Decision (EU) 2021/1442 of the European Central Bank of 3 August 2021 on delegation of the power to adopt decisions on internal models and on extension of deadlines (ECB/2021/38)

Article 1

Definitions

For the purposes of this Decision, the following definitions shall apply:

• (1) ‘internal models decision’ means a decision of the ECB on prior permission for extension of the deadline to implement sequentially the Internal Ratings Based Approach to calculate their own funds requirements for credit risk across different exposure classes pursuant to Article 148 of Regulation (EU) No 575/2013, to revert to the use of less sophisticated approaches pursuant to Article 149 of Regulation (EU) No 575/2013 and to permanently use the Standardised Approach pursuant to Article 150 of Regulation (EU) No 575/2013;

• (2) ‘Standardised Approach’ means the approach for calculating the risk-weighted exposure amounts for the purposes of points (a) and (f) of Article 92(3) of Regulation (EU) No 575/2013 provided for in Part Three, Title II, Chapter 2 of that Regulation;

• (3) ‘Internal Ratings Based Approach’ (IRB Approach) means the approach for calculating the risk-weighted exposure amounts for the purposes of points (a) and (f) of Article 92(3) of Regulation (EU) No 575/2013 provided for in Part Three, Title II, Chapter 3 of that Regulation;

• (4) ‘Common Equity Tier 1 capital ratio’, ‘Tier 1 capital ratio’ and ‘total capital ratio’ mean Common Equity Tier 1 capital ratio, Tier 1 capital ratio and total capital ratio, respectively, as referred to in Article 92(2) of Regulation (EU) No 575/2013;

• (5) ‘obligation’ means an ancillary provision to a supervisory decision that requires the addressee or addressees to take action by a deadline in order to ensure the proper implementation of the supervisory decision;

• (6) ‘limitation’ means an ancillary provision to a supervisory decision that restricts or modifies the permitted use of an internal model, including by imposing higher multiplication factors or capital add-ons;

• (7) ‘extension of deadlines decision’ means a decision of the ECB extending the (a) deadline for compliance with obligations or requirements imposed by the ECB in a supervisory decision and (b) the maximum period for concluding the proposed acquisition set out in a qualifying holding decision as such decisions are defined in point (3) of Article 1 of Decision (EU) 2019/1376 of the European Central Bank (ECB/2019/23) ([^E0001]);

• (8) ‘delegated decision’ means delegated decision as defined in point (4) of Article 3 of Decision (EU) 2017/933 (ECB/2016/40);

• (9) ‘heads of work units’ means the heads of work units of the ECB to whom the power to adopt internal models decisions or extensions of deadlines decisions is delegated;

• (10) ‘non-objection procedure’ means the procedure set out in Article 26(8) of Regulation (EU) No 1024/2013 and further specified in Article 13g of Decision ECB/2004/2;

• (11) ‘negative decision’ means a decision that does not or does not fully grant the permission or extension as requested by the supervised entity or proposed acquirer. A decision with ancillary provisions such as conditions, obligations or limitations shall be considered a negative decision unless such ancillary provisions (a) ensure that the supervised entity fulfils the requirements of relevant Union law referred to in Article 4(2), 5(2) and 6(2) and have been agreed in writing or (b) merely restate one or more of the existing requirements that the supervised entity has to comply with pursuant to Union law or require information on the fulfilment of one or more of such requirements;

• (12) ‘sensitivity’ means a characteristic or factor that may have a negative impact on the ECB’s reputation and/or on the effective and consistent functioning of the Single Supervisory Mechanism, including but not limited to any of the following: (a) where the relevant supervised entity has previously been, or is currently, subject to severe supervisory measures such as early intervention measures; (b) the draft decision once adopted will set a new precedent that could bind the ECB in the future; (c) the draft decision once adopted may attract negative media or public attention; or (d) a national competent authority that has entered into close cooperation with the ECB communicates its disagreement with the proposed draft decision to the ECB;

• (13) ‘significant supervised entity’ means a significant supervised entity as defined in point (16) of Article 2 of Regulation (EU) No 468/2014 of the European Central Bank (ECB/2014/17) ([^E0002]);

• (14) ‘significant supervised group’ means a significant supervised group as defined in point (22) of Article 2 of Regulation (EU) No 468/2014 (ECB/2014/17);

• (15) ‘SREP decision’ means the decision adopted by the ECB on the basis of Article 16 of Regulation (EU) No 1024/2013 following the annual supervisory review and evaluation process within the meaning of Article 97 of Directive 2013/36/EU of the European Parliament and of the Council ([^E0003]);

• (16) ‘ECB guide’ means a document, adopted by the Governing Council upon a proposal from the Supervisory Board, which is published on the ECB's website and which gives guidance on the ECB's understanding of legal requirements.

• (17) ‘ECB Guide to internal models’ means a document with this title and any other document which gives guidance on the ECB's understanding of legal requirements applicable to the assessment of internal models, adopted by the Governing Council upon a proposal from the Supervisory Board, which is published on the ECB's website.

Article 2

Subject matter and scope

Article 3

Delegation of internal models decisions and extension of deadlines decisions

• (a) permission for the extension of the deadline for the sequential implementation of the IRB Approach pursuant to Article 148 of Regulation (EU) No 575/2013;

• (b) permission to revert to the use of less sophisticated approaches pursuant to Article 149 of Regulation (EU) No 575/2013;

• (c) permission for the permanent partial use of the Standardised Approach pursuant to Article 150 of Regulation (EU) No 575/2013;

• (d) extension of deadlines.

• (a) the ECB’s adoption of supervisory decisions;

• (b) the ECB’s adoption of instructions addressed, pursuant to Article 7 of Regulation (EU) No 1024/2013, to the national competent authorities with which the ECB has established close cooperation.

