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Document 32019R0876

Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012 (Text with EEA relevance.)

PE/15/2019/REV/1

OJ L 150, 7.6.2019, p. 1–225 (BG, ES, CS, DA, DE, ET, EL, EN, FR, GA, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)

In force: This act has been changed. Current consolidated version: 27/06/2020

ELI: http://data.europa.eu/eli/reg/2019/876/oj

7.6.2019   

EN

Official Journal of the European Union

L 150/1


REGULATION (EU) 2019/876 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 20 May 2019

amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Central Bank (1),

Having regard to the opinion of the European Economic and Social Committee (2),

Acting in accordance with the ordinary legislative procedure (3),

Whereas:

(1)

In the aftermath of the financial crisis that unfolded in 2007-2008, the Union implemented a substantial reform of the financial services regulatory framework to enhance the resilience of its financial institutions. That reform was largely based on international standards agreed in 2010 by the Basel Committee on Banking Supervision (BCBS), known as the Basel III framework. Among its many measures, the reform package included the adoption of Regulation (EU) No 575/2013 of the European Parliament and of the Council (4) and Directive 2013/36/EU of the European Parliament and of the Council (5), which strengthened the prudential requirements for credit institutions and investment firms (institutions).

(2)

While the reform has rendered the financial system more stable and resilient against many types of possible future shocks and crises, it did not address all identified problems. An important reason for that was that international standard setters, such as the BCBS and the Financial Stability Board (FSB), had not finished their work on internationally agreed solutions to tackle those problems at the time. Now that work on important additional reforms has been completed, the outstanding problems should be addressed.

(3)

In its communication of 24 November 2015 entitled ‘Towards the completion of the Banking Union’, the Commission recognised the need for further risk reduction and committed bringing forward a legislative proposal that would build on internationally agreed standards. The need to take further concrete legislative steps in terms of reducing risks in the financial sector has also been recognised by the Council in its conclusions of 17 June 2016 and by the European Parliament in its resolution of 10 March 2016 on the Banking Union – Annual Report 2015 (6).

(4)

Risk reduction measures should not only further strengthen the resilience of the European banking system and the markets' confidence in it, but also provide the basis for further progress in completing the banking union. Those measures should also be considered against the background of broader challenges affecting the Union economy, in particular the need to promote growth and jobs at times of uncertain economic outlook. In that context, various major policy initiatives, such as the Investment Plan for Europe and the capital markets union, have been launched in order to strengthen the economy of the Union. It is therefore important that all risk reduction measures interact smoothly with those policy initiatives as well as with broader recent reforms in the financial sector.

(5)

The provisions of this Regulation should be equivalent to internationally agreed standards and ensure the continued equivalence of Directive 2013/36/EU and Regulation (EU) No 575/2013 with the Basel III framework. The targeted adjustments in order to reflect Union specificities and broader policy considerations should be limited in terms of scope or time in order not to impinge on the overall soundness of the prudential framework.

(6)

Existing risk reduction measures and, in particular, reporting and disclosure requirements should also be improved to ensure that they can be applied in a more proportionate way and that they do not create an excessive compliance burden, especially for smaller and less complex institutions.

(7)

A precise definition of small and non-complex institutions is necessary for targeted simplifications of requirements with respect to the application of the principle of proportionality. By itself, a single absolute threshold does not take into account the specificities of the national banking markets. It is therefore necessary for Member States to be able to use their discretion to bring the threshold in line with domestic circumstances and adjust it downwards, as appropriate. Since the size of an institution is not in itself the defining factor for its risk profile, it is also necessary to apply additional qualitative criteria to ensure that an institution is only considered to be a small and non-complex institution and able to benefit from more proportionate rules where the institution fulfils all the relevant criteria.

(8)

Leverage ratios contribute to preserving financial stability by acting as a backstop to risk based capital requirements and by constraining the building up of excessive leverage during economic upturns. The BCBS has revised the international standard on the leverage ratio in order to specify further certain aspects of the design of that ratio. Regulation (EU) No 575/2013 should be aligned with the revised standard so as to ensure a level playing field internationally for institutions established inside the Union but operating outside the Union, and to ensure that leverage ratio remains an effective complement to risk-based own funds requirements. Therefore, a leverage ratio requirement should be introduced to complement the current system of reporting and disclosure of the leverage ratio.

(9)

In order not to unnecessarily constrain lending by institutions to corporates and private households and to prevent unwarranted adverse impacts on market liquidity, the leverage ratio requirement should be set at a level where it acts as a credible backstop to the risk of excessive leverage without hampering economic growth.

(10)

The European Supervisory Authority (European Banking Authority) (EBA), established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (7), concluded in its report of 3 August 2016 on the leverage ratio requirement that a Tier 1 capital leverage ratio calibrated at 3 % for any type of credit institution would constitute a credible backstop function. A 3 % leverage ratio requirement was also agreed upon at international level by the BCBS. The leverage ratio requirement should therefore be calibrated at 3 %.

(11)

A 3 % leverage ratio requirement would however constrain certain business models and lines of business more than others. In particular, public lending by public development banks and officially supported export credits would be impacted disproportionally. The leverage ratio should therefore be adjusted for those types of exposures. Clear criteria that help ascertain the public mandate of such credit institutions should therefore be set out and cover aspects such as their establishment, the type of activities undertaken, their goal, the guarantee arrangements by public bodies and limits to deposit taking activities. The form and manner of establishment of such credit institutions should remain, however, at the discretion of Member State's central government, regional government or local authority and may consist of setting up a new credit institution, acquisition or take-over, including through concessions and in the context of resolution proceedings, of an already existing entity by such public authorities.

(12)

A leverage ratio should also not undermine the provision of central clearing services by institutions to clients. Therefore, the initial margin on centrally cleared derivative transactions received by institutions from their clients and that they pass on to central counterparties (CCPs), should be excluded from the total exposure measure.

(13)

In exceptional circumstances that warrant the exclusion of certain exposures to central banks from the leverage ratio and in order to facilitate the implementation of monetary policies, competent authorities should be able to exclude such exposures from the total exposure measure on a temporary basis. For that purpose, they should publicly declare, after consultation with the relevant central bank, that such exceptional circumstances exist. The leverage ratio requirement should be recalibrated commensurately to offset the impact of the exclusion. Such recalibration should ensure the exclusion of risks to financial stability affecting the relevant banking sectors, and that the resilience provided by the leverage ratio is maintained.

(14)

It is appropriate to implement a leverage ratio buffer requirement for institutions identified as global systemically important institutions (G-SIIs) in accordance with Directive 2013/36/EU and with the BCBSs standard on a leverage ratio buffer for global systemically important banks (G-SIBs) published in December 2017. The leverage ratio buffer was calibrated by the BCBS for the specific purpose of mitigating the comparably larger risks to financial stability posed by G-SIBs and, against that background, should only apply to G-SIIs at this stage. However, further analysis should be done to determine whether it would be appropriate to apply the leverage ratio buffer requirement to other systemically important institutions (O-SIIs), as defined in Directive 2013/36/EU, and, if that is the case, in what manner the calibration should be tailored to the specific features of those institutions.

(15)

On 9 November 2015, the FSB published the Total Loss-absorbing Capacity (TLAC) Term Sheet (the ‘TLAC standard’) which was endorsed by the G20 at the November 2015 summit in Turkey. The TLAC standard requires G-SIBs, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of a resolution. The TLAC standard should be implemented in Union law.

(16)

The implementation of the TLAC standard in Union law needs to take into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in Directive 2014/59/EU of the European Parliament and of the Council (8). As the TLAC standard and the MREL pursue the same objective of ensuring that institutions have sufficient loss absorption capacity, the two requirements should be complementary elements of a common framework. Operationally, the harmonised minimum level of the TLAC standard should be introduced into Regulation (EU) No 575/2013 through a new requirement for own funds and eligible liabilities, while the institution-specific add-on for G-SIIs and the institution-specific requirement for non-G-SIIs should be introduced through targeted amendments to Directive 2014/59/EU and Regulation (EU) No 806/2014 of the European Parliament and of the Council (9). The provisions introducing the TLAC standard in Regulation (EU) No 575/2013 should be read together with the provisions that are introduced into Directive 2014/59/EU and Regulation (EU) No 806/2014, and with Directive 2013/36/EU.

(17)

In accordance with the TLAC standard that only covers G-SIBs, the minimum requirement for a sufficient amount of own funds and highly loss absorbing liabilities introduced in this Regulation should only apply to G-SIIs. However, the rules concerning eligible liabilities introduced in this Regulation should apply to all institutions, in line with the complementary adjustments and requirements set out in Directive 2014/59/EU.

(18)

In line with the TLAC standard, the requirement for own funds and eligible liabilities should apply to resolution entities which are either themselves G-SIIs or are part of a group identified as a G-SII. The requirement for own funds and eligible liabilities should apply on either an individual basis or a consolidated basis, depending on whether such resolution entities are stand-alone institutions with no subsidiaries or parent undertakings.

(19)

Directive 2014/59/EU allows for resolution tools to be used not only for institutions but also for financial holding companies and mixed financial holding companies. Parent financial holding companies and parent mixed financial holding companies should therefore have sufficient loss absorption capacity in the same way as parent institutions.

(20)

To ensure the effectiveness of the requirement for own funds and eligible liabilities, it is essential that the instruments held for meeting that requirement have a high loss absorption capacity. Liabilities that are excluded from the bail-in tool referred to in Directive 2014/59/EU do not have that capacity, and neither do other liabilities that, although bail-inable in principle might raise difficulties for being bailed in in practice. Those liabilities should therefore not be considered eligible for the requirement for own funds and eligible liabilities. On the other hand, capital instruments, as well as subordinated liabilities have a high loss absorption capacity. Also, the loss absorption potential of liabilities that rank pari passu with certain excluded liabilities should be recognised up to a certain extent, in line with the TLAC standard.

(21)

To avoid double counting of liabilities for the purposes of the requirement for own funds and eligible liabilities, rules should be introduced for the deduction of holdings of eligible liabilities items that mirror the corresponding deduction approach already developed in Regulation (EU) No 575/2013 for capital instruments. Under that approach, holdings of eligible liabilities instruments should first be deducted from eligible liabilities and, to the extent there are not sufficient liabilities, those eligible liabilities instruments should be deducted from Tier 2 instruments.

(22)

The TLAC standard contains some eligibility criteria for liabilities that are stricter than the current eligibility criteria for capital instruments. To ensure consistency, eligibility criteria for capital instruments should be aligned as regards the non-eligibility of instruments issued through special purpose entities as of 1 January 2022.

(23)

It is necessary to provide for a clear and transparent approval process for Common Equity Tier 1 instruments that can contribute to maintaining the high quality of those instruments. To that end, competent authorities should be responsible for approving those instruments before institutions can classify them as Common Equity Tier 1 instruments. However, competent authorities should not need to require prior permission for Common Equity Tier 1 instruments that are issued on the basis of legal documentation already approved by the competent authority and governed by substantially the same provisions as those governing capital instruments for which the institution has received prior permission from the competent authority to classify as Common Equity Tier 1 instruments. In such a case, instead of requesting prior approval, it should be possible for institutions to notify their competent authorities of their intention to issue such instruments. They should do so sufficiently in advance of the instruments' classification as Common Equity Tier 1 instruments to leave time to competent authorities to review the instruments, if necessary. In view of EBA's role in furthering the convergence of supervisory practices and enhancing the quality of own funds instruments, competent authorities should consult EBA before approving any new form of Common Equity Tier 1 instruments.

(24)

Capital instruments are eligible as Additional Tier 1 or Tier 2 instruments only to the extent that they comply with the relevant eligibility criteria. Such capital instruments may consist of equity or liabilities, including subordinated loans that fulfil those criteria.

(25)

Capital instruments or parts of capital instruments should only be eligible to qualify as own funds instruments to the extent they are paid up. As long as parts of an instrument are not paid up, those parts should not be eligible to qualify as own funds instruments.

(26)

Own funds instruments and eligible liabilities should not be subject to set-off or netting arrangements which would undermine their loss absorption capacity in resolution. This should not mean that the contractual provisions governing the liabilities should contain a clause explicitly stating that the instrument is not subject to set-off or netting rights.

(27)

Due to the evolution of the banking sector in an even more digital environment, software is becoming a more important type of asset. Prudently valued software assets, the value of which is not materially affected by the resolution, insolvency or liquidation of an institution, should not be subject to the deduction of intangible assets from Common Equity Tier 1 items. That specification is important, as software is a broad concept that covers many different types of assets, not all of which preserve their value in the situation of a gone concern. In that context, differences in the valuation and amortisation of software assets and the realised sales of such assets should be taken into account. Furthermore, consideration should be given to international developments and differences in the regulatory treatment of investments in software, to different prudential rules that apply to institutions and insurance undertakings, and to the diversity of the financial sector in the Union, including non-regulated entities such as financial technology companies.

(28)

In order to avoid cliff-edge effects, it is necessary to grandfather the existing instruments with respect to certain eligibility criteria. For liabilities issued before 27 June 2019, certain eligibility criteria for own funds instruments and eligible liabilities should be waived. Such a grandfathering should apply to liabilities counting towards, where applicable, the subordinated portion of TLAC, and the subordinated portion of the MREL under Directive 2014/59/EU, as well as to liabilities counting towards, where applicable, the non-subordinated portion of TLAC, and the non-subordinated portion of the MREL under Directive 2014/59/EU. For own funds instruments, the grandfathering should end on 28 June 2025.

(29)

Eligible liabilities instruments, including those which have a residual maturity of less than one year, can only be redeemed after the resolution authority has granted its prior permission. Such prior permission could also be a general prior permission, in which case the redemption would have to occur within the limited period of time and for a predetermined amount covered by the general prior permission.

(30)

Since the adoption of Regulation (EU) No 575/2013, the international standard on the prudential treatment of institutions' exposures to CCPs has been amended in order to improve the treatment of institutions' exposures to qualifying CCPs (QCCPs). Notable revisions of that standard included the use of a single method for determining the own funds requirement for exposures due to default fund contributions, an explicit cap on the overall own funds requirements applied to exposures to QCCPs, and a more risk-sensitive approach for capturing the value of derivatives in the calculation of the hypothetical resources of a QCCP. At the same time, the treatment of exposures to non-qualifying CCPs was left unchanged. Given that the revised international standards introduced a treatment that is better suited to the central clearing environment, Union law should be amended to incorporate those standards.

(31)

In order to ensure that institutions adequately manage their exposures in the form of units or shares in collective investment undertakings (CIUs), the rules spelling out the treatment of those exposures should be risk sensitive and should promote transparency with respect to the underlying exposures of CIUs. The BCBS has therefore adopted a revised standard that sets a clear hierarchy of approaches to calculate risk-weighted exposure amounts for those exposures. That hierarchy reflects the degree of transparency over the underlying exposures. Regulation (EU) No 575/2013 should be aligned with those internationally agreed rules.

(32)

For an institution that provides a minimum value commitment to the ultimate benefit of retail clients for an investment in a unit or share in a CIU including as part of a government-sponsored private pension scheme, no payment by the institution or undertaking included in the same scope of prudential consolidation is required unless the value of the customer's shares or units in the CIU falls below the guaranteed amount at one or more points in time specified in the contract. The likelihood of the commitment being exercised is therefore low in practice. Where an institution's minimum value commitment is limited to a percentage of the amount that a client had originally invested into shares or units in a CIU (fixed-amount minimum value commitment) or to an amount that depends on the performance of financial indicators or market indices up to a given time, any currently positive difference between the value of the customer's shares or units and the present value of the guaranteed amount at a given date constitutes a buffer and reduces the risk for the institution to have to pay out the guaranteed amount. All those reasons justify a reduced conversion factor.

(33)

For calculating the exposure value of derivative transactions under the counterparty credit risk framework, Regulation (EU) No 575/2013 currently gives institutions the choice between three different standardised approaches: the Standardised Method (SM), the Mark-to-Market Method (MtMM) and the Original Exposure Method (OEM).

(34)

Those standardised approaches however do not recognise appropriately the risk-reducing nature of collateral in the exposures. Their calibrations are outdated and they do not reflect the high level of volatility observed during the financial crisis. Neither do they recognise appropriately netting benefits. To address those shortcomings, the BCBS decided to replace the SM and the MtMM with a new standardised approach for computing the exposure value of derivative exposures, the so-called Standardised Approach for Counterparty Credit Risk (SA-CCR). Given that the revised international standards introduced a new standardised approach that is better suited to the central clearing environment, Union law should be amended to incorporate those standards.

(35)

The SA-CCR is more risk sensitive than the SM and the MtMM and should therefore lead to own funds requirements that better reflect the risks related to institutions' derivative transactions. At the same time, for some of the institutions which currently use the MtMM the SA-CCR may prove to be too complex and burdensome to implement. For institutions that meet predefined eligibility criteria, and for institutions that are part of a group which meets those criteria on a consolidated basis, a simplified version of the SA-CCR (the ‘simplified SA-CCR’) should be introduced. Since such a simplified version will be less risk sensitive than the SA-CCR, it should be appropriately calibrated in order to ensure that it does not underestimate the exposure value of derivative transactions.

