The EBA published today final draft Regulatory Technical Standards (RTS) and Guidelines on the provision of group financial support, as well as final draft Implementing Technical Standards (ITS) detailing the disclosure requirements of these activities. These Technical Standards and Guidelines specify the conditions under which one entity of a banking group can provide support to another entity of the same group in financial difficulties. These have been developed within the framework established by the Bank Recovery and Resolution Directive (BRRD) and aim at strengthening integrated risk management in EU banking groups by removing possible uncertainties around supporting entities in distress within the same group.
These RTS and Guidelines establish a harmonised regulatory framework that will facilitate provision of intra-group financial support in the EU by enhancing clarity of procedures and overcoming existing obstacles. Competent banking authorities across the EU will grant authorisation for support on the basis of a number of conditions: the interest of the group as a whole and the risks which would materialise for the providing entity if the support was not provided; the expected success of the support, the terms of the support (and various prudential requirements applying to the providing entity), as well as the possible impact on financial stability and the resolvability of the providing entity.
The present regulatory framework for intra-group financial support differs widely across the EU, in particular for those cases of subsidiaries supporting parent companies (upstream support), making it difficult for banking groups operating in more than one EU member States (cross-border groups) to allocate and manage liquidity optimally during periods of financial distress. Uncertainties around conditions and resources for supporting the group entity in distress, as well as excessive regulatory constraints, can ultimately result in a destabilisation of the whole group.
The fulfilment of the conditions provided in these Standards and Guidelines must be assessed on the basis of the capital and liquidity situation of the concerned institution. Authorities across the EU will be required to conduct a risk analysis of the reasons for the financial distress of the institution concerned, as well as business models, current market situation and potential further adverse developments. Authorities are given flexibility to consider additional elements on a case-by-case basis.
In its ITS on the form and content of the disclosure of public support agreements, the EBA also specified the disclosure requirements for intra-group financial support. Ensuring greater transparency on support agreements in the EU banking sector allows creditors to make informed decisions and drives a better safeguard of the interests of investors and depositors in the supporting entity.
Legal basis and next steps
The Guidelines and draft RTS have been developed according to Article 23 of BRRD (Directive 2014/59/EU), which mandates the EBA to specify the conditions for the provision of group financial support. The draft ITS are based on Article 26 of the BRRD, which mandates the EBA to develop a draft specifying the format and content of the disclosure of group financial support agreements. The draft RTS and ITS have been submitted to the European Commission for adoption.