Commission Delegated Regulation (EU) 2022/676 of 3 December 2021 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the conditions in accordance with which consolidation is to be carried out in the cases referred to in Article 18(3) to (6) and Article 18(8) of that Regulation (Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (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 (1), and in particular Article 18(9) thereof,

Whereas:

(1) Article 18(3) of Regulation (EU) No 575/2013 covers cases of prudential consolidation of groups of undertakings that are related within the meaning of Article 22(7) of Directive 2013/34/EU of the European Parliament and of the Council (2) where a parent-subsidiary relationship does not exist. In such cases, it is necessary to determine the entity at which level the requirements of Regulation (EU) No 575/2013 are to be applied on a consolidated basis. Moreover, in those cases, the most appropriate method of prudential consolidation should be the method set out in Article 22(8) and (9) of Directive 2013/34/EU (‘aggregation method’) in line with the rules set out in that Directive.

(2) In cases of participations in institutions or financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where proportional consolidation is required pursuant to Article 18(4) of Regulation (EU) No 575/2013, the unanimous consent of those undertakings concerning the decisions about the institution’s or financial institution’s relevant activities should be required for the application of the method of prudential consolidation set out in that provision in line with the definition of joint arrangement specified in the international accounting standards as applicable under Regulation (EC) No 1606/2002 of the European Parliament and of the Council (3).

(3) Article 18(6), points (a) and (b), of Regulation (EU) No 575/2013 refer to the supervisory requirements for prudential consolidation in the case of significant influence over one or more institutions or financial institutions but without participation or other capital ties, and in the case where those institutions or financial institutions are placed under single management other than pursuant to a contract, memorandum or articles of association, respectively. To determine whether a situation of significant influence exists, competent authorities should take into account several indicators of significant influence. Moreover, a situation of single management should only be determined where the competent authority has concrete evidence that there is an effective coordination of the financial and operating policies of such institutions or financial institutions.

(4) The Basel Committee on Banking Supervision (BCBS) has published Guidelines on the identification and management of step-in risk (4) which include several indicators that should be used by institutions in identifying which entities can give rise to step-in risk. According to the BCBS Guidelines, ‘step-in risk’ is the risk that an institution decides to provide financial support to an unconsolidated entity, that is not a fully or proportionately consolidated entity, that is facing stress, in the absence of, or in excess of, any contractual obligations to provide such support. Pursuant to the BCBS Guidelines, where an institution identifies that there is significant step-in risk, it needs to determine the appropriate measures based on the nature and extent of the anticipated step-in support in each case. Those measures encompass, among others, the inclusion of the entities concerned in the regulatory scope of consolidation. In line with the BCBS Guidelines, several indicators should be considered by institutions and competent authorities to conclude whether certain undertakings should be fully or proportionally consolidated pursuant to Article 18(5), Article 18(6), point (a), or Article 18(8) of Regulation (EU) No 575/2013, as applicable, taking into account the risk of step-in these undertakings may pose to an institution. Nevertheless, institutions should also consider alternative measures to address step-in risk under their risk management procedures and internal capital adequacy assessment process (ICAAP). In addition, competent authorities may consider other measures to address the potential risk posed by those undertakings under the supervisory review and evaluation processes (SREP). In the context of the large exposures framework, the European Banking Authority (EBA) has also issued guidelines on limits on exposures to shadow banking entities that carry out banking-like activities outside a regulatory framework (5), which specify the methodology that should be used by institutions to set limits, as part of their internal processes, on their individual and aggregate exposures to shadow banking entities.

(5) In particular, in order to determine whether full or proportional consolidation is needed pursuant to Article 18(8) of Regulation (EU) No 575/2013 in the case of subsidiaries or undertakings in which an institution holds a participation where that subsidiary or undertaking is not an institution, financial institution or ancillary services undertaking, and where there is a substantial step-in risk and provided that the undertaking is not an insurance or reinsurance undertaking, or an insurance holding undertaking, among others, competent authorities should be expected to scrutinise, at a minimum, certain categories of undertakings such as special purpose entities that do not qualify as securitisation special purpose entities as defined in Article 2, point (2), of Regulation (EU) 2017/2402 of the European Parliament and of the Council (6), for which the conditions for the transfer of significant credit risk set out in Article 244 of Regulation (EU) No 575/2013 are applicable, as well as those undertakings performing any of the activities referred to in Article 89(1), point (b), of Regulation (EU) No 575/2013.

(6) In order to ensure consistency with the own funds framework under Regulation (EU) No 575/2013 and to avoid the recognition of undue capital benefits, in those cases where consolidation is required pursuant to Article 18(3) to (6) or Article 18(8) of Regulation (EU) No 575/2013, the inclusion in the consolidated own funds of the amounts of Common Equity Tier 1 items and of the Additional Tier 1 and Tier 2 capital instruments issued by the undertakings included in the prudential scope of consolidation and owned by persons other than such undertakings, as well as the related share premium accounts, should also be based on Articles 81 to 88 of that Regulation.

