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Pathfinder - Deloitte monthly regulatory update - 17/09/2013


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CRD IV package

EC MEMO/13/690 - Capital requirements - CRD IV / CRR – frequently asked questions - European Commission 16/07/2013

Further to the publication of Regulation (EU) 575/2013 of 26 June 2013 (CRR) on prudential requirements for credit institutions and investment firms and Directive 2013/36/EU of 26 June 2013 (CRD IV) on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (“the CRD IV package”), the European Commission published questions and answers clarifying the context, the objectives and the legal framework structure of the package.

Recommendation EBA/REC/2013/03 on the preservation of core Tier 1 capital during the transition to the CRD IV / CRR framework - European Banking Authority (EBA) 22/07/2013

Following the change of the legal framework for assessing capital levels by the capital requirements package, the EBA decided to revise its measures of December 2011 on capital preservation addressed to supervisory authorities in all EU Member States. The new recommendation shall apply from 22 July 2013 and replaces the recommendation EBA/REC/2011/1 of 8 December 2011, except for the purpose of applying the nominal level of core Tier 1 capital described in paragraph 2 of this recommendation. It requires the submission of suitable capital plans and monitoring templates by all credit institutions by 29 November 2013. This recommendation is targ eted at a limited number of credit institutions (only BCEE is concerned in Luxembourg).

Set of technical standards on own funds and credit risk adjustment including:

European Banking Authority (EBA) 26/07/2013

On 26 July 2013, the EBA published its final draft regulatory and implementing technical standards (RTS and ITS) on own funds and credit risk adjustment which are part of the Single Rulebook and are issued in accordance with the CRR.

On the one hand, the RTS on own funds are divided as follows:

  • Part I: description of own funds elements: Common Equity Tier 1 (CET1) capital, Additional Tier 1 capital, Tier 2 capital, deductions from the different types of capital, and transitional provisions for own funds in terms of grandfathering.
  • Specific RTS on gain on sale: description of the concept and the treatment of a gain on sale, defined as any increase (or part of an increase) in equity under the applicable accounting framework arising from future margin income in the context of a securitisation transaction.
  • Part II: description of the conditions under which competent authorities may determine that a type of undertaking recognised under applicable national law qualifies as a mutual, cooperative society, savings institution or similar institution for the purpose of calculating own funds.

On the other hand, the ITS on disclosure for own funds focus on disclosure requirements and aim at increasing transparency on regulatory capital held by European institutions.

Finally, the RTS on the calculation of credit risk adjustments aim at providing information on the calculation of specific and general credit risk adjustments to determine own funds requirements for credit risk.

This set of standards has been submitted to the European Commission for their adoption as EU Regulations. Once they will be published in OJ, all three EU Regulations will be binding in their entirety and directly applicable in all Member States.

Final draft implementing technical standards on supervisory reporting requirements - European Banking Authority (EBA) 26/07/2013

CSSF Circular 13/570 - Requirements regarding the prudential reporting applicable to credit institutions as from 2014- Commission de Surveillance du Secteur Financier (CSSF) 29/07/2013 (French only at this stage)

Further to the publication of the EBA final draft implementing technical standards on supervisory reporting requirements, the CSSF has issued the Circular 13/570. For further background, we refer to our Regulatory News Alert of 7 August 2013: CRD IV / CRR - ITS on Supervisory Reporting.

Single Rulebook Q&A - European Banking Authority (EBA) 04/07/2013

On 4 July 2013, the EBA launched a new online "Single Rulebook Q&A" tool. The purpose of this tool is to allow institutions, supervisors and other stakeholders to ask their questions on the capital requirements package and related standards and guidelines. Questions and answers will be available for all users and updated regularly according to the new questions.

European banking union

European Parliament resolution of 3 July 2013 on reforming the structure of the EU banking sector (2013/2021(INI)) – European Parliament 03/07/2013

On 3 July 2013, a resolution on reforming the structure of the EU banking sector was voted by the European Parliament. This resolution defines Parliament's priorities on a significant reform of European banks and constitutes Parliament’s input to Commission proposals expected in September 2013 for a Directive for structural reform of the EU banking sector as well as for a Directive on the regulation of the shadow-banking sector. These proposals shall supplement to the existing reforms: Capital Requirements Directive and Regulation (CRD IV / CRR), Recovery and Resolution Directive (RRD), the Single Supervisory Mechanism (SSM), the Deposit Guarantee Schemes (DGS), and Markets in Financial Instruments Directive and Regulation (MiFID / MiFIR). The principles for structural reform identified in the resolution are the following:

  • excessive risks must be reduced, competition ensured, complexity reduced and interconnectedness limited by providing for the separate operation of essential activities, including credit, payment, deposit and non-essential risky activities;
  • corporate governance must be improved and incentives created for banks to increase accountability and reinforce a responsible remuneration system;
  • effective bank resolution and recovery must be enabled by ensuring that when banks become untenable they can be allowed to fail and/or resolved in an orderly manner without the need for taxpayer bailouts;
  • delivery of essential credit, deposit and payment services must be ensured in a manner unaffected by operational problems, financial losses, funding shortages or reputational damage resulting from the resolution or insolvency;
  • risky trading and investment activities must not benefit from implicit guarantees or subsidies, or the use of insured deposits or tax payer bailouts, and the trading and investment activities (not the credit and deposit activities) must bear the risks and costs associated with those activities;
  • adequate capital, leverage and liquidity must be available for all banking activities;
  • the separated entities must have different sources of funding, with no undue or unnecessary shifting of capital and liquidity between these activities.

Proposal for a Regulation of the European Parliament and of the Council establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) 1093/2010 (2013/0253 (COD)) – European Commission 10/07/2013

On 10 July 2013, the European Commission proposed a draft Regulation establishing uniform rules and procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism (SRM) and a Single Bank Resolution Fund which would supplement the Single Supervisory Mechanism of September 2012. Its aim is to centralise key competences and resources for managing the failure of any bank in the Euro Area and in other Member States participating in the banking union.

For further background, we refer to the European Commission website on banking union including a press release IP/13/674 and frequently asked questions (MEMO/13/675) which explain the links between the SRM and the draft Recovery and Resolution Directive, the SRM scope and its components.

Cross-border mergers

RCSL Circular 13/1 on cross-border mergers – Registre de Commerce et des Sociétés Luxembourg (RCSL) 08/08/2013

The Circular specifies the procedure for cross-border mergers. This Circular supersedes Circular 09/004.

Discover the other topics of this newsletter in the attached PDF.

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