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Q&As refer to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.

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List of Q&A's

Eligibility of capital instruments for classification as Common Equity Tier 1 instruments when the instruments are supplemented by a contractual obligation of the majority-holder of those instruments to pay compensation to the minority shareholders even in loss years

Paragraph 1 (I) (ii) of Article 28 Regulation (EU) No. 575/2013 (CRR) states that “the instruments are not secured, or subject to a guarantee that enhances the seniority of the claim by the parent undertaking of the institution”. The question is, whether a contractual obligation of the majority shareholder of a credit institution to pay a compensation to the minority shareholders even in loss years (by reason that the majority shareholder and the credit institution have entered into a profit and loss transfer agreement) is permissible according to paragraph 1 (I) (ii) of Article 28 CRR? In more general terms, what is the meaning of the word “claim” in paragraph 1 (I) of Article 28 CRR (claim only to the substance/equity of the credit institution, or also to a dividend or to a compensation payment or all)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_543
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 04/07/2014

Exemption from deduction of Equity Holdings in an insurance company from CET1

Pursuant to Article 471(1)(d) of Regulation (EU) No 575/2013 (CRR), in order not to deduct the equity investment in an insurance company, should “the amount of the equity holding which is “not deducted” not exceed (i) the “amount of shares” (13% share of the insurance company’s capital) or (ii) the “book value” (EUR 2 billion), held in the Common Equity Tier 1 instruments in the Insurance company as of December 31, 2012?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_502
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 04/07/2014

Netting of DTAs and DTLs

1. For the purposes of netting DTAs and DTLs, Art. 38 (5) Regulation (EU) No 575/2013 (CRR) requires a pro rata allocation of DTLs between DTAs which are below the 10%-threshold mentioned in Art. 48 (1) (a) CRR and all other DTAs, which rely on future profitability. With this requirement, it seems that institutions are not permitted to net DTAs and DTLs before they enter into the threshold treatment (as the pro rata relation for the allocation of DTLs has to be fixed already based on those which are below the threshold), which seems to be different from the rules as set out in the Basel III framework. Could the EBA or the EU Commission confirm that Art. 38 (5) CRR indeed requires a different procedure for allocating DTLs to DTAs which rely on future profitability than the one set out in the Basel III text? 2. If the above understanding of the CRR text is confirmed, could the EBA or the EU Commission clarify whether the 10% basket mentioned in Art. 48 (1) CRR may only be filled with gross DTAs or whether an iterative calculation is permissible under the CRR? 3. If the suggested iterative calculation is permissible, we also seek clarification on how and at which point the proportion between the DTLs that may be allocated to DTAs related to temporary differences and those that may be allocated to other DTAs relying on future profitability is established. 3. If the suggested iterative calculation is permissi-ble, we also seek clarification on how and at which point the proportion between the DTLs that may be allocated to DTAs related to temporary differences and those that may be allocated to other DTAs relying on future profitability is established.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_980
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 27/06/2014

Calculation of outstanding Tier 2 capital, following pre-payment of amounts that have been amortised or phased-out

This question, background information and proposed answer are posed on behalf of an institution we supervise. In accordance with Regulation (EU) No 575/2013 (CRR), subordinated debt with defined maturity is gradually deducted from Tier 2 in each of the last five years. Amortization shall occur on the basis of the number of days that have passed in the last five years (Article 64). The institution considers the possibility to repay subordinated debt in the portion corresponding to the amortized amount, assuming that this will have no impact on the basis for the calculation on the amount classified as Tier 2. Is this interpretation correct?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_314
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 20/06/2014

Capital instruments that were issued with an incentive to redeem but no longer contain one

In EBA Q&A Question: 2013_15 you state "The fact that the instrument is not called does not mean that the instrument may be reclassified as an instrument without an incentive to redeem". Was this meant specifically within the context of grandfathering or more broadly. For example, a T1 instrument with its first call prior to 31 December 2011 and therefore can be subject to grandfathering but also on a forward looking basis no longer contains an incentive to redeem, if this instrument has call resets every 5 years will this instrument be eligible for T2 qualification under CRR when it falls out of grandfathering. More specifically does the fact a bond was ISSUED with an incentive to redeem in the past specifically preclude it from being eligible for T2 treatment, even if following the call date and on a forward looking basis this incentive to redeem no longer exists?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_50
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 20/06/2014

Treatment as own funds under Regulation (EU) No 575/2013 (CRR)

Confirmation is sought that instruments that initially qualified for transitional treatment in a higher own funds category according to CRR transition rules in Articles 484ff, but for which documentation had to be altered to a lower own funds category as instructed by a court ruling following a litigation, are to be reported as fully compliant with that lower own funds category. More background information on the instruments will be made available directly to EBA.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions
  • ID: 2014_1071
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Grandfathering of Own Funds Instruments

