(1)

The Union resolution framework for credit institutions and investment firms (‘institutions’) was established in the aftermath of the 2008-2009 global financial crisis and following the Key Attributes of Effective Resolution Regimes for Financial Institutions first published by the Financial Stability Board in October 2011. The Union resolution framework consists of Directive 2014/59/EU of the European Parliament and of the Council (4) and Regulation (EU) No 806/2014 of the European Parliament and of the Council (5). Both legislative acts apply to institutions and to other entities that fall under the scope of that Directive or of that Regulation (‘entities’). The Union resolution framework aims to deal in an orderly manner with failures of institutions and entities by preserving their critical functions and avoiding threats to financial stability, and at the same time protecting depositors and public funds. In addition, the Union resolution framework is intended to foster the development of the internal market in banking by creating a harmonised regime to address cross-border crises in a coordinated way and by avoiding issues of distortions of competition and risks of unequal treatment.

(2)

Several years into its implementation, the Union resolution framework does not deliver as intended with respect to some of those objectives. In particular, while institutions and entities have made significant progress towards resolvability and have dedicated significant resources to that end, in particular through the build-up of the loss absorption and recapitalisation capacity and the filling-up of resolution financing arrangements, the Union resolution framework is seldom resorted to. Instead, failures of certain smaller and medium-sized institutions and entities are typically addressed through unharmonised national measures. Taxpayers’ money is still used rather than industry-funded safety nets, such as resolution financing arrangements. That situation appears to arise from inadequate incentives. Those inadequate incentives are the result of the interplay of the Union resolution framework with national rules, whereby the broad discretion of resolution authorities when carrying out the public interest assessment is not always exercised in a way that reflects the intended application of the Union resolution framework. At the same time, the Union resolution framework has seen little use due to the risk for depositors of deposit-funded institutions of having to bear losses to ensure that those institutions can access external funding in resolution, in particular in the absence of other bail-inable liabilities. Finally, the fact that there are less stringent rules on access to funding outside resolution than in resolution has discouraged the application of the Union resolution framework in favour of other solutions, which often entail the use of taxpayers’ money instead of the use of own resources of institutions or entities or of industry-funded safety nets. That situation, in turn, generates risks of fragmentation, risks of suboptimal outcomes in managing institutions and entities’ failures, in particular in the case of smaller and medium-sized institutions and entities, and opportunity costs from unused financial resources. It is therefore necessary to ensure a more effective and coherent application of the Union resolution framework and to ensure that it can be applied whenever doing so is in the public interest, including for certain smaller and medium-sized institutions which are primarily funded through deposits and do not have sufficient other bail-inable liabilities.

(3)

One of the main objectives of reviewing Directive 2014/59/EU is to better safeguard taxpayers’ money by ensuring that the resolution framework can be applied whenever necessary. The use of taxpayers’ money should, with the introduction of a revised framework, be significantly reduced in order to ensure that industry-funded safety nets, including resolution financing arrangements, are more often and more effectively used.

(4)

The intensity and level of detail of the resolution planning work needed with respect to subsidiaries that have not been identified as resolution entities varies depending on the size of the institutions and entities concerned, their risk profile, their role in the provision of critical functions, their core business lines, their importance for the operational continuity of the group after resolution and the group resolution strategy, and on the importance of the subsidiary in the Member State where it is established, including its potential systemic importance and its potential impact on the available financial means of the deposit guarantee scheme (DGS) in the event of winding up under normal insolvency proceedings. Resolution authorities should therefore be able to consider those factors when identifying the measures to be taken in respect of such subsidiaries and follow a commensurate approach, where appropriate.

(5)

An institution or entity that is being wound up under national law, following a determination that the institution or entity is failing or is likely to fail and a conclusion by the resolution authority that its resolution is not in the public interest, is ultimately heading towards market exit. In such cases a plan for resolving that institution or entity is no longer needed, irrespective of whether the competent authority has already withdrawn the authorisation of that institution or entity. The same applies with regard to a residual institution under resolution after the transfer of assets, rights and liabilities in the context of a transfer strategy. It is therefore appropriate to specify that in such situations the adoption of resolution plans is not required.

(6)

The procedure for the submission of information, by entities that are part of a group, to resolution authorities for the preparation of resolution plans should be aligned with the procedure set out in Directive 2014/59/EU for the submission of information for the monitoring of the minimum requirement for own funds and eligible liabilities (MREL) to avoid unnecessary costs and complexity.

(7)

Resolution authorities can currently decide to prohibit certain distributions where an institution or entity, whether or not it is a resolution entity, fails to meet the combined buffer requirement when considered in addition to the MREL. However, in certain situations, an institution or entity might be required to comply with the MREL on a different basis than the basis on which that institution or entity is required to comply with the combined buffer requirement. That situation creates uncertainties as to the conditions for the exercise of the powers of resolution authorities to prohibit distributions and for the calculation of the Maximum Distributable Amount related to the MREL. It should therefore be laid down that, in those cases, resolution authorities should exercise the power to prohibit certain distributions on the basis of the estimated combined buffer requirement resulting from the methodology set out in the delegated act adopted pursuant to Article 45c(4) of Directive 2014/59/EU. To ensure transparency and legal certainty, resolution authorities should communicate the estimated combined buffer requirement to the institution or entity, which should then make that estimated combined buffer requirement publicly available.

(8)

Early intervention measures were introduced to enable competent authorities to remedy the deterioration of the financial and economic situation of an institution or entity and to reduce, to the extent possible, the risk and impact of a possible resolution. However, due to a lack of certainty regarding the triggers for the application of those early intervention measures and partial overlaps with supervisory measures, early intervention measures have seldom been used. The conditions for the application of those early intervention measures should therefore be simplified and further specified. To dispel uncertainties concerning the conditions and timing for the removal of an institution or entity’s management body and the appointment of temporary administrators, those measures should be explicitly identified as early intervention measures and their application should be subject to the same triggers. Under specific conditions, a gradual wind-down of activities can be a cost-effective solution facilitating an institution or entity with a weak business model to exit the market, thus avoiding a protracted decline that culminates in the failure of the institution or entity. Competent authorities should have the early intervention power to request the submission of a plan to be implemented in the case of a voluntary wind-down of an institution or entity’s activities, while leaving the decision about the implementation of such plan to the institution or entity concerned. When applying early intervention powers, competent authorities should be required to choose the appropriate measures to address a specific situation in compliance with the principle of proportionality. To enable competent authorities to take into account reputational risks or risks related to money laundering or information and communication technology, competent authorities should assess the conditions for the application of early intervention measures not only on the basis of quantitative indicators, such as capital or liquidity requirements, level of leverage, non-performing loans or concentration of exposures, but also on the basis of qualitative triggers. The decision-making process in relation to early intervention measures should allow for their swift consideration and, if appropriate, their application, in order to avoid any further worsening of the situation of the institution or entity.

