Regulation (EU) 2016/445 of the European Central Bank of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4)

Article 1

Subject matter and scope

This Regulation specifies certain of the options and discretions conferred on competent authorities under Union law concerning prudential requirements for credit institutions that the ECB is exercising. It shall apply exclusively with regard to those credit institutions classified as significant in accordance with Article 6(4) of Regulation (EU) No 1024/2013, and Part IV and Article 147(1) of Regulation (EU) No 468/2014 (ECB/2014/17).

Article 2

Definitions

For the purposes of this Regulation, the definitions contained in Article 4 of Regulation (EU) No 575/2013, Article 2 of Regulation (EU) No 1024/2013, Article 2 of Regulation (EU) No 468/2014 (ECB/2014/17) and Article 3 of Delegated Regulation (EU) 2015/61 shall apply.

CHAPTER I

OWN FUNDS

Article 3

Article 89(3) of Regulation (EU) No 575/2013: Risk weighting and prohibition of qualifying holdings outside the financial sector

Without prejudice to Article 90 of Regulation (EU) No 575/2013 and for the purpose of calculating the capital requirements in accordance with Part Three of Regulation (EU) No 575/2013, credit institutions shall apply a risk weight of 1 250 % to the greater of the following:

(a) the amount of qualifying holdings in undertakings referred to in Article 89(1) of Regulation (EU) No 575/2013 in excess of 15 % of the eligible capital of the credit institution; and

(b) the total amount of qualifying holdings in undertakings referred to in Article 89(2) of Regulation (EU) No 575/2013 that exceeds 60 % of the eligible capital of the credit institution.

CHAPTER II

CAPITAL REQUIREMENTS

Article 6

Article 327(2) of Regulation (EU) No 575/2013: Netting

Credit institutions may use netting between a convertible and an offsetting position in the instrument underlying it, as referred to in Article 327(2) of Regulation (EU) No 575/2013, provided that either of the following conditions are fulfilled:

(a) prior to 4 November 2014 the national competent authority adopted an approach under which the likelihood of a particular convertible's being converted is taken into account; or

(b) prior to 4 November 2014 the national competent authority required an own funds requirement to cover any loss that conversion may entail.

Article 7

Article 380 of Regulation (EU) No 575/2013: Waiver

In the event of a system-wide failure within the meaning of Article 380 of Regulation (EU) No 575/2013 which the ECB confirms by issuing a public statement, until the ECB issues a public statement that the situation referred to therein is rectified, the following provisions shall apply:

(a) credit institutions shall not be required to comply with the own funds requirements laid down in Articles 378 and 379 of Regulation (EU) No 575/2013; and

(b) the failure of a counterparty to settle a trade shall not be deemed a default for purposes of credit risk.

CHAPTER III

LARGE EXPOSURES

Article 8

Article 395(1) of Regulation (EU) No 575/2013: Limits to large exposures

Irrespective of the national treatment prior to the entry into force of this Regulation, the limit on the value of a large exposure within the meaning of Article 395(1) of Regulation (EU) No 575/2013 shall not be lower than EUR 150 million.

Article 9

Article 400(2) of Regulation (EU) No 575/2013: Exemptions

CHAPTER IV

LIQUIDITY

Section I

Liquidity Coverage Requirement

Article 11a

Article 12(1)(c)(i) of Delegated Regulation (EU) 2015/61: Identification of Member State or third country major stock indices

The following indices qualify as major stock indices for the purpose of determining the scope of shares that could qualify as Level 2B assets pursuant to Article 12(1)(c) of Delegated Regulation (EU) 2015/61:

(a) the indices listed in Annex I to Commission Implementing Regulation (EU) No 2016/1646 (²);

(b) any major stock index, not included under point (a), in a Member State or in a third country, identified as such for the purposes of this point by the competent authority of the relevant Member State or third country public authority;

(c) any major stock index, not included under points (a) or (b), which comprises leading companies in the relevant jurisdiction.

