SRB launched a consultation on changes to its Minimum Requirement for Own Funds and Eligible Liabilities (MREL) policy under the 2019 Banking Package. The proposals cover, among others, the implementation of provisions related to MREL requirements for global systemically important institutions (G‑SIIs), changes to the calibration of MREL, and changes to the quality of MREL. The proposals also cover dedicated rules for certain business models and resolution strategies, such as multiple point of entry, and how all the proposed changes will be phased in. The consultation is open until March 06, 2020. The feedback will support SRB in preparing the final MREL policy statement, which is expected to be published by end April 2020. MREL decisions implementing the new framework will be taken based on this policy in the 2020 resolution planning cycle by the first quarter of 2021.
The proposed changes would bring the policy in line with the amendments introduced by the 2019 EU Banking Package to EU regulations and directives. The regulatory framework for MREL has been affected by the Banking Package amendments to the EU Bank Recovery and Resolution Directive (BRRD or Regulation 2014/59/EU), the Single Resolution Mechanism (SRMR or Regulation 806/2014/EU), and the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD). The key proposals in the consultation paper are described below:
- Calibration. SRB is proposing to modify and extend its approach to MREL calibration in accordance with the new framework. From 2021, the revised CRR (CRR 2) will require institutions to comply with a prudential leverage ratio requirement at all times, acting as a backstop to risk-based own funds requirements. To this end, the revised BRRD introduces MREL requirement based on the leverage ratio exposure measure to complement the risk-based MREL expressed in percentage of the total risk exposure amount or TREA. MREL for banking groups with a Multiple Point of Entry approach to resolution is also proposed to be further refined. The Banking Package introduced the total loss-absorbing capacity (TLAC) minimum requirement for G-SIIs, in line with the global standards set by FSB, and adapted the current MREL framework accordingly.
- Subordination for resolution entities. SRB is proposing an approach to set subordination requirements under the new framework, in addition to a methodology to determine and quantify the no creditor worse off, or NCWO, risk.
- Internal MREL for non-resolution entities. SRB is proposing to define a criteria for granting permissions to non-resolution authorities for use of guarantees to meet the internal MREL within the member state of the resolution entity
- MREL for cooperative groups. SRB is proposing minimum conditions to authorize certain types of cooperative networks to use eligible liabilities of associated entities other than the resolution entity to comply with the external MREL as well as minimum conditions to waive the internal MREL of the legal entities that are part of the cooperative network. The determination of the external and internal MREL must be fully aligned with the specific resolution strategy in a way that supports the implementation of resolution action.
- Eligibility of liabilities issues under the law of a third country. The proposal expands on how liabilities issued under the law of third countries can be considered eligible through contractual recognition.
- Transition arrangements. SRB is also explained the proposed implementation of transitional periods up to the 2024 deadline, including binding intermediate targets in 2022 and informative targets in 2023. Transition arrangements must be bank-specific because they depend on the MREL tailored to that bank and its resolution plan, along with the to date progress of a bank in raising the MREL-eligible liabilities.
Comment Due Date: March 06, 2020
Keywords: Europe, EU, Banking, MREL, MREL Policy, Banking Package, Leverage Ratio, MREL Calibrations, No Creditor Worse off Risk, G-SII, CRR, BRRD, SRME, Resolution Framework, SRB
Previous ArticleESMA Updates Q&A on Credit Rating Agencies Regulation
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.