBank)
Contact Person: Dilek Isik
Email: Send Email
Country: Lithuania
Website: https://em.bank/
