S.I. No. 158/2014 - European Union (Capital Requirements) Regulations 2014

• (a) the concentration risk arising from exposures to each counterparty, including—

• (i) central counterparties,

• (ii) groups of connected counterparties, and

• (iii) counterparties in the same economic sector, geographic region or from the same activity or commodity,

and

• (b) the application of credit risk mitigation techniques and, in particular, risks associated with large indirect credit exposures such as a single collateral issuer,

is addressed and controlled including through the establishment and implementation of written policies and procedures.

Securitisation risk

• (2) Institutions which are originators of revolving securitisation transactions involving early amortisation provisions shall establish and implement liquidity plans to address the implications of both scheduled and early amortisation.

• (3) In this Regulation, “originator” has the meaning assigned to it in point (13) of Article 4(1) of the Capital Requirements Regulation.

Market risk

• (2) Where the short position falls due before the long position, institutions shall ensure that it also takes such measures as are appropriate to address the risk of a shortage of liquidity.

• (3) Where an institution takes significant measures to address a risk of a shortage of liquidity, under paragraph (2), it shall notify the Bank in writing.

• (4) Institutions shall ensure that their internal capital shall be adequate for material market risks that are not subject to an own funds requirement.

• (5) Institutions which have, in calculating own funds requirements for position risk in accordance with Part Three, Title IV, Chapter 2 of the Capital Requirements Regulation, netted off their positions in one or more of the equities constituting a stock-index against one or more positions in the stock-index future or other stock-index product shall have adequate internal capital to cover the basis risk of loss caused by the futures, or other products, value not moving fully in line with that of its constituent equities.

• (6) Institutions shall ensure that, where they hold opposite positions in stock-index futures which are not identical in respect of either their maturity or their composition or both, they have adequate internal capital.

• (7) Institutions shall ensure, where using the treatment in Article 345 of the Capital Requirements Regulation, that they hold sufficient internal capital against the risk of loss which exists between the time of the initial commitment and the following working day.

Interest risk arising from non-trading book activities

Operational risk

• (2) Institutions shall articulate what constitutes operational risk for the purposes of the policies and procedures referred to in paragraph (1).

• (3) Institutions shall put in place contingency and business continuity plans to ensure the institutions ability to operate on an ongoing basis and limit losses in the event of severe business disruption.

• (4) In this Regulation, “model risk” means the potential loss an institution may incur, as a consequence of decisions that could be principally based on the output of internal models, due to errors in the development, implementation or use of such models.

Liquidity risk

• (2) The strategies, policies, processes and systems, referred to in paragraph (1), shall be—

• (a) tailored to business lines, currencies, branches and legal entities and shall include adequate allocation mechanisms of liquidity costs, benefits and risks, and

• (b) proportionate to the complexity, risk profile, scope of operation of the institutions concerned and risk tolerance set by the management body and reflect the institutions importance in each Member State in which it carries out business.

• (3) Institutions shall communicate its risk tolerance, referred to in subparagraph (b) of paragraph (2), to all relevant business lines.

• (4) Institutions shall, taking into account the nature, scale and complexity of their activities, establish and maintain liquidity risk profiles that are consistent with, and not in excess of, those required for a well-functioning and robust system.

• (5) The Bank shall monitor developments in relation to liquidity risk profiles, referred to in paragraph (4), for example product design and volumes, risk management, funding policies and funding concentrations.

• (6) The Bank shall take effective action, using its powers under financial services legislation, where developments referred to in paragraph (5) may lead to individual institution or systemic instability.

• (7) The Bank shall inform the EBA about any actions carried out pursuant to paragraph (6).

• (8) Institutions shall develop methodologies for the identification, measurement, management and monitoring of funding positions and those methodologies shall include the current and projected material cash-flows in and arising from assets, liabilities, off-balance-sheet items, including contingent liabilities and the possible impact of reputational risk.