(9)

To improve legal certainty, the early intervention measures laid down in Directive 2014/59/EU that overlap with existing powers under the prudential framework laid down in Directives 2013/36/EU (6) and (EU) 2019/2034 (7) of the European Parliament and of the Council should be removed. In addition, it is necessary to ensure that resolution authorities are able to prepare for the possible resolution of an institution or entity. The competent authority should therefore inform the resolution authorities of the deterioration of the situation of an institution or entity sufficiently early, and resolution authorities should have the necessary powers for the implementation of preparatory measures. Importantly, to enable the resolution authorities to react as swiftly as possible to a deterioration of the situation of an institution or entity, the prior application of early intervention measures should not be a condition for the resolution authority to make arrangements for the marketing of the institution or entity or to request information to update the resolution plan and prepare the valuation. When marketing an institution that is a member of an institutional protection scheme (IPS), the resolution authority should consider measures that the IPS could take prior to resolution to avert the material risk that the institution will fail or become likely to fail. To ensure a consistent, coordinated, effective and timely reaction to the deterioration of the situation of an institution or entity and to prepare properly for a possible resolution, it is necessary to enhance the interaction and coordination between competent authorities and resolution authorities. As soon as an institution or entity meets the conditions for the application of early intervention measures, competent authorities and resolution authorities should increase their exchanges of information, including provisional information, and monitor the situation of the institution or entity jointly.

(10)

It is necessary to ensure timely action and early coordination between the competent authority and the resolution authority while an institution or entity is still a going concern but there is a material risk that the institution or entity might fail. The competent authority should therefore notify the resolution authority as early as possible of such a risk. That notification should contain the reasons for the competent authority’s assessment and a non-exhaustive overview of the alternative private sector measures, supervisory action or early intervention measures that are available to prevent the failure of the institution or entity within a reasonable timeframe. Such early notification does not affect any alternative private sector measures, including measures by an IPS, that would prevent the failure or the likely failure of the institution or entity within a reasonable timeframe or prejudice the procedures to determine whether the conditions for resolution are met. The prior notification by the competent authority to the resolution authority of a material risk that an institution or entity is failing or is likely to fail or the end of the specified timeframe for the implementation of the measures to address such material risk should not be a condition for, or otherwise necessarily imply, a subsequent determination that an institution or entity is failing or is likely to fail. Moreover, if at a later stage the institution or entity is assessed to be failing or likely to fail and there are no alternative solutions to prevent such failure within a reasonable timeframe, the resolution authority has to take a decision on whether to take resolution action. In such a case, the timeliness of the decision to apply resolution action to the institution or entity can be fundamental to the successful implementation of the resolution strategy, in particular because an earlier intervention in the institution or entity can contribute to ensuring sufficient levels of loss absorption capacity and liquidity to execute that strategy. It is therefore appropriate to enable the resolution authority to assess, in close cooperation with the competent authority, what constitutes a reasonable timeframe to implement alternative measures to avoid the failure of the institution or entity. To ensure a timely outcome and to enable the resolution authority to prepare properly for the potential resolution of an institution or entity, the resolution authority and the competent authority should meet regularly, and the resolution authority should decide on the frequency of those meetings, having regard to the circumstances of the case.

(11)

The resolution framework is meant to have the potential to be applied to any institution or entity, irrespective of its size and business model, if the tools available under national law are not adequate to manage its failure. However, some objectives of the framework need to be further specified to increase harmonisation and to promote convergence. The resolution objective of ensuring continuity of critical functions aims to safeguard financial stability and the real economy. It is therefore necessary to ensure that the provision of critical functions is not discontinued. In particular, it is necessary to clarify that, depending on the specific circumstances, resolution authorities should be able to conclude that certain functions of an institution or entity are considered to be critical even if their discontinuance would disrupt financial stability or services that are essential to the real economy only at regional level. As regards deposit taking, resolution authorities are to pay due attention to the risk of a loss of confidence of depositors holding deposits not covered by Directive 2014/49/EU of the European Parliament and of the Council (8). Public funds should be protected by minimising reliance on extraordinary public financial support, in particular when provided from the budget of a Member State. Depositors covered by Directive 2014/49/EU, investors covered by Directive 97/9/EC of the European Parliament and of the Council (9), client funds and client assets are also to be protected.

(12)

During the resolution planning stage, when deciding whether an institution should be earmarked for resolution, the fact that an institution is subject to simplified obligations should, in general, be used by the resolution authorities as an indicator that resolving it in the case of failure would not be in the public interest. Conversely, the fact that an institution is not subject to simplified obligations could indicate that resolving it in the case of failure would be in the public interest.

(13)

The winding up of an entity under normal insolvency proceedings might, in some cases, jeopardise financial stability and interrupt the provision of critical functions. This could be the case, for instance, where insolvency would likely result in losses on a material share of deposits or significant difficulties in the continuity of access to deposits, and where the resolution authority considers that those losses or those difficulties could have a significant impact on the provision of critical functions, on financial stability through contagion or on the real economy. In such cases it is highly likely that there would be a public interest in placing the institution or entity under resolution rather than winding it up under normal insolvency proceedings. The assessment of whether the resolution of an institution or entity is in the public interest should also reflect, to the extent possible, the difference between, on the one hand, funding provided through industry-funded safety nets, namely the resolution financing arrangements or the DGSs, and, on the other hand, funding provided by Member States from taxpayers’ money. Such funding provided by Member States bears a higher risk of moral hazard and a lower incentive for market discipline. Therefore, when assessing the objective of minimising reliance on extraordinary public financial support, resolution authorities should prefer funding through the resolution financing arrangements or the DGSs to funding through an equal amount of resources from the budget of Member States.

(14)

When carrying out the public interest assessment, resolution authorities should assess whether any of the resolution objectives would be at risk if the failing institution or entity were wound up under normal insolvency proceedings. Resolution action should not be considered to be necessary in the public interest if none of the resolution objectives is at risk if the institution or entity were wound up under normal insolvency proceedings. If at least one resolution objective is assessed by the resolution authority to be at risk in the case of winding up under normal insolvency proceedings, the outcome of the public interest assessment should be negative only where the winding up of the failing institution or entity under normal insolvency proceedings would achieve the resolution objectives not only to the same extent as resolution but more effectively.

(15)

Where a failing institution or entity is not placed under resolution, it should be wound up in accordance with the procedures available under national law. Such procedures might vary substantially from one Member State to the other. While it is appropriate to allow for sufficient flexibility to use the existing national procedures, certain aspects should be clarified to ensure that the institutions or entities concerned exit the market.

(16)

It should be ensured that the competent authority or the resolution authority initiates or requests the initiation of a procedure under national law to wind up an institution or entity that is determined to be failing or likely to fail but not placed under resolution. Where voluntary winding up of the institution or entity upon a decision of shareholders is available under national law, such option should remain available and the relevant authority should be empowered to request the initiation of such a procedure. However, it should be ensured that, in the absence of swift action from the shareholders, the relevant national authority takes action.

(17)

It should also be laid down that the final outcome of winding up procedures is the termination of banking activities leading to the exit of the failing institution or entity from the market. Depending on the national law applied, that outcome can be achieved in different ways. Those can include the sale of the institution or entity or parts of it, the sale of specific assets or liabilities or a gradual wind-down, including of payments and deposit-taking, with a view to selling its assets gradually to repay the affected creditors. A termination of banking activities might also require, inter alia, a limitation on the issuance of new liabilities to cover only the refinancing needs arising from existing assets so that the maturity of the liabilities is not extended. To enhance the predictability of the procedures, that outcome should be reached within a reasonable timeframe.

