Commission Delegated Regulation (EU) 2016/1075 of 23 March 2016 supplementing Directive 2014/59/EU of the European Parltime and of the Council with regard to regulatory technical standards specifying the content of recovery plans, resolution plans and group resolution plans, the minimum criteria that the competent authority is to assess as regards recovery plans and group recovery plans, the conditions for group financial support, the requirements for independent valuers, the contractual recognition of write-down and conversion powers, the procedures and contents of notification requirements and of notice of suspension and the operational functioning of the resolution colleges (Text with EEA relevance)

CHAPTER I

COMMON PROVISIONS AND RECOVERY PLANS

SECTION I

Common provisions

Article 1

Subject matter

This Regulation further specifies:

(1) the information to be contained in an individual recovery plan and, in accordance with paragraphs 5 and 6 of Article 7 of Directive 2014/59/EU, in a group recovery plan;

(2) the minimum criteria that the competent authority is to assess with regard to both individual and group recovery plans, in accordance with paragraph 8 of Article 6 of Directive 2014/59/EU;

(3) the contents of resolution plans required for institutions that are not part of a group subject to consolidated supervision pursuant to Articles 111 and 112 of Directive 2013/36/EU, and the contents of resolution plans required for groups, in accordance, respectively, with Articles 10 and 13 of Directive 2014/59/EU;

(4) the matters and criteria to be examined for the assessment of the resolvability of institutions or groups, provided for, respectively in paragraph 4 of Article 15, and paragraph 2 of Article 16 of the Directive 2014/59/EU;

(5) the conditions set out in points (a), (c), (e) and (i) of Article 23(1) of Directive 2014/59/EU with regard to financial support by a group entity in accordance with Article 19 of that Directive;

(6) the circumstances in which a person is independent from the resolution authority and the institution or entity referred to in point (b), (c) or (d) of paragraph 1 of Article 1 of Directive 2014/59/EU for the purposes of paragraph 1 of Article 36 of that Directive and of Article 74 thereof;

(7) the list of liabilities to which the exclusion from the obligation to include the contractual term referred to in paragraph 1 of Article 55 of Directive 2014/59/EU applies and the contents of the contractual term required in that paragraph;

(8) the procedures and contents relating to the notifications referred to in paragraph 1, 2 and 3 of Article 81 of Directive 2014/59/EU and to the notice of suspension referred to in Article 83 of that Directive;

(9) detailed rules on setting up and operational functioning of the resolution colleges for the performance of the tasks referred to in paragraph 1 of Article 88 of Directive 2014/59/EU.

Points (1), (2), (3) and (4) above are subject to the application of any simplified obligations determined in accordance with Article 4 of Directive 2014/59/EU.

Article 2

Definitions

For the purposes of this Regulation, the following definitions apply:

(1) ‘individual recovery plan’ means any of the following: (a) a recovery plan drawn up in accordance with Article 5(1) of Directive 2014/59/EU by an institution that is not part of a group subject to consolidated supervision pursuant to Articles 111 and 112 of Directive 2013/36/EU; (b) a recovery plan drawn up in accordance with Article 7(2) of Directive 2014/59/EU by a subsidiary of an EU parent undertaking;

(2) ‘resolution strategy’ means a set of resolution actions provided for in a resolution plan or group resolution plan;

(3) ‘preferred resolution strategy’ a resolution strategy capable of best achieving the resolution objectives set out in Article 31 of Directive 2014/59/EU given the structure and the business model of the institution or group, and the resolution regimes applicable to legal entities in a group;

(4) ‘qualifying eligible liabilities’ means eligible liabilities which satisfy the conditions set forth in Article 45(4) of Directive 2014/59/EU in order to be included in the amount of own funds and eligible liabilities referred to in Article 45(1) of that Directive;

(5) ‘single point of entry (SPE)’ means a resolution strategy involving the application of resolution powers by a single resolution authority at the level of a single parent undertaking or of a single institution subject to consolidated supervision;

(6) ‘multiple point of entry (MPE)’ means a resolution strategy involving the application of resolution powers by two or more resolution authorities to regional or functional subgroups or entities of a group;

(7) ‘control’ means control as defined in point (37) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council (¹);

(8) ‘qualifying holding’ means a qualifying holding as defined in point (36) of Article 4(1) of Regulation (EU) No 575/2013.

SECTION II

Content of recovery plans

Article 3

Information to be included in a recovery plan

A recovery plan shall include at least the following items:

(1) a summary of the key elements of the recovery plan, in accordance with Article 4;

(2) information on governance, in accordance with Article 5;

(3) a strategic analysis, in accordance with Articles 6 to 12;

(4) a communication and disclosure plan, in accordance with Article 14;

(5) an analysis of preparatory measures, in accordance with Article 15.

