List of Q&As

Retention bonuses

Is a “retention bonus”, i.e. a bonus solely granted for staying with a credit institution for a pre-defined time, still admissible in the light of remuneration principle Article 94(1)(e) of Directive 2013/36/EU (replacing Annex V, Section 11, point 23 (j) of Directive 2006/48/EC (CRDIII))?

Legal act: Directive 2013/36/EU (CRD) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_10| Topic: Remuneration| Date of submission: 03/07/2013

Synthetic holdings

We are considering own regulatory capital instruments which are put in pledge to the issuing bank itself as collateral for loans to customers. 1) Do banks have to deduct those pledged own regulatory capital instruments under Regulation (EU) No 575/2013 (CRR) although the related loans are not granted for the purchase of these instruments (i.e. no direct funding), potentially as a synthetic holding (Article 4 (1) (126) of CRR? 2) Do such pledged regulatory capital instruments still meet the “paid up”-criterion (Article 28 (1)(b)) of CRR?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_9| Topic: Own funds| Date of submission: 03/07/2013

Grandfathering of own funds instruments

Is there any grandfathering applicable to instruments of state aid that are initially subscribed by the state but are then sold a) before 31 December 2017 and b) after that date?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_11| Topic: Own funds| Date of submission: 03/07/2013

Direct / indirect funding of own shares

In Article 3 of the draft RTS on Own Funds, what is the amount to be deducted / not to be considered eligible. If a subscription/acquisition of the institution's shares has been financed by it, what should be the impact and by which amount? There are two possibilities: A) The amount of the funding/loan granted is to be deducted from CET1 (irrespective of the current accounting value of the shares acquired). B) The "# of shares subscribed/acquired" times the "per share accounting amount of total equity" is not to be given recognition as a positive item of CET1 In case the instruments are not given recognition, what is the amount not to give recognition: A) Amount of the funding given to buy the shares (at the market value); or, B) Corresponding accounting amount of the shares bought (which is different from A if the book value is different from the market capitalization of the institution)? Example: An institution issues capital at par, i.e., book value per share = 100 and market value per share = 100. The share drops in price and is now valued at 80 (new market price). However, this market devaluation does not have a correspondence in the accounting value which remains at 100. The institution finances a customer to buy 2 shares, so finances with 160. Questions 1) Should the institution not recognize as a positive item: 160 (funding given to buy the 2 shares) or 200 (accounting value of the 2 shares whose purchase was financed by the institution) 2) In the example the credit to the issuer is higher than the stock financed and the share increases in value. What amount has to be considered? 3) In the example above, there is collateral posted. What amount has to be considered? Does the treatment change depending on whether the collateral is junior or senior to the delivery of the own shares? 4) In the example above, there is impairment associated with the funding provided (though this one is broadly covered in the article). What is the treatment when the funding provided is higher than the share bought)?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_8| Topic: Own funds| Date of submission: 03/07/2013

Applicable risk weights for agricultural properties.

Should exposures fully secured by agricultural properties be assigned a risk weight of 100% according to article 124 or can they be considered as residential or commercial properties according to article 125 and 126 and, thus, have a lower risk weight?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_94| Topic: Credit risk| Date of submission: 26/07/2013

Application of article 95 (2) of Regulation (EU) No 575/2013

Shall firms referred to in point (2)(c) of Article 4(1) of the CRR meet the requirements in Article 92(1) and (2) based on the total risk exposure amount referred to in Article 95(2) if they: - provide both the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC? or - provide one or both of the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_76| Topic: Other topics| Date of submission: 26/07/2013

FINREP application date and report submission postponement to Q3 2014

The question regards answer to Question ID 2013_26 Does the answer then imply that reporting entities must have made the necessary arrangements by 1 Jan 2014 (given that this is the start of the accounting year of the reporting institution) for financial information to be reported cumulatively from 1 Jan 2014 to the first reference date of 30th September 2014?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_118| Topic: Supervisory reporting - FINREP (incl. FB&NPE)| Date of submission: 06/08/2013

Transitional provision for deferred tax assets that rely on future profitability

Article 478.2 of the CRR states "By way of derogation from paragraph 1, for the items referred in point (c) of Article 36(1) that existed prior to …, the applicable percentage for the purpose of point (c) of Article 469(1) shall fall within the following ranges" It is not clear to me what to read instead of "..." or how this date will be disclosed.

