EBA Response on Reclassification of Grandfathered Own Fund Instruments
EBA published a response to a letter it had received from a law firm (Akin Gump LLP) regarding the case of a reclassification by an institution of some specific grandfathered own funds instruments. EBA also addressed this issue through its Q&A process via the Q&A on Single Rulebook. Q&A 2018_4417 clarifies in more general terms the appropriate prudential treatment for such cases.
In its answer, EBA has concluded that reclassifications of own funds instruments as described—that is, from a grandfathered category to a fully eligible category—although unusual, are not prohibited as such by the Capital Requirements Regulation (CRR). However, the EBA answer recalls that, as explained in the introductory recitals of the CRR (recitals 78 and 119), the general purpose of the grandfathering provisions as they relate to own funds is to ensure an appropriate continuity in the level of own funds, while also ensuring that institutions have sufficient time to meet the new required levels and definitions of own funds and that certain capital instruments that do not comply with the definition of own funds laid down in the CRR are phased out. To the extent that grandfathering allows for deviations from the new criteria on the quality of own funds instruments, those deviations should be limited to the largest extent possible. The possibility for institutions to benefit from a grandfathered treatment should, therefore, be subject to strict conditions.
In cases where institutions operate such reclassifications, very close scrutiny should be exercised by the competent authority on the reasons for such a reclassification. This is particularly recommended if in contexts where no change in the relevant applicable laws or terms and conditions of the instruments has taken place prior to the reclassification, the reclassification has a significant impact on the capital ratios or any forthcoming changes to the CRR and related new grandfathering provisions in relation to eligibility of own funds are likely to come into force.
Related Links
Keywords: Europe, EU, Banking, Own Funds Requirements, CRR, Single Rulebook, Q&A, EBA
Related Articles
EC Regulation Sets Out Standards for Reporting and Disclosure of MREL
EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).
APRA Decides to Standardize Submission Date for Quarterly Reporting
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
ECB Working Group Publishes Recommendations on EURIBOR Fallbacks
The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).
Bundesbank Publishes Supporting Documentation for Reporting by Banks
Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.
EBA Publishes Phase 1 of Reporting Framework 3.1
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
APRA to Finalize Capital Adequacy Standard Revisions by January 2022
Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA
ESMA Issues Guidelines on Outsourcing to Cloud Service Providers
ESMA published the final guidelines on outsourcing to cloud service providers.
EBA Publishes Data on Deposit Guarantee Schemes
EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.
OSFI Sets Out Plan for Future Guidance on Managing Technology Risk
OSFI has set out the schedule for release of draft guidance on the management of technology risks by federally regulated financial institutions and private pension plans.
MAS Updates Housing Loan Rules, Proposes Corporate Governance Guidance
MAS updated rules for new housing loans by banks and finance companies.