(18)

Competent authorities should be empowered to withdraw the authorisation of an institution or entity solely on the basis of the fact that the institution or entity is failing or is likely to fail but is not placed under resolution. Competent authorities should be able to withdraw the authorisation to support the objective of winding up the institution or entity in accordance with national law, particularly in cases where the available procedures under national law cannot be initiated at the moment at which the institution or entity is determined to be failing or likely to fail, including the cases where the institution or entity is not yet balance-sheet insolvent. To further ensure that the objective of winding up the institution or entity can be achieved, Member States should ensure that the withdrawal of authorisation by the competent authority is also included among the possible conditions to initiate at least one of the procedures available under national law and is applicable to institutions or entities that are failing or likely to fail but which are not placed under resolution.

(19)

In light of the experience acquired in the implementation of Regulation (EU) No 806/2014 and Directives 2014/49/EU and 2014/59/EU, it is necessary to further specify the conditions under which measures of a precautionary nature that qualify as extraordinary public financial support may exceptionally be granted. It should be ensured that precautionary measures are taken sufficiently early. Moreover, measures to provide relief for impaired assets, including asset management vehicles or asset guarantee schemes, can prove effective and efficient in addressing the causes of possible financial distress faced by institutions and entities and preventing their failure and could therefore constitute relevant precautionary measures. It should therefore be specified that precautionary measures can take the form of impaired asset measures.

(20)

To preserve market discipline, protect public funds and avoid distortions of competition, precautionary measures should remain the exception and only be applied to address situations of serious disturbance in the market and to preserve financial stability, in particular in the event of a systemic crisis. Moreover, precautionary measures should not be used to address losses incurred or likely to be incurred. The most reliable instrument to quantify losses incurred or likely to be incurred is an asset quality review by the European Central Bank (ECB), the European Supervisory Authority (European Banking Authority) (EBA) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (10) or by national competent authorities. Competent authorities should use such a review or, where appropriate, on-site inspections, to quantify losses incurred or likely to be incurred where such a review or inspections can be carried out within a reasonable timeframe. Where that is not possible, competent authorities should quantify losses incurred or likely to be incurred in the most reliable way possible under the prevailing circumstances, where appropriate on the basis of the institution or entity’s balance sheet, provided that the balance sheet complies with the applicable accounting rules and standards, as confirmed by an independent external auditor. The consideration that an institution or entity is solvent, for the purposes of support measures in the form of precautionary recapitalisation and of State guarantees of newly issued liabilities, should be based on a forward-looking assessment of whether the institution or entity can comply with the own funds requirements laid down in Regulation (EU) No 575/2013 (11) or Regulation (EU) 2019/2033 (12) of the European Parliament and of the Council, and the additional own funds requirement laid down in Directive 2013/36/EU or (EU) 2019/2034.

(21)

The aim of precautionary recapitalisation is to support viable institutions and entities identified as likely to encounter temporary difficulties in the near future and to prevent their situation from deteriorating further. To avoid granting public subsidies to businesses that are already unprofitable, precautionary measures in the form of acquisition of own funds instruments or other capital instruments or through impaired asset measures should not be granted in an amount that exceeds the amount necessary to cover capital shortfalls as identified in the adverse scenario of a stress test or equivalent exercise. To ensure that public financing is ultimately discontinued, those precautionary measures should also be limited in time and contain a clear timeline for their termination (‘strategy to exit the support measure’). Perpetual instruments, including Common Equity Tier 1 capital, should only be used in exceptional circumstances and be subject to certain quantitative limits because by their nature they are not well suited for compliance with the condition that they be temporary. Competent authorities should request a one-time remediation plan from institutions and entities that fail to comply with the terms of the strategy to exit the support measure. To ensure the exit from the market by institutions or entities that prove not to be viable, a relevant authority should determine whether the institution or entity is failing or is likely to fail where the competent authority is not satisfied with the remediation plan or where the institution or entity fails to comply with the remediation plan.

(22)

Precautionary measures should be limited to the amount that the institution or entity would need to maintain its solvency in the event of an adverse scenario of a stress test or equivalent exercise. In the case of precautionary measures in the form of impaired asset measures, the receiving institution or entity should be able to use the amount granted to cover losses on the transferred assets or in combination with an acquisition of capital instruments, provided that the overall amount of the shortfall identified is not exceeded. It is also necessary to ensure that precautionary measures in the form of impaired asset measures comply with existing State aid rules and best practices, that they restore the institution or entity’s long-term viability, that State aid is limited to the minimum necessary and that distortions of competition are avoided. For those reasons, the authorities concerned should, in the case of precautionary measures in the form of impaired asset measures, take into account the specific guidance, including the Commission’s blueprint for how national asset management companies can be set up and the communication of the Commission of 16 December 2020 on tackling non-performing loans in the aftermath of the COVID-19 pandemic. Precautionary measures in the form of impaired asset measures should always be subject to the overriding condition that they be temporary. Public guarantees granted for a specified period in relation to the impaired assets of the institution or entity concerned are expected to ensure better compliance with that condition than are transfers of such assets to a publicly supported entity.

(23)

To cover material infringements of prudential requirements, it is necessary to further specify the conditions for determining that holding companies are failing or are likely to fail. An infringement of those requirements by a holding company should be material where the type and extent of such infringement is comparable with an infringement that, if committed by a credit institution, would justify the withdrawal of the authorisation by the competent authority in accordance with Article 18 of Directive 2013/36/EU.

(24)

Member States might have, under national law, powers to suspend payment or delivery obligations that can include eligible deposits. Where the suspension of payment or delivery obligations is not directly related to the financial circumstances of the credit institution, deposits might not be unavailable for the purposes of Directive 2014/49/EU. As a consequence, depositors might not be able to access their deposits for an extended period. To maintain depositor trust and confidence in the banking sector and to maintain financial stability, Member States should ensure that depositors have access to an appropriate daily amount from their deposits, to cover, in particular, the cost of living should their deposits be made inaccessible due to a suspension of payments for reasons other than leading to depositor payout. Such a procedure should remain exceptional and Member States should ensure that depositors have access to appropriate daily amounts.

(25)

To increase legal certainty, and in view of the potential relevance of liabilities arising from future uncertain events, including the outcome of litigation pending at the time of resolution, it is necessary to lay down the treatment those liabilities should receive for the purposes of the application of the bail-in tool. Resolution authorities should draw a distinction between liabilities based on present obligations arising from past events which will result in a loss but the timing or amount of which is uncertain and liabilities that might arise in the future but would not result in a loss or that might arise in the future only if an uncertain event occurs.

(26)

It should also be specified that liabilities of uncertain timing or amount, where those liabilities are based on present obligations arising from past events which will result in a loss, are to be treated the same way as other liabilities. Such liabilities should be bail-inable, unless they meet one of the specific criteria for being excluded from the scope of the bail-in tool. Given the potential relevance of those liabilities in resolution and to ensure certainty in the application of the bail-in tool, it should be specified that they are part of the bail-inable liabilities and that, as a result, the bail-in tool could be applied to them. To ensure the effective application of the bail-in tool to liabilities of uncertain timing or amount, the resolution authority should have the power to reduce, including to reduce to zero, the principal amount due in respect of such liabilities and to convert such liabilities into shares or other instruments of ownership. However, the reduction or conversion can only take effect if and once the liability of uncertain timing or amount is conclusively determined in terms of timing and amount.

