Consultation on Draft Regulatory Technical Standards on Own Funds

04 April 2012

The European Banking Authority (EBA) launches today a consultation on Draft Regulatory Technical Standards (RTS) on own funds (Part one). This consultation groups fourteen RTS covering, among others, areas such as Common Equity Tier 1, Additional Tier 1, deductions from Common Equity Tier 1 and from own funds in general and transitional provisions on grandfathering. These RTS will be part of the single rulebook aimed at enhancing regulatory harmonisation in Europe and namely at strengthening the quality of capital. The consultation runs until 04th July 2012.

Main features of the RTS

These technical standards cover all areas of own funds, from features for instrument of the highest quality (CET1 instruments) to instruments of a lower quality (Tier 2 instruments).

Various provisions of the RTS will contribute to increasing the permanence of capital instruments as well as the loss absorbency features of hybrid instruments.

The requirements contained in the draft RTS are mainly directed at institutions, although some of them are directed at competent authorities.

The RTS cover, in particular, the following areas:
 

  • Common Equity Tier 1 capital, in particular foreseeable charges or dividends, features of capital instruments of mutuals, cooperative societies or similar institutions, applicable forms and nature of indirect funding of capital instruments, limitations on redemption of own funds instruments;
  • Additional Tier 1 capital, in particular the form and nature of incentives to redeem, the conversion or write-down of the principal amount, the use of special purpose entities;
  • Deductions from Common Equity Tier 1 capital and from own funds in general including deductions of capital instruments of financial institutions and insurance/reinsurance undertakings, losses of the current financial year, deferred tax assets, defined benefits pension fund assets, foreseeable tax charges;
  • General requirements like indirect holdings arising from index holdings, supervisory consent for reducing own funds;
  • Transitional provisions for own funds in terms of grandfathering.


Next steps

The proposed consultation paper is based on the draft Capital Requirements Regulation (CRR) as proposed by the European Commission on 20th July 2011. As the text is still being discussed by the EU legislator (European Parliament and Council), some of the mandates for the EBA to develop Binding Technical Standards (BTS) may be modified, added or deleted in the adopted Regulation. Therefore, the proposed RTS will be amended after the consultation to take into account the final CRR text.

All the RTS included in this consultation have to be submitted to the EU Commission by 1 January 2013.

Separate consultations on some remaining RTS on Own Funds will follow in the second half of 2012.

Background

The CRR/CRD IV proposals (the so-called Capital Requirements Regulation - ‘CRR'- and the so-called Capital Requirements Directive – ‘CRD') set out prudential requirements which are expected to be applicable as of 1 January 2013. The CRR proposals related to own funds translate the proposals from the Basel Committee on Banking Supervision into EU law. Both reforms raise both the quality and quantity of the regulatory capital base.

Notes

This consultation paper puts forward draft RTS related to the following Articles of the CRR related to Own Funds: Article 24(3); Article 25(2) point b); Article 26(3); Article 27(6); Article 33(2); Article 38(2); Article 46(5); Article 49(2); Article 71(3); Article 73(3); Article 74(2); Article 78(2); Article 461(4); Article 465(3).

Separate consultations on Own Funds will cover draft technical standards related to the following Articles: Article 25(2) point a); Article 29(2); Article 31(2); Article 46(4); Article 84(4); Article 92(4); Article 424(2).

These draft RTS are produced in accordance with Article 10 of the EBA regulation and as per Article 10(4) of the aforementioned regulation, they shall be adopted by means of regulations or decisions. According to EU law, EU regulations are binding in their entirety and directly applicable in all Member States. This means that, on the date of their entry into force, they become part of the national law of the Member States and their implementation into national law is not only unnecessary but also prohibited by EU law, except in so far as this is expressly required by them.

