The European Central Bank announced on 15 November 2024 that it had imposed two administrative penalties totalling €1.685 million on Banque et Caisse d'Epargne de l'Etat, Luxembourg (BCEE) for misreporting its risk-weighted assets for market and credit risk. According to the ECB's published sanctions table, the penalties of €795,000 and €890,000 were imposed by a decision dated 27 September 2024 and were both classified as reporting breaches.
According to the ECB, for 17 consecutive quarters between 2018 and 2022 the bank understated risk-weighted assets connected to foreign exchange exposures by failing to capture its US dollar-denominated positions accurately when calculating own funds requirements.
CAPITAL RATIOS OVERSTATED
In a second breach, over eight consecutive quarters between 2021 and 2023, BCEE understated its risk-weighted assets by not taking into account an indirect equity position when calculating exposure amounts for qualifying holdings outside the financial sector, which led to incorrect deductions and risk weighting.
The ECB said that, as a result, the bank did not calculate its capital requirements correctly and reported higher capital ratios than it should have, which prevented the supervisor from obtaining an accurate picture of its risk profile. It classified the breaches as “moderately severe”.
Risk-weighted assets are a measure of the risks a bank has on its books and serve as the basis for calculating capital requirements. The ECB said it applied its public guide when deciding the level of the penalties. Its power to impose sanctions stems from Article 18(1) of Council Regulation (EU) No 1024/2013, and BCEE may challenge the decision before the Court of Justice of the European Union.
The ECB's sanctions table also lists an earlier €3.755 million reporting penalty on BCEE, with a decision date of 31 January 2022.
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