Article 4

Summary of the key elements of the recovery plan

The summary of the key elements of the recovery plan shall cover summaries of each of the following:

(a) the recovery plan's information on governance;

(b) the recovery plan's strategic analysis, including a summary of overall recovery capacity referred to in Article 12(3);

(c) any material changes to the institution, group or recovery plan since the previous version of the recovery plan submitted to the competent authority;

(d) the recovery plan's communication and disclosure plan;

(e) the preparatory measures set out in the recovery plan.

Article 5

Governance

The information on governance shall contain at least a detailed description of the following matters:

(1) how the recovery plan was developed, including at least: (a) the role and function of persons responsible for preparing, implementing and updating each section of the plan; (b) the identity of the person who has overall responsibility for keeping the recovery plan up-to-date and a description of the process to be used for updating the recovery plan to respond to any material changes affecting the institution or group or their environment; (c) a description of how the plan is integrated in the corporate governance of the institution or group and in the overall risk management framework; (d) if the considered entity is part of a group, a description of the measures and arrangements taken within the group to ensure the coordination and consistency of recovery options at the level of the group and of individual subsidiaries;

(2) the policies and procedures governing approval of the recovery plan, including at least: (a) a statement whether the recovery plan has been reviewed by an internal audit function, external auditor or risk committee; (b) confirmation that the recovery plan has been assessed and approved by the management body of the institution or EU parent undertaking responsible for submitting the plan;

(3) the conditions and procedures necessary to ensure the timely implementation of recovery options, including, at least: (a) a description of the internal escalation and decision-making process that applies when the indicators have been met, to consider and determine which recovery option may need to be applied in reaction to the situation of financial stress that has materialised, including at least: (i) the role and function of persons involved in this process, including a description of their responsibilities, or, where a committee is involved in the process, the role, the responsibilities and function of committee members; (ii) the procedures that need to be followed; (iii) the time limit for the decision on taking recovery options and when and how the relevant competent authorities will be informed of the fact that the indicators have been met; (b) a detailed description of the indicators, reflecting possible vulnerabilities, weaknesses or threats to, as a minimum, the capital position, liquidity situation, profitability and risk profile of the entity or entities covered in the recovery plan;

(4) the plan's consistency with the general risk management framework of the institution or group, including a description of the relevant benchmarks (early warning signals) used as part of the institution's or group's regular internal risk management process, where these benchmarks are useful to inform the management that the indicators could potentially be reached;

(5) management information systems, including a description of arrangements in place to ensure that the information necessary to implement the recovery options is available for decision-making in stressed conditions in a reliable and timely way.

Article 6

Strategic analysis

The strategic analysis shall include at least the following subsections:

(a) a description of the entity or entities covered by the recovery plan, as set out in Article 7;

(b) a description of recovery options, as set out in Articles 8 to 12.

Article 7

The description of entities covered by the recovery plan

The subsection of the strategic analysis describing the entity or entities covered by the recovery plan shall comprise the following information:

(a) a general characterisation of the entity or entities covered by the recovery plan, including: (i) a description of their overall global business and risk strategy; (ii) their business model and business plan, including a list of the main jurisdictions in which they are active, including through a legal entity or a branch meeting the conditions set out in paragraph 2; (iii) their core business lines and critical functions; (iv) the process and metrics for identifying their core business lines and critical functions;

(b) a mapping of the core business lines and critical functions to the legal entities and branches meeting the conditions set out in paragraph 2;

(c) a detailed description of the legal and financial structures of the entity or entities covered by the plan, including an explanation of intra-group interconnectedness with respect to any legal entities or branches meeting the conditions set out in paragraph 2 and in particular a description of the following: (i) all existing material intra-group exposures and funding relationships, capital flows within the entity or entities covered by the recovery plan, intra-group guarantees that are in place and intra-group guarantees that are expected to be in place when recovery action is required; (ii) legal interconnectedness, which shall cover material legally binding agreements between entities of a group including, for example, the existence of domination agreements and profit and loss transfer agreements; (iii) operational interconnectedness, which concerns functions that are centralised in one legal entity or branch and are important for the functioning of other legal entities, branches or the group, in particular centralised information technology functions, treasury functions, risk functions or administrative functions; (iv) any existing group financial support agreements concluded in accordance with Article 19 of Directive 2014/59/EU including the parties to the agreement, the form of the financial support and the conditions associated with the provision of the financial support;

(d) a description of external interconnectedness including at least: (i) significant exposures and liabilities to main counterparties; (ii) significant financial products and services which are provided by the entity or entities covered by the recovery plan to other financial market participants; (iii) significant services which third parties provide to the entity or entities covered by the recovery plan;

For the purposes of points (b) and (c) of paragraph 1, the reference to legal entities or branches shall be understood as a reference to legal entities or branches which:

(a) substantially contribute to the profit of the entity or entities covered by the recovery plan or to their funding, or hold an important share of their assets, liabilities or capital;

(b) perform key commercial activities;

(c) centrally perform key operational, risk or administrative functions;

(d) bear substantial risks that could, in a worst-case scenario, jeopardise the viability of the institution or group;

(e) could not be disposed of or liquidated without likely triggering a major risk for the institution or group as a whole;

(f) are important for the financial stability of at least one of the Member States in which they have their registered offices or operate.