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Consultation on Draft Implementing Technical Standards on Disclosure for Own Funds

07 June 2012

The European Banking Authority (EBA) launched today a consultation on Draft Implementing Technical Standards (ITS) on disclosure for own funds. These draft ITS complement the first set of standards on own funds published last April and focus on the disclosure requirements to be met by institutions.  Establishing appropriate disclosure requirements increases the transparency on regulatory capital held by European institutions and ultimately contributes to strengthening its quality and quantity. The consultation runs until 31 July 2012.

These technical standards aim at ensuring a uniform approach to disclosure for own funds by institutions and across jurisdictions in order to allow detailed assessments of banks' capital positions and to make cross-jurisdictional comparisons.

Main features of the ITS

To facilitate international comparisons and to avoid the development of two different disclosure frameworks, the draft ITS follow very closely the approach adopted by the Basel Committee on Banking Supervision (BCBS), while making appropriate reference to the EU regulatory framework (Capital Requirements Regulation - CRR). The EBA also ensured that these ITS are consistent with the COREP framework.

The requirements contained in the draft ITS are directed at institutions which are requested to complete three sets of templates:

  • a general own funds disclosure template reflecting the capital position of institutions;
  • a transitional disclosure template covering the phasing in (from 1 January 2013 to 31 December 2017) of the regulatory adjustments – namely with reference to deductions and filters - and reflecting the transitional provisions implemented by the institutions;
  • a template describing the main features of an institution's capital instruments.

In addition to the three templates, institutions are required to provide a balance sheet reconciliation between their financial statements and their regulatory own funds to address the disparities between these two sets of data.

Next steps

The present draft ITS are produced in accordance with Article 15 of the EBA Regulation and will be finalised according to the final version of the CRR/CRDIV proposals before submitting them to the European Commission.

In finalising these ITS, the EBA will also to take into account, as far as necessary, the international developments in the field of disclosure on own funds and in particular the final guidance to be published by the BCBS.

Further consultation papers on the remaining RTS on own funds in the CRR are expected to be published later in 2012.

Consultation process

Comments on this paper can be sent to the EBA by e-mail to CP-2012-4@eba.europa.eu by 31 July 2012, indicating the reference EBA/CP/2012/04.

All contributions received will be published unless you request otherwise.

Notes to editors

(1) In December 2011, the (BCBS) published a consultative document on ‘Definition of capital – Disclosure requirements' aiming at addressing the lessons from the financial crisis and, in particular, the criticism that the lack of clarity on the quality of capital contributed to uncertainty during the financial crisis.

(2) The CRR/CRD IV package (the so-called Capital Requirements Regulation - ‘CRR'- and the so-called Capital Requirements Directive – ‘CRD') sets out prudential requirements which are expected to be applicable as of 1 January 2013. The package translates in European law international standards on bank capital agreed at the G20 level (most commonly known as the Basel III agreement). One of the major achievements will be the creation of a Single Rule Book - a set of rules directly applicable in all EU member states - that will improve both transparency and enforcement in the EU banking sector. 

(3) Draft RTS are produced in accordance with Article 10 of the EBA regulation and must be subsequently endorsed by the European Commission (EC). They shall be adopted by the EC by means of regulations or decisions. According to EU law, EU regulations are binding in their entirety and directly applicable in all Member States. This means that, on the date of their entry into force, they become part of the national law of the Member States and their implementation into national law is not only unnecessary but also prohibited by EU law, except in so far as this is expressly required by them.

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EBA consultation paper on draft ITS on reporting of large exposures

13 February 2012

The EBA published today a consultation paper on a draft Implementing Technical Standard (ITS) on reporting of large exposures (CP51). The public consultation starts today and runs until 26 March 2012.

The consultation is open to all interested parties, including supervised institutions and other market participants.
All contributions received will be published on the EBA's website unless respondents request otherwise. Please send your comments to the following e-mail address: CP51@eba.europa.eu by 26 March 2012.

Main features of this ITS

This consultation paper puts forward a draft ITS on reporting of large exposures as requested by Article 383 of the Capital Requirements Regulation (CRR) and represents an addendum to the ITS proposal on supervisory reporting requirements published on the EBA's website on 20 December 2011.