When an institution has launched an exchange offer, prior to December 31st 2011, that will exchange, on a one for one basis, existing Tier 1 bonds, with or without an incentive to redeem, with bonds that have similar provisions, the same coupons and call dates, but a different issuer (within the same banking group), will the newly issued bonds be considered in the same category as the former bonds (with or without an incentive to redeem)? This seems consistent with the fact that the newly issued bonds obviously do not have a coupon that is priced at fair market value on the issuance date, so assessing whether they have an incentive to redeem the day they are issued does not really make sense, but a clarification would be helpful.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_220
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Clarifications with respect to Commission Implementing Regulation (EU) No. 1423/2013 (ITS on disclosure of own funds requirments)

1) Further guidance is requested on the disclosure relating to ‘governing law of the instrument’ as securities can be issued in one country (e.g. the USA) but governed or have subordination provisions based on the law of the country in which the issuing bank resides (e.g. the UK) The 'governing law of the instrument’ is required to be populated in row 3 of Annex II. 2) More refined language is requested for the disclosure relating to ‘If convertible, specify instrument type convertible into’. Specifically clarification on whether disclosure is required for conversion within the same category of capital (e.g. securities that qualify as AT1 and can convert into preference shares that would also qualify as AT1). This is required to complete row 28 of Annex II. 3) Possible options for specifying non-compliant features should be included in the guidance thereby ensuring consistency across banks. This is required to complete row 36 of Annex II. 4) Guidance is requested on the publishing mechanism. We would like to clarify whether there is a requirement to publish on the external website or in the printed financial statements. A possible date for publishing the table would ensure consistency across banks although this disclosure may need to tie to the date of results presentation. 5) Guidance is requested to provide the expected frequency of update. When a change in security is incorporated in the table is it expected that the value change (as at the last reporting date) for all securities is reported? (expected to arise when the update frequency is semi annual or less frequent). Also guidance is requested with respect to the time line within which the schedule is required to be updated. 6) Further guidance is requested for the type of Instrument (row 7). The current guidance under Annex III indicates 'menu options to be provided to institutions by each jurisdiction...' 7) Current guidance under Annex III for row 8 indicates '...total amount of the instrument recognised in regulatory capital before transitional provisions for the relevant level of the disclosure...'. Our interpretation of the text in the law requires disclosing the value of each security in the composition of regulatory capital prior to the grandfathering cap. Our interpretation, therefore requires disclosing within row 8 the value of the security that is different from the value included in the calculation of regulatory capital (calculated post the application of the cap). This seems to be inconsistent with the purpose of EU 1423/2013 where all articles included therein are closely linked and therefore amounts disclosed in each of the schedules are expected to reconcile. Please advise if our interpretation is in line with your understanding of the regulation.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 1423/2013 - ITS on disclosure of own funds requirements
  • ID: 2014_800
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 28/05/2014

Grandfathering of own funds

In question 2013_15 the EBA clarified that legacy step-up Tier 1 instruments with quarterly calls will not be eligible as fully CRR compliant Tier 2 instruments after their first call and step-up date. In question 2013_31 the EBA clarified that non-step-up Tier 1 instruments could be eligible, for the amounts exceeding the grandfathering limits, as fully eligible Tier 2 instruments with no time limit and independently of the frequency of calls, with an important caveat : should the terms of the legacy non-step-up Tier 1 instruments interfere with Articles 28(1)(h)(vii)) (CET1) and 52(1)(l)(v) (AT1), then such AT1 and CET1 instruments could be disqualified, while the legacy non-step-up Tier 1 instrument would remain in fully eligible Tier 2. By doing so the EBA referenced to questions 2013_21 and 2013_54. However, these two questions mainly dealt with "stopper provisions" and more precisely about cases where the legacy non-step-up Tier 1 instruments have terms that could prevent (optionally or in a mandatory way) coupons being paid if distributions are skipped on CET1 or AT1 instruments. I have several questions related to this : 1. My first question is to confirm that the same reasoning would apply during the grandfathering period independently of the fact that the bonds would still be within the grandfathering limit or not. Logically the answer should be yes as questions 2013_21 and 2013_54 clarify that the impact of the terms of the legacy instrument is not on the regulatory eligibility of this instrument but on the AT1 / CET1 instruments. The effect of the terms of the grandfathered bonds on the CET1 / AT1 bonds is obviously totally independent of the grandfathering status of the grandfathered bond (with the possible exception of contractual provisions that make an explicit reference to pushers / stoppers only on bonds that are included in regulatory capital.) 2. My second question is to confirm that the same reasoning would apply to step-up bonds as I see no reason why the impact of pusher / stopper provisions on CET1 / AT1 bonds would be different if there is a step up or not and application of articles 28(1)(h)(vii)) (CET1) and 52(1)(l)(v) (AT1) would be the same for step / non step bonds. 3. My third question is on pusher provisions. Many legacy Tier 1 instruments have pusher provisions saying that a coupon being paid on the legacy Tier 1 instrument forces a payment on "pari passu" bonds, such pari passu bonds being defined in the contract. Could the EBA confirm that, if an additional Tier 1 is included in the list of pari passu bonds defined in the legacy Tier 1 contract, then the AT1 instrument would not be eligible? This is because of the fact that [not paying on AT1 implies not paying on Legacy Tier 1] is logically strictly the same as [paying on Legacy Tier 1 implies paying on AT1], so in such cases not paying coupons on the AT1 would obviously trigger restrictions for the bank, the case specifically considered by the EBA in question 2013_21.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_542
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 28/05/2014