Article 12

Article 12(3) of Delegated Regulation (EU) 2015/61: Level 2B assets

Section II

Net Stable Funding Ratio (NSFR)

Article 12a

Article 428p(10) of Regulation (EU) No 575/2013: Required stable funding factors for off-balance-sheet exposures

Unless the ECB determines different required stable funding factors, for the off-balance-sheet exposures in the scope of Article 428p(10) of Regulation (EU) No 575/2013 institutions shall apply to off-balance-sheet exposures not referred to in Chapter 4 of Title IV of Part Six of Regulation (EU) No 575/2013 required stable funding factors that correspond to the outflow rates that they apply to related products and services in the context of Article 23 of Delegated Regulation (EU) 2015/61 in the liquidity coverage requirement.

Article 12b

Article 428q(2) of Regulation (EU) No 575/2013: Determination of the term of encumbrance for assets that have been segregated

Where assets have been segregated in accordance with Article 11(3) of Regulation (EU) No 648/2012 of the European Parliament and of the Council (³) and institutions are not able to freely dispose of such assets, institutions shall consider such assets as encumbered for a period corresponding to the term of the liabilities to the institutions’ customers to whom that segregation requirement relates.

Article 12c

Article 428aq(10) of Regulation (EU) No 575/2013: Required stable funding factors for off-balance-sheet exposures

Institutions to which the ECB has granted permission to apply the simplified net stable funding requirement referred to in Chapter 5 of Title IV of Part Six of Regulation (EU) No 575/2013 shall follow the approach laid down in Article 12a.

Article 12d

Article 428ar(2) of Regulation (EU) No 575/2013: Determination of the term of encumbrance for assets that have been segregated

Institutions to which the ECB has granted permission to calculate the net stable funding ratio as referred to in Chapter 5 of Title IV of Part Six of Regulation (EU) No 575/2013 shall follow the approach laid down in Article 12b.

CHAPTER V

TRANSITIONAL PROVISIONS OF REGULATION (EU) NO 575/2013

Article 17

Article 473(1) of Regulation (EU) No 575/2013: Introduction of amendments to the International Accounting Standard 19

During the period from 1 January 2016 to 31 December 2018, credit institutions may add to their Common Equity Tier 1 capital the amount referred to in Article 473(1) of Regulation (EU) No 575/2013 multiplied by the applicable factor, which shall be:

(a) 0,6 during the period from 1 January 2016 to 31 December 2016;

(b) 0,4 during the period from 1 January 2017 to 31 December 2017;

(c) 0,2 during the period from 1 January 2018 to 31 December 2018.

Article 18

Article 478(3)(a),(c) and (d) of Regulation (EU) No 575/2013: Applicable percentages for deduction from Common Equity Tier 1, additional Tier 1 and Tier 2 items

For the purposes of Article 478(1) of Regulation (EU) No 575/2013, the applicable percentage shall be:

(a) 60 % during the period from 1 January 2016 to 31 December 2016;

(b) 80 % during the period from 1 January 2017 to 31 December 2017;

(c) 100 % from 1 January 2018.

Article 19

Article 478(3)(a) and (b) of Regulation (EU) No 575/2013: Applicable percentages for deduction from Common Equity Tier 1 of significant investments in financial sector entities and deferred tax assets that rely on future profitability

For the purposes of Article 478(1) of Regulation (EU) No 575/2013, the applicable percentage for the purposes of Article 469(1)(a) and (c) of that Regulation shall be:

(a) 60 % during the period from 1 January 2016 to 31 December 2016;

(b) 80 % during the period from 1 January 2017 to 31 December 2017;

(c) 100 % from 1 January 2018.

For the purposes of Article 478(2) of Regulation (EU) No 575/2013, the applicable percentage shall be:

(a) 60 % during the period from 1 January 2016 to 31 December 2016;

(b) 80 % during the period from 1 January 2017 to 31 December 2017;

(c) 100 % from 1 January 2018.

By way of derogation from paragraph 2, where, pursuant to Article 478(2) of Regulation (EU) No 575/2013, national law provides for a 10-year phase-out period, the applicable percentage shall be:

(a) 40 % during the period from 1 January 2016 to 31 December 2016;

(b) 60 % during the period from 1 January 2017 to 31 December 2017;

(c) 80 % during the period from 1 January 2018 to 31 December 2018;

(d) 100 % from 1 January 2019.