Article 4

Criteria for the adoption of delegated decisions on prior permission for extension of the deadline for the sequential implementation of the IRB Approach

• (a) the extension is requested for a period not exceeding three years from the deadline set out in the last approved plan for the sequential implementation of the IRB Approach for the relevant exposure class or business unit or for the use of own estimates of loss given default or conversion factors as referred to in Article 148 of Regulation (EU) No 575/2013;

• (b) the exposure value and the risk-weighted exposure amount of the exposures to which the institution applies the IRB Approach, calculated taking into account the guidance for calculation of these amounts as set out in the ECB Guide to internal models, are and remain, following the decision, above 50% of the total exposure value and the total risk-weighted exposure amount on a consolidated level of a significant supervised group or on an individual level of a significant supervised entity, if such significant supervised entity is not part of a significant supervised group.

Article 5

Criteria for the adoption of delegated decisions on prior permission to revert to the use of less sophisticated approaches

• (a) as a result of the reversion to the use of less sophisticated approaches, there are no changes to the criteria applied by the significant supervised group or significant supervised entity to determine whether or not to revert to the use of less sophisticated approaches pursuant to Article 149 of Regulation (EU) No 575/2013, as reflected in the internal policies or arrangements of that group or entity as communicated to the ECB, and there is no breach of any requirement, obligation or limitation set out in previous ECB decisions approving return-to-compliance plans pursuant to Article 146 of Regulation (EU) No 575/2013 or pursuant to Article 101(4) of Directive 2013/36/EU and IRB roll-out plans pursuant to Article 148 of Regulation (EU) No 575/2013;

• (b) as a result of the reversion to the use of less sophisticated approaches, the Common Equity Tier 1 capital ratio does not increase or decrease by more than 50 basis points, measured separately for any individual type of exposure or rating system within the scope of the application to revert to the use of less sophisticated approaches, on a consolidated level of a significant supervised group or on an individual level of a significant supervised entity, where such entity is not part of a significant supervised group.

Article 6

Criteria for the adoption of delegated decisions on prior permission for permanent partial use of the Standardised Approach

• (a) as a result of the decision on the permanent partial use of the Standardised Approach, there are no changes to the criteria used by the significant supervised group or significant supervised entity to determine whether or not to revert to the use of less sophisticated approaches pursuant to Articles 149 and 150 of Regulation (EU) No 575/2013, as reflected in the internal policies or arrangements of that group or entity as communicated to the ECB, and there is no breach of any requirement, obligation or limitation set out in previous ECB decisions approving return-to-compliance plans pursuant to Article 146 of Regulation (EU) No 575/2013 or pursuant to Article 101(4) of Directive 2013/36/EU and IRB-roll out plans pursuant to Article 148 of Regulation (EU) No 575/2013;

• (b) as a result of the decision on the permanent partial use of the Standardised Approach, the Common Equity Tier 1 capital ratio does not increase or decrease by more than 50 basis points, measured separately for any individual type of exposure or rating system within the scope of the application for permanent partial use of the Standardised Approach, on a consolidated level of a significant supervised group or on an individual level of a significant supervised entity, where such entity is not part of a significant supervised group.

Article 7

Criteria for the adoption of delegated decisions on the extension of deadlines for obligations and for requirements imposed in a previous ECB supervisory decision

• (a) the supervised entity requests the extension to the deadline and the request is submitted to the ECB at least 30 days before the deadline expires;

• (b) the extension does not exceed the duration of the period prior to the initial deadline and does not exceed 12 months;

• (c) the extension does not adversely affect the rights of the supervised entity.

• (a) the extension entails a change in the original scope of the obligation or the requirement in a previous ECB supervisory decision, or in the underlying assessment on which that previous decision was based;

• (b) the extension concerns a deadline which has already been extended;

• (c) the extension is requested by a credit institution whose score for governance as set out in the last available SREP decision is 4;

• (d) the extension is requested by a credit institution whose margin of own funds above the Pillar 2 capital guidance as set out in the last available SREP decision is lower than 100 basis points in terms of CET1 ratio;

• (e) the extension is requested by a credit institution to which during the preceding three years early intervention measures as provided for in Article 27 of Directive 2014/59/EU of the European Parliament and of the Council ([^E0004]) have been addressed;

• (f) the extension is not permitted under the applicable law.

Article 8

Criteria for the adoption of delegated decisions on the extension of the maximum period for concluding a proposed acquisition

• (a) the extension entails a change in the original scope of the qualifying holding decision or the underlying assessment on which that decision was based;

• (b) the maximum period has already been extended;

• (c) the proposed acquirer or the target entity is a credit institution whose score for governance as set out in the last available SREP decision is 4;

• (d) the proposed acquirer or the target entity is a credit institution whose margin of own funds above the Pillar 2 capital guidance as set out in the last available SREP decision is lower than 100 basis points in terms of CET1 ratio;

• (e) the proposed acquirer or the target entity is a credit institution to which during the preceding three years early intervention measures as provided for in Article 27 of Directive 2014/59/EU have been addressed.

Article 9

Transitional provision

This Decision shall not apply in cases where the application for an internal models decision or for extension of a deadline was submitted to the ECB prior to the entry into force of this Decision.

Article 10

Entry into force

This Decision shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

[^E0001]: Decision (EU) 2019/1376 of the European Central Bank of 23 July 2019 on delegation of the power to adopt decisions on passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions (ECB/2019/23) (OJ L 224, 28.8.2019, p. 1).

[^E0002]: Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) (OJ L 141, 14.5.2014, p. 1).

[^E0003]: Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).

[^E0004]: Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).