This draft ITS aims at implementing uniform reporting requirements which are necessary to ensure fair conditions of competition between comparable groups of credit institutions and investment firms. Uniform requirements will ultimately make institutions more efficient and result in a greater convergence of supervisory practices.

The ITS on reporting has been developed on the basis of the guidelines on common reporting of large exposures. The draft ITS will be covering both (i) information needed to check institutions' compliance with the large exposure regime as set out in Articles 376 – 392 of CRR and (ii) information on concentration risk which competent authorities need to analyse as per Article 79 of the Capital Requirements Directive (CRD). The scope and level of application are in line with the CRR, currently under discussion by the EU legislators.
 
Next steps

The EBA intends to finalise the draft ITS and submit it to the Commission by 30 June 2012. It should be noted that the proposed submission date assumes that a final CRR will be available beforehand.

According to the European Commission proposals, institutions are required to comply with new CRR requirements as of 1 January 2013. Therefore, the first regular reporting period thereafter is expected to be Q1 2013 with the first reporting reference date being 31 March 2013. By 13 May 2013, institutions will then have to submit to national authorities a first set of data related to the reference date.

Background: CRD IV/CRR

This draft ITS is part of the CRR which sets out prudential requirements for institutions which are expected to be applicable as of 1 January 2013.

The CRR contains in a number of Articles specific mandates for the EBA to develop draft Implementing Technical Standards (ITS) related to supervisory reporting requirements.

These ITS will be part of the single rulebook enhancing regulatory harmonisation in Europe with the particular aim of specifying uniform formats, frequencies and dates of prudential reporting as well as IT solutions to be applied by credit institutions and investment firms in Europe.

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EBA Discussion paper on a template for recovery plans

15 May 2012

This discussion paper presents some preliminary ideas on what the key elements of a recovery plan should be. To this end, it proposes a possible "template for recovery plan" which aims at covering the essential issues that should be addressed in a recovery plan.

The inputs from the discussion process will assist the EBA in the performance of its role according to Article 25 of the EBA Regulation.

Background

Article 25 of the EBA founding Regulation (Regulation (EU) 1093/2010) assigns the Authority the task of contributing to and actively participating in the development and coordination of effective and consistent Recovery and Resolution Plans (RRPs).
In particular, the EBA may identify best practices, and draft regulatory and implementing technical standards, with regard to the development of RRPs. The exact role and responsibility of the EBA are to be specified in an EU legislative act. In this regard, the forthcoming European Commission proposal for EU legislation establishing a framework for the recovery and resolution of credit institutions is expected to detail the nature and content of RRPs, as well as to clarify the scope of their application, and to further define the role and powers of the EBA and national competent authorities (NCAs).

Consultation process

The EBA invites comments on the issues raised in this discussion paper (DP).

Please send your comments to the EBA by e-mail to DP-2012-02@eba.europa.eu by 15 June 2012, including the reference to "EBA/DP/2012/2" in the subject field. Answers should be sent preferably both in PDF and Word formats.

Please note that comments submitted after the deadline, or sent to another e-mail address, will not be processed.

All contributions received will be published on the EBA's website following the close of the consultation, unless you request otherwise.

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EBA consults on EU technical standards for recovery plans

11 March 2013

The European Banking Authority (EBA) launches today a consultation on Draft Regulatory Technical Standard (RTS) on the content of recovery plans. In doing so the EBA starts the preparatory work for the implementation of the Recovery and Resolution Directive (RRD) currently discussed by the EU legislators. The consultation runs until 11 June 2013.

These RTS will contribute to the European Single Rulebook in banking and aim at enhancing financial stability and minimising the probability of banks' failure.

Recovery plans shall set out the arrangements and measures a bank would adopt to restore long-term financial viability in case of severe distress. According to the proposed draft RTS, recovery plans developed at group and individual level will need to include at least the following 5 key parts:

(i) summary of the recovery plan;

(ii) governance, including the conditions and procedures necessary to ensure a timely implementation of the recovery options;

(iii) strategic analysis, including a description of the institution's core business lines and critical functions together with the different recovery options designed to respond to financial stress scenarios ;

(iv) communication plan, including external and internal communication arrangements; 

(v) and preparatory measures taken or to be taken to improve the implementation and effectiveness of the plan.