(27)

It is necessary to ensure that a liability that could arise in the future from an uncertain event or a liability of uncertain timing or amount which is based on a present obligation at the time of resolution does not impair the effectiveness of the resolution strategy and in particular of the bail-in tool. To achieve that objective, the valuer should, as part of the valuation for the purposes of resolution, assess such liabilities and quantify the potential value of those liabilities to the valuer’s best abilities. To ensure that, after the resolution process, the institution or entity can sustain sufficient market confidence for an appropriate amount of time, the valuer should take into account that potential value when establishing the amount by which bail-inable liabilities need to be written down or converted to restore the capital ratios of the institution under resolution. In particular, the resolution authority should apply its conversion powers to bail-inable liabilities to the extent necessary to ensure that the recapitalisation of the institution under resolution is sufficient to cover potential losses which might be caused by a liability that could arise in the future from an uncertain event or that is based on a present obligation but is uncertain in terms of timing or amount. When assessing the amount to be written down or converted, the resolution authority should carefully consider the impact of the potential loss on the institution under resolution on the basis of a number of factors, including the likelihood of the event materialising, the timeframe for its materialisation and the amount of the liability.

(28)

In certain circumstances, after the resolution financing arrangement has provided a contribution up to the maximum of 5 % of the institution or entity’s total liabilities including own funds, resolution authorities are able to use additional sources of funding to further support their resolution action. It should be specified more clearly in which circumstances the resolution financing arrangement could provide further support where all bail-inable liabilities that are not eligible deposits, with a priority ranking lower than that of non-covered deposits of natural persons and micro, small and medium-sized enterprises and that are not discretionarily excluded from bail-in have been written down or converted in full.

(29)

Deposits that meet the conditions to qualify as eligible liabilities can be used towards compliance with the MREL. However, given the specific nature of deposits, as well as the role they play in the real economy and in sustaining confidence in the banking system, the inclusion of deposits in the scope of liabilities used to meet the MREL should be subject to stricter requirements, as the MREL-eligible resources should be usable in their entirety to bear the losses and contribute to the recapitalisation of a credit institution in the case of its failure. First, as is the case under the current rules, it should not be possible for the deposits used for the MREL to be held by natural persons or by micro, small and medium-sized enterprises. Second, it should be clarified that deposits that confer upon its owner a right to early reimbursement cannot be eligible for the MREL, including in those cases where the contractual provisions provide that early reimbursement is subject to the payment of a penalty. Third, to ensure transparency and minimise the risks of inappropriate placement of such deposits, the relevant contractual provisions should expressly refer to the credit institution’s intention to use those deposits for the purpose of complying with the MREL, as well as to the fact that they do not qualify as eligible deposits and that, therefore, no part of that deposit will be repaid by the DGS in the event of unavailability. Fourth, the use of deposits in the MREL should, as a rule, not be allowed, unless resolution authorities have previously authorised their inclusion in the MREL-eligible resources on the basis of an assessment that such deposits would not need to be shielded from bearing losses in the event of resolution and would not give rise to a substantive impediment to resolvability. Resolution authorities should be able to authorise the use of deposits to meet the MREL on a general basis for each resolution entity, without an individual assessment of each deposit, as well as limit the inclusion of deposits to meet the MREL to fixed amounts. Structured deposits, despite being liabilities with embedded derivatives, can also qualify as eligible liabilities of a credit institution, provided all other conditions are met.

(30)

In order to avoid cliff-edge effects, it is necessary to grandfather the existing deposits qualifying as eligible liabilities. For deposits taken prior to 12 May 2028, the new eligibility criteria should be waived. The grandfathering should end on 11 May 2029.

(31)

Regulations (EU) 2019/876 (13) and (EU) 2019/877 (14) of the European Parliament and of the Council and Directive (EU) 2019/879 of the European Parliament and of the Council (15) implemented in Union law the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet’, published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’), for global systemically important banks, referred to in Union law as global systemically important institutions (G-SIIs). Regulation (EU) 2019/877 and Directive (EU) 2019/879 also amended the MREL set out in Directive 2014/59/EU and in Regulation (EU) No 806/2014. It is necessary to align the provisions on the MREL set out in Directive 2014/59/EU with the implementation of the TLAC standard for G-SIIs with respect to certain liabilities that could be used to meet the part of the MREL that should be met with own funds and other subordinated liabilities. In particular, liabilities that rank pari passu with certain excluded liabilities should be included in the own funds and subordinated eligible instruments of resolution entities where the amount of those excluded liabilities on the balance sheet of the resolution entity does not exceed 5 % of the amount of the own funds and eligible liabilities of the resolution entity and no risks related to the ‘no creditor worse off’ principle arise from that inclusion.

(32)

For certain resolution entities, the preferred resolution strategy set out in the resolution plan or the group resolution plan primarily relies on the transfer of the business of the institution under resolution to a private purchaser or to a bridge institution. In such cases, it is possible that the DGS could be asked to make a contribution towards resolution action, potentially to ensure the protection of certain deposits that are not covered by the DGS. To minimise moral hazard, it should therefore be specified that, where the resolution plan envisages the application of the sale of business tool or of the bridge institution tool and the resolution entity’s exit from the market, the MREL for the resolution entity concerned should not be set at a level below certain thresholds. Where the application of the rules for the calibration of the MREL results in an amount higher than those thresholds, that higher amount should prevail. Those thresholds should not apply to the MREL set for resolution entities the preferred resolution strategy of which consists of the application of the bail-in tool for the purposes of its recapitalisation to an extent sufficient to restore its ability to continue to carry out the activities for which it is authorised, even where the preferred resolution strategy envisages the application of the bail-in tool in combination with other resolution tools, the latter being used in an ancillary manner.

(33)

Directive 2014/59/EU does not include dedicated rules on transitional arrangements and intermediate target levels for meeting the MREL after 2024. However, there are situations in which institutions or entities should not be immediately required to comply with a higher MREL set by the resolution authority, including those cases where the increase of the MREL results from material changes to the institution or entity due, for example, to mergers or acquisitions, or from changes to the preferred resolution strategy. In particular, where the preferred resolution strategy changes from a winding up under normal insolvency proceedings to the application of a resolution action, the institution or entity might not be able to immediately meet in full the MREL as set by the resolution authority. Resolution authorities should therefore be empowered to determine appropriate transitional periods for complying with the MREL. Moreover, resolution authorities should have the power to determine binding intermediate target levels for such institutions or entities, to ensure that they build up their MREL-eligible resources in an appropriate way. To protect legitimate expectations, transitional periods previously determined by resolution authorities on the basis of the rules applicable on the relevant date should not be affected by the new rules.

(34)

Institutions and entities are required to include contractual recognition of the effects of the bail-in tool in agreements or instruments creating liabilities governed by the laws of third countries, except where it is legally or otherwise impracticable to do so. However, the experience acquired in the application of the resolution framework has shown that the requirements for those contractual bail-in recognition terms, as well as the procedure for notifying and assessing the impracticability of the inclusion of such terms, are unnecessarily broad, complex and burdensome to deliver on the objective of ensuring the resolvability of institutions that might be subject to resolution action. It is therefore appropriate to narrow the scope of application of the requirement to own funds instruments and bail-inable liabilities, thereby excluding, in particular, contracts creating liabilities that might arise in the future from an uncertain event. Additionally, the scope of institutions and entities subject to the requirement should take into account the strategy envisaged in the resolution plan. For that reason, liquidation entities and subsidiaries of resolution entities that are not themselves resolution entities should not be required to include in their contracts the bail-in recognition term, unless the resolution authority requires them to do so. Finally, while the grounds for institutions and entities to invoke the impracticability of the inclusion in their contracts of the bail-in recognition term do not require adjustments, the procedure for institutions and entities to report such situations to the resolution authority should be simplified and incorporated in the annual reporting for the purposes of resolution planning.

