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    EBA Examines Use of Proportionality Principle for Resolution Planning

    December 22, 2020

    EBA published its second report on the application of simplified obligations and waivers under the Bank Recovery and Resolution Directive (BRRD) across EU. The report presents the results of EBA monitoring on how competent and resolution authorities applied the principle of proportionality for recovery and resolution planning in their respective jurisdictions and describes the current level of convergence in this area. EBA has observed an increase in the number of authorities applying simplified obligations for less significant banks, especially for resolution planning purposes. Also, the convergence was higher when assessing which institutions are eligible for simplified obligations. However, significant divergences remained in determining reduced requirements for institutions benefiting from simplified regimes, where the regulatory framework does not provide detailed guidance.

    The report highlights that compared with the 2017 monitoring exercise, more competent and resolution authorities decided to apply simplified obligations to credit institutions in 2019. For recovery planning, the number of authorities applying simplified obligations has risen from 18 to 21, whereas for resolution planning the number has almost doubled (increasing from 13 jurisdictions to 25 jurisdictions). With regard to investment firms, the number of authorities granting simplified obligations since 2017 remained stable for recovery planning (15 competent authorities) and slightly increased for resolution planning (from 9 resolution authorities to 13 resolution authorities). The number of authorities granting simplified obligations to investment firms was lower than that granting simplified obligations to credit institutions, mostly because in some EU jurisdictions there were no investment firms under the scope of BRRD and, thus, none was subject to any recovery or resolution planning requirements.

    The proportion of credit institutions under simplified obligations in particular jurisdictions varied, although the highest was typically observed in member states with the largest number of banks in Europe. Just a few EU authorities granted waivers to credit institutions, as this is allowed only in those jurisdictions with specific regulatory frameworks for institutional protection schemes  and credit institutions affiliated to central bodies. The report also highlighted a significantly improved level of harmonization in the simplified obligations eligibility assessment methodologies applied by competent and resolution authorities compared to 2017. This was mainly driven by the application of the EBA regulatory technical standards specifying the conditions for applying simplified obligations that replaced the guidelines previously issued on the same topic. EBA also observed significant differences in the determination by the authorities of the reduced level of BRRD requirements for recovery and resolution plans. Divergent practices have been applied in relation to all possible areas in which such reductions could be introduced by the authorities (that is, a deadline for preparing the first simplified plans, the frequency of updating the plans, content of the simplified plans, information required from institutions, and the simplified resolvability assessment), as the regulatory framework does not provide detailed guidance for these aspects.

    As part of the EU legislation, BRRD introduces an obligation to prepare and maintain recovery and resolution plans, which in principle is applicable to all credit institutions and certain investment firms. However, the framework also gives competent and resolution authorities the opportunity to grant simplified obligations and waivers to institutions under their jurisdiction, provided that the institutions concerned fulfil specific eligibility criteria.


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    Keywords: Europe, EU, Banking, BRRD, Proportionality, Simplifies Obligations, Recovery and Resolution Planning, Resolution Framework, Supervisory Convergence, Less Significant Institutions, EBA

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