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    SRB Extends Permissions Procedure for Eligible Liabilities Instruments

    December 18, 2019

    SRB is extending prior permission procedure to assess applications to reduce eligible liabilities instruments under Article 78a of the Capital Requirements Regulation (CRR). This procedure will remain in place until the relevant regulatory technical standards of EBA come into force. Article 78 of the CRR addresses supervisory permission for reducing own funds. As per this article, a competent authority shall grant permission for an institution to reduce, repurchase, call, or redeem common equity tier 1, additional tier 1 or tier 2 instruments where certain predefined conditions have been met. To continue performing market-making and other secondary market activities as of January 01, 2020, banks must obtain a prior permission.

    To cover the period until the EBA regulatory standards come into force, SRB confirms and extends the conditions published on June 25, 2019 in the CRR addendum to the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) policy of SRB:

    • The aggregate trading volume in these activities does not exceed 1% Total Risk Exposure Amount (TREA) on a consolidated basis at the level of the resolution group
    • Any MREL shortfall, or increase thereof, resulting from these market-making activities is compensated with eligible liabilities instruments on a quarterly basis

    EBA is mandated under Article 78a (3) of CRR to draft regulatory technical standards specifying the process for prior permissions, including the time limits and information requirements. Until this Level 2 Regulation comes into application, the following provisional procedure applies:

    • Scope of instruments. At this stage, SRB considers that the permission regime applies to eligible liabilities instruments as defined in Article 72b of CRR.
    • Time-limit for applications. Institutions shall transmit a complete application to SRB at least four months in advance of the date where one of the actions listed in Article 78a of CRR (hereafter: “Redemption”) is intended to be performed.

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    Keywords: Europe, EU, Banking, MREL, CRR, Basel III, Regulatory Capital, SRB

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