LegalizeRegulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 Text with EEA relevance
REGULATION (EU) No 575/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (Text with EEA relevance)
PART ONE
GENERAL PROVISIONS
TITLE I
SUBJECT MATTER, SCOPE AND DEFINITIONS
Article 1
Scope
This Regulation lays down uniform rules concerning general prudential requirements that institutions, financial holding companies and mixed financial holding companies supervised under Directive 2013/36/EU shall comply with in relation to the following items:
(a) own funds requirements relating to entirely quantifiable, uniform and standardised elements of credit risk, market risk, operational risk, settlement risk and leverage;
(b) requirements limiting large exposures;
(c) liquidity requirements relating to entirely quantifiable, uniform and standardised elements of liquidity risk;
(d) reporting requirements related to points (a), (b) and (c);
(e) public disclosure requirements.
This Regulation lays down uniform rules concerning the own funds and eligible liabilities requirements that resolution entities that are global systemically important institutions (G-SIIs) or part of G-SIIs and material subsidiaries of non-EU G-SIIs shall comply with.
This Regulation does not govern publication requirements for competent authorities in the field of prudential regulation and supervision of institutions as set out in Directive 2013/36/EU.
Article 2
Supervisory powers
Article 3
Application of stricter requirements by institutions
This Regulation shall not prevent institutions from holding own funds and their components in excess of, or applying measures that are stricter than those required by this Regulation.
Article 4
Definitions
For the purposes of this Regulation, the following definitions shall apply:
(1) ‘credit institution’ means an undertaking the business of which consists of any of the following: (a) to take deposits or other repayable funds from the public and to grant credits for its own account; (b) to carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU of the European Parliament and of the Council (6), where one of the following applies, but the undertaking is not a commodity and emission allowance dealer, a collective investment undertaking, an insurance undertaking, or an investment firm for which the authorisation as a credit institution is waived in accordance with Article 8a of Directive 2013/36/EU: (i) the total value of the consolidated assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is equal to or exceeds EUR 30 billion; (ii) the total value of the assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in that group that are established in the Union, including any of their branches and subsidiaries established in a third country, that individually have total assets of less than EUR 30 billion and that carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU is equal to or exceeds EUR 30 billion; (iii) the total value of the assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in the group that carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU, is equal to or exceeds EUR 30 billion, where the consolidating supervisor, in consultation with the supervisory college, so decides in order to address potential risks of circumvention or potential risks for financial stability of the Union; for the purposes of points (b)(ii) and (b)(iii), where the undertaking is part of a third‐country group, the total assets of each branch of the third‐country group authorised in the Union shall be included in the combined total value of the assets of all undertakings in the group;
(2) ‘investment firm’ means an investment firm as defined in point (1) of Article 4(1) of Directive 2014/65/EU which is authorised under that Directive but excludes credit institutions;
(3) ‘institution’ means a credit institution authorised under Article 8 of Directive 2013/36/EU or an undertaking as referred to in Article 8a(3) thereof;
(5) ‘insurance undertaking’ means insurance undertaking as defined in point (1) of Article 13 of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (7);
(6) ‘reinsurance undertaking’ means reinsurance undertaking as defined in point (4) of Article 13 of Directive 2009/138/EC;
(7) ‘collective investment undertaking’ or ‘CIU’ means a UCITS as defined in Article 1(2) of Directive 2009/65/EC of the European Parliament and of the Council (8) or an alternative investment fund (AIF) as defined in point (a) of Article 4(1) of Directive 2011/61/EU of the European Parliament and of the Council (9);
(8) ‘public sector entity’ means a non-commercial administrative body responsible to central governments, regional governments or local authorities, or to authorities that exercise the same responsibilities as regional governments and local authorities, or a non-commercial undertaking that is owned by or set up and sponsored by central governments, regional governments or local authorities, and that has explicit guarantee arrangements, and may include self-administered bodies governed by law that are under public supervision;
(9) ‘management body’ means management body as defined in point (7) of Article 3(1) of Directive 2013/36/EU;
(10) ‘senior management’ means senior management as defined in point (9) of Article 3(1) of Directive 2013/36/EU;
(11) ‘systemic risk’ means systemic risk as defined in point (10) of Article 3(1) of Directive 2013/36/EU;
(13) ‘originator’ means an originator as defined in point (3) of Article 2 of Regulation (EU) 2017/2402 (10);
(14) ‘sponsor’ means a sponsor as defined in point (5) of Article 2 of Regulation (EU) 2017/2402;
(14a) ‘original lender’ means an original lender as defined in point (20) of Article 2 of Regulation (EU) 2017/2402;
(15) ‘parent undertaking’ means an undertaking that controls, within the meaning of point (37), one or more undertakings;
(16) ‘subsidiary’ means an undertaking that is controlled, within the meaning of point (37), by another undertaking; subsidiaries of subsidiaries shall also be considered to be subsidiaries of the undertaking that is their original parent undertaking;
(17) ‘branch’ means a place of business which forms a legally dependent part of an institution and which carries out directly all or some of the transactions inherent in the business of institutions;
(18) ‘ancillary services undertaking’ means an undertaking the principal activity of which, whether provided to undertakings inside the group or to clients outside the group, consists of any of the following: (a) a direct extension of banking; (b) operational leasing, the ownership or management of property, the provision of data processing services or any other activity insofar as those activities are ancillary to banking; (c) any other activity considered similar by EBA to those referred to in points (a) and (b);
(19) ‘asset management company’ means an asset management company as defined in point (5) of Article 2 of Directive 2002/87/EC or an AIFM as defined in Article 4(1)(b) of Directive 2011/61/EU, including, unless otherwise provided, third-country entities that carry out similar activities and that are subject to the laws of a third country which applies supervisory and regulatory requirements at least equivalent to those applied in the Union;
(20) ‘financial holding company’ means an undertaking that meets all of the following conditions: (a) it is a financial institution; (b) it is not a mixed financial holding company; (c) it has at least one subsidiary that is an institution; (d) more than 50 % of any of the following indicators are associated, on a steady basis, with subsidiaries that are institutions or financial institutions, and with activities carried out by the undertaking itself that are not related to the acquisition or owning of holdings in subsidiaries when those activities are of the same nature as the ones carried out by institutions or financial institutions: (i) the undertaking’s equity based on its consolidated situation; (ii) the undertaking’s assets based on its consolidated situation; (iii) the undertaking’s revenues based on its consolidated situation; (iv) the undertaking’s personnel based on its consolidated situation; (v) other indicators considered relevant by the competent authority. The competent authority may decide that an entity does not qualify as a financial holding company even if one of the indicators referred to in the first paragraph, points (i) to (iv), is met, where the competent authority considers that the relevant indicator does not convey a fair and true view of the main activities and risks of the group. Before making such decision, the competent authority shall consult EBA and provide a substantiated and detailed qualitative and quantitative justification. The competent authority shall have due regard to EBA’s opinion and, where it decides to deviate from it, shall within three months of the date of receipt of EBA’s opinion, provide to EBA the rationale for deviating from the relevant opinion;
(20a) ‘investment holding company’ means an investment holding company as defined in Article 4(1), point (23), of Regulation (EU) 2019/2033;
(21) ‘mixed financial holding company’ means mixed financial holding company as defined in point (15) of Article 2 of Directive 2002/87/EC;
(22) ‘mixed activity holding company’ means a parent undertaking, other than a financial holding company or an institution or a mixed financial holding company, the subsidiaries of which include at least one institution;
(23) ‘third-country insurance undertaking’ means third-country insurance undertaking as defined in point (3) of Article 13 of Directive 2009/138/EC;
(24) ‘third-country reinsurance undertaking’ means third-country reinsurance undertaking as defined in point (6) of Article 13 of Directive 2009/138/EC;
(25) ‘recognised third-country investment firm’ means a firm meeting all of the following conditions: (a) if it were established within the Union, it would be covered by the definition of an investment firm; (b) it is authorised in a third country; (c) it is subject to and complies with prudential rules considered by the competent authorities at least as stringent as those laid down in this Regulation or in Directive 2013/36/EU;
(26) ‘financial institution’ means an undertaking that meets both of the following conditions: (a) it is not an institution, a pure industrial holding company, a securitisation special purpose entity, an insurance holding company as defined in Article 212(1), point (f), of Directive 2009/138/EC or a mixed-activity insurance holding company as defined in Article 212(1), point (g), of that Directive, except where a mixed-activity insurance holding company has a subsidiary institution; (b) it meets one or more of the following conditions: (i) the principal activity of the undertaking is to acquire or own holdings or to pursue one or more of the activities listed in Annex I, points 2 to 12 and points 15, 16 and 17, to Directive 2013/36/EU, or to pursue one or more of the services or activities listed in Annex I, Section A or B, to Directive 2014/65/EU in relation to financial instruments listed in Annex I, Section C, to Directive 2014/65/EU; (ii) the undertaking is an investment firm, a mixed financial holding company, an investment holding company, a payment services provider as categorised under Article 1(1), points (a) to (d), of Directive (EU) 2015/2366 of the European Parliament and of the Council (11), an asset management company or an ancillary services undertaking;