Article 8

Recovery options

Article 9

Actions, arrangements and measures under recovery options

Each recovery option shall indicate at least the following:

(a) a range of capital and liquidity actions required to maintain or restore the viability and financial position of the entity or entities covered by the recovery plan which have as their primary aim ensuring the viability of critical functions and core business lines;

(b) arrangements and measures the primary aim of which is to conserve or restore the institution's own funds or the group's consolidated own funds through external recapitalisations and internal measures to improve the capital position of the entity or entities covered by the recovery plan;

(c) arrangements and measures to ensure that the entity or entities covered by the recovery plan have adequate access to contingency funding sources to ensure that they can carry on their operations and meet their obligations as they fall due;

(d) arrangements and measures to reduce risk and leverage, or to restructure business lines including, where appropriate, an analysis of possible material divestment of assets, legal entities, or business lines;

(e) arrangements and measures the primary aim of which is to achieve a voluntary restructuring of liabilities, without triggering an event of default, termination, downgrade or similar.

For the purposes of point (c), the measures shall include external measures and, where appropriate, measures that aim at reorganising the available liquidity within the group. The contingency funding sources shall include potential liquidity sources, an assessment of available collateral and an assessment of the possibility to transfer liquidity across group entities and business lines.

Article 10

Impact assessment

Each recovery option shall contain an impact assessment that shall include, in particular, a detailed description of the processes for determining the value and marketability of the core business lines, operations and assets of the entity or entities to which the recovery option relates, and at least the following elements:

(1) a financial and operational impact assessment which sets out the expected impact on solvency, liquidity, funding positions, profitability and operations of the entity or entities covered by the recovery plan; where relevant, the assessment shall clearly identify the different entities of the group which may be affected by the option or involved in its implementation;

(2) an assessment of external impact and systemic consequences which sets out the expected impact on critical functions performed by the entity or entities, covered by the recovery plan, and the impact on shareholders, on customers, in particular depositors and retail investors, on counterparties and, where applicable, on the rest of the group;

(3) the valuation assumptions and all other assumptions made for the purpose of the assessments in points (1) and (2), including assumptions about the marketability of assets or the behaviour of other financial institutions.

Article 11

Feasibility assessment

Each recovery option shall contain a feasibility assessment, which shall include at least:

(a) an assessment of the risk associated with the recovery option, drawing on any experience of executing the recovery option or an equivalent measure;

(b) a detailed analysis and description of any material impediment to the effective and timely execution of the plan and a description of whether and how such impediments could be overcome;

(c) where applicable, an analysis of potential impediments to the effective implementation of the recovery option which result from the structure of the group or of intra-group arrangements, including whether there are substantial practical or legal impediments to the prompt transfer of own funds or the repayment of liabilities or assets within the group;

(d) solutions to the potential impediments identified in points (b) and (c).

Article 12

Continuity of operations

That assessment shall include an analysis of internal operations (for example, information technology systems, suppliers and human resources operations) and of the access of the entity or entities covered by the recovery plan to market infrastructure (for example, clearing and settlement facilities and payment systems). In particular, the assessment of operational contingency shall take into account:

(a) any arrangements and measures necessary to maintain continuous access to relevant financial markets infrastructure;

(b) any arrangements and measures necessary to maintain the continuous functioning of the operational processes of the entity or entities covered by the recovery plan, including infrastructure and IT services;

(c) the expected time frame for the implementation and effectiveness of the recovery option;

(d) the effectiveness of the recovery option, and the adequacy of indicators in a range of scenarios of financial stress which assesses the impact of each of these scenarios on the entity or entities covered by the recovery plan, in particular on their capital, liquidity, profitability, risk profile and operations.

On the basis of this information, the assessment shall describe the overall recovery capacity of the entity or entities covered by the recovery plan, being the extent to which the recovery options allow that entity or those entities to recover in a range of scenarios of severe macroeconomic and financial stress.

Article 13

Cross references

Where information set out in Article 7 has been submitted to resolution authorities pursuant to Article 11 of Directive 2014/59/EU, competent authorities may choose to accept cross references to that information as sufficient for meeting the requirement in Article 7 if they do not compromise the completeness and quality of the recovery plan, as required by Section III of Chapter I of this Regulation.

Article 14

Communication and disclosure plan

The communication and disclosure plan shall cover the following matters in detail:

(a) internal communication, in particular to staff, works councils or other staff representatives;

(b) external communication, in particular to shareholders and other investors, competent authorities, counterparties, financial markets, financial market infrastructure, depositors and the public, as appropriate;

(c) effective proposals for managing any potential negative market reactions.

Article 15

Preparatory measures

SECTION III

Assessment of recovery plans

Article 16

Completeness of recovery plans