EBA published a consultation paper on the draft amended regulatory technical standards on own funds and eligible liabilities. The draft regulatory technical standards align the existing provisions to changes introduced in the revised Capital Requirements Regulation (CRR) in the area of own funds. The consultation on amended regulatory standards ends on August 31, 2020. The final draft regulatory standards will be subsequently submitted to EC for endorsement before being published in the Official Journal of the European Union.
Last year, European legislators adopted a series of measures, including the “Risk Reduction Measures Package” that complements the existing banking framework to lower risks of failure, reduce the severity of failure, and minimize costs to the tax payer. Part of these risk reduction measures consists in applying targeted adjustments to the own funds framework set out in CRR to reflect EU specificities and a few broader policy considerations. In parallel, the CRR and the Bank Recovery and Resolution Directive (BRRD) have been amended to implement, in EU, the total loss absorbing capacity (TLAC) standard agreed upon for global systemically important institutions (G-SIIs) at the G-20 table. Own funds and eligible liabilities’ requirements have been set out alongside capital requirements to reinforce loss absorption capacity for banks, both going-concern and in resolution. EBA has historically been mandated to further specify some of the conditions of the own funds regime. With the introduction of eligible liabilities instruments in CRR, EBA is mandated to specify the eligible liabilities regime, in some cases with an explicit obligation for both regimes to be fully aligned. To ensure consistency across the spectrum of instruments with similar loss absorption features, it is necessary to approach both sets of mandates together.
For this reason, EBA has chosen to deal with the own funds regime and the eligible liabilities regime in a single set of regulatory technical standards. This consultation paper puts forward draft amendments to the Commission Delegated Regulation No 241/2014 with regard to the regulatory technical standards own funds requirements for institutions, which are now also applicable to eligible liabilities instruments. The consultation paper elicits stakeholder views on the design of the new provisions. With the revised Capital Requirements Regulation (CRR) introducing new criteria and requirements for eligible liabilities, these amended regulatory technical standards capture several aspects of eligible liabilities as well as the changes to the own funds framework. The changes also relate to the provisions for the regime of supervisory prior permission for the reduction of own funds and market making. The draft amended regulatory technical standards specify some of the newly introduced criteria for eligible liabilities instruments derived from the own funds regime, including the:
- Absence of direct or indirect funding for the acquisition of ownership of eligible liabilities
- Absence of incentives to redeem
- Need for the resolution authority’s prior permission for the reduction of eligible liabilities
Comment Due Date: August 31, 2020
Keywords: Europe, EU, Banking, CRR, BRRD, Own Funds, Eligible Liabilities, Regulatory Technical Standards, TLAC, Resolution Framework, EBA
Previous ArticleCBUAE Provides Guidance on Application of IFRS 9 and TESS Facility
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.