(26a) ‘pure industrial holding company’ means an undertaking that meets all of the following conditions: (a) its principal activity is to acquire or own holdings; (b) it is not referred to in point (27)(a), or point (27)(d) to (l), of this paragraph and is not an investment firm or an asset management company, or a payment service provider as categorised under Article 1(1), points (a) to (d), of Directive (EU) 2015/2366; (c) it does not hold any participations in a financial sector entity;
(27) ‘financial sector entity’ means any of the following: (a) an institution; (b) a financial institution; ————— (d) an insurance undertaking; (e) a third-country insurance undertaking; (f) a reinsurance undertaking; (g) a third-country reinsurance undertaking; (h) an insurance holding company as defined in point (f) of Article 212(1) of Directive 2009/138/EC; (k) an undertaking excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive; (l) a third-country undertaking with a main business comparable to any of the entities referred to in points (a) to (k);
(28) ‘parent institution in a Member State’ means an institution in a Member State which has an institution or a financial institution as a subsidiary, or which holds a participation in an institution or financial institution, and which is not itself a subsidiary of another institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State;
(29) ‘EU parent institution’ means a parent institution in a Member State which is not a subsidiary of another institution authorised in any Member State, or of a financial holding company or mixed financial holding company set up in any Member State;
(29a) ‘parent investment firm in a Member State’ means a parent undertaking in a Member State that is an investment firm;
(29b) ‘EU parent investment firm’ means an EU parent undertaking that is an investment firm;
(29c) ‘parent credit institution in a Member State’ means a parent institution in a Member State that is a credit institution;
(29d) ‘EU parent credit institution’ means an EU parent institution that is a credit institution;
(30) ‘parent financial holding company in a Member State’ means a financial holding company which is not itself a subsidiary of an institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State;
(31) ‘EU parent financial holding company’ means a parent financial holding company in a Member State which is not a subsidiary of an institution authorised in any Member State or of another financial holding company or mixed financial holding company set up in any Member State;
(32) ‘parent mixed financial holding company in a Member State’ means a mixed financial holding company which is not itself a subsidiary of an institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in that same Member State;
(33) ‘EU parent mixed financial holding company’ means a parent mixed financial holding company in a Member State which is not a subsidiary of an institution authorised in any Member State or of another financial holding company or mixed financial holding company set up in any Member State;
(34) ‘central counterparty’ or ‘CCP’ means a CCP as defined in point (1) of Article 2 of Regulation (EU) No 648/2012;
(35) ‘participation’ means a participating interest as defined in Article 2, point (2), of Directive 2013/34/EU of the European Parliament and of the Council (12), or the ownership, direct or indirect, of 20 % or more of the voting rights or capital of an undertaking;
(36) ‘qualifying holding’ means a direct or indirect holding in an undertaking which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking;
(37) ‘control’ means the relationship between a parent undertaking and a subsidiary, as described in Article 22 of Directive 2013/34/EU, or in the accounting standards to which an institution is subject under Regulation (EC) No 1606/2002 of the European Parliament and of the Council (13), or a similar relationship between any natural or legal person and an undertaking;
(38) ‘close links’ means a situation in which two or more natural or legal persons are linked in any of the following ways: (a) participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an undertaking; (b) control; (c) a permanent link of both or all of them to the same third person by a control relationship;
(39) ‘group of connected clients’ means any of the following: (a) two or more natural or legal persons who, unless it is shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other or others; (b) two or more natural or legal persons between whom there is no relationship of control as described in point (a) but who are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, in particular funding or repayment difficulties, the other or all of the others would also be likely to encounter funding or repayment difficulties. Notwithstanding points (a) and (b), where a central government has direct control over or is directly interconnected with more than one natural or legal person, the set consisting of the central government and all of the natural or legal persons directly or indirectly controlled by it in accordance with point (a), or interconnected with it in accordance with point (b), may be considered as not constituting a group of connected clients. Instead the existence of a group of connected clients formed by the central government and other natural or legal persons may be assessed separately for each of the persons directly controlled by it in accordance with point (a), or directly interconnected with it in accordance with point (b), and all of the natural and legal persons which are controlled by that person according to point (a) or interconnected with that person in accordance with point (b), including the central government. The same applies in cases of regional governments or local authorities to which Article 115(2) applies. Two or more natural or legal persons who fulfil the conditions set out in point (a) or (b) because of their direct exposure to the same CCP for clearing activities purposes are not considered as constituting a group of connected clients;
(40) ‘competent authority’ means a public authority or body officially recognised by national law, which is empowered by national law to supervise institutions as part of the supervisory system in operation in the Member State concerned;
(41) ‘consolidating supervisor’ means a competent authority responsible for the exercise of supervision on a consolidated basis in accordance with Article 111 of Directive 2013/36/EU;
(42) ‘authorisation’ means an instrument issued in any form by the authorities by which the right to carry out the business is granted;
(43) ‘home Member State’ means the Member State in which an institution has been granted authorisation;
(44) ‘host Member State’ means the Member State in which an institution has a branch or in which it provides services;
(45) ‘ESCB central banks’ means the national central banks that are members of the European System of Central Banks (ESCB), and the European Central Bank (ECB);
(46) ‘central banks’ means the ESCB central banks and the central banks of third countries;
(47) ‘consolidated situation’ means the situation that results from applying the requirements of this Regulation in accordance with Part One, Title II, Chapter 2 to an institution as if that institution formed, together with one or more other entities, a single institution;
(48) ‘consolidated basis’ means on the basis of the consolidated situation;
(49) ‘sub-consolidated basis’ means on the basis of the consolidated situation of a parent institution, financial holding company or mixed financial holding company, excluding a sub-group of entities, or on the basis of the consolidated situation of a parent institution, financial holding company or mixed financial holding company that is not the ultimate parent institution, financial holding company or mixed financial holding company;
(50) ‘financial instrument’ means any of the following: (a) a contract that gives rise to both a financial asset of one party and a financial liability or equity instrument of another party; (b) an instrument specified in Section C of Annex I to Directive 2004/39/EC; (c) a derivative financial instrument; (d) a primary financial instrument; (e) a cash instrument. The instruments referred to in points (a), (b) and (c) are only financial instruments if their value is derived from the price of an underlying financial instrument or another underlying item, a rate, or an index;
(51) ‘initial capital’ means the amounts and types of own funds specified in Article 12 of Directive 2013/36/EU;
(52) ‘operational risk’ means the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including, but not limited to, legal risk, model risk or information and communication technology (ICT) risk, but excluding strategic and reputational risk;
(52a) ‘legal risk’ means the risk of loss, including, expenses, fines, penalties or punitive damages, which an institution might incur as a consequence of events that result in legal proceedings, including the following: (a) supervisory actions and private settlements; (b) failure to act where action is necessary to comply with a legal obligation; (c) action taken to avoid compliance with a legal obligation; (d) misconduct events, which are events that arise from wilful or negligent misconduct, including inappropriate supply of financial services or the provision of inadequate or misleading information on the financial risk of products sold by the institution; (e) non-compliance with any requirement derived from national or international statutory or legislative provisions; (f) non-compliance with any requirement derived from contractual arrangements, or with internal rules and codes of conduct established in accordance with national or international rules and practices; (g) non-compliance with rules on ethics;
(52b) ‘model risk’ means the risk of loss resulting from decisions that are principally based on the output of internal models, due to errors in the design, development, parameter estimation, implementation, use or monitoring of such models, including the following: (a) the improper design of a selected internal model and its characteristics; (b) the inadequate verification of a selected internal model’s suitability for the financial instrument to be evaluated or for the product to be priced, or of the selected internal model’s suitability for the applicable market conditions; (c) errors in the implementation of a selected internal model; (d) incorrect mark-to-market valuations and risk measurement as a result of an error when booking a trade into the trading system; (e) the use of a selected internal model or of its outputs for a purpose for which that model was not intended or designed, including manipulation of the modelling parameters; (f) the untimely or ineffective monitoring or validation of model performance or of the predictive ability to assess whether the selected internal model remains fit for purpose;