The content proposed in these RTS builds on the EBA Recommendation issued in January 2013 to foster the development of group recovery plans and their discussion within colleges of supervisors.

The proposed consultation paper is based on the draft Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the so-called Recovery and Resolution Directive - RRD) as proposed by the European Commission on 6 June 2012. As the text is still being discussed by the EU legislators (European Parliament and Council), the draft RTS might be amended after the consultation to take into account inter alia possible changes in the final RRD.

The EBA will submit the final draft RTS on recovery plans within 12 months from the date of entry into force of the RRD.

EBA's role in the implementation of the Recovery and Resolution Directive (RRD)

The proposal for a Recovery and Resolution Directive assigns the EBA with a number of tasks related to three main areas:

  • drafting of Technical Standards and Guidelines (in areas such as content and assessment of recovery and resolution plans, range of scenarios to be included into the recovery and resolution plans, design and implementation of resolution tools, conditions to trigger resolution, functioning of resolution colleges, etc.); 
  • facilitating the adoption of joint decisions in supervisory colleges as well as resolution colleges, where the Authority will participate to ensure the smooth functioning and to play a mediation role;
  • the interaction of the European Union with Third Countries with respect to resolution actions

Consultation process

Comments on this consultation can be sent to the EBA by e-mail to EBA-CP-2013-01@eba.europa.eu by 11.06.2013, indicating the reference EBA/CP/2013/01.

All contributions received will be published unless you request otherwise.

A public hearing will take place at the EBA premises on 30 April 2013 at 9.30am. To register for the public hearing, click here.


Notes to editors

1. The European Commission presented on 6 June 2012 a proposal for a Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the so-called Recovery and Resolution Directive - RRD). The objective of the Directive is to ensure that in the future authorities will have the means to intervene decisively both before problems occur and early on in the process if they do (prevention and early intervention powers). Furthermore, if the financial situation of a bank deteriorates beyond repair, the proposal ensures that a bank's critical functions can be rescued while the costs of restructuring and resolving failing banks fall upon the bank's owners and creditors and not on taxpayers (resolution powers).

2. The EBA adopted on 23 January 2013 a formal Recommendation to ensure that major EU cross-border banks develop group recovery plans by the end of 2013. The plans shall be submitted to the respective competent authorities and discussed within colleges of supervisors. The aim of the Recommendation is to spur the development of recovery plans and to foster convergence on the highest standards across the Union.

3. These draft RTS are produced in accordance with Article 10 of the EBA regulation and shall be finally adopted by the European Commission by means of regulations or decisions. According to EU law, EU regulations are binding in their entirety and directly applicable in all Member States. This means that, on the date of their entry into force, they become part of the national law of the Member States and their implementation into national law is not only unnecessary but also prohibited by EU law, except in so far as this is expressly required by them.

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ESAs consult on the application of the capital calculation methods for financial conglomerates

31 August 2012

The Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA) launches today a public consultation on Draft Regulatory Technical Standards (RTS) for the calculation methods under Article 6.2 of the Financial Conglomerates Directive (FICOD).  These RTS will be part of the Single rulebook aimed at enhancing regulatory harmonisation in the European Union.  The consultation runs until 5 October 2012.

The proposed draft RTS set out specifications for institutions in a financial conglomerate to ensure uniform conditions of application of the calculation methods for determining the amount of capital required at the level of the financial conglomerate.

The draft RTS are based on the following general principles and technical calculation methods:

General Principles

• Elimination of multiple gearing;
• elimination of intra-group creation of own funds;
• transferability and availability of own funds; and
• coverage of deficit at financial conglomerate level having regard to definition of cross-sector capital.