(36)

For institutions which have limited derivative exposures and which currently use the MtMM or the OEM, both the SA-CCR and the simplified SA-CCR could be too complex to implement. The OEM should therefore be reserved as an alternative approach for those institutions that meet predefined eligibility criteria, and for institutions that are part of a group which meets those criteria on a consolidated basis, but should be revised in order to address its major shortcomings.

(37)

To guide an institution in its choice of permitted approaches clear criteria should be introduced. Those criteria should be based on the size of the derivative activities of an institution which indicates the degree of sophistication an institution should be able to comply with to compute the exposure value.

(38)

During the financial crisis, trading book losses for some institutions established in the Union were substantial. For some of them, the level of capital required against those losses proved insufficient, leading them to seek extraordinary public financial support. Those observations led the BCBS to remove a number of weaknesses in the prudential treatment for trading book positions which are the own funds requirements for market risk.

(39)

In 2009, the first set of reforms was finalised at international level and transposed into Union law by means of Directive 2010/76/EU of the European Parliament and of the Council (10). The 2009 reform, however, did not address the structural weaknesses of the own funds requirements for market risk standards. The lack of clarity about the boundary between the trading and banking books gave opportunities for regulatory arbitrage while the lack of risk sensitivity of the own funds requirements for market risk did not allow to capture the full range of risks to which institutions were exposed.

(40)

The BCBS initiated the fundamental review of the trading book (FRTB) to address the structural weaknesses of the own funds requirements for market risk standards. That work led to the publication in January 2016 of a revised market risk framework. In December 2017, the Group of Central Bank Governors and Heads of Supervision agreed to extend the implementation date of the revised market risk framework in order to allow institutions additional time to develop the necessary systems infrastructure but also for the BCBS to address certain specific issues related to the framework. This includes a review of the calibrations of the standardised and internal model approaches to ensure consistency with the BCBSs original expectations. Upon finalisation of that review, and before an impact assessment is performed to assess the impact of the resulting revisions to the FRTB framework on institutions in the Union, all institutions that would be subject to the FRTB framework in the Union should start reporting the calculations derived from the revised standardised approach. To that end, in order to make the calculations for reporting requirements fully operational in line with international developments, the power to adopt an act in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission. The Commission should adopt that delegated act by 31 December 2019. Institutions should start reporting that calculation no later than one year after the adoption of that delegated act. In addition, institutions that obtain approval to use the revised internal model approach of the FRTB framework for reporting purposes should also report the calculation under the internal model approach three years after its full operationalisation.

(41)

Introducing reporting requirements for the FRTB approaches should be considered as a first step towards the full implementation of the FRTB framework in the Union. Taking into account the final revisions to the FRTB framework performed by the BCBS, the results of the impact of those revisions on institutions in the Union and on the FRTB approaches already set out in this Regulation for reporting requirements, the Commission should submit, where appropriate, a legislative proposal to the European Parliament and to the Council by 30 June 2020 on how the FRTB framework should be implemented in the Union to establish the own funds requirements for market risk.

(42)

A proportionate treatment for market risk should also apply to institutions with limited trading book activities, allowing more institutions with small trading book activities to apply the credit risk framework for banking book positions as set out under a revised version of the derogation for small trading book business. The principle of proportionality should also be taken into account when the Commission reassesses how institutions with medium-sized trading book business should calculate the own funds requirements for market risk. In particular, the calibration of the own funds requirements for market risk for institutions with medium-sized trading book business should be reviewed in light of developments at international level. In the meantime, institutions with medium-sized trading book business, as well institutions with small trading book business, should be exempted from the reporting requirements under the FRTB.

(43)

The large exposures framework should be strengthened to improve the ability of institutions to absorb losses and to better comply with international standards. To that end, a higher quality of capital should be used as a capital base for the calculation of the large exposures limit and exposures to credit derivatives should be calculated in accordance with the SA-CCR. Moreover, the limit on the exposures that G-SIIs may have towards other G-SIIs should be lowered to reduce systemic risks related to interlinks among large institutions and the impact that the default of G-SIIs counterparty may have on financial stability.

(44)

While the liquidity coverage ratio (LCR) ensures that institutions will be able to withstand severe stress on a short-term basis, it does not ensure that those institutions will have a stable funding structure on a longer-term horizon. It became thus apparent that a detailed binding stable funding requirement should be developed at Union level which should be met at all times with the aim of preventing excessive maturity mismatches between assets and liabilities and overreliance on short-term wholesale funding.

(45)

Consistent with the BCBSs stable funding standard, rules should, therefore, be adopted to define the stable funding requirement as a ratio of an institution's amount of available stable funding to its amount of required stable funding over a one-year horizon. That binding requirement should be called the net stable funding ratio (NSFR) requirement. The amount of available stable funding should be calculated by multiplying the institution's liabilities and own funds by appropriate factors that reflect their degree of reliability over the one-year horizon of the NSFR. The amount of required stable funding should be calculated by multiplying the institution's assets and off-balance-sheet exposures by appropriate factors that reflect their liquidity characteristics and residual maturities over the one-year horizon of the NSFR.

(46)

The NSFR should be expressed as a percentage and set at a minimum level of 100 %, which indicates that an institution holds sufficient stable funding to meet its funding needs over a one-year horizon under both normal and stressed conditions. Should its NSFR fall below the 100 % level, the institution should comply with the specific requirements laid down in Regulation (EU) No 575/2013 for a timely restoration of its NSFR to the minimum level. The application of supervisory measures in cases of non-compliance with the NSFR requirement should not be automatic. Competent authorities should instead assess the reasons for non-compliance with the NSFR requirement before defining potential supervisory measures.

(47)

In accordance with the recommendations made by EBA in its report of 15 December 2015 on net stable funding requirements under Article 510 of Regulation (EU) No 575/2013 the rules for calculating the NSFR should be closely aligned with the BCBSs standards, including developments in those standards regarding the treatment of derivative transactions. The necessity to take into account some European specificities to ensure that the NSFR requirement does not hinder the financing of the European real economy, however, justifies adopting some adjustments to the NSFR developed by the BCBS for the definition of the European NSFR requirement. Those adjustments due to the European context are recommended by EBA and relate mainly to specific treatments for: pass-through models in general and covered bonds issuance in particular; trade finance activities; centralised regulated savings; residential guaranteed loans; credit unions; CCPs and central securities depositories (CSDs) not undertaking any significant maturity transformation. Those proposed specific treatments broadly reflect the preferential treatment granted to those activities in the European LCR compared to the LCR developed by the BCBS. Because the NSFR complements the LCR, those two ratios should be consistent in their definition and calibration. This is in particular the case for required stable funding factors applied to LCR high quality liquid assets for the calculation of the NSFR that should reflect the definitions and haircuts of the European LCR, regardless of compliance with the general and operational requirements set out for the LCR calculation that are not appropriate in the one-year horizon of the NSFR calculation.

(48)

Beyond European specificities, the treatment of derivative transactions in the NSFR developed by the BCBS could have an important impact on institutions' derivative activities and, consequently, on European financial markets and on the access to some operations for end-users. Derivative transactions and some interlinked transactions, including clearing activities, could be unduly and disproportionately impacted by the introduction of the NSFR developed by BCBS without having been subject to extensive quantitative impact studies and public consultation. The additional requirement to hold between 5 % and 20 % of stable funding against gross derivative liabilities is very widely seen as a rough measure to capture additional funding risks related to the potential increase of derivative liabilities over a one-year horizon and is under review at BCBS level. That requirement, introduced at a level of 5 % in line with the discretion left to jurisdictions by the BCBS to reduce the required stable funding factor on gross derivative liabilities, could then be amended to take into account developments at the BCBS level and to avoid possible unintended consequences such as hindering the good functioning of the European financial markets and the provision of risk hedging tools to institutions and end-users, including corporates, to ensure their financing as an objective of the capital markets union.

(49)

The asymmetric treatment by the BCBS of short-term funding, such as repos (stable funding not recognised) and short-term lending, such as reverse repos (some stable funding required – 10 % if collateralised by level 1 high quality liquid assets (HQLA) as defined in the LCR and 15 % for other transactions) with financial customers is intended to discourage extensive short-term funding links between financial customers, because such links are a source of interconnection and make it more difficult to resolve a particular institution without a contagion of risk to the rest of the financial system in case of failure. However, the calibration of the asymmetry is conservative and may affect the liquidity of securities usually used as collateral in short-term transactions, in particular sovereign bonds, as institutions will probably reduce the volume of their operations on repo markets. It could also undermine market-making activities, because repo markets facilitate the management of the necessary inventory, thereby contradicting the objectives of the capital markets union. To allow for sufficient time for institutions to progressively adapt to that conservative calibration, a transitional period, during which the required stable funding factors would be temporarily reduced, should be introduced. The size of the temporary reduction in the required stable funding factors should depend on the types of transactions and on the type of collateral used in those transactions.

(50)

In addition to the temporary recalibration of the BCBS required stable funding factor that applies to short-term reverse repo transactions with financial customers secured by sovereign bonds, some other adjustments have proven to be necessary to ensure that the introduction of the NSFR requirement does not hinder the liquidity of sovereign bonds markets. The BCBS 5 % required stable funding factor that applies to level 1 HQLA, including sovereign bonds, implies that institutions would need to hold ready available long-term unsecured funding in such percentage regardless of the time during which they expect to hold such sovereign bonds. This could potentially further incentivise institutions to deposit cash at central banks rather than to act as primary dealers and provide liquidity in sovereign bond markets. Moreover, it is not consistent with the LCR that recognises the full liquidity of those assets even in time of severe liquidity stress (0 % haircut). The required stable funding factor of level 1 HQLA as defined in the European LCR, excluding extremely high quality covered bonds, should therefore be reduced from 5 % to 0 %.

(51)

Furthermore, all level 1 HQLA as defined in the European LCR, excluding extremely high quality covered bonds, received as variation margin in derivative contracts should offset derivative assets while the NSFR developed by the BCBS only accepts cash respecting the conditions of the leverage framework to offset derivative assets. That broader recognition of assets received as variation margin will contribute to the liquidity of sovereign bonds markets, avoid penalising end-users that hold high amounts of sovereign bonds but few cash (like pension funds) and avoid adding additional tensions on the demand for cash on repo markets.

(52)

The NSFR requirement should apply to institutions both on an individual and a consolidated basis, unless competent authorities waive the application of the NSFR requirement on an individual basis. Where the application of the NSFR requirement on an individual basis has not been waived, transactions between two institutions belonging to the same group or to the same institutional protection scheme should in principle receive symmetrical available and required stable funding factors to avoid a loss of funding in the internal market and to not impede the effective liquidity management in European groups where liquidity is centrally managed. Such preferential symmetrical treatments should only be granted to intragroup transactions where all the necessary safeguards are in place, on the basis of additional criteria for cross-border transactions, and only with the prior approval of the competent authorities involved as it cannot be assumed that institutions experiencing difficulties in meeting their payment obligations will always receive funding support from other undertakings belonging to the same group or to the same institutional protection scheme.

(53)

Small and non-complex institutions should be given the opportunity to use a simplified version of the NSFR requirement. A simplified, less granular version of the NSFR should involve collecting a limited number of data points, which would, reduce the complexity of the calculation for those institutions in accordance with the principle of proportionality, while ensuring that those institutions still maintain a sufficient stable funding factor by means of a calibration that should be at least as conservative as the one of the fully-fledged NSFR requirement. However, competent authorities should be able to require small and non-complex institutions to apply the fully-fledged NSFR requirement instead of the simplified version.

(54)

The consolidation of subsidiaries in third countries should take due account of the stable funding requirements applicable in those countries. Accordingly, consolidation rules in the Union should not introduce a more favourable treatment for available and required stable funding in third-country subsidiaries than the treatment which is available under the national law of those third countries.

(55)

Institutions should be required to report to their competent authorities in the reporting currency the binding detailed NSFR for all items and separately for items denominated in each significant currency to ensure an appropriate monitoring of possible currencies mismatches. The NSFR requirement should not subject institutions to any double reporting requirements or to reporting requirements not in line with the rules in force and institutions should be granted sufficient time to get prepared to the entry into force of new reporting requirements.

(56)

As the provision of meaningful and comparable information to the market on institutions' common key risk metrics is a fundamental tenet of a sound banking system, it is essential to reduce information asymmetry as much as possible and facilitate comparability of credit institutions' risk profiles within and across jurisdictions. The BCBS published the revised Pillar 3 disclosure standards in January 2015 to enhance the comparability, quality and consistency of institutions' regulatory disclosures to the market. It is, therefore, appropriate to amend the existing disclosure requirements to implement those new international standards.

(57)

Respondents to the Commission's call for evidence on the EU regulatory framework for financial services regarded current disclosure requirements as disproportionate and burdensome for smaller institutions. Without prejudice to aligning disclosures more closely with international standards, small and non-complex institutions should be required to produce less frequent and detailed disclosures than their larger peers, thus reducing the administrative burden to which they are subject.

(58)

Some clarifications should be made to the remuneration disclosures. The disclosure requirements relating to remuneration as set out in this Regulation should be compatible with the aims of the remuneration rules, namely to establish and maintain, for categories of staff whose professional activities have a material impact on the institution's risk profile, remuneration policies and practices that are consistent with effective risk management. Furthermore, institutions benefitting from a derogation from certain remuneration rules should be required to disclose information concerning such derogation.

(59)

Small and medium-sized enterprises (SMEs) are one of the pillars of the Union's economy as they play a fundamental role in creating economic growth and providing employment. Given the fact that SMEs carry a lower systematic risk than larger corporates, capital requirements for SME exposures should be lower than those for large corporates to ensure an optimal bank financing of SMEs. Currently, SME exposures of up to EUR 1,5 million are subject to a 23,81 % reduction in risk weighted exposure amount. Given that the threshold of EUR 1,5 million for an SME exposure is not indicative of a change in riskiness of an SME, reduction in capital requirements should be extended to SME exposures of up to EUR 2,5 million and the part of an SME exposure exceeding EUR 2,5 million should be subject to a 15 % reduction in capital requirements.

(60)

Investments in infrastructure are essential to strengthen Europe's competitiveness and to stimulate job creation. The recovery and future growth of the Union economy depends largely on the availability of capital for strategic investments of European significance in infrastructure, in particular broadband and energy networks, as well as transport infrastructure including electromobility infrastructure, particularly in industrial centres; education, research and innovation; and renewable energy and energy efficiency. The Investment Plan for Europe aims at promoting additional funding to viable infrastructure projects through, inter alia, the mobilisation of additional private sources of finance. For a number of potential investors the main concern is the perceived absence of viable projects and the limited capacity to properly evaluate risk given their intrinsically complex nature.

(61)

In order to encourage private and public investments in infrastructure projects it is essential to lay down a regulatory environment that is able to promote high quality infrastructure projects and reduce risks for investors. In particular, own funds requirements for exposures to infrastructure projects should be reduced, provided they comply with a set of criteria able to reduce their risk profile and enhance predictability of cash flows. The Commission should review the provision on high quality infrastructure projects in order to assess: its impact on the volume of infrastructure investments by institutions and the quality of investments having regard to Union's objectives to move towards a low-carbon, climate-resilient and circular economy; and its adequacy from a prudential standpoint. The Commission should also consider whether the scope of those provisions should be extended to infrastructure investments by corporates.

(62)

As recommended by EBA, 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 (11) and the European Central Bank, CCPs, due to their distinct business model, should be exempted from the leverage ratio requirement, because they are required to obtain a banking licence simply for the reason of being granted access to overnight central bank facilities and to fulfil their roles as key vehicles for the achievement of important political and regulatory objectives in the financial sector.

(63)

Furthermore, exposures of CSDs authorised as credit institutions and exposures of credit institutions designated in accordance with Article 54(2) of Regulation (EU) No 909/2014 of the European Parliament and of the Council (12), such as cash balances resulting from the provision of cash accounts to, and accepting deposits from, participants in a securities settlement system and holders of securities accounts, should be excluded from the total exposure measure as they do not create a risk of excessive leverage as those cash balances are used solely for the purpose of settling transaction in securities settlement systems.

(64)

Given that the guidance on additional own funds referred to in Directive 2013/36/EU is a capital target that reflects supervisory expectations, it should not be subject either to mandatory disclosure or to the prohibition of disclosure by competent authorities under Regulation (EU) No 575/2013 or that Directive.