(52c) ‘ICT risk’ means the risk of loss related to any reasonably identifiable circumstances related to the use of network and information systems which, if materialised, might compromise the security of the network and information systems, of any technology-dependent tool or process, of operations and processes, or of the provision of services, by producing adverse effects in the digital or physical environment;
(52d) ‘environmental, social and governance risk’ or ‘ESG risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of environmental, social or governance (ESG) factors on that institution’s counterparties or invested assets; ESG risks materialise through the traditional categories of financial risks;
(52e) ‘environmental risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of environmental factors on that institution’s counterparties or invested assets, including factors related to the transition towards the objectives set out in Article 9 of Regulation (EU) 2020/852 of the European Parliament and of the Council (14); environmental risk includes both physical risk and transition risk;
(52f) ‘physical risk’, as part of the environmental risk, means the risk of any negative financial impact on an institution stemming from the current or prospective impact of the physical effects of environmental factors on that institution’s counterparties or invested assets;
(52g) ‘transition risk’, as part of the environmental risk, means the risk of any negative financial impact on an institution stemming from the current or prospective impact of the transition to an environmentally sustainable economy on that institution’s counterparties or invested assets;
(52h) ‘social risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of social factors on its counterparties or invested assets;
(52i) ‘governance risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of governance factors on that institution’s counterparties or invested assets;
(53) ‘dilution risk’ means the risk that an amount receivable is reduced through cash or non-cash credits to the obligor;
(54) ‘probability of default’ or ‘PD’ means the probability of default of an obligor or, where applicable, of a credit facility over a one-year period, and, in the context of dilution risk, the probability of dilution over a one-year period;
(55) ‘loss given default’ or ‘LGD’ means the ratio of the loss on an exposure related to a single facility due to the default of an obligor or, where applicable, of a credit facility to the amount outstanding at default or at a given reference date after the date of default, and, in the context of dilution risk, the loss given dilution meaning the ratio of the loss on an exposure related to a purchased receivable due to dilution, to the amount outstanding of the purchased receivable;
(56) ‘conversion factor’ or ‘credit conversion factor’ or ‘CCF’ means the ratio of the undrawn amount of a commitment from a single facility that could be drawn from that single facility from a certain point in time before default and therefore outstanding at default to the undrawn amount of the commitment from that facility, the extent of the commitment being determined by the advised limit, unless the unadvised limit is higher;
(57) ‘credit risk mitigation’ means a technique used by an institution to reduce the credit risk associated with an exposure or exposures which that institution continues to hold;
(58) ‘funded credit protection’ or ‘FCP’ means a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an institution is derived from the right of that institution, in the event of the default of the obligor or the credit facility, or on the occurrence of other specified credit events relating to the obligor, to liquidate, or to obtain transfer or appropriation of, or to retain certain assets or amounts, or to reduce the amount of the exposure to, or to replace it with, the amount of the difference between the amount of the exposure and the amount of a claim on the institution;
(59) ‘unfunded credit protection’ or ‘UFCP’ means a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an institution is derived from the obligation of a third party to pay an amount in the event of the default of the obligor or the credit facility, or the occurrence of other specified credit events;
(60) ‘cash assimilated instrument’ means a certificate of deposit, a bond, including a covered bond, or any other non-subordinated instrument, which has been issued by a lending institution, for which that lending institution has already received full payment and which shall be unconditionally reimbursed by the institution at its nominal value;
(60a) ‘gold bullion’ means gold in the form of a commodity, including gold bars, ingots and coins, commonly accepted by the bullion market, where liquid markets for bullion exist, and the value of which is determined by the value of the gold content, defined by purity and mass, rather than by its interest to numismatists;
(61) ‘securitisation’ means a securitisation as defined in point (1) of Article 2 of Regulation (EU) 2017/2402;
(62) ‘securitisation position’ means a securitisation position as defined in point (19) of Article 2 of Regulation (EU) 2017/2402;
(63) ‘resecuritisation’ means a resecuritisation as defined in point (4) of Article 2 of Regulation (EU) 2017/2402;
(64) ‘re-securitisation position’ means an exposure to a re-securitisation;
(65) ‘credit enhancement’ means a contractual arrangement whereby the credit quality of a position in a securitisation is improved in relation to what it would have been if the enhancement had not been provided, including the enhancement provided by more junior tranches in the securitisation and other types of credit protection;
(66) ‘securitisation special purpose entity’ or ‘SSPE’ means a securitisation special purpose entity or SSPE as defined in point (2) of Article 2 of Regulation (EU) 2017/2402;
(67) ‘tranche’ means a tranche as defined in point (6) of Article 2 of Regulation (EU) 2017/2402;
(68) ‘marking to market’ means the valuation of positions at readily available close out prices that are sourced independently, including exchange prices, screen prices or quotes from several independent reputable brokers;
(69) ‘marking to model’ means any valuation which has to be benchmarked, extrapolated or otherwise calculated from one or more market inputs;
(70) ‘independent price verification’ means a process by which market prices or marking to model inputs are regularly verified for accuracy and independence;
(71) ‘eligible capital’ means the following: (a) for the purposes of Title III of Part Two it means the sum of the following: (i) Tier 1 capital as referred to in Article 25, without applying the deduction in Article 36(1)(k)(i); (ii) Tier 2 capital as referred to in Article 71 that is equal to or less than one third of Tier 1 capital as calculated pursuant to point (i) of this point; (b) for the purposes of Article 97 it means the sum of the following: (i) Tier 1 capital as referred to in Article 25; (ii) Tier 2 capital as referred to in Article 71 that is equal to or less than one third of Tier 1 capital;
(72) ‘recognised exchange’ means an exchange which meets all of the following conditions: (a) it is a regulated market or a third‐country market that is considered to be equivalent to a regulated market in accordance with the procedure set out in point (a) of Article 25(4) of Directive 2014/65/EU; (b) it has a clearing mechanism whereby contracts listed in Annex II are subject to daily margin requirements which, in the opinion of the competent authorities, provide appropriate protection;
(73) ‘discretionary pension benefits’ means enhanced pension benefits granted on a discretionary basis by an institution to an employee as part of that employee's variable remuneration package, which do not include accrued benefits granted to an employee under the terms of the company pension scheme;
(74) ‘mortgage lending value’ means the value of immovable property as determined by a prudent assessment of the future marketability of the property taking into account long-term sustainable aspects of the property, the normal and local market conditions, the current use and alternative appropriate uses of the property;
(74a) ‘property value’ means the value of a residential property or commercial immovable property determined in accordance with Article 229(1);
(75) ‘residential property’ means any of the following: (a) an immovable property which has the nature of a dwelling and satisfies all applicable laws and regulations enabling the property to be occupied for housing purposes; (b) an immovable property which has the nature of a dwelling and is still under construction, provided that there is the expectation that the property will satisfy all applicable laws and regulations enabling the property to be occupied for housing purposes; (c) the right to inhabit an apartment in housing cooperatives located in Sweden; (d) land accessory to a property referred to in point (a), (b) or (c);
(75a) ‘commercial immovable property’ means any immovable property that is not residential property;
(75b) ‘income producing real estate exposure’ or ‘IPRE exposure’ means an exposure secured by one or more residential properties or commercial immovable properties where the fulfilment of the credit obligations related to the exposure materially depends on the cash flows generated by those immovable properties securing that exposure, rather than on the capacity of the obligor to fulfil the credit obligations from other sources; the primary source of such cash flows being lease or rental payments, or proceeds from the sale of the residential property or commercial immovable property;
(75c) ‘non-income-producing real estate exposure’ or ‘non-IPRE exposure’ means any exposure secured by one or more residential properties or commercial immovable properties that is not an IPRE exposure;
(75d) ‘exposure secured by residential property’ or ‘exposure secured by a mortgage on residential property’ means an exposure secured by residential property or an exposure regarded as such in accordance with Article 108(4);
(75e) ‘exposure secured by commercial immovable property’ or ‘exposure secured by a mortgage on commercial immovable property’ means an exposure secured by a commercial immovable property;
(75f) ‘exposure secured by immovable property’ or ‘exposure secured by a mortgage on immovable property’, or ‘exposure secured by immovable property collateral’ means an exposure secured by a residential property or commercial immovable property or an exposure regarded as such in accordance with Article 108(4);
(76) ‘market value’ means, for the purposes of immovable property, the estimated amount for which the property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion;
(77) ‘applicable accounting framework’ means the accounting standards to which the institution is subject under Regulation (EC) No 1606/2002 or Directive 86/635/EEC;