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_67| Topic: Own funds| Date of submission: 18/07/2013

Definition of default in terms of days

Is it correct that the 180 day definition is only available for other purposes linked to the referenced defaulted loans under the standardised approach – but not for the 100% risk weight? Could this represent a discrimination of SA banks against IRB banks which might be allowed to apply a 180 day definition for the risk weight of defaulted residential/SME commercial/public sector loans under their internal rating systems?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_58| Topic: Credit risk| Date of submission: 12/07/2013

Definición de PYME - SME definition

¿Qué criterios debe reunir una empresa para considerarse que es "PyME"? Translation to EN: SMEs - What are the defining criteria?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_27| Topic: Credit risk| Date of submission: 05/07/2013

FINREP Date of initial application

As mentioned in Article 521 of the CRR the regulation shall apply from 01 January 2014, with the exception of the provisions of this Regulation that require the ESAs to submit to the Commission draft technical standards and the provisions of this Regulation that empower the Commission to adopt delegated acts or implementing acts, which shall apply from 31 December 2014. Does this means that provisions described in Article 99.4 CRR are postponed until 31.12.2014 which includes the requirements regarding FINREP?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_26| Topic: Supervisory reporting - FINREP (incl. FB&NPE)| Date of submission: 05/07/2013

Credit risk mitigation techniques - independent, written and reasoned legal opinions

Must lending institutions always obtain a written reasoned legal opinion in order to rely on their credit protection techniques for the purposes of Article 194(1) of the CRR? If so : a) must such opinion be obtained from external legal counsel? b) must such opinion be specific to the relevant transaction and techniques in respect of which the institution seeks to rely upon such opinion, or can lending institutions rely on generic opinions for particular types of transactions? If the latter, how often should the generic opinions be updated?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_23| Topic: Credit risk| Date of submission: 04/07/2013

Application of national liquidity requirements prior to binding EU requirements

In 2010 we have introduced the Decision on liquidity risk management, which covers both qualitative and quantitative requirements on liquidity risk management for the credit institutions in the Republic of Croatia. Regarding the quantitative requirements banks have to calculate and report, on monthly basis, to the CNB the minimum liquidity coefficient (MLC). It is similar to the Liquidity Coverage Ratio (LCR), it looks inflow and outflows in one month horizon under stress scenario determined by the supervisor. This minimum liquidity coefficient is calculated by dividing liquidity inflows (including liquid assets) with liquidity outflows and the result has to be equal or greater than 1. According to the Article 412 (5) of Regulation (EU) No 575/2013 the Member States may maintain or introduce national provisions in the area of liquidity requirements before binding minimum standards for liquidity coverage requirements are specified and fully introduced in the Union in accordance with Article 460. Therefore we have two questions: 1) Our understanding of Article 412 (5) is that we may maintain our Decision on liquidity risk management until 2018 (or even 2019 - according to article 460(2)) when the LCR is fully introduced in the Union (i.e. LCR = 100%) Is this correct reading? 2) We are not sure how to understand the second part of Article 412 (5) which says: Member states or competent authorities may require domestically authorised institutions, or a subset of those institutions to maintain a liquidity coverage requirement up to 100% until the binding minimum standard is fully introduced at a rate of 100% in accordance with Article 460. Can we keep our minimum liquidity coefficient unchanged, or we have to change it based on phasing-in process from 2015 so that both LCR and our MLC equals 100%, i.e. in 2015 LCR = 60% and MLC = 40%, and so on. Although it will be difficult to calculate due to different formula, haircuts and maybe scope. But on the other hand if we maintain MLC unchanged and introduce LCR (first 60%, 70%...) than our banks will have double requirements. Or this does not have anything to do with national liquidity requirements but with the fact that Member states may introduce LCR at 100% even before 2018?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_22| Topic: Liquidity risk| Date of submission: 03/07/2013