(65)

In order to ensure an appropriate definition of some specific technical provisions of Regulation (EU) No 575/2013 and to take into account possible developments in standards at international level, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission: in respect of amending the list of products or services the assets and liabilities of which can be considered as interdependent; in respect of amending the list of multilateral development banks; in respect of amending market risk reporting requirements; and in respect of specifying additional liquidity requirements. Before the adoption of those acts it is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Inter-institutional Agreement of 13 April 2016 on Better Law-Making (13). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(66)

Technical standards should ensure the consistent harmonisation of the requirements laid down in Regulation (EU) No 575/2013. As a body with highly specialised expertise, EBA should be mandated to develop draft regulatory technical standards which do not involve policy choices, for submission to the Commission. Regulatory technical standards should be developed in the areas of prudential consolidation, own funds, TLAC, the treatment of exposures secured by mortgages on immovable property, equity investment into funds, the calculation of loss given defaults under the Internal Ratings Based Approach for credit risk, market risk, large exposures and liquidity. The Commission should be empowered to adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. The Commission and EBA should ensure that those standards and requirements can be applied by all institutions concerned in a manner that is proportionate to the nature, scale and complexity of those institutions and their activities.

(67)

To facilitate the comparability of disclosures, EBA should be mandated to develop draft implementing technical standards establishing standardised disclosure templates covering all substantial disclosure requirements set out in Regulation (EU) No 575/2013. When developing those standards, EBA should take into account the size and complexity of institutions, as well as the nature and level of risk of their activities. EBA should report on where proportionality of the Union supervisory reporting package could be improved in terms of scope, granularity or frequency and, at least, submit concrete recommendations as to how the average compliance costs for small institutions can be reduced by ideally 20 % or more and at least 10 % by means of appropriate simplification of requirements. EBA should be mandated to develop draft implementing technical standards that are to accompany that report. The Commission should be empowered to adopt those implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1093/2010.

(68)

In order to facilitate institutions' compliance with the rules set out in this Regulation and in Directive 2013/36/EU, as well as with regulatory technical standards, implementing technical standards, guidelines and templates adopted to implement those rules, EBA should develop an IT tool aimed at guiding institutions through the relevant provisions, standards, guidelines and templates in relation to their size and business model.

(69)

In addition to the report on possible cost reductions, by 28 June 2020 EBA should – in cooperation with all relevant authorities, namely those authorities that are responsible for prudential supervision, resolution and deposit guarantee schemes and in particular the European System of Central Banks (ESCB) – prepare a feasibility report regarding the development of a consistent and integrated system for collecting statistical data, resolution data and prudential data. Taking into account the previous work of the ESCB on integrated data collection, that report should provide a cost and benefit analysis regarding the creation of a central data collection point for an integrated data reporting system as regards statistical and regulatory data for all institutions located in the Union. Such a system should, amongst other things, use consistent definitions and standards for the data to be collected, and guarantee a reliable and permanent exchange of information between the competent authorities thereby ensuring strict confidentiality of the data collected, strong authentication and management of access right to the system as well as cybersecurity. By centralising and harmonising the European reporting landscape in such a way, the goal is to prevent multiple requests for similar or identical data from different authorities and thereby to significantly reduce the administrative and financial burden, both for the competent authorities and for the institutions. If appropriate, and taking into account the feasibility report by EBA, the Commission should submit to the European Parliament and to the Council a legislative proposal.

(70)

The relevant competent or designated authorities should aim at avoiding any form of duplicative or inconsistent use of the macroprudential powers laid down in Regulation (EU) No 575/2013 and Directive 2013/36/EU. In particular, the relevant competent or designated authorities should duly consider whether the measures that they take under Article 124, 164 or 458 of Regulation (EU) No 575/2013 duplicate or are inconsistent with other existing or upcoming measures under Article 133 of Directive 2013/36/EU.

(71)

In view of the amendments to the treatment of exposures to QCCPs, specifically to the treatment of institutions' contributions to QCCPs' default funds, laid down in this Regulation, the relevant provisions in Regulation (EU) No 648/2012 (14) which were introduced therein by Regulation (EU) No 575/2013 and which spell out the calculation of the hypothetical capital of CCPs that is then used by institutions to calculate their own funds requirements should therefore be amended accordingly.

(72)

Since the objectives of this Regulation, namely to reinforce and refine already existing Union legal acts ensuring uniform prudential requirements that apply to institutions throughout the Union, cannot be sufficiently achieved by the Member States but can rather, by reason of their scale and effects, 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 Regulation does not go beyond what is necessary in order to achieve those objectives.

(73)

In order to allow for orderly divesting from insurance holdings which are not subject to supplementary supervision, an amended version of the transitional provisions in relation to the exemption from deducting equity holdings in insurance companies should be applied, with retroactive effect from 1 January 2019.

(74)

Regulation (EU) No 575/2013 should therefore be amended accordingly,

HAVE ADOPTED THIS REGULATION:

Article 1

Amendments to Regulation (EU) No 575/2013

Regulation (EU) No 575/2013 is amended as follows:

(1)

Articles 1 and 2 are replaced by the following:

‘Article 1

Scope

This Regulation lays down uniform rules concerning general prudential requirements that institutions, financial holding companies and mixed financial holding companies supervised under Directive 2013/36/EU shall comply with in relation to the following items:

(a)

own funds requirements relating to entirely quantifiable, uniform and standardised elements of credit risk, market risk, operational risk, settlement risk and leverage;

(b)

requirements limiting large exposures;

(c)

liquidity requirements relating to entirely quantifiable, uniform and standardised elements of liquidity risk;

(d)

reporting requirements related to points (a), (b) and (c);

(e)

public disclosure requirements.

This Regulation lays down uniform rules concerning the own funds and eligible liabilities requirements that resolution entities that are global systemically important institutions (G-SIIs) or part of G-SIIs and material subsidiaries of non-EU G-SIIs shall comply with.

This Regulation does not govern publication requirements for competent authorities in the field of prudential regulation and supervision of institutions as set out in Directive 2013/36/EU.

Article 2

Supervisory powers

1.   For the purpose of ensuring compliance with this Regulation, competent authorities shall have the powers and shall follow the procedures set out in Directive 2013/36/EU and in this Regulation.

2.   For the purpose of ensuring compliance with this Regulation, resolution authorities shall have the powers and shall follow the procedures set out in Directive 2014/59/EU of the European Parliament and of the Council (*1) and in this Regulation.

3.   For the purpose of ensuring compliance with the requirements concerning own funds and eligible liabilities, competent authorities and resolution authorities shall cooperate.

4.   For the purpose of ensuring compliance within their respective competences, the Single Resolution Board established by Article 42 of Regulation (EU) No 806/2014 of the European Parliament and of the Council (*2), and the European Central Bank with regard to matters relating to the tasks conferred on it by Council Regulation (EU) No 1024/2013 (*3), shall ensure the regular and reliable exchange of relevant information.

(*1)  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190)."

(*2)  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)."

(*3)  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).’;"

(2)

Article 4 is amended as follows:

(a)

paragraph 1 is amended as follows:

(i)

point (7) is replaced by the following:

‘(7)

‘collective investment undertaking’ or ‘CIU’ means a UCITS as defined in Article 1(2) of Directive 2009/65/EC of the European Parliament and of the Council (*4) or an alternative investment fund (AIF) as defined in point (a) of Article 4(1) of Directive 2011/61/EU of the European Parliament and of the Council (*5);

(*4)  Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32)."

(*5)  Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).’;"

(ii)

point (20) is replaced by the following:

‘(20)

‘financial holding company’ means a financial institution, the subsidiaries of which are exclusively or mainly institutions or financial institutions, and which is not a mixed financial holding company; the subsidiaries of a financial institution are mainly institutions or financial institutions where at least one of them is an institution and where more than 50 % of the financial institution's equity, consolidated assets, revenues, personnel or other indicator considered relevant by the competent authority are associated with subsidiaries that are institutions or financial institutions;’;

(iii)

point (26) is replaced by the following:

‘(26)

‘financial institution’ means an undertaking other than an institution and other than a pure industrial holding company, the principal activity of which is to acquire holdings or to pursue one or more of the activities listed in points 2 to 12 and point 15 of Annex I to Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, a payment institution as defined in point (4) of Article 4 of Directive (EU) 2015/2366 of the European Parliament and of the Council (*6), and an asset management company, but excluding insurance holding companies and mixed-activity insurance holding companies as defined, respectively, in points (f) and (g) of Article 212(1) of Directive 2009/138/EC;

(*6)  Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (OJ L 337, 23.12.2015, p. 35).’;"

(iv)

point (28) is replaced by the following:

‘(28)

‘parent institution in a Member State’ means an institution in a Member State which has an institution, a financial institution or an ancillary services undertaking as a subsidiary or which holds a participation in an institution, financial institution or ancillary services undertaking, and which is not itself a subsidiary of another institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State;’;

(v)

the following points are inserted:

‘(29a)

‘parent investment firm in a Member State’ means a parent institution in a Member State that is an investment firm;

(29b)

‘EU parent investment firm’ means an EU parent institution that is an investment firm;

(29c)

‘parent credit institution in a Member State’ means a parent institution in a Member State that is a credit institution;

(29d)

‘EU parent credit institution’ means an EU parent institution that is a credit institution;’;

(vi)

in point (39), the following paragraph is added:

‘Two or more natural or legal persons who fulfil the conditions set out in point (a) or (b) because of their direct exposure to the same CCP for clearing activities purposes are not considered as constituting a group of connected clients;’;

(vii)

point (41) is replaced by the following:

‘(41)

‘consolidating supervisor’ means a competent authority responsible for the exercise of supervision on a consolidated basis in accordance with Article 111 of Directive 2013/36/EU;’;

(viii)

in point (71), the introductory phrase in point (b) is replaced by the following:

‘(b)

for the purposes of Article 97 it means the sum of the following:’;

(ix)

in point (72), point (a) is replaced by the following:

‘(a)

it is a regulated market or a third-country market that is considered to be equivalent to a regulated market in accordance with the procedure set out in point (a) of Article 25(4) of Directive 2014/65/EU of the European Parliament and of the Council (*7);

(*7)  Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).’;"

(x)

point (86) is replaced by the following:

‘(86)

‘trading book’ means all positions in financial instruments and commodities held by an institution either with trading intent or to hedge positions held with trading intent in accordance with Article 104;’;

(xi)

point (91) is replaced by the following:

‘(91)

‘trade exposure’ means a current exposure, including a variation margin due to the clearing member but not yet received, and any potential future exposure of a clearing member or a client, to a CCP arising from contracts and transactions listed in points (a), (b) and (c) of Article 301(1), as well as initial margin;’;

(xii)

point (96) is replaced by the following:

‘(96)

‘internal hedge’ means a position that materially offsets the component risk elements between a trading book position and one or more non-trading book positions or between two trading desks;’;

(xiii)

in point (127), point (a) is replaced by the following:

‘(a)

the institutions fall within the same institutional protection scheme as referred to in Article 113(7) or are permanently affiliated with a network to a central body;’;

(xiv)

point (128) is replaced by the following:

‘(128)

‘distributable items’ means the amount of the profits at the end of the last financial year plus any profits brought forward and reserves available for that purpose, before distributions to holders of own funds instruments, less any losses brought forward, any profits which are non-distributable pursuant to Union or national law or the institution's by-laws and any sums placed in non-distributable reserves in accordance with national law or the statutes of the institution, in each case with respect to the specific category of own funds instruments to which Union or national law, institutions' by-laws, or statutes relate; such profits, losses and reserves being determined on the basis of the individual accounts of the institution and not on the basis of the consolidated accounts;’;

(xv)

the following points are added:

‘(130)

‘resolution authority’ means a resolution authority as defined in point (18) of Article 2(1) of Directive 2014/59/EU;

(131)

‘resolution entity’ means a resolution entity as defined in point (83a) of Article 2(1) of Directive 2014/59/EU;

(132)

‘resolution group’ means a resolution group as defined in point (83b) of Article 2(1) of Directive 2014/59/EU;

(133)

‘global systemically important institution’ or ‘G-SII’ means a G-SII that has been identified in accordance with Article 131(1) and (2) of Directive 2013/36/EU;

(134)

‘non-EU global systemically important institution’ or ‘non-EU G-SII’ means a global systemically important banking group or a bank (G-SIBs) that is not a G-SII and that is included in the list of G-SIBs published by the Financial Stability Board, as regularly updated;

(135)

‘material subsidiary’ means a subsidiary that on an individual or consolidated basis meets any of the following conditions:

(a)

the subsidiary holds more than 5 % of the consolidated risk-weighted assets of its original parent undertaking;

(b)

the subsidiary generates more than 5 % of the total operating income of its original parent undertaking;

(c)

the total exposure measure, referred to in Article 429(4) of this Regulation, of the subsidiary is more than 5 % of the consolidated total exposure measure of its original parent undertaking;

for the purpose of determining the material subsidiary, where Article 21b(2) of Directive 2013/36/EU applies, the two intermediate EU parent undertakings shall count as a single subsidiary on the basis of their consolidated situation;

(136)

‘G-SII entity’ means an entity with legal personality that is a G-SII or is part of a G-SII or of a non-EU G-SII;

(137)

‘bail-in tool’ means a bail-in tool as defined in point (57) of Article 2(1) of Directive 2014/59/EU;

(138)

‘group’ means a group of undertakings of which at least one is an institution and which consists of a parent undertaking and its subsidiaries, or of undertakings that are related to each other as set out in Article 22 of Directive 2013/34/EU of the European Parliament and of the Council (*8);

(139)

‘securities financing transaction’ means a repurchase transaction, a securities or commodities lending or borrowing transaction, or a margin lending transaction;

(140)

‘initial margin’ or ‘IM’ means any collateral, other than variation margin, collected from or posted to an entity to cover the current and potential future exposure of a transaction or of a portfolio of transactions in the period needed to liquidate those transactions, or to re-hedge their market risk, following the default of the counterparty to the transaction or portfolio of transactions;

(141)

‘market risk’ means the risk of losses arising from movements in market prices, including in foreign exchange rates or commodity prices;

(142)

‘foreign exchange risk’ means the risk of losses arising from movements in foreign exchange rates;

(143)

‘commodity risk’ means the risk of losses arising from movements in commodity prices;

(144)

‘trading desk’ means a well-identified group of dealers set up by the institution to jointly manage a portfolio of trading book positions in accordance with a well-defined and consistent business strategy and operating under the same risk management structure;

(145)

‘small and non-complex institution’ means an institution that meets all the following conditions:

(a)

it is not a large institution;

(b)

the total value of its assets on an individual basis or, where applicable, on a consolidated basis in accordance with this Regulation and Directive 2013/36/EU is on average equal to or less than the threshold of EUR 5 billion over the four-year period immediately preceding the current annual reporting period; Member States may lower that threshold;

(c)

it is not subject to any obligations, or is subject to simplified obligations, in relation to recovery and resolution planning in accordance with Article 4 of Directive 2014/59/EU;

(d)

its trading book business is classified as small within the meaning of Article 94(1);

(e)

the total value of its derivative positions held with trading intent does not exceed 2 % of its total on- and off-balance-sheet assets and the total value of its overall derivative positions does not exceed 5 %, both calculated in accordance with Article 273a(3);

(f)

more than 75 % of both the institution's consolidated total assets and liabilities, excluding in both cases the intragroup exposures, relate to activities with counterparties located in the European Economic Area;

(g)

the institution does not use internal models to meet the prudential requirements in accordance with this Regulation except for subsidiaries using internal models developed at the group level, provided that the group is subject to the disclosure requirements laid down in Article 433a or 433c on a consolidated basis;

(h)

the institution has not communicated to the competent authority an objection to being classified as a small and non-complex institution;

(i)

the competent authority has not decided that the institution is not to be considered a small and non-complex institution on the basis of an analysis of its size, interconnectedness, complexity or risk profile;

(146)

‘large institution’ means an institution that meets any of the following conditions:

(a)

it is a G-SII;

(b)

it has been identified as an other systemically important institution (O-SII) in accordance with Article 131(1) and (3) of Directive 2013/36/EU;

(c)

it is, in the Member State in which it is established, one of the three largest institutions in terms of total value of assets;

(d)

the total value of its assets on an individual basis or, where applicable, on the basis of its consolidated situation in accordance with this Regulation and Directive 2013/36/EU is equal to or greater than EUR 30 billion;

(147)

‘large subsidiary’ means a subsidiary that qualifies as a large institution;

(148)

‘non-listed institution’ means an institution that has not issued securities that are admitted to trading on a regulated market of any Member State, within the meaning of point (21) of Article 4(1) of Directive 2014/65/EU;

(149)

‘financial report’ means, for the purposes of Part Eight, a financial report within the meaning of Articles 4 and 5 of Directive 2004/109/EC of the European Parliament and of the Council (*9).

(*8)  Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19)."

(*9)  Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p. 38).’;"

(b)

the following paragraph is added:

‘4.   EBA shall develop draft regulatory technical standards specifying in which circumstances the conditions set out in point (39) of paragraph 1 are met.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2020.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’;

(3)

Article 6 is amended as follows:

(a)

paragraph 1 is replaced by the following:

‘1.   Institutions shall comply with the obligations laid down in Parts Two, Three, Four, Seven, Seven A and Eight of this Regulation and in Chapter 2 of Regulation (EU) 2017/2402 on an individual basis, with the exception of point (d) of Article 430(1) of this Regulation.’;

(b)

the following paragraph is inserted:

‘1a.   By way of derogation from paragraph 1 of this Article, only institutions identified as resolution entities that are also G-SIIs or that are part of a G-SII, and that do not have subsidiaries shall comply with the requirement laid down in Article 92a on an individual basis.