Article 20

Article 479(1) and (4) of Regulation (EU) No 575/2013: Recognition in consolidated Common Equity Tier 1 capital of instruments and items that do not qualify as minority interests

For the purposes of paragraph 1, the applicable percentage shall be:

(a) 40 % during the period from 1 January 2016 to 31 December 2016; and

(b) 20 % during the period from 1 January 2017 to 31 December 2017.

Article 21

Article 480(3) of Regulation (EU) No 575/2013: Recognition in consolidated own funds of minority interests and qualifying additional Tier 1 and Tier 2 capital

During the period from 1 January 2016 to 31 December 2017, as referred to in Article 480(3) of Regulation (EU) No 575/2013, the value of the applicable factor under Article 480(1) of that Regulation shall be:

(a) 0,6 during the period from 1 January 2016 to 31 December 2016; and

(b) 0,8 during the period from 1 January 2017 to 31 December 2017.

Article 22

Article 481(1) and (5) of Regulation (EU) No 575/2013: Additional filters and deductions

During the period from 1 January 2016 to 31 December 2017, for the purpose of applying filters or deductions required under national transposition measures and referred to in Article 481(1) of Regulation (EU) No 575/2013 and provided that the conditions thereof are met, the applicable percentages shall be:

(a) 40 % during the period from 1 January 2016 to 31 December 2016; and

(b) 20 % during the period from 1 January 2017 to 31 December 2017.

Article 23

Article 486(6) of Regulation (EU) No 575/2013: Limits for grandfathering items within Common Equity Tier 1, Additional Tier 1 and Tier 2 items

For the purposes of Article 486 of Regulation (EU) No 575/2013, the applicable percentages shall be:

(a) 60 % during the period from 1 January 2016 to 31 December 2016;

(b) 50 % during the period from 1 January 2017 to 31 December 2017;

(c) 40 % during the period from 1 January 2018 to 31 December 2018;

(d) 30 % during the period from 1 January 2019 to 31 December 2019;

(e) 20 % during the period from 1 January 2020 to 31 December 2020;

(f) 10 % during the period from 1 January 2021 to 31 December 2021.

Article 24

Article 495(1) of Regulation (EU) No 575/2013: Treatment of equity exposures under the Internal Ratings Based (IRB) approach

The categories of equity exposures that benefit from the exemption from the IRB approach in accordance with Article 495(1) of Regulation (EU) No 575/2013 shall include, until 31 December 2017, only the categories of equity exposures that on 31 December 2013 were already benefiting from an exemption from the IRB treatment, in accordance with Article 2 of Commission Delegated Regulation (EU) 2015/1556 (⁵).

Article 24a

Article 495e of Regulation (EU) No 575/2013: Transitional arrangements for ECAI credit assessments of institutions

By way of derogation from Article 138, point (g), of Regulation (EU) No 575/2013, institutions may continue using an ECAI credit assessment in relation to an institution which incorporates assumptions of implicit government support until 1 January 2027.

Article 25

Entry into force

This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaties.

ANNEX I

Conditions for assessing an exemption from the large exposure limit, in accordance with Article 400(2)(c) of Regulation (EU) No 575/2013 and Article 9(3) of this Regulation

1.This Annex applies in respect of exemptions from the large exposure limit under Article 9(3) of this Regulation. For the purposes of Article 9(3), third countries listed in Annex I to Commission Implementing Decision 2014/908/EU (⁶) are deemed to be equivalent.

2.Credit institutions must take the following criteria into account when assessing whether an exposure referred to in Article 400(2)(c) of Regulation (EU) No 575/2013 meets the conditions for an exemption from the large exposure limit, in accordance with Article 400(3) of Regulation (EU) No 575/2013.

