Response to consultation on amendments to ITS on disclosure and reporting of MREL and TLAC
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PART I: GENERAL INSTRUCTIONS
1.4. Abbreviations and definitions
Comment to 5. (e) “unused prior permission amount” and (f) “unused ad hoc permission amount”:
In accordance with EBA Q&A 2017_3277 Clarification of the conditions for reduction of own funds due to Article 77 CRR and Article 28 RTS on Own funds. | European Banking Authority (europa.eu), if the permission refers to callable instruments where no sufficient certainty is given (e.g. no public announcement) that the call option will be executed, the unused prior permission amount shall exclude any such instruments, as this would effectively lead to a deduction of the prior permission amount although no sufficient certainty is given.
This shall be specified in the definitions used in this guidance.
PART II: TEMPLATE RELATED INSTRUCTIONS
2.1.2. Instructions concerning specific positions
Comment to item 0070 (MREL - “The amounts reported shall be amounts net of unused prior permission amounts, to the extent that the permission covers eligible liabilities instruments.” and TLAC – “The amounts reported shall be amounts net of holding of own eligible liabilities instruments, and net of unused prior permission amounts to the extent that the permission covers eligible liabilities instruments.”):
The definition here confirms the comment above that it is necessary that the unused prior permission amounts EXCLUDE callable instruments where no sufficient certainty is given that they will be called. Otherwise, if the definition of the unused prior permission amount stays unchanged, this would lead to their effective deduction irrespective of the sufficient certainty criteria defined in 2017_3277 Clarification of the conditions for reduction of own funds due to Article 77 CRR and Article 28 RTS on Own funds. | European Banking Authority (europa.eu)
Comment to items 0600 Ad hoc permissions for eligible liabilities items: Predetermined amount and 0610 General prior permissions for eligible liabilities items: Predetermined amount:
Not clear whether this amount shall cover also ad-hoc permissions provided for callable instruments where no sufficient certainty is given that the call option will be executed, e.g. prior to public announcement of the intention of the institution to call the instrument.
2.2. M 03.00 – Internal MREL and Internal TLAC (ILAC)
2.2.2. Instructions concerning specific positions
Comment to item 0100 Total risk exposure amount (TREA):
Not clear whether the TREA in this field is reduced by the corresponding TREA of all relevant “daisy chain” deduction amounts for an intermediate entity.
Comment to item 0110 Total exposure measure (TEM):
Not clear whether the TEM in this field is reduced by the corresponding TEM of all relevant “daisy chain” deduction amounts for an intermediate entity.
Comment to item 0265 (-) Own eligible liabilities instruments: Unused prior permission amounts:
Not clear whether this amount shall cover also ad-hoc permissions provided for callable instruments where no sufficient certainty is given that the call option will be executed, e.g. prior to public announcement of the intention of the institution to call the instrument.
Comment to the explanatory text of item 0290 (-) Own funds instruments and eligible liabilities issued by non-resolution entities of the same resolution group:
This explanation seems not to be correct. The daisy chain deductions refer to any entity with an internal MREL requirement – irrespective of its liquidation or non-liquidation (e.g. resolution) status. Hence, contrary to the explanation provided and as the title of the 0290 Item correctly says, all holdings of own funds and eligible liabilities instruments that are held by an intermediate entity in any other NON-RESOLUTION entity, subject to internal MREL must be deducted. The proposed BRRD changes are expected to eliminate iMREL decisions for LIQUIDATION entities, so this would mean that NO deduction would have to be undertaken for holdings in own funds and eligible liability instruments issued by liquidation entities and held by the intermediate entity.
Please revise the guidance accordingly by replacing LIQUIDATION entity with NON-RESOLUTION entity. Furthermore, NON-RESOLUTION entity might be any entity within a resolution group that is either LIQUIDATION or NON-LIQUIDATION entity.
Comment to item 0292 (-) Own funds instruments and eligible liabilities issued by non-resolution entities of the same resolution group: of which: (-) instruments issued by liquidation entities:
Contrary to the above, here only investments in instruments issued by LIQUIDATION entities must be reported. If the legislative proposal regarding BRRD is approved, this row shall be left empty, as liquidation entities will not be subject to iMREL requirement and as a consequence, no deduction shall be performed by intermediate entities.
Comment to items 0550 – 0600 Other bail-inable liabilities (“Unused prior permission amounts, to the extent that the permission covers an eligible liabilities instrument, shall be considered other bail-inable liabilities for the purposes of these rows”):
Not clear whether this amount shall cover also ad-hoc permissions provided for callable instruments where no sufficient certainty is given that the call option will be executed, e.g. prior to public announcement of the intention of the institution to call the instrument.
3.2. M06.00 – Creditor ranking (resolution entity) (RANK)
3.2.2 Instructions concerning specific positions
Comment to items 0700 – 0100 (of which: with a residual maturity of):
In this position, the eligible liabilities and own fund instruments are reported, sorted by their ranks. T2 instruments are differentiated into the own funds eligible part and the rest (not recognized as own funds part).
The own funds eligible part is also MREL eligible if its residual maturity is <1 year.
However, there is only the possibility to report own funds and eligible liabilities with a residual maturity of > than 1 year.
Furthermore, there is a validation rule that compares the total value per own funds and eligible liabilities with the sum of the values broken down by maturities. As the own funds eligible part < 1 year cannot be reported, this validation rule can be broken. It is therefore necessary to report to report the own funds and eligible liabilities < than 1 year.
b) Are the templates, and the instructions provided for filling them in, clear? If you identify any issues, please clearly specify the affected templates and instructions, and include suggestions how to rectify the issues.