Material subsidiaries of a non-EU G-SII shall comply with Article 92b on an individual basis, where they meet all the following conditions:

(a)

they are not resolution entities;

(b)

they do not have subsidiaries;

(c)

they are not the subsidiaries of an EU parent institution.’;

(c)

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

‘3.   No institution which is either a parent undertaking or a subsidiary, and no institution included in the consolidation pursuant to Article 18, shall be required to comply with the obligations laid down in Part Eight on an individual basis.

By way of derogation from the first subparagraph of this paragraph, the institutions referred to in paragraph 1a of this Article shall comply with Article 437a and point (h) of Article 447 on an individual basis.

4.   Credit institutions, and investment firms that are authorised to provide the investment services and activities listed in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU, shall comply with the obligations laid down in Part Six and in point (d) of Article 430(1) of this Regulation on an individual basis.

The following institutions shall not be required to comply with Article 413(1) and the associated liquidity reporting requirements laid down in Part Seven A of this Regulation:

(a)

institutions which are also authorised in accordance with Article 14 of Regulation (EU) No 648/2012;

(b)

institutions which are also authorised in accordance with Article 16 and point (a) of Article 54(2) of Regulation (EU) No 909/2014 of the European Parliament and of the Council (*10), provided that they do not perform any significant maturity transformation; and

(c)

institutions which are designated in accordance with point (b) of Article 54(2) of Regulation (EU) No 909/2014, provided that:

(i)

their activities are limited to offering banking-type services, which are listed in points (a) to (e) of Section C of the Annex to that Regulation, to central securities depositories authorised in accordance with Article 16 of that Regulation; and

(ii)

they do not perform any significant maturity transformation.

Pending the report from the Commission in accordance with Article 508(3), competent authorities may exempt investment firms from complying with the obligations laid down in Part Six and point (d) of Article 430(1) taking into account the nature, scale and complexity of their activities.

5.   Investment firms referred to in Articles 95(1) and 96(1) of this Regulation, institutions for which competent authorities have exercised the derogation specified in Article 7(1) or (3) of this Regulation, and institutions which are also authorised in accordance with Article 14 of Regulation (EU) No 648/2012, shall not be required to comply with the obligations laid down in Part Seven and the associated leverage ratio reporting requirements laid down in Part Seven A of this Regulation on an individual basis.

(*10)  Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (OJ L 257, 28.8.2014, p. 1).’;"

(4)

Article 8 is amended as follows:

(a)

in paragraph 1, point (b) is replaced by the following:

‘(b)

the parent institution on a consolidated basis or the subsidiary institution on a sub-consolidated basis monitors and has oversight at all times over the liquidity positions of all institutions within the group or sub-group, that are subject to the waiver, monitors and has oversight at all times over the funding positions of all institutions within the group or sub-group where the net stable funding ratio (NSFR) requirement set out in Title IV of Part Six is waived, and ensures a sufficient level of liquidity, and of stable funding where the NSFR requirement set out in Title IV of Part Six is waived, for all of those institutions;’;

(b)

in paragraph 3, points (b) and (c) are replaced by the following:

‘(b)

the distribution of amounts, location and ownership of the required liquid assets to be held within the single liquidity sub-group, where the liquidity coverage ratio (LCR) requirement as laid down in the delegated act referred to in Article 460(1) is waived, and the distribution of amounts and location of available stable funding within the single liquidity sub-group, where the NSFR requirement set out in Title IV of Part Six is waived;

(c)

the determination of minimum amounts of liquid assets to be held by institutions for which the application of the LCR requirement as laid down in the delegated act referred to in Article 460(1) is waived and the determination of minimum amounts of available stable funding to be held by institutions for which the application of the NSFR requirement set out in Title IV of Part Six is waived;’;

(c)

the following paragraph is added:

‘6.   Where, in accordance with this Article, a competent authority waives, in part or in full, the application of Part Six for an institution, it may also waive the application of the associated liquidity reporting requirements under point (d) of Article 430(1) for that institution.’;

(5)

in Article 10(1), the introductory phrase of the first subparagraph is replaced by the following:

‘1.   Competent authorities may, in accordance with national law, partially or fully waive the application of the requirements set out in Parts Two to Eight of this Regulation and Chapter 2 of Regulation (EU) 2017/2402 to one or more credit institutions situated in the same Member State and which are permanently affiliated to a central body which supervises them and which is established in the same Member State, if the following conditions are met:’;

(6)

Article 11 is amended as follows:

(a)

paragraphs 1 and 2 are replaced by the following:

‘1.   Parent institutions in a Member State shall comply, to the extent and in the manner set out in Article 18, with the obligations laid down in Parts Two, Three, Four, Seven and Seven A on the basis of their consolidated situation, with the exception of point (d) of Article 430(1). The parent undertakings and their subsidiaries that are subject to this Regulation shall set up a proper organisational structure and appropriate internal control mechanisms in order to ensure that the data required for consolidation are duly processed and forwarded. In particular, they shall ensure that subsidiaries not subject to this Regulation implement arrangements, processes and mechanisms to ensure proper consolidation.

2.   For the purpose of ensuring that the requirements of this Regulation are applied on a consolidated basis, the terms ‘institution’, ‘parent institution in a Member State’, ‘EU parent institution’ and ‘parent undertaking’, as the case may be, shall also refer to:

(a)

a financial holding company or mixed financial holding company approved in accordance with Article 21a of Directive 2013/36/EU;

(b)

a designated institution controlled by a parent financial holding company or parent mixed financial holding company where such a parent is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU;

(c)

a financial holding company, mixed financial holding company or institution designated in accordance with point (d) of Article 21a(6) of Directive 2013/36/EU.

The consolidated situation of an undertaking referred to in point (b) of the first subparagraph of this paragraph shall be the consolidated situation of the parent financial holding company or the parent mixed financial holding company that is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU. The consolidated situation of an undertaking referred to in point (c) of the first subparagraph of this paragraph shall be the consolidated situation of its parent financial holding company or parent mixed financial holding company.’;

(b)

paragraph 3 is deleted;

(c)

the following paragraph is inserted:

‘3a.   By way of derogation from paragraph 1 of this Article, only parent institutions identified as resolution entities that are G-SIIs, part of a G-SII or part of a non-EU G-SII shall comply with Article 92a of this Regulation on a consolidated basis, to the extent and in the manner set out in Article 18 of this Regulation.

Only EU parent undertakings that are a material subsidiary of a non-EU G-SII and are not resolution entities shall comply with Article 92b of this Regulation on a consolidated basis to the extent and in the manner set out in Article 18 of this Regulation. Where Article 21b(2) of Directive 2013/36/EU applies, the two intermediate EU parent undertakings jointly identified as a material subsidiary shall each comply with Article 92b of this Regulation on the basis of their consolidated situation.’;

(d)

paragraphs 4 and 5 are replaced by the following:

‘4.   EU parent institutions shall comply with Part Six and point (d) of Article 430(1) of this Regulation on the basis of their consolidated situation where the group comprises one or more credit institutions or investment firms that are authorised to provide the investment services and activities listed in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU. Pending the report from the Commission referred to in Article 508(2) of this Regulation, and where the group comprises only investment firms, competent authorities may exempt the EU parent institutions from compliance with Part Six and point (d) of Article 430(1) of this Regulation on a consolidated basis, taking into account the nature, scale and complexity of the investment firm's activities.

Where a waiver has been granted under Article 8(1) to (5), the institutions and, where applicable, the financial holding companies or mixed financial holding companies that are part of a liquidity sub-group shall comply with Part Six and point (d) of Article 430(1) on a consolidated basis or on the sub-consolidated basis of the liquidity sub-group.

5.   Where Article 10 of this Regulation applies, the central body referred to in that Article shall comply with the requirements of Parts Two to Eight of this Regulation and Chapter 2 of Regulation (EU) 2017/2402 on the basis of the consolidated situation of the whole as constituted by the central body together with its affiliated institutions.

6.   In addition to the requirements laid down in paragraphs 1 to 5 of this Article, and without prejudice to other provisions of this Regulation and Directive 2013/36/EU, when it is justified for supervisory purposes by the specificities of the risk or of the capital structure of an institution or where Member States adopt national laws requiring the structural separation of activities within a banking group, competent authorities may require an institution to comply with the obligations laid down in Parts Two to Eight of this Regulation and in Title VII of Directive 2013/36/EU on a sub-consolidated basis.

The application of the approach set out in the first subparagraph shall be without prejudice to effective supervision on a consolidated basis and shall neither entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole nor form or create an obstacle to the functioning of the internal market.’;

(7)

Article 12 is deleted;

(8)

the following article is inserted:

‘Article 12a

Consolidated calculation for G-SIIs with multiple resolution entities

Where at least two G-SII entities belonging to the same G-SII are resolution entities, the EU parent institution of that G-SII shall calculate the amount of own funds and eligible liabilities referred to in point (a) of Article 92a(1) of this Regulation. That calculation shall be undertaken on the basis of the consolidated situation of the EU parent institution as if it were the only resolution entity of the G-SII.

Where the amount calculated in accordance with the first paragraph of this Article is lower than the sum of the amounts of own funds and eligible liabilities referred to in point (a) of Article 92a(1) of this Regulation of all resolution entities belonging to that G-SII, the resolution authorities shall act in accordance with Articles 45d(3) and 45h(2) of Directive 2014/59/EU.

Where the amount calculated in accordance with the first paragraph of this Article is higher than the sum of the amounts of own funds and eligible liabilities referred to in point (a) of Article 92a(1) of this Regulation of all resolution entities belonging to that G-SII, the resolution authorities may act in accordance with Articles 45d(3) and 45h(2) of Directive 2014/59/EU.’;

(9)

Articles 13 and 14 are replaced by the following:

‘Article 13

Application of disclosure requirements on a consolidated basis

1.   EU parent institutions shall comply with Part Eight on the basis of their consolidated situation.

Large subsidiaries of EU parent institutions shall disclose the information specified in Articles 437, 438, 440, 442, 450, 451, 451a and 453 on an individual basis or, where applicable in accordance with this Regulation and Directive 2013/36/EU, on a sub-consolidated basis.

2.   Institutions identified as resolution entities that are G-SIIs or that are part of a G-SII shall comply with Article 437a and point (h) of Article 447 on the basis of the consolidated situation of their resolution group.

3.   The first subparagraph of paragraph 1 shall not apply to EU parent institutions, EU parent financial holding companies, EU parent mixed financial holding companies or resolution entities where they are included in equivalent disclosures on a consolidated basis provided by a parent undertaking established in a third country.

The second subparagraph of paragraph 1 shall apply to subsidiaries of parent undertakings established in a third country where those subsidiaries qualify as large subsidiaries.

4.   Where Article 10 applies, the central body referred to in that Article shall comply with Part Eight on the basis of the consolidated situation of the central body. Article 18(1) shall apply to the central body and the affiliated institutions shall be treated as subsidiaries of the central body.

Article 14

Application of requirements of Article 5 of Regulation (EU) 2017/2402 on a consolidated basis

1.   Parent undertakings and their subsidiaries that are subject to this Regulation shall be required to meet the obligations laid down in Article 5 of Regulation (EU) 2017/2402 on a consolidated or sub-consolidated basis, to ensure that their arrangements, processes and mechanisms required by those provisions are consistent and well-integrated and that any data and information relevant to the purpose of supervision can be produced. In particular, they shall ensure that subsidiaries that are not subject to this Regulation implement arrangements, processes and mechanisms to ensure compliance with those provisions.

2.   Institutions shall apply an additional risk weight in accordance with Article 270a of this Regulation when applying Article 92 of this Regulation on a consolidated or sub-consolidated basis if the requirements laid down in Article 5 of Regulation (EU) 2017/2402 are breached at the level of an entity established in a third country included in the consolidation in accordance with Article 18 of this Regulation if the breach is material in relation to the overall risk profile of the group.’;

(10)

in Article 15(1), the introductory phrase of the first subparagraph is replaced by the following:

‘1.   The consolidating supervisor may waive, on a case-by-case basis, the application of Part Three, the associated reporting requirements in Part Seven A of this Regulation, and Chapter 4 of Title VII of Directive 2013/36/EU, with the exception of point (d) of Article 430(1) of this Regulation on a consolidated basis, provided that the following conditions exist:’;

(11)

Article 16 is replaced by the following:

‘Article 16

Derogation from the application of the leverage ratio requirements on a consolidated basis for groups of investment firms

Where all entities in a group of investment firms, including the parent entity, are investment firms that are exempt from the application of the requirements laid down in Part Seven on an individual basis in accordance with Article 6(5), the parent investment firm may choose not to apply the requirements laid down in Part Seven and the associated leverage ratio reporting requirements in Part Seven A on a consolidated basis.’;

(12)

Article 18 is replaced by the following:

‘Article 18

Methods of prudential consolidation

1.   Institutions, financial holding companies and mixed financial holding companies that are required to comply with the requirements referred to in Section 1 of this Chapter on the basis of their consolidated situation shall carry out a full consolidation of all institutions and financial institutions that are their subsidiaries. Paragraphs 3 to 6 and paragraph 9 of this Article shall not apply where Part Six and point (d) of Article 430(1) apply on the basis of the consolidated situation of an institution, financial holding company or mixed financial holding company or on the sub-consolidated situation of a liquidity sub-group as set out in Articles 8 and 10.

For the purposes of Article 11(3a), institutions that are required to comply with the requirements referred to in Article 92a or 92b on a consolidated basis shall carry out a full consolidation of all institutions and financial institutions that are their subsidiaries in the relevant resolution groups.

2.   Ancillary services undertakings shall be included in consolidation in the cases, and in accordance with the methods, laid down in this Article.

3.   Where undertakings are related within the meaning of Article 22(7) of Directive 2013/34/EU, competent authorities shall determine how consolidation is to be carried out.

4.   The consolidating supervisor shall require the proportional consolidation according to the share of capital held of participations in institutions and financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where the liability of those undertakings is limited to the share of the capital they hold.

5.   In the case of participations or capital ties other than those referred to in paragraphs 1 and 4, competent authorities shall determine whether and how consolidation is to be carried out. In particular, they may permit or require the use of the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis.

6.   Competent authorities shall determine whether and how consolidation is to be carried out in the following cases:

(a)

where, in the opinion of the competent authorities, an institution exercises a significant influence over one or more institutions or financial institutions, but without holding a participation or other capital ties in those institutions; and

(b)

where two or more institutions or financial institutions are placed under single management other than pursuant to a contract, clauses of their memoranda or articles of association.

In particular, competent authorities may permit or require the use of the method provided for in Article 22(7), (8) and (9) of Directive 2013/34/EU. That method shall not, however, constitute inclusion of the undertakings concerned in consolidated supervision.

7.   Where an institution has a subsidiary which is an undertaking other than an institution, a financial institution or an ancillary services undertaking or holds a participation in such an undertaking, it shall apply to that subsidiary or participation the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis.

By way of derogation from the first subparagraph, competent authorities may allow or require institutions to apply a different method to such subsidiaries or participations, including the method required by the applicable accounting framework, provided that:

(a)

the institution does not already apply the equity method on 28 December 2020;

(b)

it would be unduly burdensome to apply the equity method or the equity method does not adequately reflect the risks that the undertaking referred to in the first subparagraph poses to the institution; and

(c)

the method applied does not result in full or proportional consolidation of that undertaking.

8.   Competent authorities may require full or proportional consolidation of a subsidiary or an undertaking in which an institution holds a participation where that subsidiary or undertaking is not an institution, financial institution or ancillary services undertaking and where all the following conditions are met:

(a)

the undertaking is not an insurance undertaking, a third-country insurance undertaking, a reinsurance undertaking, a third-country reinsurance undertaking, an insurance holding company or an undertaking excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive;

(b)

there is a substantial risk that the institution decides to provide financial support to that undertaking in stressed conditions, in the absence of, or in excess of any contractual obligations to provide such support.

9.   EBA shall develop draft regulatory technical standards to specify conditions in accordance with which consolidation shall be carried out in the cases referred to in paragraphs 3 to 6 and paragraph 8.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2020.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’;

(13)

Article 22 is replaced by the following

‘Article 22

Sub-consolidation in case of entities in third countries

1.   Subsidiary institutions shall apply the requirements laid down in Articles 89, 90 and 91 and Parts Three, Four and Seven and the associated reporting requirements laid down in Part Seven A on the basis of their sub-consolidated situation if those institutions have an institution or a financial institution as a subsidiary in a third country, or hold a participation in such an undertaking.

