June 07, 2019

EU published the finalized second Bank Recovery and Resolution Directive (BRRD II or Directive (EU) 2019/879) and the second Single Resolution Mechanism Regulation (SRMR II or Regulation (EU) 2019/877) in the Official Journal of the European Union. BRRD II amends BRRD (Directive 2014/59/EU) while SRMR II amends SRMR (Regulation No 806/2014) regarding the loss-absorbing and recapitalization capacity of credit institutions and investment firms. Both BRRD II and SRMR II shall enter into force on the twentieth day following that of their publication in the Official Journal of the European Union. BRRD II states that member states shall apply the transposed measures no later than December 28, 2020 (with certain exceptions) while SRMR II shall also apply from December 28, 2020.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

     

    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • SRMR II relates to implementation of the Total Loss-Absorbing Capacity (TLAC) standard in EU law, which needs to take into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL) that applies to all credit institutions and investment firms established in EU as well as to any other entity as laid down in BRRD. As the TLAC standard and the MREL pursue the same objective of ensuring that institutions and entities established in EU have sufficient loss-absorbing and recapitalization capacity, the two requirements should be complementary elements of a common framework. Operationally, the harmonized minimum level of the TLAC standard for global systemically important institutions, or G-SIIs is being introduced in EU legislation through amendments to the Capital Requirements Regulation, while the institution-specific add-on for G-SIIs and the institution-specific requirement for non-G-SIIs, referred to as the MREL, is being addressed through targeted amendments to BRRD and SRMR. SRMR II, which amends SRMR on the loss-absorbing and recapitalization capacity of institutions and entities, should be applied in a manner consistent with that in the Capital Requirements Regulation and in the fourth Capital Requirements Directive (CRD IV) and the BRRD.

    SRMR II shall apply from December 20, 2020 while Article of BRRD II titled "Transposition" specifies that the member states shall bring into force the laws, regulations, and administrative provisions necessary to comply with BRRD II by December 28, 2020. They shall forthwith communicate to EC the text of the measures. Member states shall apply the measures as from the date of their entry into force in national law, which shall be no later than December 28, 2020. Member states shall apply point (17) of Article 1 of BRRD II, as regards Article 45i(3) of BRRD from January 01, 2024. Where, in accordance with Article 45m(1) of BRRD, the resolution authority has set a compliance deadline that ends after January 01, 2024, the application date of point (17) of Article 1 of BRRD II as regards Article 45i(3) of BRRD shall be the same as the compliance deadline. When member states adopt the measures referred to in paragraph 1, they shall contain a reference to BRRD II or be accompanied by such a reference on the occasion of their official publication. Member states shall determine how such a reference is to be made. Member states shall communicate to EC and to EBA the text of the main provisions of national law which they adopt in the field covered by BRRD II.

     

    Related Links

    Effective Date: June 27, 2019

    Keywords: Europe, EU, Banking, SRMR II, BRRD II, TLAC, MREL, G-SII, Systemic Risk, SRM, Recovery and Resolution, European Council, European Parliament

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