Yes, we have identified some issues with regard to Annex II – Reporting on the minimum requirements for own funds and eligible liabilities – InstructionsPART I: GENERAL INSTRUCTIONS
1.4. Abbreviations and definitions
Comment to 5. (e) “unused prior permission amount” and (f) “unused ad hoc permission amount”:
In accordance with EBA Q&A 2017_3277 Clarification of the conditions for reduction of own funds due to Article 77 CRR and Article 28 RTS on Own funds. | European Banking Authority (europa.eu), if the permission refers to callable instruments where no sufficient certainty is given (e.g. no public announcement) that the call option will be executed, the unused prior permission amount shall exclude any such instruments, as this would effectively lead to a deduction of the prior permission amount although no sufficient certainty is given.
This shall be specified in the definitions used in this guidance.
PART II: TEMPLATE RELATED INSTRUCTIONS
2.1.2. Instructions concerning specific positions
Comment to item 0070 (MREL - “The amounts reported shall be amounts net of unused prior permission amounts, to the extent that the permission covers eligible liabilities instruments.” and TLAC – “The amounts reported shall be amounts net of holding of own eligible liabilities instruments, and net of unused prior permission amounts to the extent that the permission covers eligible liabilities instruments.”):
The definition here confirms the comment above that it is necessary that the unused prior permission amounts EXCLUDE callable instruments where no sufficient certainty is given that they will be called. Otherwise, if the definition of the unused prior permission amount stays unchanged, this would lead to their effective deduction irrespective of the sufficient certainty criteria defined in 2017_3277 Clarification of the conditions for reduction of own funds due to Article 77 CRR and Article 28 RTS on Own funds. | European Banking Authority (europa.eu)
Comment to items 0600 Ad hoc permissions for eligible liabilities items: Predetermined amount and 0610 General prior permissions for eligible liabilities items: Predetermined amount:
Not clear whether this amount shall cover also ad-hoc permissions provided for callable instruments where no sufficient certainty is given that the call option will be executed, e.g. prior to public announcement of the intention of the institution to call the instrument.
2.2. M 03.00 – Internal MREL and Internal TLAC (ILAC)
2.2.2. Instructions concerning specific positions
Comment to item 0100 Total risk exposure amount (TREA):
Not clear whether the TREA in this field is reduced by the corresponding TREA of all relevant “daisy chain” deduction amounts for an intermediate entity.
Comment to item 0110 Total exposure measure (TEM):
Not clear whether the TEM in this field is reduced by the corresponding TEM of all relevant “daisy chain” deduction amounts for an intermediate entity.
Comment to item 0265 (-) Own eligible liabilities instruments: Unused prior permission amounts:
Not clear whether this amount shall cover also ad-hoc permissions provided for callable instruments where no sufficient certainty is given that the call option will be executed, e.g. prior to public announcement of the intention of the institution to call the instrument.
Comment to the explanatory text of item 0290 (-) Own funds instruments and eligible liabilities issued by non-resolution entities of the same resolution group:
This explanation seems not to be correct. The daisy chain deductions refer to any entity with an internal MREL requirement – irrespective of its liquidation or non-liquidation (e.g. resolution) status. Hence, contrary to the explanation provided and as the title of the 0290 Item correctly says, all holdings of own funds and eligible liabilities instruments that are held by an intermediate entity in any other NON-RESOLUTION entity, subject to internal MREL must be deducted. The proposed BRRD changes are expected to eliminate iMREL decisions for LIQUIDATION entities, so this would mean that NO deduction would have to be undertaken for holdings in own funds and eligible liability instruments issued by liquidation entities and held by the intermediate entity.
Please revise the guidance accordingly by replacing LIQUIDATION entity with NON-RESOLUTION entity. Furthermore, NON-RESOLUTION entity might be any entity within a resolution group that is either LIQUIDATION or NON-LIQUIDATION entity.
Comment to item 0292 (-) Own funds instruments and eligible liabilities issued by non-resolution entities of the same resolution group: of which: (-) instruments issued by liquidation entities:
Contrary to the above, here only investments in instruments issued by LIQUIDATION entities must be reported. If the legislative proposal regarding BRRD is approved, this row shall be left empty, as liquidation entities will not be subject to iMREL requirement and as a consequence, no deduction shall be performed by intermediate entities.
Comment to items 0550 – 0600 Other bail-inable liabilities (“Unused prior permission amounts, to the extent that the permission covers an eligible liabilities instrument, shall be considered other bail-inable liabilities for the purposes of these rows”):
Not clear whether this amount shall cover also ad-hoc permissions provided for callable instruments where no sufficient certainty is given that the call option will be executed, e.g. prior to public announcement of the intention of the institution to call the instrument.
3.2. M06.00 – Creditor ranking (resolution entity) (RANK)
3.2.2 Instructions concerning specific positions
Comment to items 0700 – 0100 (of which: with a residual maturity of):
In this position, the eligible liabilities and own fund instruments are reported, sorted by their ranks. T2 instruments are differentiated into the own funds eligible part and the rest (not recognized as own funds part).
The own funds eligible part is also MREL eligible if its residual maturity is <1 year.
However, there is only the possibility to report own funds and eligible liabilities with a residual maturity of > than 1 year.
Furthermore, there is a validation rule that compares the total value per own funds and eligible liabilities with the sum of the values broken down by maturities. As the own funds eligible part < 1 year cannot be reported, this validation rule can be broken. It is therefore necessary to report to report the own funds and eligible liabilities < than 1 year.