• (9) Institutions shall—

• (a) distinguish between pledged and unencumbered assets that are available at all times, in particular during emergency situations,

• (b) take into account the legal entity in which assets reside, the country where assets are legally recorded either in a register or in an account and their eligibility and shall monitor how assets can be mobilised in a timely manner,

• (c) have regard to existing legal, regulatory and operational limitations to potential transfers of liquidity and unencumbered assets amongst entities, both within and outside the European Economic Area,

• (d) consider different liquidity risk mitigation tools, including a system of limits and liquidity buffers in order to be able to withstand a range of different stress events and an adequately diversified funding structure and access to funding sources, and shall review those arrangements regularly,

• (e) subject to paragraph (10), consider alternative scenarios on liquidity positions and on risk mitigants and review the assumptions underlying decisions concerning the funding position at least annually,

• (f) consider the potential impact of institution-specific, market-wide and combined alternative scenarios and, for the purposes of this subparagraph, institutions shall consider different time periods and varying degrees of stress conditions,

• (g) adjust their strategies, internal policies and limits on liquidity risk and develop effective contingency plans, taking into account the outcome of the alternative scenarios referred to in subparagraph (e),

• (h) have in place liquidity recovery plans setting out adequate strategies and proper implementation measures in order to address possible liquidity shortfalls, including in relation to branches established in another Member State,

• (i) ensure that the recovery plans, referred to in subparagraph (h), are tested at least annually, updated on the basis of the outcome of the alternative scenarios referred to in subparagraph (e), reported to and approved by senior management, and that internal policies and processes can be adjusted accordingly, and

• (j) subject to paragraph (11) in respect of credit institutions, institutions shall take the necessary operational steps to ensure that liquidity recovery plans can be implemented immediately.

• (10) For the purposes of paragraph (9)(e),alternative scenarios shall address, in particular, off-balance sheet items and other contingent liabilities, including those of SSPEs or other special purpose entities, as referred to in the Capital Requirements Regulation, in relation to which the institution acts as sponsor or provides material liquidity support.

• (11) For credit institutions, the operational steps, referred to in paragraph (9)(j), shall include holding collateral immediately available for central bank funding which shall include holding collateral where necessary in the currency of another Member State, or the currency of a third country to which the institution has exposures, and where operationally necessary within the territory of a host Member State or of a third country to whose currency it is exposed.

Risk of excessive leverage

• (a) have policies and processes in place for the identification, management and monitoring of the risk of excessive leverage, and

• (b) subject to paragraph (3), address the risk of excessive leverage in a precautionary manner by taking due account of potential increases in the risk of excessive leverage caused by reductions of the institutions own funds through expected or realised losses, depending on the applicable accounting rules.

• (2) For the purposes of paragraph (1)(a), indicators for the risk of excessive leverage shall include the leverage ratio determined in accordance with Article 429 of the Capital Requirements Regulation and mismatches between assets and obligations.

• (3) Institutions shall, for the purposes of paragraph (1)(b), ensure that they have arrangements in place to withstand a range of different stress events with respect to the risk of excessive leverage.

Governance

Governance arrangements

• (a) defines, oversees and is accountable for the implementation of the governance arrangements that ensure effective and prudent management of the institution, including the segregation of duties in the organisation and the prevention of conflicts of interest, and

• (b) monitors, and periodically assesses, the effectiveness of the institutions governance arrangements and takes appropriate steps to address any deficiencies.

• (2) The governance arrangements, referred to in paragraph (1)(a), shall comply with the following principles:

• (a) the management body shall have the overall responsibility for the institution and approve and oversee the implementation of the institutions strategic objectives, risk strategy and internal governance;

• (b) the management body shall ensure the integrity of the accounting and financial reporting systems, including financial and operational controls and compliance with the law and relevant standards;

• (c) the management body shall oversee the process of disclosure and communications;

• (d) the management body shall be responsible for providing effective oversight of senior management;

• (e) the chairman of the management body, in its supervisory function of an institution, shall not exercise simultaneously the functions of a chief executive officer within the same institution, unless justified by the institution and authorised by the Bank.

• (3) Institutions which are designated as significant under Regulation 64(5) shall establish and maintain a nomination committee composed of members of the management body who do not perform any executive function in the institution concerned.

• (4) A nomination committee, referred to in paragraph (3), shall—

(a)(i) identify and recommend, for the approval of the management body or for approval of a general meeting, candidates to fill management body vacancies,

• (ii) evaluate the balance of knowledge, skills, diversity and experience of the management body,

• (iii) prepare a description of the roles and capabilities for a particular appointment, and assess the time commitment expected, and

• (iv) decide on a target for the representation of the underrepresented gender in the management body and prepare a policy on how to increase the number of the underrepresented gender in the management body in order to meet that target,

• (b) periodically, and at least annually, assess the structure, size, composition and performance of the management body and make recommendations to the management body with regard to any changes,

• (c) periodically, and at least annually, assess the knowledge, skills and experience of individual members of the management body and of the management body collectively, and report to the management body accordingly, and

• (d) periodically review the policy of the management body for selection and appointment of senior management and make recommendations to the management body.