2.   By way of derogation from paragraph 1 of this Article, subsidiary institutions may choose not to apply the requirements laid down in Articles 89, 90 and 91 and Parts Three, Four and Seven and the associated reporting requirements laid down in Part Seven A on the basis of their sub-consolidated situation where the total assets and off-balance-sheet items of their subsidiaries and participations in third countries are less than 10 % of the total amount of the assets and off-balance-sheet items of the subsidiary institution.’;

(14)

the title of Part Two is replaced by the following:

OWN FUNDS AND ELIGIBLE LIABILITIES’;

(15)

in Article 26, paragraph 3 is replaced by the following:

‘3.   Competent authorities shall evaluate whether issuances of capital instruments meet the criteria set out in Article 28 or, where applicable, Article 29. Institutions shall classify issuances of capital instruments as Common Equity Tier 1 instruments only after permission is granted by the competent authorities.

By way of derogation from the first subparagraph, institutions may classify as Common Equity Tier 1 instruments subsequent issuances of a form of Common Equity Tier 1 instruments for which they have already received that permission, provided that both of the following conditions are met:

(a)

the provisions governing those subsequent issuances are substantially the same as the provisions governing those issuances for which the institutions have already received permission;

(b)

institutions have notified those subsequent issuances to the competent authorities sufficiently in advance of their classification as Common Equity Tier 1 instruments.

Competent authorities shall consult EBA before granting permission for new forms of capital instruments to be classified as Common Equity Tier 1 instruments. Competent authorities shall have due regard to EBA's opinion and, where they decide to deviate from it, shall write to EBA within three months from the date of receipt of EBA's opinion setting out the rationale for deviating from the relevant opinion. This subparagraph does not apply to the capital instruments referred to in Article 31.

On the basis of information collected from competent authorities, EBA shall establish, maintain and publish a list of all forms of capital instruments in each Member State that qualify as Common Equity Tier 1 instruments. In accordance with Article 35 of Regulation (EU) No 1093/2010, EBA may collect any information in connection with Common Equity Tier 1 instruments that it considers necessary to establish compliance with the criteria set out in Article 28 or, where applicable, Article 29 of this Regulation and for the purpose of maintaining and updating the list referred to in this subparagraph.

Following the review process set out in Article 80 and where there is sufficient evidence that the relevant capital instruments do not meet or have ceased to meet the criteria set out in Article 28 or, where applicable, Article 29, EBA may decide not to add those instruments to the list referred to in the fourth subparagraph or remove them from that list, as the case may be. EBA shall make an announcement to that effect that shall also refer to the relevant competent authority's position on the matter. This subparagraph does not apply to the capital instruments referred to in Article 31.’;

(16)

Article 28 is amended as follows:

(a)

paragraph 1 is amended as follows:

(i)

point (b) is replaced by the following:

‘(b)

the instruments are fully paid up and the acquisition of ownership of those instruments is not funded directly or indirectly by the institution;’;

(ii)

the following subparagraph is added:

‘For the purposes of point (b) of the first subparagraph, only the part of a capital instrument that is fully paid up shall be eligible to qualify as a Common Equity Tier 1 instrument.’;

(b)

in paragraph 3, the following subparagraphs are added:

‘The condition set out in point (h)(v) of the first subparagraph of paragraph 1 shall be considered to be met notwithstanding a subsidiary being subject to a profit and loss transfer agreement with its parent undertaking, according to which the subsidiary is obliged to transfer, following the preparation of its annual financial statements, its annual result to the parent undertaking, where all the following conditions are met:

(a)

the parent undertaking owns 90 % or more of the voting rights and capital of the subsidiary;

(b)

the parent undertaking and the subsidiary are located in the same Member State;

(c)

the agreement was concluded for legitimate taxation purposes;

(d)

in preparing the annual financial statement, the subsidiary has discretion to decrease the amount of distributions by allocating a part or all of its profits to its own reserves or funds for general banking risk before making any payment to its parent undertaking;

(e)

the parent undertaking is obliged under the agreement to fully compensate the subsidiary for all losses of the subsidiary;

(f)

the agreement is subject to a notice period according to which the agreement can be terminated only by the end of an accounting year, with such termination taking effect no earlier than the beginning of the following accounting year, leaving the parent undertaking's obligation to fully compensate the subsidiary for all losses incurred during the current accounting year unchanged.

Where an institution has entered into a profit and loss transfer agreement, it shall notify the competent authority without delay and provide the competent authority with a copy of the agreement. The institution shall also notify the competent authority without delay of any changes to the profit and loss transfer agreement and the termination thereof. An institution shall not enter into more than one profit and loss transfer agreement.’;

(17)

in Article 33(1), point (c) is replaced by the following:

‘(c)

fair value gains and losses on derivative liabilities of the institution that result from changes in the own credit risk of the institution.’;

(18)

Article 36 is amended as follows:

(a)

paragraph 1 is amended as follows:

(i)

point (b) is replaced by the following:

‘(b)

intangible assets with the exception of prudently valued software assets the value of which is not negatively affected by resolution, insolvency or liquidation of the institution;’;

(ii)

the following point is added:

‘(n)

for a minimum value commitment referred to in Article 132c(2), any amount by which the current market value of the units or shares in CIUs underlying the minimum value commitment falls short of the present value of the minimum value commitment and for which the institution has not already recognised a reduction of Common Equity Tier 1 items.’;

(b)

the following paragraph is added:

‘4.   EBA shall develop draft regulatory technical standards to specify the application of the deductions referred to in point (b) of paragraph 1, including the materiality of negative effects on the value which do not cause prudential concerns.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2020.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’;

(19)

in Article 37, the following point is added:

‘(c)

the amount to be deducted shall be reduced by the amount of the accounting revaluation of the subsidiaries' intangible assets derived from the consolidation of subsidiaries attributable to persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One.’;

(20)

in Article 39(2), in the first subparagraph the introductory phrase is replaced by the following:

‘Deferred tax assets that do not rely on future profitability shall be limited to deferred tax assets which were created before 23 November 2016 and which arise from temporary differences, where all the following conditions are met:’;

(21)

in Article 45, point (a)(i) is replaced by the following:

‘(i)

the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;’;

(22)

Article 49 is amended as follows:

(a)

in paragraph 2, the following subparagraph is added:

‘This paragraph shall not apply when calculating own funds for the purposes of the requirements laid down in Articles 92a and 92b, which shall be calculated in accordance with the deduction framework set out in Article 72e(4).’;

(b)

paragraph 3 is amended as follows:

(i)

in point (a)(iv), the last sentence is replaced by the following:

‘The consolidated balance sheet or the extended aggregated calculation shall be reported to the competent authorities with the frequency set out in the implementing technical standards referred to in Article 430(7)’;

(ii)

in point (a)(v), the first sentence is replaced by the following:

‘(v)

the institutions included in an institutional protection scheme meet together on a consolidated or extended aggregated basis the requirements laid down in Article 92 and carry out reporting of compliance with those requirements in accordance with Article 430.’;

(23)

Article 52(1) is amended as follows:

(a)

point (a) is replaced by the following:

‘(a)

the instruments are directly issued by an institution and fully paid up;’;

(b)

the introductory phrase of point (b) is replaced by the following:

‘(b)

the instruments are not owned by any of the following:’;

(c)

point (c) is replaced by the following:

‘(c)

the acquisition of ownership of the instruments is not funded directly or indirectly by the institution;’;

(d)

point (h) is replaced by the following:

‘(h)

where the instruments include one or more early redemption options including call options, the options are exercisable at the sole discretion of the issuer;’;

(e)

point (j) is replaced by the following:

‘(j)

the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would be called, redeemed or repurchased, as applicable, by the institution other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;’;

(f)

point (p) is replaced by the following:

‘(p)

where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the law or contractual provisions governing the instruments require that, upon a decision by the resolution authority to exercise the write-down and conversion powers referred to in Article 59 of that Directive, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Common Equity Tier 1 instruments;

where the issuer is established in a third country and has not been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union, the law or contractual provisions governing the instruments require that, upon a decision by the relevant third-country authority, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted into Common Equity Tier 1 instruments;’;

(g)

the following points are added:

‘(q)

where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the instruments may only be issued under, or be otherwise subject to the laws of a third country where, under those laws, the exercise of the write-down and conversion powers referred to in Article 59 of that Directive is effective and enforceable on the basis of statutory provisions or legally enforceable contractual provisions that recognise resolution or other write-down or conversion actions;

(r)

the instruments are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses.’;

(h)

the following subparagraph is added:

‘For the purposes of point (a) of the first subparagraph, only the part of a capital instrument that is fully paid up shall be eligible to qualify as an Additional Tier 1 instrument.’;

(24)

in Article 54(1), the following point is added:

‘(e)

where the Additional Tier 1 instruments have been issued by a subsidiary undertaking established in a third country, the 5,125 % or higher trigger referred to in point (a) shall be calculated in accordance with the national law of that third country or contractual provisions governing the instruments, provided that the competent authority, after consulting EBA, is satisfied that those provisions are at least equivalent to the requirements set out in this Article.’;

(25)

in Article 59, point (a)(i) is replaced by the following:

‘(i)

the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;’;

(26)

in Article 62, point (a) is replaced by the following:

‘(a)

capital instruments where the conditions set out in Article 63 are met, and to the extent specified in Article 64;’;

(27)

Article 63 is amended as follows:

(a)

the introductory phrase is replaced by the following:

‘Capital instruments shall qualify as Tier 2 instruments, provided that the following conditions are met:’;

(b)

point (a) is replaced by the following:

‘(a)

the instruments are directly issued by an institution and fully paid up;’;

(c)

in point (b), the introductory phrase is replaced by the following:

‘(b)

the instruments are not owned by any of the following:’;

(d)

points (c) and (d) are replaced by the following:

‘(c)

the acquisition of ownership of the instruments is not funded directly or indirectly by the institution;

(d)

the claim on the principal amount of the instruments under the provisions governing the instruments ranks below any claim from eligible liabilities instruments;’;

(e)

in point (e), the introductory phrase is replaced by the following:

‘(e)

the instruments are not secured or are not subject to a guarantee that enhances the seniority of the claim by any of the following:’;

(f)

points (f) to (n) are replaced by the following:

‘(f)

the instruments are not subject to any arrangement that otherwise enhances the seniority of the claim under the instruments;

(g)

the instruments have an original maturity of at least five years;

(h)

the provisions governing the instruments do not include any incentive for their principal amount to be redeemed or repaid, as applicable by the institution prior to their maturity;

(i)

where the instruments include one or more early repayment options, including call options, the options are exercisable at the sole discretion of the issuer;

(j)

the instruments may be called, redeemed, repaid or repurchased early only where the conditions set out in Article 77 are met, and not before five years after the date of issuance, except where the conditions set out in Article 78(4) are met;

(k)

the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would be called, redeemed, repaid or repurchased early, as applicable, by the institution other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;

(l)

the provisions governing the instruments do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the case of the insolvency or liquidation of the institution;

(m)

the level of interest or dividends payments, as applicable, due on the instruments will not be amended on the basis of the credit standing of the institution or its parent undertaking;

(n)

where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the law or contractual provisions governing the instruments require that, upon a decision by the resolution authority to exercise the write-down and conversion powers referred to in Article 59 of that Directive, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Common Equity Tier 1 instruments;

where the issuer is established in a third country and has not been designated in accordance with Article 12 of Directive 2014/59/EU as a part of a resolution group the resolution entity of which is established in the Union, the law or contractual provisions governing the instruments require that, upon a decision by the relevant third-country authority, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted into Common Equity Tier 1 instruments;’;

(g)

the following points are added:

‘(o)

where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the instruments may only be issued under, or be otherwise subject to the laws of a third country where, under those laws, the exercise of the write-down and conversion powers referred to in Article 59 of that Directive is effective and enforceable on the basis of statutory provisions or legally enforceable contractual provisions that recognise resolution or other write-down or conversion actions;

(p)

the instruments are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses.’;

(h)

the following paragraph is added:

‘For the purposes of point (a) of the first paragraph, only the part of the capital instrument that is fully paid up shall be eligible to qualify as a Tier 2 instrument.’;

(28)

Article 64 is replaced by the following:

‘Article 64

Amortisation of Tier 2 instruments

1.   The full amount of Tier 2 instruments with a residual maturity of more than five years shall qualify as Tier 2 items.

2.   The extent to which Tier 2 instruments qualify as Tier 2 items during the final five years of maturity of the instruments is calculated by multiplying the result derived from the calculation referred to in point (a) by the amount referred to in point (b) as follows:

(a)

the carrying amount of the instruments on the first day of the final five-year period of their contractual maturity divided by the number of days in that period;

(b)

the number of remaining days of contractual maturity of the instruments.’;

(29)

in Article 66, the following point is added:

‘(e)

the amount of items required to be deducted from eligible liabilities items pursuant to Article 72e that exceeds the eligible liabilities items of the institution.’;

(30)

in Article 69, point (a)(i) is replaced by the following:

‘(i)

the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;’;

(31)

the following chapter is inserted after Article 72:

CHAPTER 5a

Eligible liabilities

Section 1

Eligible liabilities items and instruments

Article 72a

Eligible liabilities items

1.   Eligible liabilities items shall consist of the following, unless they fall into any of the categories of excluded liabilities laid down in paragraph 2 of this Article, and to the extent specified in Article 72c:

(a)

eligible liabilities instruments where the conditions set out in Article 72b are met, to the extent that they do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 items;

(b)

Tier 2 instruments with a residual maturity of at least one year, to the extent that they do not qualify as Tier 2 items in accordance with Article 64.

2.   The following liabilities shall be excluded from eligible liabilities items:

(a)

covered deposits;

(b)

sight deposits and short term deposits with an original maturity of less than one year;

(c)

the part of eligible deposits from natural persons and micro, small and medium-sized enterprises which exceeds the coverage level referred to in Article 6 of Directive 2014/49/EU of the European Parliament and of the Council (*11);

(d)

deposits that would be eligible deposits from natural persons, micro, small and medium–sized enterprises if they were not made through branches located outside the Union of institutions established in the Union;

(e)

secured liabilities, including covered bonds and liabilities in the form of financial instruments used for hedging purposes that form an integral part of the cover pool and that in accordance with national law are secured in a manner similar to covered bonds, provided that all secured assets relating to a covered bond cover pool remain unaffected, segregated and with enough funding and excluding any part of a secured liability or a liability for which collateral has been pledged that exceeds the value of the assets, pledge, lien or collateral against which it is secured;

(f)

any liability that arises by virtue of the holding of client assets or client money including client assets or client money held on behalf of collective investment undertakings, provided that such a client is protected under the applicable insolvency law;

(g)

any liability that arises by virtue of a fiduciary relationship between the resolution entity or any of its subsidiaries (as fiduciary) and another person (as beneficiary), provided that such a beneficiary is protected under the applicable insolvency or civil law;

(h)

liabilities to institutions, excluding liabilities to entities that are part of the same group, with an original maturity of less than seven days;

(i)

liabilities with a remaining maturity of less than seven days, owed to:

(i)

systems or system operators designated in accordance with Directive 98/26/EC of the European Parliament and of the Council (*12);

(ii)

participants in a system designated in accordance with Directive 98/26/EC and arising from the participation in such a system; or

(iii)

third-country CCPs recognised in accordance with Article 25 of Regulation (EU) No 648/2012;

(j)

a liability to any of the following:

(i)

an employee in relation to accrued salary, pension benefits or other fixed remuneration, except for the variable component of the remuneration that is not regulated by a collective bargaining agreement, and except for the variable component of the remuneration of material risk takers as referred to in Article 92(2) of Directive 2013/36/EU;

(ii)

a commercial or trade creditor where the liability arises from the provision to the institution or the parent undertaking of goods or services that are critical to the daily functioning of the institution's or parent undertaking's operations, including IT services, utilities and the rental, servicing and upkeep of premises;

(iii)

tax and social security authorities, provided that those liabilities are preferred under the applicable law;

(iv)

deposit guarantee schemes where the liability arises from contributions due in accordance with Directive 2014/49/EU;

(k)

liabilities arising from derivatives;

(l)

liabilities arising from debt instruments with embedded derivatives.

For the purposes of point (l) of the first subparagraph, debt instruments containing early redemption options exercisable at the discretion of the issuer or of the holder, and debt instruments with variable interests derived from a broadly used reference rate such as Euribor or Libor, shall not be considered as debt instruments with embedded derivatives solely because of such features.

Article 72b

Eligible liabilities instruments

1.   Liabilities shall qualify as eligible liabilities instruments, provided that they comply with the conditions set out in this Article and only to the extent specified in this Article.