(35)

To facilitate resolution planning, the assessment of resolvability and the exercise of the power to address or remove impediments to resolvability, as well as to foster information exchange, the resolution authority of an institution with significant branches in other Member States should be able to establish and chair a resolution college.

(36)

As the provision of information related to the aggregated number of customers for which an institution or entity is the only or principal banking partner, which is held by the centralised automated mechanisms established pursuant to Directive (EU) 2015/849 of the European Parliament and of the Council (16), can be necessary and proportionate to carry out the public interest assessment, resolution authorities should be able to receive that information on a case-by-case basis. The exact timing of indirect access to information by the resolution authorities should also be specified.

(37)

There are interactions between the resolution framework and the market abuse framework. In particular, while actions taken in resolution or in preparation for resolution might qualify as inside information under Regulation (EU) No 596/2014 of the European Parliament and of the Council (17), their premature disclosure risks jeopardising the resolution process. Where such actions are intermediate steps in a protracted process, Regulation (EU) No 596/2014 does not require immediate disclosure. In other cases, institutions or entities are able to take steps to address that issue by delaying disclosure of inside information to the public pursuant to Article 17(4) or (5) of that Regulation. However, the right incentives might not always be present at the time of resolution or preparing for resolution in order for the institution or entity to take the initiative for such a delay. To avoid such situations, resolution authorities should have the power to require an institution or entity to ensure confidentiality of inside information on the preparation for resolution and on the resolution process or write-down and conversion as long as they deem it necessary to achieve the resolution objectives. Institutions and entities should only be required to disclose such inside information in accordance with Regulation (EU) No 596/2014 once they have been informed by the resolution authority that ensuring confidentiality is no longer necessary to achieve the resolution objectives. Where confidentiality is no longer ensured, however, institutions and entities should be required to disclose the inside information to the public as soon as possible.

(38)

An adequate link between pay and performance should also be maintained in the event of resolution, in particular where losses are likely to be passed on to the resolution financing arrangements. In such cases, any variable remuneration of the members of the management body and senior management of the institution under resolution that has not been paid out or has not vested should be cancelled. Unless a member of the management body or senior management proves that they did not participate in, or were not responsible for, the conduct that resulted in, or contributed to, the failure of the institution under resolution, the variable remuneration that vested or was paid out in the 24 months preceding the decision to take resolution action should be returned or repaid.

(39)

After the initial build-up period for the resolution financing arrangements provided for in Directive 2014/59/EU, their respective available financial means might face slight decreases below their target level, in particular resulting from an increase in covered deposits. The amount of the ex ante contributions likely to be called in those circumstances is thus likely to be small. It is therefore possible that, in some years, the amount of such ex ante contributions would no longer be commensurate with the cost of the collection of those contributions. Resolution authorities should therefore be able to defer the collection of the ex ante contributions for up to three years until the amount to be collected reaches an amount that is proportionate to the cost of the collection process, provided that such deferral does not materially affect the capacity of resolution authorities to use resolution financing arrangements.

(40)

Irrevocable payment commitments are one of the components of the available financial means of resolution financing arrangements. It is therefore necessary to specify the circumstances in which those payment commitments can be called. In the event that an entity ceases to be subject to the obligation to pay contributions to a resolution financing arrangement following a decision to renounce its authorisation, the irrevocable payment commitment should be cancelled. To ensure that the cancellation of the irrevocable payment commitment does not lead to a situation where the available financial means in the resolution financing arrangement fall below a level that the resolution authority deems adequate, the resolution authority should have the power to determine a contribution that the relevant entity should be required to pay. In its decision, the resolution authority should duly consider the need to maintain a level playing field between all participating institutions, including the entity that ceases to be within the scope of Article 1 of Directive 2014/59/EU. The resolution authority is to provide detailed reasons for its decision and disclose that decision, including its reasoning, in its annual report. In addition, to provide more transparency and certainty with respect to the share of irrevocable payment commitments in the total amount of ex ante contributions to be raised, the resolution authority should determine such share on an annual basis, subject to the applicable limits. The competent authority should aim to ensure that any procyclical effect of irrevocable payment commitments depending on their accounting treatment is mitigated.

(41)

The maximum annual amount of extraordinary ex post contributions to resolution financing arrangements that are allowed to be called is currently limited to three times the amount of the ex ante contributions. After the initial build-up period provided for in Directive 2014/59/EU, such ex ante contributions will, in circumstances other than the use of the resolution financing arrangements, depend only on variations in the level of covered deposits and are therefore likely to become small. Setting the maximum amount of extraordinary ex post contributions on the basis of ex ante contributions could therefore have the effect of drastically limiting the possibility for resolution financing arrangements to raise ex post contributions, thereby reducing their capacity for action. To avoid such an outcome, a different limit should be provided for and the maximum amount of extraordinary ex post contributions allowed to be called should be set at three times one-eighth of the target level of the resolution financing arrangement concerned.

(42)

Directive 2014/59/EU partially harmonised the ranking of deposits under national laws governing normal insolvency proceedings. Those rules provided for a three-tier ranking of deposits, whereby covered deposits had the highest priority ranking, followed by eligible deposits of natural persons and of micro, small and medium-sized enterprises above the coverage level. The remaining deposits, namely the deposits of large corporates exceeding the coverage level and deposits that are not eligible for repayment by the DGS, were required to have a lower priority ranking, but their position was not otherwise harmonised. Finally, the claims of DGSs benefitted from the same higher priority ranking as covered deposits. Nevertheless, that partial harmonisation has not proved to be the optimal solution for depositor protection. Partial harmonisation has created differences in the treatment of remaining depositors across the Member States, in particular as an increasing number of Member States have decided to also grant a legal preference to remaining deposits. Those differences have also created difficulties when determining the insolvency counterfactual for cross-border groups during the resolution valuations. Furthermore, the lack of general depositor preference has had the potential to create problems regarding compliance with the ‘no creditor worse off’ principle, particularly when the deposits the priority of which has not been harmonised by Directive 2014/59/EU are ranked at the same level as senior claims. Therefore, the ranking of deposits in the current hierarchy of claims should be amended.

(43)

The ranking of deposits should be fully harmonised through the implementation of a general depositor preference, whereby all deposits benefit from a higher priority ranking over ordinary unsecured claims, with limited exceptions. A general depositor preference will contribute to reinforcing depositors’ confidence and to further prevent the risk of bank runs. Enhanced depositor protection is also aligned with the central role deposits play in the real economy as the primary tool for savings and for payments, as well as in banking activity where deposits represent an important source of funding and are a key driver of confidence in the banking system, which becomes of particular relevance in times of market stress. Moreover, a general depositor preference improves the resolvability of credit institutions by increasing their ability to comply with the requirements to access the resolution financing arrangements and decreasing the amount of funding required from those arrangements, due to the lower risk of breaching the ‘no creditor worse off’ principle where bailing-in ordinary unsecured debt. In particular, the removal of deposits from the insolvency class of ordinary unsecured claims would increase the bail-inability of remaining ordinary unsecured claims by minimising the risk of breaches of the ‘no creditor worse off’ principle. By reducing the likelihood of deposits being written down or converted to ensure access to resolution financing arrangements, the general depositor preference would contribute to making the bail-in tool more effective and credible and would lead to an increase of the transparency and legal certainty of the resolution framework. The general depositor preference would also contribute to the credibility of transfer strategies in resolution, as it would simplify the inclusion of the entire deposit contract in the perimeter of liabilities to be transferred to a private purchaser or to a bridge institution, to the benefit of the customer relationship and the franchise value of the institution under resolution. Lastly, a full harmonisation of the insolvency ranking of depositors would be beneficial from the cross-border and level playing field perspective.

