Featured Product

    SRB Proposes Changes to MREL Policy Under the 2019 Banking Package

    February 17, 2020

    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.


    Related Links

    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

    Featured Experts
    Related Articles

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News

    APRA Penalizes Heritage Bank for Incorrect Reporting of Capital

    The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.

    November 29, 2021 WebPage Regulatory News

    OSFI Releases Annual Report 2021-2022

    The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.

    November 29, 2021 WebPage Regulatory News

    OSFI Updates Timeline for Implementation of Certain Basel Rules

    Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.

    November 29, 2021 WebPage Regulatory News

    EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR

    EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.

    November 29, 2021 WebPage Regulatory News

    FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR

    The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.

    November 29, 2021 WebPage Regulatory News

    APRA Finalizes Capital Adequacy Standards for Banks

    The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.

    November 29, 2021 WebPage Regulatory News

    CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.

    November 29, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7751