2.   Liabilities shall qualify as eligible liabilities instruments, provided that all the following conditions are met:

(a)

the liabilities are directly issued or raised, as applicable, by an institution and are fully paid up;

(b)

the liabilities are not owned by any of the following:

(i)

the institution or an entity included in the same resolution group;

(ii)

an undertaking in which the institution has a direct or indirect participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of that undertaking;

(c)

the acquisition of ownership of the liabilities is not funded directly or indirectly by the resolution entity;

(d)

the claim on the principal amount of the liabilities under the provisions governing the instruments is wholly subordinated to claims arising from the excluded liabilities referred to in Article 72a(2); that subordination requirement shall be considered to be met in any of the following situations:

(i)

the contractual provisions governing the liabilities specify that in the event of normal insolvency proceedings as defined in point (47) of Article 2(1) of Directive 2014/59/EU, the claim on the principal amount of the instruments ranks below claims arising from any of the excluded liabilities referred to in Article 72a(2) of this Regulation;

(ii)

the applicable law specifies that in the event of normal insolvency proceedings as defined in point (47) of Article 2(1) of Directive 2014/59/EU, the claim on the principal amount of the instruments ranks below claims arising from any of the excluded liabilities referred to in Article 72a(2) of this Regulation;

(iii)

the instruments are issued by a resolution entity which does not have on its balance sheet any excluded liabilities as referred to in Article 72a(2) of this Regulation that rank pari passu or junior to eligible liabilities instruments;

(e)

the liabilities are neither secured, nor subject to a guarantee or any other arrangement that enhances the seniority of the claim by any of the following:

(i)

the institution or its subsidiaries;

(ii)

the parent undertaking of the institution or its subsidiaries;

(iii)

any undertaking that has close links with entities referred to in points (i) and (ii);

(f)

the liabilities are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses in resolution;

(g)

the provisions governing the liabilities do not include any incentive for their principal amount to be called, redeemed or repurchased prior to their maturity or repaid early by the institution, as applicable, except in the cases referred to in Article 72c(3);

(h)

the liabilities are not redeemable by the holders of the instruments prior to their maturity, except in the cases referred to in Article 72c(2);

(i)

subject to Article 72c(3) and (4), where the liabilities include one or more early repayment options, including call options, the options are exercisable at the sole discretion of the issuer, except in the cases referred to in Article 72c(2);

(j)

the liabilities may only be called, redeemed, repaid or repurchased early where the conditions set out in Articles 77 and 78a are met;

(k)

the provisions governing the liabilities do not indicate explicitly or implicitly that the liabilities would be called, redeemed, repaid or repurchased early, as applicable by the resolution entity other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;

(l)

the provisions governing the liabilities do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the case of the insolvency or liquidation of the resolution entity;

(m)

the level of interest or dividend payments, as applicable, due on the liabilities is not amended on the basis of the credit standing of the resolution entity or its parent undertaking;

(n)

for instruments issued after 28 June 2021 the relevant contractual documentation and, where applicable, the prospectus related to the issuance explicitly refer to the possible exercise of the write-down and conversion powers in accordance with Article 48 of Directive 2014/59/EU.

For the purposes of point (a) of the first subparagraph, only the parts of liabilities that are fully paid up shall be eligible to qualify as eligible liabilities instruments.

For the purposes of point (d) of the first subparagraph of this Article, where some of the excluded liabilities referred to in Article 72a(2) are subordinated to ordinary unsecured claims under national insolvency law, inter alia, due to being held by a creditor who has close links with the debtor, by being or having been a shareholder, in a control or group relationship, a member of the management body or related to any of those persons, subordination shall not be assessed by reference to claims arising from such excluded liabilities.

3.   In addition to the liabilities referred to in paragraph 2 of this Article, the resolution authority may permit liabilities to qualify as eligible liabilities instruments up to an aggregate amount that does not exceed 3,5 % of the total risk exposure amount calculated in accordance with Article 92(3) and (4), provided that:

(a)

all the conditions set out in paragraph 2 except for the condition set out in point (d) of the first subparagraph of paragraph 2 are met;

(b)

the liabilities rank pari passu with the lowest ranking excluded liabilities referred to in Article 72a(2) with the exception of the excluded liabilities that are subordinated to ordinary unsecured claims under national insolvency law referred to in the third subparagraph of paragraph 2 of this Article; and

(c)

the inclusion of those liabilities in eligible liabilities items would not give rise to a material risk of a successful legal challenge or of valid compensation claims as assessed by the resolution authority in relation to the principles referred to in point (g) of Article 34(1) and Article 75 of Directive 2014/59/EU.

4.   The resolution authority may permit liabilities to qualify as eligible liabilities instruments in addition to the liabilities referred to in paragraph 2, provided that:

(a)

the institution is not permitted to include in eligible liabilities items liabilities referred to in paragraph 3;

(b)

all the conditions set out in paragraph 2, except for the condition set out in point (d) of the first subparagraph of paragraph 2, are met;

(c)

the liabilities rank pari passu or are senior to the lowest ranking excluded liabilities referred to in Article 72a(2), with the exception of the excluded liabilities subordinated to ordinary unsecured claims under national insolvency law referred to in the third subparagraph of paragraph 2 of this Article;

(d)

on the balance sheet of the institution, the amount of the excluded liabilities referred to in Article 72a(2) which rank pari passu or below those liabilities in insolvency does not exceed 5 % of the amount of the own funds and eligible liabilities of the institution;

(e)

the inclusion of those liabilities in eligible liabilities items would not give rise to a material risk of a successful legal challenge or of valid compensation claims as assessed by the resolution authority in relation to the principles referred to in point (g) of Article 34(1) and Article 75 of Directive 2014/59/EU.

5.   The resolution authority may only permit an institution to include liabilities referred to either in paragraph 3 or 4 as eligible liabilities items.

6.   The resolution authority shall consult the competent authority when examining whether the conditions set out in this Article are fulfilled.

7.   EBA shall develop draft regulatory technical standards to specify:

(a)

the applicable forms and nature of indirect funding of eligible liabilities instruments;

(b)

the form and nature of incentives to redeem for the purposes of the condition set out in point (g) of the first subparagraph of paragraph 2 of this Article and Article 72c(3).

Those draft regulatory technical standards shall be fully aligned with the delegated act referred to in point (a) of Article 28(5) and in point (a) of Article 52(2).

EBA shall submit those draft regulatory technical standards to the Commission by 28 December 2019.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 72c

Amortisation of eligible liabilities instruments

1.   Eligible liabilities instruments with a residual maturity of at least one year shall fully qualify as eligible liabilities items.

Eligible liabilities instruments with a residual maturity of less than one year shall not qualify as eligible liabilities items.

2.   For the purposes of paragraph 1, where a eligible liabilities instrument includes a holder redemption option exercisable prior to the original stated maturity of the instrument, the maturity of the instrument shall be defined as the earliest possible date on which the holder can exercise the redemption option and request redemption or repayment of the instrument.

3.   For the purposes of paragraph 1, where an eligible liabilities instrument includes an incentive for the issuer to call, redeem, repay or repurchase the instrument prior to the original stated maturity of the instrument, the maturity of the instrument shall be defined as the earliest possible date on which the issuer can exercise that option and request redemption or repayment of the instrument.

4.   For the purposes of paragraph 1, where an eligible liabilities instrument includes early redemption options that are exercisable at the sole discretion of the issuer prior to the original stated maturity of the instrument, but where the provisions governing the instrument do not include any incentive for the instrument to be called, redeemed, repaid or repurchased prior to its maturity and do not include any option for redemption or repayment at the discretion of the holders, the maturity of the instrument shall be defined as the original stated maturity.

Article 72d

Consequences of the eligibility conditions ceasing to be met

Where, in the case of an eligible liabilities instrument, the applicable conditions set out in Article 72b cease to be met, the liabilities shall immediately cease to qualify as eligible liabilities instruments.

Liabilities referred to in Article 72b(2) may continue to count as eligible liabilities instruments as long as they qualify as eligible liabilities instruments under Article 72b(3) or (4).

Section 2

Deductions from eligible liabilities items

Article 72e

Deductions from eligible liabilities items

1.   Institutions that are subject to Article 92a shall deduct the following from eligible liabilities items:

(a)

direct, indirect and synthetic holdings by the institution of own eligible liabilities instruments, including own liabilities that that institution could be obliged to purchase as a result of existing contractual obligations;

(b)

direct, indirect and synthetic holdings by the institution of eligible liabilities instruments of G-SII entities with which the institution has reciprocal cross holdings that the competent authority considers to have been designed to artificially inflate the loss absorption and recapitalisation capacity of the resolution entity;

(c)

the applicable amount determined in accordance with Article 72i of direct, indirect and synthetic holdings of eligible liabilities instruments of G-SII entities, where the institution does not have a significant investment in those entities;

(d)

direct, indirect and synthetic holdings by the institution of eligible liabilities instruments of G-SII entities, where the institution has a significant investment in those entities, excluding underwriting positions held for five business days or fewer.

2.   For the purposes of this Section, all instruments ranking pari passu with eligible liabilities instruments shall be treated as eligible liabilities instruments, with the exception of instruments ranking pari passu with instruments recognised as eligible liabilities pursuant to Article 72b(3) and (4).

3.   For the purposes of this Section, institutions may calculate the amount of holdings of the eligible liabilities instruments referred to in Article 72b(3) as follows:

Formula

where:

h

=

the amount of holdings of the eligible liabilities instruments referred to in Article 72b(3);

i

=

the index denoting the issuing institution;

Hi

=

the total amount of holdings of eligible liabilities of the issuing institution i referred to in Article 72b(3);

li

=

the amount of liabilities included in eligible liabilities items by the issuing institution i within the limits specified in Article 72b(3) according to the latest disclosures by the issuing institution; and

Li

=

the total amount of the outstanding liabilities of the issuing institution i referred to in Article 72b(3) according to the latest disclosures by the issuer.

4.   Where an EU parent institution or a parent institution in a Member State that is subject to Article 92a has direct, indirect or synthetic holdings of own funds instruments or eligible liabilities instruments of one or more subsidiaries which do not belong to the same resolution group as that parent institution, the resolution authority of that parent institution, after duly considering the opinion of the resolution authorities of any subsidiaries concerned, may permit the parent institution to deduct such holdings by deducting a lower amount specified by the resolution authority of that parent institution. That adjusted amount shall be at least equal to the amount (m) calculated as follows:

 

mi = max{0; OPi + LPi – max{0; β · [Oi + Li – ri · aRWAi]}}

where:

i

=

the index denoting the subsidiary;

OPi

=

the amount of own funds instruments issued by subsidiary i and held by the parent institution;

LPi

=

the amount of eligible liabilities items issued by subsidiary i and held by the parent institution;

β

=

percentage of own funds instruments and eligible liabilities items issued by subsidiary i and held by the parent undertaking;

Oi

=

the amount of own funds of subsidiary i, not taking into account the deduction calculated in accordance with this paragraph;

Li

=

the amount of eligible liabilities of subsidiary i, not taking into account the deduction calculated in accordance with this paragraph;

ri

=

the ratio applicable to subsidiary i at the level of its resolution group in accordance with point (a) of Article 92a(1) of this Regulation and Article 45d of Directive 2014/59/EU; and

aRWAi

=

the total risk exposure amount of the G-SII entity i calculated in accordance with Article 92(3) and (4), taking into account the adjustments set out in Article 12a.

Where the parent institution is allowed to deduct the adjusted amount in accordance with the first subparagraph, the difference between the amount of holdings of own funds instruments and eligible liabilities instruments referred to in the first subparagraph and that adjusted amount shall be deducted by the subsidiary.

Article 72f

Deduction of holdings of own eligible liabilities instruments

For the purposes of point (a) of Article 72e(1), institutions shall calculate holdings on the basis of the gross long positions subject to the following exceptions:

(a)

institutions may calculate the amount of holdings on the basis of the net long position, provided that both the following conditions are met:

(i)

the long and short positions are in the same underlying exposure and the short positions involve no counterparty risk;

(ii)

either both the long and the short positions are held in the trading book or both are held in the non-trading book;

(b)

institutions shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to own eligible liabilities instruments in those indices;

(c)

institutions may net gross long positions in own eligible liabilities instruments resulting from holdings of index securities against short positions in own eligible liabilities instruments resulting from short positions in underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met:

(i)

the long and short positions are in the same underlying indices;

(ii)

either both the long and the short positions are held in the trading book or both are held in the non-trading book.

Article 72g

Deduction base for eligible liabilities items

For the purposes of points (b), (c) and (d) of Article 72e(1), institutions shall deduct the gross long positions subject to the exceptions laid down in Articles 72h and 72i.

Article 72h

Deduction of holdings of eligible liabilities of other G-SII entities

Institutions not making use of the exception set out in Article 72j shall make the deductions referred to in points (c) and (d) of Article 72e(1) in accordance with the following:

(a)

they may calculate direct, indirect and synthetic holdings of eligible liabilities instruments on the basis of the net long position in the same underlying exposure, provided that both the following conditions are met:

(i)

the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;

(ii)

either both the long position and the short position are held in the trading book or both are held in the non-trading book;

(b)

they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by looking through to the underlying exposure to the eligible liabilities instruments in those indices.

Article 72i

Deduction of eligible liabilities where the institution does not have a significant investment in G-SII entities

1.   For the purposes of point (c) of Article 72e(1), institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph:

(a)

the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1, Tier 2 instruments of financial sector entities and eligible liabilities instruments of G-SII entities in none of which the institution has a significant investment exceeds 10 % of the Common Equity Tier 1 items of the institution after applying the following:

(i)

Articles 32 to 35;

(ii)

points (a) to (g), points (k)(ii) to (k)(v) and point (l) of Article 36(1), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences;

(iii)

Articles 44 and 45;

(b)

the amount of direct, indirect and synthetic holdings by the institution of the eligible liabilities instruments of G-SII entities in which the institution does not have a significant investment divided by the aggregate amount of the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1, Tier 2 instruments of financial sector entities and eligible liabilities instruments of G-SII entities in none of which the resolution entity has a significant investment.

2.   Institutions shall exclude underwriting positions held for five business days or fewer from the amounts referred to in point (a) of paragraph 1 and from the calculation of the factor in accordance with point (b) of paragraph 1.

3.   The amount to be deducted pursuant to paragraph 1 shall be apportioned across each eligible liabilities instrument of a G-SII entity held by the institution. Institutions shall determine the amount of each eligible liabilities instrument that is deducted pursuant to paragraph 1 by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph:

(a)

the amount of holdings required to be deducted pursuant to paragraph 1;

(b)

the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the eligible liabilities instruments of G-SII entities in which the institution does not have a significant investment represented by each eligible liabilities instrument held by the institution.

4.   The amount of holdings referred to in point (c) of Article 72e(1) that is equal to or less than 10 % of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i), (a)(ii) and (a)(iii) of paragraph 1 of this Article shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and the requirements laid down in Title IV of Part Three, as applicable.

5.   Institutions shall determine the amount of each eligible liabilities instrument that is risk weighted pursuant to paragraph 4 by multiplying the amount of holdings required to be risk weighted pursuant to paragraph 4 by the proportion resulting from the calculation specified in point (b) of paragraph 3.

Article 72j

Trading book exception from deductions from eligible liabilities items

1.   Institutions may decide not to deduct a designated part of their direct, indirect and synthetic holdings of eligible liabilities instruments, that in aggregate and measured on a gross long basis is equal to or less than 5 % of the Common Equity Tier 1 items of the institution after applying Articles 32 to 36, provided that all the following conditions are met:

(a)

the holdings are in the trading book;

(b)

the eligible liabilities instruments are held for no longer than 30 business days.

2.   The amounts of the items that are not deducted pursuant to paragraph 1 shall be subject to own funds requirements for items in the trading book.

3.   Where, in the case of holdings not deducted in accordance with paragraph 1, the conditions set out in that paragraph cease to be met, the holdings shall be deducted in accordance with Article 72g without applying the exceptions laid down in Articles 72h and 72i.

Section 3

Own funds and eligible liabilities

Article 72k

Eligible liabilities

The eligible liabilities of an institution shall consist of the eligible liabilities items of the institution after the deductions referred to in Article 72e.

Article 72l

Own funds and eligible liabilities

The own funds and eligible liabilities of an institution shall consist of the sum of its own funds and its eligible liabilities.

(*11)  Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149)."

(*12)  Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45).’;"

(32)

in Title I of Part Two, the title of Chapter 6 is replaced by the following:

General requirements for own funds and eligible liabilities ’;

(33)

Article 73 is amended as follows:

(a)

the title is replaced by the following:

Distributions on instruments’;

(b)

paragraphs 1 to 4 are replaced by the following:

‘1.   Capital instruments and liabilities for which an institution has the sole discretion to decide to pay distributions in a form other than cash or own funds instruments shall not be eligible to qualify as Common Equity Tier 1, Additional Tier 1, Tier 2 or eligible liabilities instruments, unless the institution has received the prior permission of the competent authority.

2.   Competent authorities shall grant the prior permission referred to in paragraph 1 only where they consider all the following conditions to be met:

(a)

the ability of the institution to cancel payments under the instrument would not be adversely affected by the discretion referred to in paragraph 1, or by the form in which distributions could be made;

(b)

the ability of the capital instrument or of the liability to absorb losses would not be adversely affected by the discretion referred to in paragraph 1, or by the form in which distributions could be made;

(c)

the quality of the capital instrument or liability would not otherwise be reduced by the discretion referred to in paragraph 1, or by the form in which distributions could be made.