(44)

It is appropriate for certain non-eligible deposits to be excluded from the general depositor preference. In particular, deposits taken by a credit institution to be used towards compliance with the MREL should not benefit from a legal preference, as that would be incompatible with the general principle that liabilities included in the MREL should bear losses and contribute to the recapitalisation of a credit institution in the event of its failure. The priority ranking of such deposits should not be harmonised by Directive 2014/59/EU and should instead be determined in accordance with the applicable statutory and contractual provisions. Additionally, the ranking should not vary throughout the duration of the deposit depending on whether the resolution authority has authorised its inclusion in the MREL-eligible resources nor on its residual maturity.

(45)

The current three-tier ranking of deposits should be retained, as it strongly protects the claims of DGSs and consequently their financing means. However, in light of amendments to Directive 2014/49/EU introduced by Directive (EU) 2026/804 of the European Parliament and of the Council (18) that include the deposits of certain public authorities in the scope of repayment by DGSs, it is appropriate for the part of those deposits exceeding the coverage level to have the same priority ranking as that of eligible deposits of natural persons and of micro, small and medium-sized enterprises above the coverage level.

(46)

Resolution financing arrangements can be used to support the application of the sale of business tool or of the bridge institution tool whereby a set of assets, rights and liabilities of the institution under resolution are transferred to a recipient. In such a case, the resolution financing arrangement might have a claim against the residual institution or entity in its subsequent winding up under normal insolvency proceedings. That can occur where the resolution financing arrangement is used in connection to losses that creditors would otherwise have borne, including under the form of guarantees to assets and liabilities or coverage of the difference between the transferred assets and liabilities. To ensure that the shareholders and creditors left behind in the residual institution or entity effectively absorb the losses of the institution under resolution and improve the possibility of repayments in insolvency to the resolution-specific safety net, those claims of the resolution financing arrangement against the residual institution or entity, and claims that arise from reasonable expenses properly incurred, should rank in insolvency above the claims of depositors and of the DGSs. Since compensation paid to shareholders and creditors by resolution financing arrangements due to breaches of the ‘no creditor worse off’ principle aims to compensate them for the results of resolution action, that compensation should not give rise to claims from those arrangements.

(47)

To ensure sufficient flexibility and to make it easier for DGSs to intervene in support of the use of the resolution tools, where they lead to the exit from the market of the institution under resolution, certain aspects of the use of DGSs in resolution should be specified. In particular, it is necessary to specify that DGS funds can be used to support transfer transactions that include deposits, including eligible deposits above the coverage level provided by the DGS concerned, and also the non-eligible deposits included in the general depositor preference, in certain cases and under clear conditions. The contribution of a DGS should be aimed at covering the shortfall in the value of the assets transferred to a buyer or bridge institution in comparison to the value of the transferred deposits. Where a contribution is required by the buyer as part of the transaction to ensure its capital neutrality and preserve compliance with the buyer’s capital requirements, the DGS should also contribute to that effect. The support provided by a DGS to resolution action should take the form of cash or other forms, such as guarantees or loss sharing agreements that can minimise the impact of the support on the available financial means of that DGS while simultaneously allowing the contribution of the DGS to meet its purposes.

(48)

The contribution of the DGS in resolution should be subject to certain limits. First, the total amount of the contribution of the DGS in any resolution case should not exceed the amount of covered deposits in the credit institution concerned. Second, it should be ensured that any intervention by the DGS in a resolution action which relies primarily on the bail-in tool for the purposes of recapitalisation of the institution under resolution and of the continuation of its activities does not exceed the loss that the DGS would bear in insolvency if it paid out covered depositors and subrogated to their claims over the institution’s assets. Third, where the DGS is used in support of resolution action mainly consisting of the transfer of the business to a purchaser or to a bridge institution, the amount of the contribution of the DGS should not exceed 62,5 % of its target level, unless the designated authority under Directive 2014/49/EU chooses to disapply that limit to avoid adverse effects on financial stability or to preserve the access of depositors to their deposits. EBA should issue guidelines on the conditions for the disapplication of that limit. Fourth, the amount of the DGS contribution should not exceed the difference between the transferred assets and the transferred deposits and liabilities with the same or a higher priority ranking in insolvency than those deposits. That would ensure that the contribution of the DGS is only used for the purpose of avoiding the imposition of losses on depositors, where appropriate, and not for the protection of creditors that rank below deposits in insolvency. However, where relevant, the contribution might also include an amount necessary to ensure the capital neutrality of the recipient entity.

(49)

It should be specified that the DGS should only be able to contribute to a transfer of liabilities other than covered deposits in the context of a resolution if the resolution authority concludes, on a case-by-case basis, that deposits included in the general depositor preference other than covered deposits cannot be bailed-in, nor left in the residual institution under resolution which will be wound up, and if the conditions for the use of the resolution financing arrangements are not met through contributions by shareholders and creditors. In particular, the resolution authority should be allowed to avoid allocating losses to those deposits where the exclusion is strictly necessary and proportionate to preserve the continuity of critical functions and core business lines or where necessary to avoid widespread contagion and financial instability, which could cause a serious disturbance in the economy of the Union or of a Member State. The same reasons should apply to the inclusion in the transfer to a buyer or to a bridge institution of other bail-inable liabilities with a priority ranking lower than that of covered deposits. In that case, the transfer of those bail-inable liabilities should not be supported by the contribution of the DGS. If any external financial support to the transfer of those bail-inable liabilities is required, that support should be provided by the resolution financing arrangement.

(50)

Given the possibility to use DGS in resolution, it is necessary to further specify the conditions under which the DGS contribution can count towards compliance with the requirements to access resolution financing arrangements. That possibility should only be available for credit institutions with a total value of assets equal to or below EUR 80 billion and in the context of a resolution action primarily relying on the application of the sale of business tool or the bridge institution tool. To ensure that resolution continues to be primarily financed by the credit institution’s internal resources and to minimise distortions of competition, the use of the DGS contribution to ensure access to resolution financing arrangements should only be possible for credit institutions for which, in the preceding 24 months before resolution action is taken, the resolution plan or the group resolution plan does not provide for their winding up in an orderly manner in the event of failure, given that the MREL determined by resolution authorities for those credit institutions has been set at a level that includes both the loss absorption and the recapitalisation amounts. The MREL set by the resolution authority for credit institutions with a total value of assets on an individual basis above EUR 30 billion should comply with the minimum levels of the MREL for institutions and entities with preferred resolution strategies that envisage primarily the use of transfer tools in resolution, even if the respective resolution plan or group resolution plan had provided for different actions and the MREL of those credit institutions was therefore not subject to those minimum levels. Furthermore, the contribution of the DGS should be preceded by the contribution of own funds and eligible liabilities towards loss absorption and recapitalisation to the maximum extent possible. Finally, it should be possible for Member States to require that the institution under resolution must not have breached its MREL, including the binding intermediate targets, within a certain period preceding resolution action, without prejudice to short-term technical breaches of the MREL.

