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  1. Home
  2. Single Rulebook Q&A
  3. 2014_1568 Definition of the term „applicable amount“ with regard to the determination of the deductions from common Equity Tier 1 items of holdings by the institution of instruments of financial sector entities where the institution has a significant
Question ID
2014_1568
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
36
Paragraph
1
Subparagraph
i
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n.a.
Type of submitter
Credit institution
Subject matter
Definition of the term „applicable amount“ with regard to the determination of the deductions from common Equity Tier 1 items of holdings by the institution of instruments of financial sector entities where the institution has a significant investment in those entities in Article 36(1)(i)) CRR
Question

What is the relevant definition of the „applicable amount” in Article 36(1)(i) of Regulation (EU) No 575/2013 (CRR) with regard to the determination of the deductions of holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities and for those entities the institution used the equity method under Regulation (EC) No 1606/2002 on a consolidated basis?

Background on the question

Pursuant to Article 36(1)(i) CRR the applicable amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities shall be deducted from Common Equity Tier 1 items of the institution.

 

With regard to holdings in financial sector entities where the institution has a significant investment and which entities are – pursuant to Regulation (EC) No 1606/2002 in application of the equity method – included in the consolidated financial statements of the institution, a definition of the „applicable amount“ is not (explicitly) regulated/stated in the relevant legal texts, in particular not in the CRR.

 

In order to determine the required deduction pursuant to Article 36(1)(i) CRR with respect to participations in financial sector entities which are - pursuant to Regulation (EC) No 1606/2002 in application of the equity method - included in the consolidated financial statements of the institution, the applicable amount shall only refer to/exclusively include any investments of owners or other investors in capital instruments, however not any retained earnings in such entities.

 

Therefore, the applicable amount shall exclusively refer to the amortised cost of such holdings in financial sector entities. Any retained earnings in such entities do not represent any investments of owners or other investors and are therefore – in determining the investment amount in such entities – not relevant. The applicable amount as defined in Article 36(1)(i) CRR shall therefore represent the (effective) investment in financial sector entities. In case the term applicable amount set forth in Article 36(1)(i) CRR would refer to the amount pursuant to the applicable accounting framework as defined in Article 4(1)(77) CRR the legislator would have refrained from adding the adjective „applicable“ in Article 36(1)(i) CRR.

 

Also, the term „applicable“ cannot refer to the effect of the threshold exemptions set forth in Article 48 CRR, as on the one hand the application of this effect is already the subject of the separate provisions of Article 48 CRR and on the other hand the relevant amount pursuant to Article 36(1( i) CRR is not (yet) relevant at the stage of application of the provisions set forth in Article 48 CRR. Despite thresholds pursuant to Article 48 CRR being specific to the individual institution, the use of the term „applicable“ in Article 36(1)(i) CRR would not have been required - the term „amount“ would have represented a perfectly clear provision and therefore been sufficient.

Submission date
24/10/2014
Rejected publishing date
11/02/2022
Rationale for rejection

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.

Status
Rejected question

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