The competent authority shall consult the resolution authority regarding an institution's compliance with those conditions before granting the prior permission referred to in paragraph 1.

3.   Capital instruments and liabilities for which a legal person other than the institution issuing them has the discretion to decide or require that the payment of distributions on those instruments or liabilities shall be made in a form other than cash or own funds instruments shall not be eligible to qualify as Common Equity Tier 1, Additional Tier 1, Tier 2 or eligible liabilities instruments.

4.   Institutions may use a broad market index as one of the bases for determining the level of distributions on Additional Tier 1, Tier 2 and eligible liabilities instruments.’;

(c)

paragraph 6 is replaced by the following:

‘6.   Institutions shall report and disclose the broad market indices on which their capital instruments and eligible liabilities instruments rely.’;

(34)

in Article 75, the introductory phrase is replaced by the following:

‘The maturity requirements for short positions referred to in point (a) of Article 45, point (a) of Article 59, point (a) of Article 69 and point (a) of Article 72h shall be considered to be met in respect of positions held where all the following conditions are met:’;

(35)

in Article 76, paragraphs 1, 2 and 3 are replaced by the following:

‘1.   For the purposes of point (a) of Article 42, point (a) of Article 45, point (a) of Article 57, point (a) of Article 59, point (a) of Article 67, point (a) of Article 69 and point (a) of Article 72h, institutions may reduce the amount of a long position in a capital instrument by the portion of an index that is made up of the same underlying exposure that is being hedged, provided that all the following conditions are met:

(a)

either both the long position being hedged and the short position in an index used to hedge that long position are held in the trading book or both are held in the non-trading book;

(b)

the positions referred to in point (a) are held at fair value on the balance sheet of the institution;

(c)

the short position referred to in point (a) qualifies as an effective hedge under the internal control processes of the institution;

(d)

the competent authorities assess the adequacy of the internal control processes referred to in point (c) on at least an annual basis and are satisfied with their continuing appropriateness.

2.   Where the competent authority has granted its prior permission, an institution may use a conservative estimate of the underlying exposure of the institution to instruments included in indices as an alternative to an institution calculating its exposure to the items referred to in one or more of the following points:

(a)

own Common Equity Tier 1, Additional Tier 1, Tier 2 and eligible liabilities instruments included in indices;

(b)

Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities, included in indices;

(c)

eligible liabilities instruments of institutions, included in indices.

3.   Competent authorities shall grant the prior permission referred to in paragraph 2 only where the institution has demonstrated to their satisfaction that it would be operationally burdensome for the institution to monitor its underlying exposure to the items referred to in one or more of the points of paragraph 2, as applicable.’;

(36)

Article 77 is replaced by the following:

‘Article 77

Conditions for reducing own funds and eligible liabilities

1.   An institution shall obtain the prior permission of the competent authority to do any of the following:

(a)

reduce, redeem or repurchase Common Equity Tier 1 instruments issued by the institution in a manner that is permitted under applicable national law;

(b)

reduce, distribute or reclassify as another own funds item the share premium accounts related to own funds instruments;

(c)

effect the call, redemption, repayment or repurchase of Additional Tier 1 or Tier 2 instruments prior to the date of their contractual maturity.

2.   An institution shall obtain the prior permission of the resolution authority to effect the call, redemption, repayment or repurchase of eligible liabilities instruments that are not covered by paragraph 1, prior to the date of their contractual maturity.’;

(37)

Article 78 is replaced by the following:

‘Article 78

Supervisory permission to reduce own funds

1.   The competent authority shall grant permission for an institution to reduce, call, redeem, repay or repurchase Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments, or to reduce, distribute or reclassify related share premium accounts, where either of the following conditions is met:

(a)

before or at the same time as any of the actions referred to in Article 77(1), the institution replaces the instruments or the related share premium accounts referred to in Article 77(1) with own funds instruments of equal or higher quality at terms that are sustainable for the income capacity of the institution;

(b)

the institution has demonstrated to the satisfaction of the competent authority that the own funds and eligible liabilities of the institution would, following the action referred to in Article 77(1) of this Regulation, exceed the requirements laid down in this Regulation and in Directives 2013/36/EU and 2014/59/EU by a margin that the competent authority considers necessary.

Where an institution provides sufficient safeguards as to its capacity to operate with own funds above the amounts required in this Regulation and in Directive 2013/36/EU, the competent authority may grant that institution a general prior permission to take any of the actions set out in Article 77(1) of this Regulation, subject to criteria that ensure that any such future action will be in accordance with the conditions set out in points (a) and (b) of this paragraph. That general prior permission shall be granted only for a specified period, which shall not exceed one year, after which it may be renewed. The general prior permission shall be granted for a certain predetermined amount, which shall be set by the competent authority. In the case of Common Equity Tier 1 instruments, that predetermined amount shall not exceed 3 % of the relevant issue and shall not exceed 10 % of the amount by which Common Equity Tier 1 capital exceeds the sum of the Common Equity Tier 1 capital requirements laid down in this Regulation, in Directives 2013/36/EU and 2014/59/EU by a margin that the competent authority considers necessary. In the case of Additional Tier 1 or Tier 2 instruments, that predetermined amount shall not exceed 10 % of the relevant issue and shall not exceed 3 % of the total amount of outstanding Additional Tier 1 or Tier 2 instruments, as applicable.

Competent authorities shall withdraw the general prior permission where an institution breaches any of the criteria provided for the purposes of that permission.

2.   When assessing the sustainability of the replacement instruments for the income capacity of the institution referred to in point (a) of paragraph 1, competent authorities shall consider the extent to which those replacement capital instruments would be more costly for the institution than those capital instruments or share premium accounts they would replace.

3.   Where an institution takes an action referred to in point (a) of Article 77(1) and the refusal of redemption of Common Equity Tier 1 instruments referred to in Article 27 is prohibited by applicable national law, the competent authority may waive the conditions set out in paragraph 1 of this Article, provided that the competent authority requires the institution to limit the redemption of such instruments on an appropriate basis.

4.   Competent authorities may permit institutions to call, redeem, repay or repurchase Additional Tier 1 or Tier 2 instruments or related share premium accounts during the five years following their date of issuance where the conditions set out in paragraph 1 and one of the following conditions is met:

(a)

there is a change in the regulatory classification of those instruments that would be likely to result in their exclusion from own funds or reclassification as own funds of lower quality, and both the following conditions are met:

(i)

the competent authority considers such a change to be sufficiently certain;

(ii)

the institution demonstrates to the satisfaction of the competent authority that the regulatory reclassification of those instruments was not reasonably foreseeable at the time of their issuance;

(b)

there is a change in the applicable tax treatment of those instruments which the institution demonstrates to the satisfaction of the competent authority is material and was not reasonably foreseeable at the time of their issuance;

(c)

the instruments and related share premium accounts are grandfathered under Article 494b;

(d)

before or at the same time as the action referred to in Article 77(1), the institution replaces the instruments or related share premium accounts referred to in Article 77(1) with own funds instruments of equal or higher quality at terms that are sustainable for the income capacity of the institution and the competent authority has permitted that action on the basis of the determination that it would be beneficial from a prudential point of view and justified by exceptional circumstances;

(e)

the Additional Tier 1 or Tier 2 instruments are repurchased for market making purposes.

5.   EBA shall develop draft regulatory technical standards to specify the following:

(a)

the meaning of ‘sustainable for the income capacity of the institution’;

(b)

the appropriate bases of limitation of redemption referred to in paragraph 3;

(c)

the process including the limits and procedures for granting approval in advance by competent authorities for an action listed in Article 77(1), and data requirements for an application by an institution for the permission of the competent authority to carry out an action listed therein, including the process to be applied in the case of redemption of shares issued to members of cooperative societies, and the time period for processing such an application.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’;

(38)

the following article is inserted:

‘Article 78a

Permission to reduce eligible liabilities instruments

1.   The resolution authority shall grant permission for an institution to call, redeem, repay or repurchase eligible liabilities instruments where one of the following conditions is met:

(a)

before or at the same time as any of the actions referred to in Article 77(2), the institution replaces the eligible liabilities instruments with own funds or eligible liabilities instruments of equal or higher quality at terms that are sustainable for the income capacity of the institution;

(b)

the institution has demonstrated to the satisfaction of the resolution authority that the own funds and eligible liabilities of the institution would, following the action referred to in Article 77(2) of this Regulation, exceed the requirements for own funds and eligible liabilities laid down in this Regulation and in Directives 2013/36/EU and 2014/59/EU by a margin that the resolution authority, in agreement with the competent authority, considers necessary;

(c)

the institution has demonstrated to the satisfaction of the resolution authority that the partial or full replacement of the eligible liabilities with own funds instruments is necessary to ensure compliance with the own funds requirements laid down in this Regulation and in Directive 2013/36/EU for continuing authorisation.

Where an institution provides sufficient safeguards as to its capacity to operate with own funds and eligible liabilities above the amount of the requirements laid down in this Regulation and in Directives 2013/36/EU and 2014/59/EU, the resolution authority, after consulting the competent authority, may grant that institution a general prior permission to effect calls, redemptions, repayments or repurchases of eligible liabilities instruments, subject to criteria that ensure that any such future action will be in accordance with the conditions set out in points (a) and (b) of this paragraph. That general prior permission shall be granted only for a specified period, which shall not exceed one year, after which it may be renewed. The general prior permission shall be granted for a certain predetermined amount, which shall be set by the resolution authority. Resolution authorities shall inform the competent authorities about any general prior permission granted.

The resolution authority shall withdraw the general prior permission where an institution breaches any of the criteria provided for the purposes of that permission.

2.   When assessing the sustainability of the replacement instruments for the income capacity of the institution referred to in point (a) of paragraph 1, resolution authorities shall consider the extent to which those replacement capital instruments or replacement eligible liabilities would be more costly for the institution than those they would replace.

3.   EBA shall develop draft regulatory technical standards to specify the following:

(a)

the process of cooperation between the competent authority and the resolution authority;

(b)

the procedure, including the time limits and information requirements, for granting the permission in accordance with the first subparagraph of paragraph 1;

(c)

the procedure, including the time limits and information requirements, for granting the general prior permission in accordance with the second subparagraph of paragraph 1;

(d)

the meaning of ‘sustainable for the income capacity of the institution’.

For the purposes of point (d) of the first subparagraph of this paragraph, the draft regulatory technical standards shall be fully aligned with the delegated act referred to in Article 78.

EBA shall submit those draft regulatory technical standards to the Commission by 28 December 2019.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’;

(39)

Article 79 is amended as follows:

(a)

the title is replaced by the following:

‘Temporary waiver from deduction from own funds and eligible liabilities’;

(b)

paragraph 1 is replaced by the following:

‘1.   Where an institution holds capital instruments or liabilities that qualify as own funds instruments in a financial sector entity or as eligible liabilities instruments in an institution and where the competent authority considers those holdings to be for the purposes of a financial assistance operation designed to reorganise and restore the viability of that entity or that institution, the competent authority may waive on a temporary basis the provisions on deduction that would otherwise apply to those instruments.’;

(40)

the following article is inserted:

‘Article 79a

Assessment of compliance with the conditions for own funds and eligible liabilities instruments

Institutions shall have regard to the substantial features of instruments and not only their legal form when assessing compliance with the requirements laid down in Part Two. The assessment of the substantial features of an instrument shall take into account all arrangements related to the instruments, even where those are not explicitly set out in the terms and conditions of the instruments themselves, for the purpose of determining that the combined economic effects of such arrangements are compliant with the objective of the relevant provisions.’;

(41)

Article 80 is amended as follows:

(a)

the title is replaced by the following:

‘Continuing review of the quality of own funds and eligible liabilities instruments’;

(b)

paragraph 1 is replaced by the following:

‘1.   EBA shall monitor the quality of own funds and eligible liabilities instruments issued by institutions across the Union and shall notify the Commission immediately where there is significant evidence that those instruments do not meet the respective eligibility criteria set out in this Regulation.

Competent authorities shall, without delay and upon request by EBA, forward all information to EBA that EBA considers relevant concerning new capital instruments or new types of liabilities issued in order to enable EBA to monitor the quality of own funds and eligible liabilities instruments issued by institutions across the Union.’;

(c)

in paragraph 3, the introductory phrase is replaced by the following:

‘3.   EBA shall provide technical advice to the Commission on any significant changes it considers to be required to the definition of own funds and eligible liabilities as a result of any of the following:’;

(42)

in Article 81, paragraph 1 is replaced by the following:

‘1.   Minority interests shall comprise the sum of Common Equity Tier 1 items of a subsidiary where the following conditions are met:

(a)

the subsidiary is one of the following:

(i)

an institution;

(ii)

an undertaking that is subject by virtue of applicable national law to the requirements of this Regulation and Directive 2013/36/EU;

(iii)

an intermediate financial holding company in a third country that is subject to prudential requirements as stringent as those applied to credit institutions of that third country and where the Commission has decided in accordance with Article 107(4) that those prudential requirements are at least equivalent to those of this Regulation;

(b)

the subsidiary is included fully in the consolidation pursuant to Chapter 2 of Title II of Part One;

(c)

the Common Equity Tier 1 items, referred to in the introductory part of this paragraph, are owned by persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One.’;

(43)

Article 82 is replaced by the following:

‘Article 82

Qualifying Additional Tier 1, Tier 1, Tier 2 capital and qualifying own funds

Qualifying Additional Tier 1, Tier 1, Tier 2 capital and qualifying own funds shall comprise the minority interest, Additional Tier 1 or Tier 2 instruments, as applicable, plus the related retained earnings and share premium accounts, of a subsidiary where the following conditions are met:

(a)

the subsidiary is either of the following:

(i)

an institution;

(ii)

an undertaking that is subject by virtue of the applicable national law to the requirements of this Regulation and Directive 2013/36/EU;

(iii)

an intermediate financial holding company in a third country that is subject to prudential requirements as stringent as those applied to credit institutions of that third country and where the Commission has decided in accordance with Article 107(4) that those prudential requirements are at least equivalent to those of this Regulation;

(b)

the subsidiary is included fully in the scope of consolidation pursuant to Chapter 2 of Title II of Part One;

(c)

those instruments are owned by persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One.’;

(44)

in Article 83(1), the introductory phrase is replaced by the following:

‘1.   Additional Tier 1 and Tier 2 instruments issued by a special purpose entity, and the related share premium accounts, are included until 31 December 2021 in qualifying Additional Tier 1, Tier 1 or Tier 2 capital or qualifying own funds, as applicable, only where the following conditions are met:’;

(45)

the following article is inserted:

‘Article 88a

Qualifying eligible liabilities instruments

Liabilities issued by a subsidiary established in the Union that belongs to the same resolution group as the resolution entity shall qualify for inclusion in the consolidated eligible liabilities instruments of an institution subject to Article 92a, provided that all the following conditions are met:

(a)

they are issued in accordance with point (a) of Article 45f(2) of Directive 2014/59/EU;

(b)

they are bought by an existing shareholder that is not part of the same resolution group as long as the exercise of the write-down or conversion powers in accordance with Articles 59 to 62 of Directive 2014/59/EU does not affect the control of the subsidiary by the resolution entity;

(c)

they do not exceed the amount determined by subtracting the amount referred to in point (i) from the amount referred to in point (ii):

(i)

the sum of the liabilities issued to and bought by the resolution entity either directly or indirectly through other entities in the same resolution group and the amount of own funds instruments issued in accordance with point (b) of Article 45f(2) of Directive 2014/59/EU;

(ii)

the amount required in accordance with Article 45f(1) of Directive 2014/59/EU.’;

(46)

Article 92 is amended as follows:

(a)

in paragraph 1, the following point is added:

‘(d)

a leverage ratio of 3 %;’;

(b)

the following paragraph is inserted:

‘1a.   In addition to the requirement laid down in point (d) paragraph 1 of this Article, a G-SII shall maintain a leverage ratio buffer equal to the G-SIIs total exposure measure referred to in Article 429(4) of this Regulation multiplied by 50 % of the G-SII buffer rate applicable to the G-SII in accordance with Article 131 of Directive 2013/36/EU.

A G-SII shall meet the leverage ratio buffer requirement with Tier 1 capital only. Tier 1 capital that is used to meet the leverage ratio buffer requirement shall not be used towards meeting any of the leverage based requirements set out in this Regulation and in Directive 2013/36/EU, unless explicitly otherwise provided therein.

Where a G-SII does not meet the leverage ratio buffer requirement, it shall be subject to the capital conservation requirement in accordance with Article 141b of Directive 2013/36/EU.