Technical calculation methods

• Method 1: Accounting consolidation method;
• Method 2: Deduction and aggregation method; and
• Method 3: Combination of methods 1 and 2.

The consultation paper is based on the draft Capital Requirements Regulation (CRR)/Capital Requirements Directive (CRD IV) as proposed by the European Commission on 20 July 2011.

This proposal might be subject to further changes, following this consultation and also the final adoption of CRR/CRDIV.  The RTS shall be submitted to the EU Commission by 1 January 2013.

Please send your comments by 5 October 2012 COB to the EBA, EIOPA and ESMA, by e-mail to joint-committee@eba.europa.eu, jointcommittee@eiopa.europa.eu and joint.committee@esma.europa.eu by indicating the reference ‘JC/CP/2012/02' on the subject field.
 
All contributions received will be made public, unless otherwise requested, following the close of the consultation.

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The EBA has published today its Guidelines on Internal Governance (GL44)

27 September 2011

The European Banking Authority (EBA) has published today its Guidelines on Internal Governance aiming at enhancing and consolidating supervisory expectations and to ultimately improving the sound implementation of internal governance arrangements. Effective internal governance is fundamental if individual institutions and the banking system as a whole are to operate well.

Article 22 of Directive 2006/48/EC requires that every credit institution shall have robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, adequate internal control mechanisms, including sound administrative and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management. Furthermore, Article 73 (3) of the same Directive requires that Article 22 is also applied to parent undertakings and subsidiaries on a consolidated or sub-consolidated basis.

A survey on the implementation of internal governance arrangements, conducted under CEBS in 2008, revealed a number of weaknesses in terms of oversight of the supervisory function, risk management and internal control frameworks. The complexity of individual institutions coupled with the riskiness of the products and services offered were often not sufficiently offset by appropriate internal governance arrangements.

Taking into account the results of the survey and the recent work done by other European and international bodies on corporate governance, the EBA has consolidated and updated its former guidelines on internal governance into the present Guidelines on Internal Governance. Beside other enhancements, new chapters have been added on the transparency of the corporate structure, the role, tasks and responsibilities of the supervisory function and on IT-systems and business continuity management.

The EBA Internal Governance Guidelines repeal the 2010 High Level Principles for Risk Management, the 2009 High Level Principles for Remuneration Policies and Section 2.1 of the 2006 Guidelines on the Application of the Supervisory Review Process under Pillar 2.

The EBA reviewed these Guidelines following a public consultation and the input provided by the EBA's Banking Stakeholder Group. Overall, respondents were supportive of the proposed Guidelines and appreciated the EBA's initiative to develop a comprehensive set of internal governance guidelines in line with international standards.

The EBA expects competent authorities to implement the Guidelines on Internal Governance and to incorporate them within their supervisory procedures by 31 March 2012. As of that date, competent authorities should ensure that institutions effectively comply with the new Guidelines.

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Public hearing for EBA consultation on Guidelines on AMA extensions and changes

23 February 2011

The Committee of European Banking Supervisors (CEBS) has published today its draft consultation paper on Guidelines on AMA Changes (CP 45) aiming at assisting institutions using the Advanced Measurement Approach (AMA) to further develop their AMA models.

CEBS submits its initial views for a public consultation which starts today and runs until 15 March 2011. The consultation is open to all interested parties, including supervised institutions and other market participants. Comments received will be published on CEBS's website unless respondents request otherwise. Please send your comments to the following email address: cp45@c-ebs.org.

A public hearing will be held on 23 February 2011 at our premises in London, from 10:00 to 13:00 to allow interested parties to share their views with CEBS, the tasks and responsibilities of which will be taken over by the European Banking Authority (EBA) as of 1 January 2011.

CEBS expects its members to implement the Guidebook on Internal Governance and to incorporate it within their supervisory procedures by 31 December 2011. After that date, members should ensure that institutions comply with it effectively.

Registration forms should be submitted by Wednesday 16 February 2011.