(51)

If the contribution made by shareholders and creditors of the institution under resolution through reductions, write-down or conversion of their liabilities or through the losses that they are expected to bear in the winding up of the residual entity, added to the contribution made by the DGS, amounts to at least 8 % of the institution’s total liabilities including own funds, the resolution authority should be able to use the resolution financing arrangement to provide further funding where that is necessary to ensure effective resolution in line with the resolution objectives. In such cases, the contribution of the DGS should be limited to the amount necessary to enable access to the resolution financing arrangement. Additionally, for a credit institution with a total value of assets on an individual basis of between EUR 30 billion and EUR 80 billion, the contribution of the DGS should not exceed 2,5 % of the total liabilities including own funds of the credit institution on an individual basis.

(52)

In extraordinary circumstances, it can occur that the contribution of the resolution financing arrangement of 5 % of total liabilities including own funds is not sufficient to cover the financing needs of a given resolution action. In such cases, and where that contribution has been enabled by the intervention of the DGS, the DGS should make an additional contribution, under certain conditions, equal to the amount of losses that covered deposits would have suffered were they not protected. The cost of that additional contribution should not exceed the losses that the DGS would have borne in the hypothetical scenario of a winding up under normal insolvency proceedings and the repayment of covered deposits. Additionally, the sum of the initial contribution and of the additional contribution of the DGS should not exceed the amount of covered deposits in the credit institution concerned. Together with the additional contribution of the DGS, the resolution authority should be able to seek further funding from alternative financing sources, where the conditions for that funding are met.

(53)

Where the funds of the DGS are used in the application of the sale of business tool or the bridge institution tool, in isolation or together with contributions from the resolution financing arrangement, the residual entity remaining after the transfer of the assets, rights and liabilities should be wound up in an orderly manner in accordance with the applicable national law, pursuant to Article 37(6) of Directive 2014/59/EU. Additionally, where the funds of the DGS are used in support of the bridge institution tool, the operations of the bridge institution should be terminated in accordance with Article 41(3), (5) and (6) of Directive 2014/59/EU.

(54)

To facilitate the process of adoption of highly technical aspects of reporting requirements, and improve their implementation and monitoring by resolution authorities, mandates given to EBA to develop implementing technical standards should be revised to ensure consistency in the scope and content of the various mandates throughout Directive 2014/59/EU. Those mandates should also be aligned with the provisions governing the reporting and disclosure of supervisory information set out in Regulation (EU) No 575/2013. Those amendments to existing mandates should facilitate future reviews of the implementing technical standards and are not meant to affect reporting and disclosure obligations that are currently applicable. The Commission should be empowered to adopt those implementing technical standards developed by EBA by means of implementing acts pursuant to Article 291 of the Treaty of the Functioning of the European Union (TFEU) and in accordance with Article 15 of Regulation (EU) No 1093/2010. The scope of existing regulatory technical standards on the estimation of the additional own funds requirements and the combined buffer requirement for resolution entities should be expanded to include entities that have not been identified as resolution entities, where those requirements have not been set on the same basis as the MREL. The Commission should be empowered to supplement Directive 2014/59/EU by adopting those regulatory technical standards developed by EBA by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

(55)

To allow for a greater integration of reporting and disclosures related to the MREL, EBA should publish institutions and entities’ disclosures in a centralised manner, while respecting the right of all institutions and entities to publish data and information themselves. Such centralised disclosures should allow EBA to publish the disclosures of small and non-complex institutions, based on the information reported by those institutions to competent and resolution authorities and should thus significantly reduce the administrative burden to which small and non-complex institutions are subject. At the same time, the centralisation of disclosures should have no cost impact for other institutions and entities, and it should increase transparency and reduce the cost of access to prudential information for market participants. Such increased transparency should facilitate the comparability of data across institutions and entities and promote market discipline. The centralisation of disclosures related to resolution ensures alignment with the procedure applicable to supervisory disclosures as set out in Regulation (EU) No 575/2013 to ensure that all disclosure obligations are treated in a similar manner.

(56)

In view of its role in furthering the convergence of authorities’ practices, EBA should monitor and report on the internal practices and methodologies adopted by resolution authorities when deciding whether an institution or entity should be earmarked for resolution or for winding up under normal insolvency proceedings, in light of the resolution objectives and of whether resolution would be in the public interest. EBA should also monitor and report on the progress made by resolution authorities to improve the resolvability of institutions and groups and on the actions and preparations of resolution authorities to ensure an effective implementation of the resolution tools and powers. In those reports, EBA should also assess the level of transparency of the measures taken by resolution authorities towards relevant external stakeholders and the extent of their contribution to resolution preparedness and the resolvability of institutions and groups.

(57)

In the context of EBA’s tasks of contributing to ensuring a coherent and coordinated crisis management and resolution regime in the Union, EBA should coordinate and oversee Union-wide crisis management simulation exercises. Those simulations should cover the coordination and cooperation between competent authorities and resolution authorities during the deterioration of the financial situation of institutions and entities, testing the application of the toolbox in recovery and resolution planning, early intervention, and resolution in a holistic manner. Those crisis simulation exercises should consider in particular the cross-border dimension in the interaction between the relevant authorities and the application of the available tools and powers. Where relevant, the crisis simulation exercises should also capture the adoption and implementation of resolution schemes within the banking union, pursuant to Regulation (EU) No 806/2014.

(58)

Notwithstanding currently applicable professional secrecy rules, exchanges of information between resolution authorities and tax authorities should be improved. Such exchanges should take place in accordance with national law. Where the information originates in another Member State, it should only be exchanged with the express consent of the relevant authority which has disclosed it.

(59)

Directive (EU) 2019/879 amended Directive 2014/59/EU to introduce dedicated rules to ensure that retail clients do not invest excessively in instruments that are eligible for the MREL of institutions and entities. The excessive holding of MREL instruments by retail clients can be detrimental to the resolvability of an institution or entity and can create problems for financial stability. That can be especially problematic when the retail clients are also depositors of the issuing institution, as those depositors are particularly vulnerable to the inappropriate placement of the institution’s own instruments. Authorities should therefore ensure that sellers, institutions and entities comply with the measures adopted by Member States transposing Directive (EU) 2019/879 to ensure the protection of retail clients. Where those measures are not being applied appropriately, authorities should enforce those rules. It is therefore appropriate to introduce dedicated powers in Directive 2014/59/EU to address failures to comply with the dedicated rules on the protection of retail clients, alongside the existing powers in Directive 2014/65/EU. Moreover, using the existing reporting for resolution planning and MREL purposes, resolution authorities should assess the nature of the investor base in MREL-eligible instruments when carrying out the resolvability assessment of institutions and entities and, where necessary, require the institution or entity to address or remove any impediments found. Finally, EBA, in coordination with the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (19), should report on the measures adopted by Member States for the protection of retail clients as regards debt instruments that are eligible for the MREL pursuant to Directive 2014/59/EU, comparing and assessing any potential impact on cross-border operations. On that basis, the Commission might adopt a legislative proposal to ensure a more effective protection of retail clients.

(60)

High-quality impact assessment is crucial for the development of sound and evidence-based legislative proposals, while facts and evidence are key to inform the decisions taken during the legislative procedure. For that reason, EBA, the Single Resolution Board and the ECB should provide the Commission, at its request, with all the information it needs for its policy development related tasks, including the preparation of impact assessments and the preparation and negotiation of legislative proposals. Where that information is not available to EBA, the Single Resolution Board or the ECB, it should be provided by the resolution authorities, competent authorities and other members of the European System of Central Banks.