(7) This Regulation is based on the draft regulatory technical standards submitted to the Commission by the EBA.

(8) The EBA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (7),

HAS ADOPTED THIS REGULATION:

Article 1

Definitions

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

(1) ‘relevant activities’ means relevant activities as defined in Appendix A to the Annex to Commission Regulation (EC) 1254/2012 (8) (Annex relating to IFRS 10);

(2) ‘risk mitigants’ means any applicable laws, regulations, rules or contractual arrangements that restrict an institution’s ability to provide financial support to an undertaking in stressed conditions;

(4) ‘capital ties’ means the ownership, direct or indirect, of capital of an undertaking, including a participation as defined in Article 4(1), point (35), of Regulation (EU) No 575/2013;

(5) ‘significant influence’ means the power to participate in the financial and operating policy decisions of an undertaking, where that undertaking does not qualify as a subsidiary as defined in Article 4(1), point (16), of Regulation (EU) No 575/2013 and is not jointly controlled as referred to in Article 3(1) or in Article 7(3), point (a), of this Regulation.

Article 2

Conditions in accordance with which the consolidation is to be carried out in the case of groups of undertakings that are related within the meaning of Article 22(7) of Directive 2013/34/EU

(a) the institution, where there is only one institution within the group;

(b) the credit institution with the largest balance sheet total, where there are several credit institutions within the group;

(c) the investment firm subject to Regulation (EU) No 575/2013 with the largest balance sheet total, where the group does not include any credit institution.

When assessing the appropriateness of the application of the criteria referred to in paragraph 1 of this Article, those competent authorities shall take into account any decision taken in accordance with Article 111(6) of Directive 2013/36/EU or, in the absence of such decision, the institutions concerned and the relative importance of their activities in the relevant Member States or whether they are required to prepare consolidated financial statements for the group in the cases referred to in Article 22(7) of Directive 2013/34/EU. In such cases, the institution with the largest balance sheet total shall have the right to be heard, before the competent authorities take the decision.

Article 3

Conditions in accordance with which the consolidation is to be carried out in the case of institutions or financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation

(a) the participating undertakings jointly control a majority of the shareholders’ or members’ voting rights in the institution or financial institution concerned or have the ability to direct jointly that institution’s or financial institution’s relevant activities, pursuant to a legally enforceable contractual arrangement between them or to clauses of the institution’s or financial institution’s memoranda or articles of association;

(b) the decisions about the institution’s or financial institution’s relevant activities require the unanimous consent of all the participating undertakings;

(c) the contractual arrangement referred to in point (a) or the clauses of the institution’s or financial institution’s memoranda or articles of association stipulate that the liability of the participating undertakings is limited to the share of capital they hold in the institution or financial institution concerned.

Article 4

Conditions in accordance with which the consolidation is to be carried out in the case of participations or capital ties in institutions or financial institutions other than those referred to Article 18(1) and (4) of Regulation (EU) No 575/2013

(a) the overall ownership structure of the institution or financial institution concerned, having regard, in particular, to whether shares or equivalent ownership rights and voting rights, including potential voting rights as referred to in Article 5(5), are distributed across a large number of shareholders, owners or members, or whether the institution is the main shareholder, owner or member of the institution or financial institution;

(b) whether the institution acts as sponsor by managing or advising the institution or financial institution concerned, placing the institution’s or financial institution’s securities into the market, or providing liquidity and or credit enhancements to the institution or financial institution, or whether the institution is an important investor in its debt or equity instruments, or there is other contractual and non-contractual involvement exposing the institution to the risks or to equity-like returns from the assets of the institution or financial institution concerned or related to its performance;

(c) whether the institution is effectively involved in the decision-making process of the institution or financial institution concerned, the degree to which the institution exercises influence over it, or whether the institution or financial institution is considered to be controlled in accordance with the applicable accounting framework;

(d) whether the institution receives critical operational services from the institution or financial institution concerned which cannot be replaced in a timely fashion without excessive cost;

(e) whether the credit rating of the institution or financial institution concerned is based on the institution’s own rating;

(f) whether specific features relating to the composition of the investor base of the institution or financial institution concerned exist, with particular reference to whether the other investors in the institution or financial institution have a close commercial relationship with the institution, their ability to bear losses or their ability to dispose of their financial instruments;

(g) whether the institution or financial institution concerned and the institution have a common customer base or are involved in the commercialisation of each other’s products;

(h) whether the institution and the institution or financial institution concerned have the same brand;

(i) whether the institution has already provided financial support to the institution or financial institution concerned in case of financial difficulties.

Article 5