(78) ‘one-year default rate’ means the ratio between the number of obligors or, where the definition of default is applied at credit facility level pursuant to Article 178(1), second subparagraph, credit facilities in respect of which a default is considered to have occurred during a period that starts from one year prior to a date of observation T, and the number of obligors, or where the definition of default is applied at credit facility level pursuant to Article 178(1), second subparagraph, credit facilities assigned to this grade or pool one year prior to that date of observation T;
(78a) ‘land acquisition, development and construction exposures’, or ‘ADC exposures’, means exposures to corporates or special purpose entities financing any land acquisition for development and construction purposes, or financing the development and construction of any residential property or commercial immovable property;
(78b) ‘non-ADC exposure’ means any exposure secured by one or more residential properties or commercial immovable properties that is not an ADC exposure;
(80) ‘trade finance’ means financing, including guarantees, connected to the exchange of goods and services through financial products of fixed short-term maturity, generally of less than one year, without automatic rollover;
(81) ‘officially supported export credits’ means loans or credits to finance the export of goods and services for which an official export credit agency provides guarantees, insurance or direct financing;
(82) ‘repurchase agreement’ and ‘reverse repurchase agreement’ mean any agreement in which an institution or its counterparty transfers securities or commodities or guaranteed rights relating to title to securities or commodities where that guarantee is issued by a recognised exchange which holds the rights to the securities or commodities and the agreement does not allow an institution to transfer or pledge a particular security or commodity to more than one counterparty at one time, subject to a commitment to repurchase them, or substituted securities or commodities of the same description at a specified price on a future date specified, or to be specified, by the transferor, being a repurchase agreement for the institution selling the securities or commodities and a reverse repurchase agreement for the institution buying them;
(83) ‘repurchase transaction’ means any transaction governed by a repurchase agreement or a reverse repurchase agreement;
(84) ‘simple repurchase agreement’ means a repurchase transaction of a single asset, or of similar, non-complex assets, as opposed to a basket of assets;
(85) ‘positions held with trading intent’ means any of the following: (a) proprietary positions and positions arising from client servicing and market making; (b) positions intended to be resold short term; (c) positions intended to benefit from actual or expected short-term price differences between buying and selling prices or from other price or interest rate variations;
(86) ‘trading book’ means all positions in financial instruments and commodities held by an institution either with trading intent or to hedge positions held with trading intent in accordance with Article 104;
(87) ‘multilateral trading facility’ means multilateral trading facility as defined in point 15 of Article 4 of Directive 2004/39/EC;
(88) ‘qualifying central counterparty’ or ‘QCCP’ means a central counterparty that has been either authorised in accordance with Article 14 of Regulation (EU) No 648/2012 or recognised in accordance with Article 25 of that Regulation;
(89) ‘default fund’ means a fund established by a CCP in accordance with Article 42 of Regulation (EU) No 648/2012 and used in accordance with Article 45 of that Regulation;
(90) ‘pre-funded contribution to the default fund of a CCP’ means a contribution to the default fund of a CCP that is paid in by an institution;
(91) ‘trade exposure’ means a current exposure, including a variation margin due to the clearing member but not yet received, and any potential future exposure of a clearing member or a client, to a CCP arising from contracts and transactions listed in points (a), (b) and (c) of Article 301(1), as well as initial margin;
(92) ‘regulated market’ means regulated market as defined in point (14) of Article 4 of Directive 2004/39/EC;
(93) ‘leverage’ means the relative size of an institution's assets, off-balance sheet obligations and contingent obligations to pay or to deliver or to provide collateral, including obligations from received funding, made commitments, derivatives or repurchase agreements, but excluding obligations which can only be enforced during the liquidation of an institution, compared to that institution's own funds;
(94) ‘risk of excessive leverage’ means the risk resulting from an institution's vulnerability due to leverage or contingent leverage that may require unintended corrective measures to its business plan, including distressed selling of assets which might result in losses or in valuation adjustments to its remaining assets;
(95) ‘credit risk adjustment’ means the amount of specific and general loan loss provision for credit risks that has been recognised in the financial statements of the institution in accordance with the applicable accounting framework;
(96) ‘internal hedge’ means a position that materially offsets the component risk elements between a trading book position and one or more non-trading book positions or between two trading desks;
(97) ‘reference obligation’ means an obligation used for the purposes of determining the cash settlement value of a credit derivative;
(98) ‘external credit assessment institution’ or ‘ECAI’ means a credit rating agency that is registered or certified in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (15) or a central bank issuing credit ratings which are exempt from the application of Regulation (EC) No 1060/2009;
(99) ‘nominated ECAI’ means an ECAI nominated by an institution;
(100) ‘accumulated other comprehensive income’ has the same meaning as under International Accounting Standard (IAS) 1, as applicable under Regulation (EC) No 1606/2002;
(101) ‘basic own funds’ means basic own funds within the meaning of Article 88 of Directive 2009/138/EC;
(102) ‘Tier 1 own-fund insurance items’ means basic own-fund items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 1 within the meaning of Directive 2009/138/EC in accordance with Article 94(1) of that Directive;
(103) ‘additional Tier 1 own-fund insurance items’ means basic own-fund items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 1 within the meaning of Directive 2009/138/EC in accordance with Article 94(1) of that Directive and the inclusion of those items is limited by the delegated acts adopted in accordance with Article 99 of that Directive;
(104) ‘Tier 2 own-fund insurance items’ means basic own-fund items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 2 within the meaning of Directive 2009/138/EC in accordance with Article 94(2) of that Directive;
(105) ‘Tier 3 own-fund insurance items’ means basic own-fund insurance items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 3 within the meaning of Directive 2009/138/EC in accordance with Article 94(3) of that Directive;
(106) ‘deferred tax assets’ has the same meaning as under the applicable accounting framework;
(107) ‘deferred tax assets that rely on future profitability’ means deferred tax assets the future value of which may be realised only in the event the institution generates taxable profit in the future;
(108) ‘deferred tax liabilities’ has the same meaning as under the applicable accounting framework;
(109) ‘defined benefit pension fund assets’ means the assets of a defined pension fund or plan, as applicable, calculated after they have been reduced by the amount of obligations under the same fund or plan;
(110) ‘distributions’ means the payment of dividends or interest in any form;
(111) ‘financial undertaking’ has the same meaning as under points (25)(b) and (d) of Article 13 of Directive 2009/138/EC;
(112) ‘funds for general banking risk’ has the same meaning as under Article 38 of Directive 86/635/EEC;
(113) ‘goodwill’ has the same meaning as under the applicable accounting framework;
(114) ‘indirect holding’ means any exposure to an intermediate entity that has an exposure to capital instruments issued by a financial sector entity or to liabilities issued by an institution where, in the event the capital instruments issued by the financial sector entity or the liabilities issued by the institution were permanently written off, the loss that the institution would incur as a result would not be materially different from the loss the institution would incur from a direct holding of those capital instruments issued by the financial sector entity or of those liabilities issued by the institution;
(115) ‘intangible assets’ has the same meaning as under the applicable accounting framework and includes goodwill;
(116) ‘other capital instruments’ means capital instruments issued by financial sector entities that do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments or Tier 1 own-fund insurance items, additional Tier 1 own-fund insurance items, Tier 2 own-fund insurance items or Tier 3 own-fund insurance items;
(117) ‘other reserves’ means reserves within the meaning of the applicable accounting framework that are required to be disclosed under the applicable accounting standard, excluding any amounts already included in accumulated other comprehensive income or retained earnings;
(118) ‘own funds’ means the sum of Tier 1 capital and Tier 2 capital;
(119) ‘own funds instruments’ means capital instruments issued by the institution that qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments;
(120) ‘minority interest’ means the amount of Common Equity Tier 1 capital of a subsidiary of an institution that is attributable to natural or legal persons other than those included in the prudential scope of consolidation of the institution;
(121) ‘profit’ has the same meaning as under the applicable accounting framework;
(122) ‘reciprocal cross holding’ means a holding by an institution of the own funds instruments or other capital instruments issued by financial sector entities where those entities also hold own funds instruments issued by the institution;
(123) ‘retained earnings’ means profits and losses brought forward as a result of the final application of profit or loss under the applicable accounting framework;
(124) ‘share premium account’ has the same meaning as under the applicable accounting framework;
(125) ‘temporary differences’ has the same meaning as under the applicable accounting framework;
(126) ‘synthetic holding’ means an investment by an institution in a financial instrument the value of which is directly linked to the value of the capital instruments issued by a financial sector entity or to the value of the liabilities issued by an institution;