(61)

Considering the need to protect financial stability and to act swiftly, resolution authorities should not be subject to the procedures for procurement with respect to public contracts for valuation services for the purposes of resolution and of assessing whether shareholders and creditors would have received better treatment if the institution under resolution had entered into normal insolvency proceedings. The services provided should therefore be excluded from the scope of Directive 2014/24/EU of the European Parliament and of the Council (20). As regards legal services that the resolution authorities might need, certain legal services are already excluded from the scope of that Directive and others are included in the list of services set out in Annex XIV to that Directive for which higher thresholds and lighter harmonised rules apply.

(62)

Since the objective of this Directive, namely to improve the effectiveness and efficiency of the recovery and resolution framework for institutions and entities, cannot be sufficiently achieved by the Member States due to the risks that diverging national approaches might entail for the integrity of the internal market but can rather, by amending rules that are already set at Union level, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective.

(63)

Directives 2014/59/EU and 2014/24/EU should therefore be amended accordingly,

(1)

Article 2(1) is amended as follows:

(2)

in Article 5, paragraphs 2, 3 and 4 are replaced by the following:

(3)

in Article 6(5), the first subparagraph is replaced by the following:

‘Where the competent authority assesses that there are material deficiencies in the recovery plan, or material impediments to its implementation, it shall notify the institution or the parent undertaking of the group of its assessment and shall require the institution to submit, within three months, extendable with the authority’s approval by one month, a revised plan demonstrating how those deficiencies or impediments are to be addressed.’

(4)

in Article 8(2), the third subparagraph is replaced by the following:

‘EBA may, at the request of a competent authority, assist the competent authorities in reaching a joint decision in accordance with Article 31(2), point (c), of Regulation (EU) No 1093/2010.’

(5)

Article 10 is amended as follows:

(6)

in Article 11, paragraph 3 is replaced by the following:

(7)

Article 12 is amended as follows:

(8)

Article 13 is amended as follows:

(9)

in Article 15, the following paragraph is added:

(10)

in Article 16a, the following paragraph is added:

(11)

Article 17 is amended as follows:

(12)

Article 18 is amended as follows:

(13)

Articles 27 and 28 are replaced by the following:

(*1)  Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84, ELI: http://data.europa.eu/eli/reg/2014/600/oj).’;"

(14)

Article 29 is amended as follows:

(15)

Article 30 is amended as follows:

(16)

the following article is inserted in Title III:

(17)

in Article 31(2), point (c) is replaced by the following:

;

(18)

Article 32 is amended as follows:

(19)

Articles 32a and 32b are replaced by the following:

(20)

the following article is inserted:

(21)

in Article 33, paragraph 2 is replaced by the following:

(22)

Article 33a is amended as follows:

(23)

Article 35 is amended as follows:

(24)

in Article 36, the following paragraph is inserted:

(25)

Article 37 is amended as follows:

(26)

Article 40 is amended as follows:

(27)

in Article 42(5), point (b) is replaced by the following:

;

(28)

Article 44 is amended as follows:

(29)

in Article 44a, the following paragraph is added:

(30)

in Article 45, paragraph 1 is replaced by the following:

(31)

Article 45b is amended as follows:

(32)

Article 45c is amended as follows:

(33)

in Article 45d(1), the introductory wording is replaced by the following:

‘The requirement referred to in Article 45(1) for a resolution entity that is a G-SII entity shall consist of the following:’

(34)

Article 45f is amended as follows:

(35)

Article 45g is replaced by the following:

(36)

Article 45i is amended as follows:

(37)

in Article 45j, paragraph 2 is replaced by the following:

(38)

Article 45l(3), the second subparagraph is replaced by the following:

‘The report referred to in paragraph 2 shall cover three calendar years and shall be submitted to the Commission by 31 December of the calendar year following the last year covered by the report. The obligation referred to in paragraph 2 shall cease to apply after the second report is submitted.’

(39)

Article 45m is amended as follows:

(40)

in Article 46(2), the first subparagraph is replaced by the following:

‘The assessment referred to in paragraph 1 of this Article shall establish the amount by which bail-inable liabilities need to be written down or converted for the following purposes:

(41)

Article 47(1) is amended as follows:

(42)

Article 52 is amended as follows:

(43)

Article 53 is amended as follows:

(44)

Article 55 is amended as follows:

(45)

Article 59 is amended as follows:

(46)

Article 63 is amended as follows:

(47)

in Article 71a, paragraph 3 is replaced by the following:

(48)

in Article 74(2), point (a) is replaced by the following:

;

(49)

Article 75 is replaced by the following:

(50)

in Article 84, the following paragraph is inserted:

(51)

the following articles are inserted in Chapter VIII:

(*4)  Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141, 5.6.2015, p. 73, ELI: http://data.europa.eu/eli/dir/2015/849/oj).’;"

(52)

Article 88 is amended as follows:

(53)

Article 91 is amended as follows:

(54)

in Article 92(3), the second subparagraph is replaced by the following:

‘EBA may, at the request of a resolution authority, assist the resolution authorities in reaching a joint decision in accordance with Article 31(2), point (c), of Regulation (EU) No 1093/2010.’

(55)

in Article 96(3), point (b) is replaced by the following:

;

(56)

in Article 98, paragraph 1 is amended as follows:

(57)

in Article 101, the following paragraph is added:

(58)

in Article 102(3), the first subparagraph is replaced by the following:

‘If the available financial means are not sufficient to meet the target level specified in paragraph 1 of this Article, the ex ante contributions raised in accordance with Article 103 shall resume until the target level is reached. Resolution authorities may defer the collection of the ex ante contributions raised in accordance with Article 103 for up to three years to ensure that the amount to be collected reaches an amount that is proportionate to the costs of the collection process, provided that such deferral does not materially affect the capacity of the resolution authority to use the resolution financing arrangements pursuant to Article 101. Where the available financial means account for less than two thirds of the target level, the contributions shall be set at a level allowing for the target level to be reached within a reasonable timeframe which shall not exceed six years.’

(59)

Article 103 is amended as follows:

(60)

in Article 104(1), the second subparagraph is replaced by the following:

‘The total amount of extraordinary ex post contributions per year shall not exceed three times 12,5 % of the target level specified in Article 102.’

(61)

in Article 107(3), point (d) is replaced by the following:

;

(62)

Article 108 is amended as follows:

(63)

Article 109 is replaced by the following:

(64)

in Article 111(1), the following points are added:

;

(65)

Article 128 is replaced by the following

(66)

the following articles are inserted:

(*5)  Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 225, 30.7.2014, p. 1, ELI: http://data.europa.eu/eli/reg/2014/806/oj)."

(*6)  Directive (EU) 2026/806 of the European Parliament and of the Council of 30 March 2026 amending Directive 2014/59/EU as regards early intervention measures, conditions for resolution and financing of resolution action and Directive 2014/24/EU as regards valuation services in resolution (OJ L, 2026/806, 20.4.2026, ELI: http://data.europa.eu/eli/dir/2026/806/oj).’;"

(67)

in the Annex, Section B, the following point is inserted:

‘(k)

valuation services referred to in Articles 36 and 74 of Directive 2014/59/EU of the European Parliament and of the Council (*7).