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Consultation paper on Draft Implementing Technical Standards on supervisory reporting requirements for liquidity coverage and stable funding

07 June 2012

 

The European Banking Authority (EBA) launched today a consultation on Draft Implementing Technical Standards (ITS) on supervisory reporting requirements for liquidity coverage and stable funding. These ITS, which will be part of the EU single rulebook, intend to specify the main features (formats, frequencies, IT solutions) of prudential reporting to be applied by financial institutions in Europe. The consultation runs until 27 August 2012.

These ITS will become part of the general supervisory reporting framework. In this respect, they are an addition to the draft ITS text proposed in the Consultation Paper on supervisory reporting for institutions (CP50) published on 20 December 2011 and need to be read in conjunction with them.

Main features of the ITS

These ITS aim at providing national authorities with harmonized information on their liquid assets, inflows and outflows and their stable sources of funding using uniform reporting formats developed by the EBA.
Against this background, this consultation paper puts forward proposals regarding the reporting requirements for both liquidity coverage and stable funding. The purpose of this monitoring is two-fold: (i) to inform the economic impact assessment of the liquidity requirements the EBA is asked to perform during the monitoring period, and (ii) to enable competent authorities to monitor institutions' compliance with the liquidity requirements once they have been introduced as binding minimum standards.

The scope and level of application of these ITS are in line with the Capital Requirements Regulation (CRR) text. The latter provides for the liquidity coverage reporting to be done at least monthly and the stable funding reporting at least quarterly.
These ITS have been developed on the basis of the templates for liquidity reporting used by the EBA in compiling the Basel III monitoring exercise as well as on the COREP and FINREP guidelines. They also build on voluntary reporting exercises conducted predominantly by larger institutions.

Next steps

These draft ITS have been developed on the basis of the European Commission's legislative proposals for the CRR/CRD IV. Following the end of the consultation period, and to the extent that the final text of the CRR changes before the adoption of the ITS, the EBA will adapt its draft ITS accordingly to reflect any developments.

The CRR also mandates the EBA to develop additional liquidity monitoring metrics to provide competent authorities with a comprehensive view of institutions' liquidity risk profiles. The EBA is currently working on these metrics and will launch a public consultation in due course, depending on the timeline that will be adopted in the CRR.

As stated above, the information collected under these ITS will be used to inform the EBA's impact assessment on the introduction of the liquidity requirements. The EBA will disclose the methodology it intends to use for this assessment later this year.   

A separate consultation on a data point model containing all the relevant technical specifications necessary for developing an IT reporting format will be published in the second half of 2012.

Based on the CRR proposals and these ITS, institutions are required to comply with the new reporting requirements as of 1 January 2013. In the current timeline for the implementation of the CRR/CRD IV, the first regular reporting period is expected to be January 2013.

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EBA consults on technical standards in relation with credit valuation adjustment risk

11 July 2012

The European Banking Authority (EBA) launches today a consultation on Draft Regulatory Technical Standards (RTS) for credit valuation adjustment risk on the determination of a proxy spread and the specification of a limited number of smaller portfolios. These RTS will be part of the Single rulebook aimed at enhancing regulatory harmonisation in Europe. The consultation runs until 15 September.

Main features of the RTS

The proposed draft RTS elaborate on specific elements of the calculation of own funds requirements for credit valuation adjustment (‘CVA') risk. In particular they specify:

  1. How a proxy spread should be determined for the purposes of identifying LGDMKT for the calculation required by Article 373(1); and
  2. The criterion of ‘a limited number of smaller portfolios' referred to in Article 373(4).

Next steps

The proposed consultation paper is based on the draft Capital Requirements Regulation (CRR) as proposed by the European Commission on 20th July 2011. As the text is still being discussed by the EU legislator (European Parliament and Council), some of the mandates for the EBA to develop Binding Technical Standards (BTS) may be modified, added or deleted in the adopted Regulation. Therefore, the proposed RTS may be amended after the consultation to take into account the final CRR text.

These RTS have to be submitted to the EU Commission by 1 January 2013.

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