(127) ‘cross-guarantee scheme’ means a scheme that meets all the following conditions: (a) the institutions fall within the same institutional protection scheme as referred to in Article 113(7) or are permanently affiliated with a network to a central body; (b) the institutions are fully consolidated in accordance with Article 22 of Directive 2013/34/EU and are included in the supervision on a consolidated basis of an institution which is a parent institution in a Member State in accordance with Part One, Title II, Chapter 2, of this Regulation and subject to own funds requirements; (c) the parent institution in a Member State and the subsidiaries are established in the same Member State and are subject to authorisation and supervision by the same competent authority; (d) the parent institution in a Member State and the subsidiaries have entered into a contractual or statutory liability arrangement which protects those institutions and in particular ensures their liquidity and solvency, in order to avoid bankruptcy in the case that it becomes necessary; (e) arrangements are in place to ensure the prompt provision of financial means in terms of capital and liquidity if required under the contractual or statutory liability arrangement referred to in point (d); (f) the adequacy of the arrangements referred to in points (d) and (e) is monitored on a regular basis by the competent authority; (g) the minimum period of notice for a voluntary exit of a subsidiary from the liability arrangement is 10 years; (h) the competent authority is empowered to prohibit a voluntary exit of a subsidiary from the liability arrangement;
(128) ‘distributable items’ means the amount of the profits at the end of the last financial year plus any profits brought forward and reserves available for that purpose, before distributions to holders of own funds instruments, less any losses brought forward, any profits which are non-distributable pursuant to Union or national law or the institution's by-laws and any sums placed in non-distributable reserves in accordance with national law or the statutes of the institution, in each case with respect to the specific category of own funds instruments to which Union or national law, institutions' by-laws, or statutes relate; such profits, losses and reserves being determined on the basis of the individual accounts of the institution and not on the basis of the consolidated accounts;
(129) ‘servicer’ means a servicer as defined in point (13) of Article 2 of Regulation (EU) 2017/2402;
(130) ‘resolution authority’ means a resolution authority as defined in point (18) of Article 2(1) of Directive 2014/59/EU;
(130a) ‘relevant third-country authority’ means a third-country authority as defined in Article 2(1), point (90), of Directive 2014/59/EU;
(131) ‘resolution entity’ means a resolution entity as defined in point (83a) of Article 2(1) of Directive 2014/59/EU;
(132) ‘resolution group’ means a resolution group as defined in point (83b) of Article 2(1) of Directive 2014/59/EU;
(133) ‘global systemically important institution’ or ‘G-SII’ means a G-SII that has been identified in accordance with Article 131(1) and (2) of Directive 2013/36/EU;
(134) ‘non-EU global systemically important institution’ or ‘non-EU G-SII’ means a global systemically important banking group or a bank (G-SIBs) that is not a G-SII and that is included in the list of G-SIBs published by the Financial Stability Board, as regularly updated;
(135) ‘material subsidiary’ means a subsidiary that on an individual or consolidated basis meets any of the following conditions: (a) the subsidiary holds more than 5 % of the consolidated risk-weighted assets of its original parent undertaking; (b) the subsidiary generates more than 5 % of the total operating income of its original parent undertaking; (c) the total exposure measure, referred to in Article 429(4) of this Regulation, of the subsidiary is more than 5 % of the consolidated total exposure measure of its original parent undertaking; for the purpose of determining the material subsidiary, where Article 21b(2) of Directive 2013/36/EU applies, the two intermediate EU parent undertakings shall count as a single subsidiary on the basis of their consolidated situation;
(136) ‘G-SII entity’ means an entity with legal personality that is a G-SII or is part of a G-SII or of a non-EU G-SII;
(137) ‘bail-in tool’ means a bail-in tool as defined in point (57) of Article 2(1) of Directive 2014/59/EU;
(138) ‘group’ means a group of undertakings of which at least one is an institution and which consists of a parent undertaking and its subsidiaries, or of undertakings that are related to each other as set out in Article 22 of Directive 2013/34/EU of the European Parliament and of the Council (16);
(139) ‘securities financing transaction’ means a repurchase transaction, a securities or commodities lending or borrowing transaction, or a margin lending transaction;
(140) ‘initial margin’ or ‘IM’ means any collateral, other than variation margin, collected from or posted to an entity to cover the current and potential future exposure of a transaction or of a portfolio of transactions in the period needed to liquidate those transactions, or to re-hedge their market risk, following the default of the counterparty to the transaction or portfolio of transactions;
(141) ‘market risk’ means the risk of losses arising from movements in market prices, including in foreign exchange rates or commodity prices;
(142) ‘foreign exchange risk’ means the risk of losses arising from movements in foreign exchange rates;
(143) ‘commodity risk’ means the risk of losses arising from movements in commodity prices;
(144) ‘trading desk’ means a well-identified group of dealers established by the institution in accordance with Article 104b(1) to jointly manage a portfolio of trading book positions, or the non-trading book positions referred to in paragraphs (5) and (6) of that Article, in accordance with a well-defined and consistent business strategy and operating under the same risk management structure;
(145) ‘small and non-complex institution’ means an institution that meets all the following conditions: (a) it is not a large institution; (b) the total value of its assets on an individual basis or, where applicable, on a consolidated basis in accordance with this Regulation and Directive 2013/36/EU is on average equal to or less than the threshold of EUR 5 billion over the four-year period immediately preceding the current annual reporting period; Member States may lower that threshold; (c) it is not subject to any obligations, or is subject to simplified obligations, in relation to recovery and resolution planning in accordance with Article 4 of Directive 2014/59/EU; (d) its trading book business is classified as small within the meaning of Article 94(1); (e) the total value of its derivative positions held with trading intent does not exceed 2 % of its total on- and off-balance-sheet assets and the total value of its overall derivative positions does not exceed 5 %, both calculated in accordance with Article 273a(3); (f) the institution’s consolidated assets or liabilities relating to activities with counterparties located in the European Economic Area, excluding intragroup exposures in the European Economic Area, exceed 75 % of both the institution’s consolidated total assets and liabilities, excluding in both cases the intragroup exposures; (g) the institution does not use internal models to meet the prudential requirements in accordance with this Regulation except for subsidiaries using internal models developed at the group level, provided that the group is subject to the disclosure requirements laid down in Article 433a or 433c on a consolidated basis; (h) the institution has not communicated to the competent authority an objection to being classified as a small and non-complex institution; (i) the competent authority has not decided that the institution is not to be considered a small and non-complex institution on the basis of an analysis of its size, interconnectedness, complexity or risk profile;
(146) ‘large institution’ means an institution that meets any of the following conditions: (a) it is a G-SII; (b) it has been identified as an other systemically important institution (O-SII) in accordance with Article 131(1) and (3) of Directive 2013/36/EU; (c) it is, in the Member State in which it is established, one of the three largest institutions in terms of total value of assets; (d) the total value of its assets on an individual basis or, where applicable, on the basis of its consolidated situation in accordance with this Regulation and Directive 2013/36/EU is equal to or greater than EUR 30 billion;
(147) ‘large subsidiary’ means a subsidiary that qualifies as a large institution;
(148) ‘non-listed institution’ means an institution that has not issued securities that are admitted to trading on a regulated market of any Member State, within the meaning of point (21) of Article 4(1) of Directive 2014/65/EU;
(149) ‘financial report’ means, for the purposes of Part Eight, a financial report within the meaning of Articles 4 and 5 of Directive 2004/109/EC of the European Parliament and of the Council (17);
(150) ‘commodity and emission allowance dealer’ means an undertaking the main business of which consists exclusively of the provision of investment services or activities in relation to commodity derivatives or commodity derivative contracts referred to in points (5), (6), (7), (9) and (10), derivatives of emission allowances referred to in point (4), or emission allowances referred to in point (11) of Section C of Annex I to Directive 2014/65/EU.
(151) ‘revolving exposure’ means any exposure whereby the borrower’s outstanding balance is permitted to fluctuate based on its decisions to borrow and repay, up to an agreed limit;
(152) ‘transactor exposure’ means any revolving exposure that has at least 12 months of repayment history and that is one of the following: (a) an exposure for which, on a regular basis of at least every 12 months, the balance to be repaid at the next scheduled repayment date is determined as the drawn amount at a predefined reference date, with a scheduled repayment date not later than after 12 months, provided that the balance has been repaid in full at each scheduled repayment date for the previous 12 months; (b) an overdraft facility where there have been no drawdowns over the previous 12 months;
(153) ‘fossil fuel sector entity’ means a company, enterprise or undertaking statistically classified as having its principal economic activity in the coal, oil or gas sector of economic activities, as set out in Annex XXXIX, Template 3, to Commission Implementing Regulation (EU) 2021/637 (18) and as identified by reference to the statistical classification of economic activities (NACE Revision 2) codes listed in Annex I, Sections B, C, D and G, to Regulation (EC) No 1893/2006 of the European Parliament and of the Council (19); where the principal economic activity of a company, enterprise or undertaking is not classified using the NACE Revision 2 codes set out in Regulation (EC) No 1893/2006, or a national classification derived therefrom, institutions shall conservatively determine whether such company, enterprise or undertaking has its principal activity in one of those sectors;
(154) ‘exposures subject to the impact of environmental or social factors’ means exposures hindering the ambition of the Union to achieve its regulatory objectives relating to ESG factors, in a way that could have a negative financial impact on institutions in the Union;
(155) ‘shadow banking entity’ means an entity that carries out banking activities outside the regulated framework.