Application of requirements on a sub-consolidated basis

Does Article 11 (5) allow competent authorities to apply the provisions of Regulation (EU) No 575/2013 and Directive 2013/36/EU to an institution on its sub-consolidated basis in cases other than where the structural separation of activities is required under national laws, and in cases other than those provided for in Article 11 (1) to (3), and Article 22 of Regulation (EU) No 575/2013?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_20| Topic: Other topics| Date of submission: 03/07/2013

Recognition of Additional Tier 1 and Tier 2

Article 92 of Regulation (EU) No 575/2013 introduces minimum ratios for CET 1 (4,5 %), Tier 1 (6%) and total capital (8 %). Setting aside any buffer requirements, this means that an institution that holds a total capital ratio of 8% can have at most: - 18,75 % of AT 1 capital, and - 25% of Tier 2 capital, as a percentage of its total regulatory own funds. Are these percentages a cap for the recognition of AT 1 and Tier 2 in regulatory capital that may not be exceeded at any time regardless of the capital ratio the institution actually holds (similar to what is currently set out in Article 66 of Directive 2006/48/EC (Capital Requirements Directive)) or does the Regulation (EU) No 575/2013 repeal the gearing limits used in Directive 2006/48/EC (Capital Requirements Directive), giving institutions freedom to decide on the composition of their regulatory capital as long as they meet the minimum requirements mentioned in Article 92?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_19| Topic: Own funds| Date of submission: 03/07/2013

Grandfathering of own funds instruments

May capital instruments be adjusted stepwise with the unadjusted part still being eligible for grandfathering? Take the following example: - An institution has issued a hybrid Tier 1 instrument that does not meet the requirements of Article 52 but is eligible for grandfathering; - starting in 2013, the bank adjusts in each year the terms and conditions of 10% of the nominal amount in order to make it fully eligible as Additional Tier 1 (AT1) under Regulation (EU) No 575/2013; - the terms and conditions of the remaining nominal amount of the capital instrument are kept unchanged. May the institution recognize the remaining part of the capital instrument as AT 1 under the grandfathering rules of the Regulation (EU) No 575/2013 given that only the nominal amount but not the terms and conditions of this remaining part are adjusted or does the change of the nominal amount also constitute a change of the whole contract, making the whole instrument no longer eligible for grandfathering since the new contract is concluded after the cut-off date mentioned in Article 484 (1)?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_18| Topic: Own funds| Date of submission: 03/07/2013

Grandfathering of own funds instruments

Would a contractual change of a capital instrument terms and conditions (T&C) issued before December 31, 2011 allow a bank to keep the instrument in the own funds within the limits provided for in Articles 484 and 486 (grandfathering eligibility and limits of capital instruments that are not State aid) if the amendments to the T&C would not make the instrument entirely compliant with the provisions of Regulation (EU) No 575/2013 but are limited to remove the contractual conditions that would determine the disqualification of the instrument during the grandfathering period (e.g.: deletion from the T&C of a Tier 2 capital instrument of the call option and of the incentive to redeem clause)?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_16| Topic: Own funds| Date of submission: 03/07/2013

Grandfathering of own funds instruments

What will be the treatment of an Additional Tier 1 (AT1) instrument structured with a first call date and one step up after 5 years prior to 1 January 2013, callable quarterly thereafter at every interest payment date without any step up (subject to supervisory approval)? Is the instrument eligible for grandfathering if not called at the first call date? If the instrument is derecognized as AT1 on 1 January 2013, can it be included into Tier 2 and, if so, what amount will be eligible (full amount or gradually phased out amount)?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_15| Topic: Own funds| Date of submission: 03/07/2013

Grandfathering of own funds instruments

How shall the 15% threshold referred to in Article 48 of Regulation (EU) No 575/2013 be calculated?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_14| Topic: Own funds| Date of submission: 03/07/2013

Grandfathering of own funds instruments

Will old style Tier 2 issuances without a reference to the proposals for a Directive Establishing a Framework for the Recovery and Resolution of Credit Institutions and Investment Firms / Point of Non-viability (PON) fully qualify upon entry into force of Regulation (EU) No 575/2013?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_13| Topic: Own funds| Date of submission: 03/07/2013