Application of phase-in regime

What is the compatibility between Recital (117) of Regulation (EU) No 575/2013 (CRR) and the provisions of aforementioned Basel III Q&A with Articles 472, 475 and 477, which provide for the deduction of the share not deducted as an effect of the phase-in period (described in Articles 469, 474, 476 and 478)? Literal application of these provisions, which effectively impose a 100% deduction, to items which, under the current regulations (of the individual member states, enacting the Basel II regulations), would not be deducted, would appear to in contrast with very logic of the phase-in regime.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_723
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Grandfathering

Linked to 2013_47, prior to the first call date, can the amount of a step up Tier 1 in excess of the Tier 1 grandfathering limit work in the Tier 2 grandfathering limit (if there is space) as is permitted for non-step Tier 1 instruments?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_696
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Eligibility of capital instruments for classification as Common Equity Tier 1 instruments when the instruments are supplemented by a contractual obligation of the majority-shareholder to pay a fixed yearly compensation to the minority shareholders

Para 1 point (i) of Article 28 of Regulation (EU) No 575/2013 (CRR) states that "compared to all the capital instruments issued by the institution, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other Common Equity Tier 1 instruments". The question is, whether a contractual obligation of the majority shareholder of a credit institution to pay a fixed yearly compensation to the minority shareholders even in loss years (by reason that the majority shareholder and the credit institution have entered into a profit and loss transfer agreement) is permissible according to para 1 point (i) of Article 28 CRR?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_541
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 16/05/2014

Application of specific national filters and deductions when computing threshold deductions

When applying the transitional provisions calculation of Common Equity Tier 1, the threshold deductions exist: (a) associated with non-significant holdings in financial sector entities (FSE) which are covered by Articles 36(1)(h) and 46 of Regulation (EU) No 575/2013 (CRR); and, (b) the ones associated with the significant holdings in FSE and Deferred Tax Assets that arise from temporary differences that are covered in article 470 of CRR. Both take into account theoretical values for a “relevant Common Equity Tier 1” (or “aggregate amount of Common Equity Tier 1” in the wording of 46(1)(a) of CRR which serves as a base for the calculation of the threshold that determines the deductions arising from these assets. Assuming there are specific national deductions and filters subject to transitional provisions to be applied at the Common Equity Tier 1 level pursuant Article 481, how should these be incorporated when determining the “relevant CET1” for the thresholds calculations in both cases?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_588
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 08/05/2014

10% limit for significant investments (for threshold exemptions determination purposes)

Could the EBA confirm that in a situation where the total amount of significant investment in a financial sector entity (the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of that entity) exceed 10% of relevant Common Equity Tier1 items, such amount can be included in 15% threshold exemptions up to 10% of this amount and remaining surplus above 10% limit will be treated as a deduction of CET1. Example in background.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_205
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 08/05/2014

Requirement to disclose each individual instrument in the disclosure of capital instruments' main features

For the requirement to disclose a description of the main features of the Common Equity Tier 1 and AT1 and T2 instruments issued by the institution under Article 437(1)(b) of Regulation (EU) No. 575/2013, does the disclosure template require each individual security to be disclosed in the main features template that entities are expected to produce on an external website (BCBS Composition of Capital disclosure requirements - June 2012 - Appendix III)? Would it possible to agree a "de minimis" threshold and allow small securities to be presented en masse given the same value date, maturity date and other terms and conditions?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_553
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 30/04/2014

Grandfathered Instruments and Deduction Threshold Exemptions

When calculating the amount of Common Equity Tier 1 (CET 1) that is multiplied by 10%/17.65% for the purposes of threshold exemptions for deductions, should grandfathered instruments be included in the amount of CET1 to the extent that they qualify as CET 1 during the grandfathering period?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_527
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 30/04/2014

Applicable basis for determining deferred tax assets to be deducted from CET1

Is the amount of deferred tax assets and liabilities relevant for the calculation of the amount to be deducted from Common Equity Tier 1 (CET1) according to Article 36(1)(c) of Regulation (EU) No. 575/2013 (CRR) to be determined based on the accounting values of deferred tax assets and liabilities as disclosed in the balance sheet?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_258
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 30/04/2014

Application of transitional provisions to Additional Tier 1 and to Tier 2 instruments with an incentive to redeem

When all the call options from an AT1 (or T2) instrument which has an incentive to redeem occur during the period that an institution is under state aid and, thus, subject to a ban on exercising call options on own funds instruments, should the AT1 (or T2) instrument be subject to the provisions of Article 489(5) (or 490(5) of Regulation (EU) No 575/2013 (CRR) assuming that the effective maturity date, as defined in Article 491, is the first call date after the referred ban has been removed?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_590
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 04/04/2014

Inclusion of ancillary services undertakings in prudential consolidation

Should the ancillary services undertakings be included in prudential consolidation according to Article 18 and 19 of Regulation (EU) No 575/2013 (CRR)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_382
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 04/04/2014