For the purposes of the first subparagraph, points (1)(b)(ii) and (iii), where the undertaking is part of a third-country group, the total assets of each branch of the third-country group authorised in the Union shall be included in the combined total value of the assets of all undertakings in the group.
For the purposes of the first subparagraph, point (1)(b)(iii), the consolidating supervisor may request all relevant information from the undertaking in order to take its decision.
For the purposes of the first subparagraph, point (52a), legal risk shall not comprise refunds to third parties or employees and goodwill payments due to business opportunities, where no breach of any rules or ethical conduct has occurred and where the institution has fulfilled its obligations on a timely basis. Nor shall legal risk comprise external legal costs where the event giving rise to those external costs is not an operational risk event.
For the purposes of the first subparagraph, point (145)(e), of this paragraph, an institution may exclude derivative positions it entered with its non-financial clients and the derivative positions it uses to hedge those positions, provided that the combined value of the excluded positions calculated in accordance with Article 273a(3) does not exceed 10 % of the institution’s total on- and off-balance-sheet assets.
EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2020.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 5
Definitions specific to capital requirements for credit risk
For the purposes of Part Three, Title II, the following definitions shall apply:
(1) ‘exposure’ means an asset or off-balance sheet item;
(2) ‘loss’ means economic loss, including material discount effects, and material direct and indirect costs associated with collecting on the instrument;
(3) ‘expected loss’ or ‘EL’ means the ratio, related to a single facility, of the amount expected to be lost on an exposure from any of the following: (a) a potential default of an obligor over a one-year period to the amount outstanding at default; (b) a potential dilution event over a one-year period to the amount outstanding at the date of occurrence of the dilution event;
(4) ‘credit obligation’ means any obligation arising from a credit contract, including principal, accrued interest and fees, owed by an obligor;
(5) ‘credit exposure’ means any on- or off -balance-sheet item, that results, or may result, in a credit obligation;
(6) ‘facility’ or ‘credit facility’ means a credit exposure arising from a contract or a set of contracts between an obligor and an institution;
(7) ‘margin of conservatism’ means an add-on incorporated in risk parameter estimates to account for the expected range of estimation errors stemming from identified deficiencies in data, methods, models, and changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, as well as from general estimation error;
(8) ‘appropriate adjustment’ means the impact on risk parameter estimates resulting from the application of methodologies within the estimation of risk parameters to correct the identified deficiencies in data and in estimation methods, and to account for changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, to the extent possible in order to avoid biases in risk parameter estimates;
(9) ‘small and medium-sized enterprise’ or ‘SME’ means a company, enterprise or undertaking which, according to its most recent consolidated accounts, has an annual turnover not exceeding EUR 50 000 000 ;
(10) ‘commitment’ means any contractual arrangement that an institution offers to a client, and is accepted by that client, to extend credit, purchase assets or issue credit substitutes; and any such arrangement that can be unconditionally cancelled by an institution at any time without prior notice to an obligor or any arrangement that can be cancelled by an institution where an obligor fails to meet the conditions set out in the facility documentation, including conditions that are required to be met by the obligor prior to any initial or subsequent drawdown under the arrangement, unless contractual arrangements meet all of the following conditions: (a) contractual arrangements where the institution receives no fees or commissions to establish or maintain those contractual arrangements; (b) contractual arrangements where the client is required to apply to the institution for the initial and each subsequent drawdown under those contractual arrangements; (c) contractual arrangements where the institution has full authority, regardless of the fulfilment by the client of the conditions set out in the contractual arrangement documentation, over the execution of each drawdown; (d) the contractual arrangements allow the institution to assess the creditworthiness of the client immediately prior to deciding on the execution of each drawdown and the institution has implemented and applies internal procedures that ensure that such an assessment is being made before the execution of each drawdown; (e) contractual arrangements that are offered to a corporate entity, including an SME, that is closely monitored on an ongoing basis;
(11) ‘unconditionally cancellable commitment’ means any commitment the terms of which permit the institution to cancel that commitment to the full extent allowable under consumer protection and related legal acts, where applicable, at any time without prior notice to the obligor or that effectively provide for automatic cancellation due to a deterioration in a borrower’s creditworthiness.
Article 5a
Definitions specific to crypto-assets
For the purposes of this Regulation, the following definitions apply:
(1) ‘crypto-asset’ means a crypto-asset as defined in Article 3(1), point (5), of Regulation (EU) 2023/1114 of the European Parliament and of the Council (20) that is not a central bank digital currency;
(2) ‘electronic money token’ or ‘e-money token’ means an electronic money token or e-money token as defined in Article 3(1), point (7), of Regulation (EU) 2023/1114;
(3) ‘crypto-asset exposure’ means an asset or an off-balance-sheet item related to a crypto-asset that gives rise to credit risk, counterparty credit risk, market risk, operational risk or liquidity risk;
(4) ‘traditional asset’ means any asset other than a crypto-asset, including: (a) financial instruments as defined in Article 4(1), point (50), of this Regulation; (b) funds as defined in Article 4, point (25), of Directive (EU) 2015/2366; (c) deposits as defined in Article 2(1), point (3), of Directive 2014/49/EU of the European Parliament and of the Council (21), including structured deposits; (d) securitisation positions in the context of a securitisation as defined in Article 2, point (1), of Regulation (EU) 2017/2402; (e) non-life or life insurance products falling within the classes of insurance listed in Annexes I and II to Directive 2009/138/EC or reinsurance and retrocession contracts referred to in that Directive; (f) pension products that, under national law, are recognised as having the primary purpose of providing the investor with an income in retirement and that entitle the investor to certain benefits; (g) officially recognised occupational pension schemes within the scope of Directive (EU) 2016/2341 of the European Parliament and of the Council (22) or Directive 2009/138/EC; (h) individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provider; (i) a pan-European Personal Pension Product as defined in Article 2, point (2), of Regulation (EU) 2019/1238 of the European Parliament and of the Council (23); (j) social security schemes covered by Regulation (EC) No 883/2004 of the European Parliament and of the Council (24) and Regulation (EC) No 987/2009 of the European Parliament and of the Council (25);
(5) ‘tokenised traditional asset’ means a type of crypto-asset that represents a traditional asset, including an e-money token;
(6) ‘asset-referenced token’ means an asset-referenced token as defined in Article 3(1), point (6), of Regulation (EU) 2023/1114;
(7) ‘crypto-asset service’ means a crypto-asset service as defined in Article 3(1), point (16), of Regulation (EU) 2023/1114.
TITLE II
LEVEL OF APPLICATION OF REQUIREMENTS
CHAPTER 1
Application of requirements on an individual basis
Article 6
General principles
Material subsidiaries of a non-EU G-SII shall comply with Article 92b on an individual basis, where they meet all the following conditions:
(a) they are not resolution entities;
(b) they do not have subsidiaries;
(c) they are not the subsidiaries of an EU parent institution.
By way of derogation from the first subparagraph of this paragraph, the institutions referred to in paragraph 1a of this Article shall comply with Article 437a and point (h) of Article 447 on an individual basis.
Institutions shall comply with the obligations laid down in Part Six and in point (d) of Article 430(1) of this Regulation on an individual basis.
The following institutions shall not be required to comply with Article 413(1) and the associated liquidity reporting requirements laid down in Part Seven A of this Regulation:
(a) institutions which are also authorised in accordance with Article 14 of Regulation (EU) No 648/2012;
(b) institutions which are also authorised in accordance with Article 16 and point (a) of Article 54(2) of Regulation (EU) No 909/2014 of the European Parliament and of the Council (26), provided that they do not perform any significant maturity transformations; and
(c) institutions which are designated in accordance with point (b) of Article 54(2) of Regulation (EU) No 909/2014, provided that: (i) their activities are limited to offering banking‐type services, as referred to in Section C of the Annex to that Regulation, to central securities depositories authorised in accordance with Article 16 of that Regulation; and (ii) they do not perform any significant maturity transformations.
