Response to consultation on RTS on conditions for the provision of group financial support
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“(c) When assessing whether to authorise the provision of the support despite the non-compliance with the above mentioned requirements, the competent authority should take into account the following:
(i) The period of time during which the providing entity does not comply with the relevant liquidity limits;
(ii) the significance of the non-compliance, including their measurement by the liquidity coverage ratio and the net stable funding ratio and the identification of the providing entity´s liquidity needs therein;
(iii) the providing entity´s plan for eliminating the non-compliance, including the analysis of directly available liquidity buffers, the overall counterbalancing capacity available to the providing entity and its ability to monetise its liquid assets;
(iv) market conditions, including the risk appetite for investors to provide funds;
(v) the best interest of the providing entity, including indirect benefits resulting from a stabilisation of the group as a whole; and
(vi) the impact on financial stability.”
On a more technical note, we have difficulties to understand why the draft EBA guidelines put an obligation upon both the providing entity and the competent authority of the providing entity as regards the reasoned statement (Article 10(a)). We are of the opinion that the obligation of the providing entity to submit the statement and the obligation of the competent authority to require the statement create unnecessary ambiguity and gives leeway for interpretation. We would suggest redrafting this text to “The providing entity should submit to the competent authority a reasoned statement […], or the providing authority should apply for authorisation of non-compliance with these requirements.”, which, in our view, provides for an automatic right for the competent authority to require the reasoned statement if it is not submitted by the providing entity.
Furthermore, for clarity reasons, we would advise that the consolidating entity discloses not only group financial support agreements it is a party to, but an overview of all financial agreements of all entities within the group.
Question 2: (The question is relevant with regard to the RTS and the guidelines): How could the interest of the providing entity and the group as a whole be measured and reflected in the terms of the provision of the support? What information could be used to inform the assessment of the terms, also with respect of non-quantifiable costs and benefits?
No commentQuestion 3: What rules do you deem appropriate for capital requirements? Do the criteria reflect an adequate balance between the interest of the group as a whole and safeguards required for the individual entities? Are there additional criteria that should be considered?
On a more technical note, we have difficulties to understand why the draft EBA guidelines put an obligation upon both the providing entity and the competent authority of the providing entity as regards the reasoned statement (Article 9(a)). We are of the opinion that the obligation of the providing entity to submit the statement and the obligation of the competent authority to require the statement create unnecessary ambiguity and gives leeway for interpretation. We would suggest redrafting this text to “The providing entity should submit to the competent authority a reasoned statement […], or the providing authority should apply for authorisation of non-compliance with these requirements.”, which, in our view, provides for an automatic right for the competent authority to require the reasoned statement if it is not submitted by the providing entity.Question 4: How will the rules for capital requirements, in particular regarding upstream support, impact management decisions on the structure the group? If you see a negative impact, how could this be mitigated?
no commentQuestion 5: What rules do you deem appropriate for liquidity requirements? Do the criteria reflect an adequate balance between the interest of the group as a whole and safeguards required for the individual entities? Are there additional criteria that should be considered?
Article 10(c) provides for some aspects that the competent authority should take into account when assessing the provision of the support despite the non-compliance. We would suggest expanding the wording of this text to further specify elements the competent authority should analyse and verify in order to assure that the providing entity has the capacity to improve its liquidity conditions, i.e. based on favourable market conditions. We would therefore suggest expanding the wording in Article 10(c) as follows:“(c) When assessing whether to authorise the provision of the support despite the non-compliance with the above mentioned requirements, the competent authority should take into account the following:
(i) The period of time during which the providing entity does not comply with the relevant liquidity limits;
(ii) the significance of the non-compliance, including their measurement by the liquidity coverage ratio and the net stable funding ratio and the identification of the providing entity´s liquidity needs therein;
(iii) the providing entity´s plan for eliminating the non-compliance, including the analysis of directly available liquidity buffers, the overall counterbalancing capacity available to the providing entity and its ability to monetise its liquid assets;
(iv) market conditions, including the risk appetite for investors to provide funds;
(v) the best interest of the providing entity, including indirect benefits resulting from a stabilisation of the group as a whole; and
(vi) the impact on financial stability.”
On a more technical note, we have difficulties to understand why the draft EBA guidelines put an obligation upon both the providing entity and the competent authority of the providing entity as regards the reasoned statement (Article 10(a)). We are of the opinion that the obligation of the providing entity to submit the statement and the obligation of the competent authority to require the statement create unnecessary ambiguity and gives leeway for interpretation. We would suggest redrafting this text to “The providing entity should submit to the competent authority a reasoned statement […], or the providing authority should apply for authorisation of non-compliance with these requirements.”, which, in our view, provides for an automatic right for the competent authority to require the reasoned statement if it is not submitted by the providing entity.
Question 6: How will the rules for liquidity requirements, in particular regarding upstream support, impact management decisions on the structure the group? If you see a negative impact, how could this be mitigated?
We would welcome some further clarifications why Article 10(d) envisages authorisation by the competent authority of the non-compliance under extraordinary circumstances for two specific cases only, thus if the providing entity is the subsidiary of the receiving entity or they are both subsidiaries of the same group. The ECB is supervising many groups on the basis of significance of cross-border activities (Article 6(4)(iii) of the Council Regulation No 1024/2013), where the distress or failure of the subsidiary might have direct adverse effects on financial stability and might lead to a destabilisation of the group. We would therefore suggest expanding the authorisation of the non-compliance under extraordinary circumstances also to cases when the providing entity is the parent undertaking and the receiving entity is its subsidiary.Question 7: Should a description of additional terms be disclosed? Are there any elements that in your view should not be disclosed?
Article 2 specifies that the disclosure should be made following the conclusion and any revision of the group financial support agreement; whereas Article 3(e) further specifies that the institutions should also disclose information related to market conditions at the time of the support. For legal clarity, we would suggest to expand the wording of Article 2 and specify that the disclosures on the website of each entity should be made without delay following also the activation of the group financial support agreement.Furthermore, for clarity reasons, we would advise that the consolidating entity discloses not only group financial support agreements it is a party to, but an overview of all financial agreements of all entities within the group.