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European Banking Federation

The EBA consultation is welcomed since it would allow achieving greater consistency in recovery plans.

The EBF agrees with the categories of legal entities that must be included in group recovery plans such as defined in the recommendations (branches which are relevant for the group or the economy including the financial system of one or more Member States and significant + branches in accordance with the EBA/GL/XX) .
Notwithstanding this, it is worth noting that the definition of the categories of entities to be covered by recovery plans need to be clarified. Indeed, the criteria to be used (i) to determinate which entities must be deemed as relevant for the group or the economy according to Article 7 of Commission Delegated Regulation (EU) 2016/1075, and (ii) to determinate which branches must be deemed as significant + according to EBA/GL/XX remain too ambiguous.
In this sense, with respect to significant + branches, the EBF recommends EBA to define more precisely the criterion of the intensification test (how does EBA define the importance of a branch for a banking group, for the financial stability of the host Member State? And how does EBA define critical functions?) and establish precise thresholds in order to ensure a level playing field and the harmonisation of supervisory practices (see the EBF reply to the EBA consultation on draft guidelines on supervision of significant branches).
In addition, article 7 of Commission Delegated Regulation (EU) 2016/1075 establishes that branches which are relevant for the group or the economy including the financial system of one or more Member States are those branches which:
a. substantially contribute to the profit of the entity or entities covered by the recovery plan or to their funding, or hold an important share of their assets, liabilities or capital;
b. perform key commercial activities;
c. centrally perform key operational, risk or administrative functions;
d. bear substantial risks that could, in a worst-case scenario, jeopardise the viability of the institution or group;
e. could not be disposed of or liquidated without likely triggering a major risk for the institution or group as a whole;
f. are important for the financial stability of at least one of the Member States in which they have their registered offices or operate.
All these criteria remain quite ambiguous and would require more clarification in order to ensure consistency in the coverage of entities that are included in recovery plans across banks.

First of all, the recommendation must clearly take into account the different bank business models (centralized or decentralized) as well as their cross-border dimension (in the EU or in third countries). Requirements must be adjusted according to the independence level of entities and must recognize the possibility that entities already have to develop their own recovery plan on an individual basis.
• It also worth noting that decentralized banks are legally unable to include in their group recovery plan measures to be taken by the parent entity on behalf of their third country resolution entities/ third country subsidiaries.
• The recommendations must recognize the possibility that group-relevant entities and locally relevant entities may have already be required to develop their own recovery plans. In those recovery plans, relevant indicators are defined and calibrated, relevant options are described and a specific governance is defined. Duplicating these indicators, options and governance in the group recovery plan seems to be completely unnecessary and may create further problems concerning the synchronization of group recovery plans and entity specific recovery plans

Regarding group relevant entities:
• The EBA recommendations should differentiate service entities hosting operations from operating entities which take risks. Service entities should be exempted of defining indicators, recovery measures and stress scenarios and other governance arrangements as they do not take risk and are therefore irrelevant from a group recovery perspective. The continuity of services would be achieved by the contingency plans (out of the scope of recovery plans).
• Defining recovery indicators at legal entity level should be optional depending on the business and operating model of the group.
• The recommendations should make clearer that where group support arrangements are in place and that contribution from legal entities to the group recovery effort are quantified, it should be optional to provide recovery measures at legal entity level.
• The assessment of impacts of stress scenarios onto relevant entities should be proportionate and should not require the simulation of all indicators at the legal entity level as this would be similar as creating legal entities stress scenarios.
• The introduction of the option considering the sale of a group relevant entity should not be mandatory. The banking group must have the say to decide which scenario must be considered conditioned to the approval of the recovery plan by the competent authority.
• With regard to the definition of indicators and scenarios, the recommendations should take into account the cases where the group and locally relevant entities are located in the same country than the parent undertaking.
The aim of the group recovery plan should not be to restore the financial health of locally relevant entities as stated in the recommendations but should focus on the continuity of the critical functions, e.g. if the group decides to sell the entity to a third party, it will achieve the protection of critical functions and the buyer’s decision with the entity would be irrelevant.
Similarly to the group relevant entities and depending on the business model of the group, it should be possible to demonstrate that the continuity of the critical functions are ensured by the application of group arrangements rather than requiring the systematic development of local recovery measures.
As explained before, the criteria to determinate which entities must be deemed as locally relevant must be clarified. In particular, article 18 remains ambiguous since it does not provide a clear definition of those entities which are locally important due to critical functions without being relevant for the group.
The level of detail required to be included in recovery plans on non-relevant entities should be limited. At this respect, it is noteworthy that although it is important that banks monitor their non-relevant entities, including a list of non-relevant entities in the group recovery plan should be discarded since this would not increase the quality of the plan nor help regulators to assess it. On the contrary, this would add too much information with very little relevance in the context of a group recovery plan.
The introduction of a transitional phase is necessary and welcomed.
Saifeddine Chaibi
+32 2 508 37 23