Article 7
Derogation from the application of prudential requirements on an individual basis
Competent authorities may waive the application of Article 6(1) to any subsidiary of an institution, where both the subsidiary and the institution are subject to authorisation and supervision by the Member State concerned, and the subsidiary is included in the supervision on a consolidated basis of the institution which is the parent undertaking, and all of the following conditions are satisfied, in order to ensure that own funds are distributed adequately between the parent undertaking and the subsidiary:
(a) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities by its parent undertaking;
(b) either the parent undertaking satisfies the competent authority regarding the prudent management of the subsidiary and has declared, with the permission of the competent authority, that it guarantees the commitments entered into by the subsidiary, or the risks in the subsidiary are of negligible interest;
(c) the risk evaluation, measurement and control procedures of the parent undertaking cover the subsidiary;
(d) the parent undertaking holds more than 50 % of the voting rights attached to shares in the capital of the subsidiary or has the right to appoint or remove a majority of the members of the management body of the subsidiary.
Competent authorities may waive the application of Article 6(1) to a parent institution in a Member State where that institution is subject to authorisation and supervision by the Member State concerned, and it is included in the supervision on a consolidated basis, and all the following conditions are satisfied, in order to ensure that own funds are distributed adequately among the parent undertaking and the subsidiaries:
(a) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities to the parent institution in a Member State;
(b) the risk evaluation, measurement and control procedures relevant for consolidated supervision cover the parent institution in a Member State.
The competent authority which makes use of this paragraph shall inform the competent authorities of all other Member States.
Article 8
Derogation from the application of liquidity requirements on an individual basis
The competent authorities may waive in full or in part the application of Part Six to an institution and to all or some of its subsidiaries in the Union and supervise them as a single liquidity sub-group so long as they fulfil all of the following conditions:
(a) the parent institution on a consolidated basis or a subsidiary institution on a sub-consolidated basis complies with the obligations laid down in Part Six;
(b) the parent institution on a consolidated basis or the subsidiary institution on a sub-consolidated basis monitors and has oversight at all times over the liquidity positions of all institutions within the group or sub-group, that are subject to the waiver, monitors and has oversight at all times over the funding positions of all institutions within the group or sub-group where the net stable funding ratio (NSFR) requirement set out in Title IV of Part Six is waived, and ensures a sufficient level of liquidity, and of stable funding where the NSFR requirement set out in Title IV of Part Six is waived, for all of those institutions;
(c) the institutions have entered into contracts that, to the satisfaction of the competent authorities, provide for the free movement of funds between them to enable them to meet their individual and joint obligations as they become due;
(d) there is no current or foreseen material practical or legal impediment to the fulfilment of the contracts referred to in (c).
By 1 January 2014, the Commission shall report to the European Parliament and the Council on any legal obstacles which are capable of rendering impossible the application of point (c) of the first subparagraph and is invited to make a legislative proposal, if appropriate, by 31 December 2015, on which of those obstacles should be removed.
Where institutions of the single liquidity sub-group are authorised in several Member States, paragraph 1 shall only be applied after following the procedure laid down in Article 21 and only to the institutions whose competent authorities agree about the following elements:
(a) their assessment of the compliance of the organisation and of the treatment of liquidity risk with the conditions set out in Article 86 of Directive 2013/36/EU across the single liquidity sub-group;
(b) the distribution of amounts, location and ownership of the required liquid assets to be held within the single liquidity sub-group, where the liquidity coverage ratio (LCR) requirement as laid down in the delegated act referred to in Article 460(1) is waived, and the distribution of amounts and location of available stable funding within the single liquidity sub-group, where the NSFR requirement set out in Title IV of Part Six is waived;
(c) the determination of minimum amounts of liquid assets to be held by institutions for which the application of the LCR requirement as laid down in the delegated act referred to in Article 460(1) is waived and the determination of minimum amounts of available stable funding to be held by institutions for which the application of the NSFR requirement set out in Title IV of Part Six is waived;
(d) the need for stricter parameters than those set out in Part Six;
(e) unrestricted sharing of complete information between the competent authorities;
(f) a full understanding of the implications of such a waiver.
Article 9
Individual consolidation method
Article 10
Waiver for credit institutions permanently affiliated to a central body
Competent authorities may, in accordance with national law, partially or fully waive the application of the requirements set out in Parts Two to Eight of this Regulation and Chapter 2 of Regulation (EU) 2017/2402 to one or more credit institutions situated in the same Member State and which are permanently affiliated to a central body which supervises them and which is established in the same Member State, if the following conditions are met:
(a) the commitments of the central body and affiliated institutions are joint and several liabilities or the commitments of its affiliated institutions are entirely guaranteed by the central body;
(b) the solvency and liquidity of the central body and of all the affiliated institutions are monitored as a whole on the basis of consolidated accounts of these institutions;
(c) the management of the central body is empowered to issue instructions to the management of the affiliated institutions.
Member States may maintain and make use of existing national legislation regarding the application of the waiver referred to in the first subparagraph as long as it does not conflict with this Regulation or Directive 2013/36/EU.
CHAPTER 2
Prudential consolidation
Section 1
Application of requirements on a consolidated basis
Article 10a
Application of prudential requirements on a consolidated basis where investment firms are parent undertakings
For the purposes of this Chapter, investment firms and investment holding companies shall be considered to be parent financial holding companies in a Member State or EU parent financial holding companies where such investment firms or investment holding companies are parent undertakings of an institution or of an investment firm subject to this Regulation that is referred to in Article 1(2) or (5) of Regulation (EU) 2019/2033.
Article 11
General treatment
For the purpose of ensuring that the requirements of this Regulation are applied on a consolidated basis, the terms ‘institution’, ‘parent institution in a Member State’, ‘EU parent institution’ and ‘parent undertaking’, as the case may be, shall also refer to:
(a) a financial holding company or mixed financial holding company approved in accordance with Article 21a of Directive 2013/36/EU;
(b) a designated institution controlled by a parent financial holding company or parent mixed financial holding company where such a parent is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU;
(c) a financial holding company, mixed financial holding company or institution designated in accordance with point (d) of Article 21a(6) of Directive 2013/36/EU.
The consolidated situation of an undertaking referred to in point (b) of the first subparagraph of this paragraph shall be the consolidated situation of the parent financial holding company or the parent mixed financial holding company that is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU. The consolidated situation of an undertaking referred to in point (c) of the first subparagraph of this paragraph shall be the consolidated situation of its parent financial holding company or parent mixed financial holding company.
Only EU parent undertakings that are a material subsidiary of a non-EU G-SII and are not resolution entities shall comply with Article 92b of this Regulation on a consolidated basis to the extent and in the manner set out in Article 18 of this Regulation. Where Article 21b(2) of Directive 2013/36/EU applies, the two intermediate EU parent undertakings jointly identified as a material subsidiary shall each comply with Article 92b of this Regulation on the basis of their consolidated situation.
EU parent institutions shall comply with Part Six and point (d) of Article 430(1) of this Regulation on the basis of their consolidated situation where the group comprises one or more credit institutions or investment firms that are authorised to provide the investment services and activities listed in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU.
Where a waiver has been granted under Article 8(1) to (5), the institutions and, where applicable, the financial holding companies or mixed financial holding companies that are part of a liquidity sub‐group shall comply with Part Six and point (d) of Article 430(1) of this Regulation on a consolidated basis or on the sub‐consolidated basis of the liquidity sub‐group.
The application of the approach set out in the first subparagraph shall be without prejudice to effective supervision on a consolidated basis and shall neither entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole nor form or create an obstacle to the functioning of the internal market.
Article 12a
Consolidated calculation for G-SIIs with multiple resolution entities
Where at least two G-SII entities that are part of the same G-SII are resolution entities or third-country entities that would be resolution entities if they were established in the Union, the EU parent institution of that G-SII shall calculate the amount of own funds and eligible liabilities referred to in Article 92a(1), point (a):
(a) for each resolution entity or third-country entity that would be a resolution entity if it were established in the Union;
(b) for the EU parent institution as if it were the only resolution entity of the G-SII.
The calculation referred to in point (b) of the first subparagraph shall be undertaken on the basis of the consolidated situation of the EU parent institution.
Resolution authorities shall act in accordance with Article 45d(4) and Article 45h(2) of Directive 2014/59/EU.
Article 13
Application of disclosure requirements on a consolidated basis
Large subsidiaries of EU parent institutions shall disclose the information specified in Articles 437, 438, 440, 442, 449a, 449b, 450, 451, 451a and 453 on an individual basis or, where applicable in accordance with this Regulation and Directive 2013/36/EU, on a sub-consolidated basis.
The second subparagraph of paragraph 1 shall apply to subsidiaries of parent undertakings established in a third country where those subsidiaries qualify as large subsidiaries.