Where a G-SII does not meet at the same time the leverage ratio buffer requirement and the combined buffer requirement as defined in point (6) of Article 128 of Directive 2013/36/EU, it shall be subject to the higher of the capital conservation requirements in accordance with Articles 141 and 141b of that Directive.’;

(c)

paragraph 3 is amended as follows:

(i)

points (b) and (c) are replaced by the following:

‘(b)

the own funds requirements for the trading-book business of an institution for the following:

(i)

market risk as determined in accordance with Title IV of this Part, excluding the approaches set out in Chapters 1a and 1b of that Title;

(ii)

large exposures exceeding the limits specified in Articles 395 to 401, to the extent that an institution is permitted to exceed those limits, as determined in accordance with Part Four;

(c)

the own funds requirements for market risk as determined in Title IV of this Part, excluding the approaches set out in Chapters 1a and 1b of that Title, for all business activities that are subject to foreign exchange risk or commodity risk;’;

(ii)

the following point is inserted:

‘(ca)

the own funds requirements calculated in accordance with Title V of this Part, with the exception of Article 379 for settlement risk.’;

(47)

the following articles are inserted:

‘Article 92a

Requirements for own funds and eligible liabilities for G-SIIs

1.   Subject to Articles 93 and 94 and to the exceptions set out in paragraph 2 of this Article, institutions identified as resolution entities and that are a G-SII or part of a G-SII shall at all times satisfy the following requirements for own funds and eligible liabilities:

(a)

a risk-based ratio of 18 %, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total risk exposure amount calculated in accordance with Article 92(3) and (4);

(b)

a non-risk-based ratio of 6,75 %, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total exposure measure referred to in Article 429(4).

2.   The requirements laid down in paragraph 1 shall not apply in the following cases:

(a)

within the three years following the date on which the institution or the group of which the institution is part has been identified as a G-SII;

(b)

within the two years following the date on which the resolution authority has applied the bail-in tool in accordance with Directive 2014/59/EU;

(c)

within the two years following the date on which the resolution entity has put in place an alternative private sector measure referred to in point (b) of Article 32(1) of Directive 2014/59/EU by which capital instruments and other liabilities have been written down or converted into Common Equity Tier 1 items in order to recapitalise the resolution entity without the application of resolution tools.

3.   Where the aggregate resulting from the application of the requirement laid down in point (a) of paragraph 1 of this Article to each resolution entity of the same G SII exceeds the requirement for own funds and eligible liabilities calculated in accordance with Article 12a of this Regulation, the resolution authority of the EU parent institution may, after having consulted the other relevant resolution authorities, act in accordance with Article 45d(4) or 45h(1) of Directive 2014/59/EU.

Article 92b

Requirement for own funds and eligible liabilities for non-EU G-SIIs

1.   Institutions that are material subsidiaries of non-EU G-SIIs and that are not resolution entities shall at all times satisfy requirements for own funds and eligible liabilities equal to 90 % of the requirements for own funds and eligible liabilities laid down in Article 92a.

2.   For the purpose of complying with paragraph 1, Additional Tier 1, Tier 2 and eligible liabilities instruments shall only be taken into account where those instruments are owned by the ultimate parent undertaking of the non-EU G-SII and have been issued directly or indirectly through other entities within the same group, provided that all such entities are established in the same third country as that ultimate parent undertaking or in a Member State.

3.   An eligible liabilities instrument shall only be taken into account for the purpose of complying with paragraph 1 where it fulfils all the following additional conditions:

(a)

in the event of normal insolvency proceedings as defined in point (47) of Article 2(1) of Directive 2014/59/EU, the claim resulting from the liability ranks below claims resulting from liabilities that do not fulfil the conditions set out in paragraph 2 of this Article and that do not qualify as own funds;

(b)

it is subject to the write-down or conversion powers in accordance with Articles 59 to 62 of Directive 2014/59/EU.’;

(48)

Article 94 is replaced by the following:

‘Article 94

Derogation for small trading book business

1.   By way of derogation from point (b) of Article 92(3), institutions may calculate the own funds requirement for their trading-book business in accordance with paragraph 2 of this Article, provided that the size of the institutions' on- and off-balance-sheet trading-book business is equal to or less than both of the following thresholds on the basis of an assessment carried out on a monthly basis using the data as of the last day of the month:

(a)

5 % of the institution's total assets;

(b)

EUR 50 million.

2.   Where both conditions set out in points (a) and (b) of paragraph 1 are met, institutions may calculate the own funds requirement for their trading-book business as follows:

(a)

for the contracts listed in point 1 of Annex II, contracts relating to equities which are referred to in point 3 of that Annex and credit derivatives, institutions may exempt those positions from the own funds requirement referred to in point (b) of Article 92(3);

(b)

for trading book positions other than those referred to in point (a) of this paragraph, institutions may replace the own funds requirement referred to in point (b) of Article 92(3) with the requirement calculated in accordance with point (a) of Article 92(3).

3.   Institutions shall calculate the size of their on- and off-balance-sheet trading book business on the basis of data as of the last day of each month for the purposes of paragraph 1 in accordance with the following requirements:

(a)

all the positions assigned to the trading book in accordance with Article 104 shall be included in the calculation except for the following:

(i)

positions concerning foreign exchange and commodities;

(ii)

positions in credit derivatives that are recognised as internal hedges against non-trading book credit risk exposures or counterparty risk exposures and the credit derivate transactions that perfectly offset the market risk of those internal hedges as referred to in Article 106(3);

(b)

all positions included in the calculation in accordance with point (a) shall be valued at their market value on that given date; where the market value of a position is not available on a given date, institutions shall take a fair value for the position on that date; where the market value and fair value of a position are not available on a given date, institutions shall take the most recent of the market value or fair value for that position;

(c)

the absolute value of long positions shall be summed with the absolute value of short positions.

4.   Where both conditions set out in points (a) and (b) of paragraph 1 of this Article are met, irrespective of the obligations set out in Articles 74 and 83 of Directive 2013/36/EU, Article 102(3) and (4), Articles 103 and 104b of this Regulation shall not apply.

5.   Institutions shall notify the competent authorities when they calculate, or cease to calculate, the own funds requirements of their trading-book business in accordance with paragraph 2.

6.   An institution that no longer meets one or more of the conditions set out in paragraph 1 shall immediately notify the competent authority thereof.

7.   An institution shall cease to calculate the own funds requirements of its trading-book business in accordance with paragraph 2 within three months of one of the following occurring:

(a)

the institution does not meet the conditions set out in point (a) or (b) of paragraph 1 for three consecutive months;

(b)

the institution does not meet the conditions set out in point (a) or (b) of paragraph 1 during more than 6 out of the last 12 months.

8.   Where an institution has ceased to calculate the own funds requirements of its trading-book business in accordance with this Article, it shall only be permitted to calculate the own funds requirements of its trading-book business in accordance with this Article where it demonstrates to the competent authority that all the conditions set out in paragraph 1 have been met for an uninterrupted full-year period.

9.   Institutions shall not enter into, buy or sell a trading-book position for the sole purpose of complying with any of the conditions set out in paragraph 1 during the monthly assessment.’;

(49)

in Title I of Part Three, Chapter 2 is deleted;

(50)

Article 102 is amended as follows:

(a)

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

‘2.   Trading intent shall be evidenced on the basis of the strategies, policies and procedures set up by the institution to manage the position or portfolio in accordance with Articles 103, 104 and 104a.

3.   Institutions shall establish and maintain systems and controls to manage their trading book in accordance with Article 103.

4.   For the purposes of the reporting requirements set out in Article 430b(3), trading book positions shall be assigned to trading desks established in accordance with Article 104b.’;

(b)

the following paragraphs are added:

‘5.   Positions in the trading book shall be subject to the requirements for prudent valuation specified in Article 105.

6.   Institutions shall treat internal hedges in accordance with Article 106.’;

(51)

Article 103 is replaced by the following:

‘Article 103

Management of the trading book

1.   Institutions shall have in place clearly defined policies and procedures for the overall management of the trading book. Those policies and procedures shall at least address:

(a)

the activities which the institution considers to be trading business and as constituting part of the trading book for own funds requirement purposes;

(b)

the extent to which a position can be marked-to-market daily by reference to an active, liquid two-way market;

(c)

for positions that are marked-to-model, the extent to which the institution can:

(i)

identify all material risks of the position;

(ii)

hedge all material risks of the position with instruments for which an active, liquid two-way market exists;

(iii)

derive reliable estimates for the key assumptions and parameters used in the model;

(d)

the extent to which the institution can, and is required to, generate valuations for the position that can be validated externally in a consistent manner;

(e)

the extent to which legal restrictions or other operational requirements would impede the institution's ability to effect a liquidation or hedge of the position in the short term;

(f)

the extent to which the institution can, and is required to, actively manage the risks of positions within its trading operation;

(g)

the extent to which the institution may reclassify risk or positions between the non-trading and trading books and the requirements for such reclassifications as referred to in Article 104a.

2.   In managing its positions or portfolios of positions in the trading book, the institution shall comply with all the following requirements:

(a)

the institution shall have in place a clearly documented trading strategy for the position or portfolios in the trading book, which shall be approved by senior management and include the expected holding period;

(b)

the institution shall have in place clearly defined policies and procedures for the active management of positions or portfolios in the trading book; those policies and procedures shall include the following:

(i)

which positions or portfolios of positions may be entered into by each trading desk or, as the case may be, by designated dealers;

(ii)

the setting of position limits and monitoring them for appropriateness;

(iii)

ensuring that dealers have the autonomy to enter into and manage the position within agreed limits and according to the approved strategy;

(iv)

ensuring that positions are reported to senior management as an integral part of the institution's risk management process;

(v)

ensuring that positions are actively monitored with reference to market information sources and an assessment is made of the marketability or hedgeability of the position or its component risks, including the assessment, the quality and availability of market inputs to the valuation process, level of market turnover, sizes of positions traded in the market;

(vi)

active anti-fraud procedures and controls;

(c)

the institution shall have in place clearly defined policies and procedures to monitor the positions against the institution's trading strategy, including the monitoring of turnover and positions for which the originally intended holding period has been exceeded.’;

(52)

in Article 104, paragraph 2 is deleted;

(53)

the following articles are inserted:

‘Article 104a

Reclassification of a position

1.   Institutions shall have in place clearly defined policies for identifying the exceptional circumstances which justify the reclassification of a trading book position as a non-trading book position or, conversely, the reclassification of a non-trading book position as a trading book position, for the purpose of determining their own funds requirements to the satisfaction of the competent authorities. The institutions shall review those policies at least annually.

EBA shall monitor the range of supervisory practices and shall issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 by 28 June 2024 on the meaning of exceptional circumstances for the purposes of the first subparagraph of this paragraph. Until EBA issues those guidelines, competent authorities shall notify EBA of, and shall provide a rationale for, their decisions on whether or not to permit an institution to reclassify a position as referred to in paragraph 2 of this Article.

2.   Competent authorities shall grant permission to reclassify a trading book position as a non-trading book position or conversely a non-trading book position as a trading book position for the purpose of determining their own funds requirements only where the institution has provided the competent authorities with written evidence that its decision to reclassify that position is the result of an exceptional circumstance that is consistent with the policies the institution has in place in accordance with paragraph 1 of this Article. For that purpose, the institution shall provide sufficient evidence that the position no longer meets the condition to be classified as a trading book or non-trading book position pursuant to Article 104.

The decision referred to in the first subparagraph shall be approved by the management body.

3.   Where the competent authority has granted permission for the reclassification of a position in accordance with paragraph 2, the institution which received that permission shall:

(a)

publicly disclose, without delay,

(i)

information that its position has been reclassified, and

(ii)

where the effect of that reclassification is a reduction in the institution's own funds requirements, the size of that reduction; and

(b)

where the effect of that reclassification is a reduction in the institution's own funds requirements, not recognise that effect until the position matures, unless the institution's competent authority permits it to recognise that effect at an earlier date.

4.   The institution shall calculate the net change in the amount of its own funds requirements arising from the reclassification of the position as the difference between the own funds requirements immediately after the reclassification and the own funds requirements immediately before the reclassification, each calculated in accordance with Article 92. The calculation shall not take into account the effects of any factors other than the reclassification.

5.   The reclassification of a position in accordance with this Article shall be irrevocable.

Article 104b

Requirements for trading desk

1.   For the purposes of the reporting requirements set out in Article 430b(3), institutions shall establish trading desks and shall assign each of their trading book positions to one of those trading desks. Trading book positions shall be attributed to the same trading desk only where they satisfy the agreed business strategy for the trading desk and are consistently managed and monitored in accordance with paragraph 2 of this Article.

2.   Institutions' trading desks shall at all times meet all the following requirements:

(a)

each trading desk shall have a clear and distinctive business strategy and a risk management structure that is adequate for its business strategy;

(b)

each trading desk shall have a clear organisational structure; positions in a given trading desk shall be managed by designated dealers within the institution; each dealer shall have dedicated functions in the trading desk; each dealer shall be assigned to one trading desk only;

(c)

position limits shall be set within each trading desk according to the business strategy of that trading desk;

(d)

reports on the activities, profitability, risk management and regulatory requirements at the trading desk level shall be produced at least on a weekly basis and communicated to the management body on a regular basis;

(e)

each trading desk shall have a clear annual business plan including a well-defined remuneration policy on the basis of sound criteria used for performance measurement;

(f)

reports on maturing positions, intra-day trading limit breaches, daily trading limit breaches and actions taken by the institution to address those breaches, as well as assessments of market liquidity, shall be prepared for each trading desk on a monthly basis and made available to the competent authorities.

3.   By way of derogation from point (b) of paragraph 2, an institution may assign a dealer to more than one trading desk, provided that the institution demonstrates to the satisfaction of its competent authority that the assignment has been made due to business or resource considerations and the assignment preserves the other qualitative requirements set out in this Article applicable to dealers and trading desks.

4.   Institutions shall notify the competent authorities of the manner in which they comply with paragraph 2. Competent authorities may require an institution to change the structure or organisation of its trading desks to comply with this Article.’;

(54)

Article 105 is amended as follows:

(a)

paragraph 1 is replaced by the following:

‘1.   All trading book positions and non-trading book positions measured at fair value shall be subject to the standards for prudent valuation specified in this Article. Institutions shall in particular ensure that the prudent valuation of their trading book positions achieves an appropriate degree of certainty having regard to the dynamic nature of trading book positions and non-trading book positions measured at fair value, the demands of prudential soundness and the mode of operation and purpose of capital requirements in respect of trading book positions and non-trading book positions measured at fair value.’;

(b)

paragraphs 3 and 4 are replaced by the following:

‘3.   Institutions shall revalue trading book positions at fair value at least on a daily basis. Changes in the value of those positions shall be reported in the profit and loss account of the institution.

4.   Institutions shall mark their trading book positions and non-trading book positions measured at fair value to market whenever possible, including when applying the relevant capital treatment to those positions.’;

(c)

paragraph 6 is replaced by the following:

‘6.   Where marking to market is not possible, institutions shall conservatively mark to model their positions and portfolios, including when calculating own funds requirements for positions in the trading book and positions measured at fair value in the non-trading book.’;

(d)

in paragraph 7, the second subparagraph is replaced by the following:

‘For the purposes of point (d) of the first subparagraph, the model shall be developed or approved independently of the trading desks and shall be independently tested, including validation of the mathematics, assumptions and software implementation.’;

(e)

in paragraph 11, point (a) is replaced by the following:

‘(a)

the additional amount of time it would take to hedge out the position or the risks within the position beyond the liquidity horizons that have been assigned to the risk factors of the position in accordance with Article 325bd;’;

(55)

Article 106 is amended as follows:

(a)

paragraphs 2 and 3 are replaced by the following:

‘2.   The requirements set out in paragraph 1 shall apply without prejudice to the requirements applicable to the hedged position in the non-trading book or in the trading book, where relevant.

3.   Where an institution hedges a non-trading book credit risk exposure or counterparty risk exposure using a credit derivative booked in its trading book, that credit derivative position shall be recognised as an internal hedge of the non-trading book credit risk exposure or counterparty risk exposure for the purpose of calculating the risk-weighted exposure amounts referred to in point (a) of Article 92(3) where the institution enters into another credit derivative transaction with an eligible third party protection provider that meets the requirements for unfunded credit protection in the non-trading book and perfectly offsets the market risk of the internal hedge.

Both an internal hedge recognised in accordance with the first subparagraph and the credit derivative entered into with the third party shall be included in the trading book for the purpose of calculating the own funds requirements for market risk.’;

(b)

the following paragraphs are added:

‘4.   Where an institution hedges a non-trading book equity risk exposure using an equity derivative booked in its trading book, that equity derivative position shall be recognised as an internal hedge of the non-trading book equity risk exposure for the purpose of calculating the risk-weighted exposure amounts referred to in point (a) of Article 92(3) where the institution enters into another equity derivative transaction with an eligible third party protection provider that meets the requirements for unfunded credit protection in the non-trading book and perfectly offsets the market risk of the internal hedge.

Both an internal hedge recognised in accordance with the first subparagraph and the equity derivative entered into with the eligible third party protection provider shall be included in the trading book for the purpose of calculating the own funds requirements for market risk.