(a) For the purpose of assessing whether the specific nature of the exposure, the counterparty or the relationship between the credit institution and the counterparty eliminate or reduce the risk of the exposure, as provided for in Article 400(3)(a) of Regulation (EU) No 575/2013, credit institutions must take into account whether: (i) the conditions provided for in Article 113(6)(b), (c) and (e) of Regulation (EU) No 575/2013 are met and in particular whether the counterparty is subject to the same risk evaluation, measurement and control procedures as the credit institution and whether the IT systems are integrated or, at least, fully aligned. In addition, they must take into account whether there are any current or anticipated material practical or legal impediments that would hinder the timely repayment of the exposure by the counterparty to the credit institution, other than in the event of a recovery or resolution situation when the restrictions outlined in Directive 2014/59/EU of the European Parliament and of the Council (⁷) are required to be implemented; (ii) the intragroup exposures are justified by the group’s funding structure and strategy; (iii) the process by which a decision is made to approve an exposure to the intragroup counterparty, and the monitoring and review process applicable to such exposures, at individual level and at consolidated level, where relevant, are similar to those that are applied to third party lending; (iv) the credit institution's risk management procedures, IT system and internal reporting enable it to continuously check and ensure that large exposures to group undertakings are aligned with its risk strategy at legal entity level and at consolidated level, where relevant.

(b) For the purpose of assessing whether any remaining concentration risk can be addressed by other equally effective means such as the arrangements, processes and mechanisms provided for in Article 81 of Directive 2013/36/EU, as provided for in Article 400(3)(b) of Regulation (EU) No 575/2013, credit institutions must take into account whether: (i) the credit institution has robust processes, procedures and controls, at individual level and at consolidated level, where relevant, to ensure that use of the exemption would not result in concentration risk that is outside its risk strategy and against the principles of sound internal liquidity management within the group; (ii) the credit institution has formally considered the concentration risk arising from intragroup exposures as part of its overall risk assessment framework; (iii) the credit institution has a risk control framework, at legal entity level and at consolidated level where relevant, that adequately monitors the proposed exposures; (iv) the concentration risk arising has been or will be clearly identified in the internal capital adequacy assessment process (ICAAP) of the credit institution and will be actively managed. The arrangements, processes and mechanisms to manage the concentration risk will be assessed in the supervisory review and evaluation process; (v) there is evidence that the management of concentration risk is consistent with the group's recovery plan.

3.For the purposes of verifying whether the conditions specified in paragraph 1 and 2 are met, the European Central Bank may request credit institutions to submit the following documentation.

(a) A letter signed by the credit institution's legal representative, with approval from the management body, stating that the credit institution complies with all the conditions for an exemption as laid down in Article 400(2)(c) and Article 400(3) of Regulation (EU) No 575/2013.

(b) A legal opinion, issued either by an external independent third party or by an internal legal department, and approved by the management body, demonstrating that there are no obstacles that would hinder timely repayment of exposures by a counterparty to the credit institution that arise from either applicable regulations, including fiscal regulations, or binding agreements.

(c) A statement signed by the legal representative and approved by the management body stating that: (i) there are no practical impediments that would hinder the timely repayment of exposures by a counterparty to the credit institution; (ii) intragroup exposures are justified by the group’s funding structure and strategy; (iii) the process by which a decision is made to approve an exposure to an intragroup counterparty and the monitoring and review process applicable to such exposures, at legal entity level and at consolidated level, are similar to those that are applied to third-party lending; (iv) concentration risk arising from intragroup exposures has been considered as part of the credit institution's overall risk assessment framework.

(d) Documentation signed by the legal representative and approved by the management body attesting that the credit institution's risk evaluation, measurement and control procedures are the same as the counterparty's and that the credit institution's risk management procedures, IT system and internal reporting enable the management body to continuously monitor the level of the large exposure and its compatibility with the credit institution's risk strategy at legal entity level and at consolidated level, where relevant, and with the principles of sound internal liquidity management within the group.

(e) Documentation showing that the ICAAP clearly identifies the concentration risk arising from the large intragroup exposures and that this risk is actively managed.

(f) Documentation showing that the management of concentration risk is consistent with the group's recovery plan.

ANNEX II

Conditions for assessing an exemption from the large exposure limit, in accordance with Article 400(2)(d) of Regulation (EU) No 575/2013 and Article 9(4) of this Regulation