Article 14
Application of requirements of Article 5 of Regulation (EU) 2017/2402 on a consolidated basis
Section 2
Methods for prudential consolidation
Article 18
Methods of prudential consolidation
For the purposes of Article 11(3a), institutions that are required to comply with the requirements referred to in Article 92a or 92b on a consolidated basis shall carry out a full consolidation of all institutions and financial institutions that are their subsidiaries in the relevant resolution groups.
Competent authorities shall determine whether and how consolidation is to be carried out in the following cases:
(a) where, in the opinion of the competent authorities, an institution exercises a significant influence over one or more institutions or financial institutions, but without holding a participation or other capital ties in those institutions; and
(b) where two or more institutions or financial institutions are placed under single management other than pursuant to a contract, clauses of their memoranda or articles of association.
In particular, competent authorities may permit or require the use of the method provided for in Article 22(7), (8) and (9) of Directive 2013/34/EU.
By way of derogation from the first subparagraph, competent authorities may allow or require institutions to apply a different method to such subsidiaries or participations, including the method required by the applicable accounting framework, provided that:
(a) the institution does not already apply the equity method on 28 December 2020;
(b) it would be unduly burdensome to apply the equity method or the equity method does not adequately reflect the risks that the undertaking referred to in the first subparagraph poses to the institution; and
(c) the method applied does not result in full or proportional consolidation of that undertaking.
Competent authorities may require full or proportional consolidation of a subsidiary or an undertaking in which an institution holds a participation where that subsidiary or undertaking is not an institution or a financial institution and where all of the following conditions are met:
(a) the undertaking is not an insurance undertaking, a third-country insurance undertaking, a reinsurance undertaking, a third-country reinsurance undertaking, an insurance holding company or an undertaking excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive;
(b) there is a substantial risk that the institution decides to provide financial support to that undertaking in stressed conditions, in the absence of, or in excess of any contractual obligations to provide such support.
EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2020.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
In light of EBA’s findings, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal to make adjustments to the relevant definitions or the scope of prudential consolidation.
Section 3
Scope of prudential consolidation
Article 19
Entities excluded from the scope of prudential consolidation
An institution or a financial institution which is a subsidiary or an undertaking in which a participation is held, need not to be included in the consolidation where the total amount of assets and off-balance-sheet items of the undertaking concerned is less than the smaller of the following two amounts:
(a) EUR 10 million;
(b) 1 % of the total amount of assets and off-balance sheet items of the parent undertaking or the undertaking that holds the participation.
The competent authorities responsible for exercising supervision on a consolidated basis pursuant to Article 111 of Directive 2013/36/EU may on a case-by-case basis decide in the following cases that an institution, or a financial institution which is a subsidiary or in which a participation is held need not be included in the consolidation:
(a) where the undertaking concerned is situated in a third country where there are legal impediments to the transfer of the necessary information;
(b) where the undertaking concerned is of negligible interest only with respect to the objectives of monitoring institutions;
(c) where, in the opinion of the competent authorities responsible for exercising supervision on a consolidated basis, the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of institutions are concerned.
Article 20
Joint decisions on prudential requirements
The competent authorities shall work together, in full consultation:
(a) in the case of applications for the permissions referred to in Article 143(1), Article 151(9), Article 283 and Article 325az submitted by an EU parent institution and its subsidiaries, or jointly by the subsidiaries of an EU parent financial holding company or EU parent mixed financial holding company, to decide whether or not to grant the permission sought and to determine the terms and conditions, if any, to which such permission should be subject;
(b) for the purposes of determining whether the criteria for a specific intragroup treatment as referred to in Article 422(9) and Article 425(5) complemented by the EBA regulatory technical standards referred to in Article 422(10) and Article 425(6) are met.
Applications shall be submitted only to the consolidating supervisor.
The competent authorities shall do everything within their power to reach a joint decision within six months on:
(a) the application referred to in point (a) of paragraph 1;
(b) the assessment of the criteria and the determination of the specific treatment referred to in point (b) of paragraph 1.
This joint decision shall be set out in a document containing the fully reasoned decision which shall be provided to the applicant by the competent authority referred to in paragraph 1.
The period referred to in paragraph 2 shall begin:
(a) on the date of receipt of the complete application referred to in point (a) of paragraph 1 by the consolidating supervisor. The consolidating supervisor shall forward the complete application to the other competent authorities without delay;
(b) on the date of receipt by competent authorities of a report prepared by the consolidating supervisor analysing intragroup commitments within the group.
The decision shall be set out in a document containing the fully reasoned decision and shall take into account the views and reservations of the other competent authorities expressed during the six months period.
The decision shall be provided to the EU parent institution, the EU parent financial holding company or to the EU parent mixed financial holding company and the other competent authorities by the consolidating supervisor.
If, at the end of the six-month period, any of the competent authorities concerned has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the consolidating supervisor shall defer its decision on point (a) of paragraph 1 of this Article and await any decision that EBA may take in accordance with Article 19(3) of that Regulation on its decision, and shall take its decision in conformity with the decision of EBA. The six-month period shall be deemed the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the six-month period or after a joint decision has been reached.
The decision shall be set out in a document containing the fully reasoned decision and shall take into account the views and reservations of the other competent authorities expressed during the six-month period.
The decision shall be provided to the consolidating supervisor that informs the EU parent institution, the EU parent financial holding company or the EU parent mixed financial holding company.
If, at the end of the six-month period, the consolidating supervisor has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the competent authority responsible for the supervision of the subsidiary on an individual basis shall defer its decision on point (b) of paragraph 1 of this Article and await any decision that EBA may take in accordance with Article 19(3) of that Regulation on its decision, and shall take its decision in conformity with the decision of EBA. The six-month period shall be deemed the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the six-month period or after a joint decision has been reached.
EBA shall submit those draft implementing technical standards to the Commission by 10 July 2025.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1093/2010.
Article 21
Joint decisions on the level of application of liquidity requirements
The joint decision shall be reached within six months after submission by the consolidating supervisor of a report identifying single liquidity sub-groups on the basis of the criteria laid down in Article 8. In the event of disagreement during the six-month period, the consolidating supervisor shall consult EBA at the request of any of the other competent authorities concerned. The consolidating supervisor may consult EBA on its own initiative.
The joint decision may also impose constraints on the location and ownership of liquid assets and require minimum amounts of liquid assets to be held by institutions that are exempt from the application of Part Six.
The joint decision shall be set out in a document containing the fully reasoned decision which shall be submitted to the parent institution of the liquidity subgroup by the consolidating supervisor.
However, any competent authority may during the six-month period refer to EBA the question whether the conditions in points (a) to (d) of Article 8(1) are met. In that case, EBA may carry out its non-binding mediation in accordance with Article 31(c) of Regulation (EU) No 1093/2010 and all the competent authorities involved shall defer their decisions pending the conclusion of the non-binding mediation. Where, during the mediation, no agreement has been reached by the competent authorities within three months, each competent authority responsible for supervision on an individual basis shall take its own decision taking into account the proportionality of benefits and risks at the level of the Member State of the parent institution and the proportionality of benefits and risks at the level of the Member State of the subsidiary. The matter shall not be referred to EBA after the end of the six-month period or after a joint decision has been reached.
The joint decision referred to in paragraph 1 and the decisions referred to in the second subparagraph of this paragraph shall be binding.
Article 22
Sub-consolidation in the case of entities in third countries
Article 23
Undertakings in third countries
For the purposes of applying supervision on a consolidated basis in accordance with this Chapter, the terms ‘investment firm’, ‘credit institution’, financial institution', and ‘institution’ shall also apply to undertakings established in third countries, which, were they established in the Union, would fulfil the definitions of those terms in Article 4.
Article 24
Valuation of assets and off-balance sheet items
PART TWO
OWN FUNDS AND ELIGIBLE LIABILITIES
TITLE I
ELEMENTS OF OWN FUNDS
CHAPTER 1
Tier 1 capital
Article 25
Tier 1 capital
The Tier 1 capital of an institution consists of the sum of the Common Equity Tier 1 capital and Additional Tier 1 capital of the institution.
CHAPTER 2
Common Equity Tier 1 capital
Section 1
Common Equity Tier 1 items and instruments
Article 26
Common Equity Tier 1 items
Common Equity Tier 1 items of institutions consist of the following:
(a) capital instruments, provided that the conditions laid down in Article 28 or, where applicable, Article 29 are met;
(b) share premium accounts related to the instruments referred to in point (a);
(c) retained earnings;
(d) accumulated other comprehensive income;
(e) other reserves;
(f) funds for general banking risk.
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