• (5) The target, policy and its implementation, referred to in paragraph (4)(a)(iv) shall be made public in accordance with Article 435(2)(c) of the Capital Requirements Regulation.

• (6) The nomination committee, referred to in paragraph (3), shall in performing its duties—

• (a) to the extent possible and on an ongoing basis, take account of the need to ensure that the management bodys decision making is not dominated by any one individual or small group of individuals in a manner that is detrimental to the interests of the institution as a whole, and

• (b) be able to use any forms of resources that it considers to be appropriate, including external advice, and shall receive appropriate funding to that effect.

Country-by-country reporting

• (a) name, nature of activities and geographical location;

• (b) turnover;

• (c) number of employees on a full time equivalent basis;

• (d) profit or loss before tax;

• (e) tax on profit or loss;

• (f) public subsidies received.

• (2) Institutions shall disclose the information referred to in subparagraphs (a), (b) and (c) of paragraph (1) not later than 1 July 2014.

• (3) Not later than 1 July 2014, all global systemically important institutions authorised within the State, as identified internationally, shall submit to the Commission on a confidential basis the information referred to in subparagraphs (d), (e) and (f) of paragraph (1).

• (4) The information referred to in paragraph (1) shall be audited in accordance with Directive 2006/43/EC and shall be published, where possible, as an annex to the annual financial statements or, where applicable, to the consolidated financial statements of the institution concerned.

Public disclosure of return on assets

Management body

• (a) members of its management body shall at all times be of sufficiently good repute and possess sufficient knowledge, skills and experience to perform their duties, and

• (b) the overall composition of its management body shall reflect an adequately broad range of experiences.

• (2) Institutions shall ensure that the members of its management body shall, in particular, fulfil the requirements set out in paragraphs (3) to (7).

• (3) Institutions shall ensure that all members of its management body shall commit sufficient time to perform their functions in the institution.

• (4) Subject to paragraph (7), institutions shall ensure that the number of directorships which may be held by a member of the management body in that institution at the same time shall take into account individual circumstances and the nature, scale and complexity of the institutions activities.

• (5) Institutions shall ensure that the members of its management body shall possess adequate collective knowledge, skills and experience to be able to understand the institutions activities, including the main risks.

• (6) Institutions shall ensure that each member of its management body shall act with honesty, integrity and independence of mind to effectively assess and challenge the decisions of the senior management where necessary and to effectively oversee and monitor management decision-making.

• (7) Unless representing the State, members of the management body of an institution that is designated as significant by the Bank under Regulation 64(5) shall, subject to paragraphs (8) and (9), from 1 July 2014, not hold more than one of the following combinations of directorships at the same time:

• (a) one executive directorship with 2 non-executive directorships;

(b)4 non-executive directorships.

• (8) For the purposes of paragraph (7), the following shall count as a single directorship:

• (a) executive or non-executive directorships held within the same group;

• (b) executive or non-executive directorships held within—

• (i) institutions which are members of the same institutional protection scheme provided that the conditions set out in Article 113(7) of the Capital Requirements Regulation are fulfilled, or

• (ii) undertakings (including non-financial entities) in which the institution holds a qualifying holding.

• (9) Directorships in organisations which do not pursue predominantly commercial objectives shall not count for the purposes of paragraphs (4) or (7).

• (10) The Bank may authorise members of the management body of an institution to hold one additional non-executive directorship.

• (11) The Bank shall regularly inform the EBA of authorisations under paragraph (10).

• (12) Institutions shall devote adequate human and financial resources to the induction and training of members of the management body.

• (13) Institutions shall ensure that they, and their nomination committees, engage a broad set of qualities and competences when recruiting members to the management body and for that purpose put in place a policy promoting diversity on the management body.

• (14) The Bank shall collect, and provide to the EBA, the information disclosed in accordance with Article 435(2)(c) of the Capital Requirements Regulation and use it to benchmark diversity practices.

• (15) In compliance with its obligations under this Regulation, institutions shall have regard to guidelines, if any, issued by the EBA under paragraph (12) of Article 91 of the Capital Requirements Directive.

• (16) This Regulation shall be without prejudice to provisions on the representation of employees in the management body as provided for by law.

• (17) In complying with paragraphs (1), (3), (4), (5), (6) and (13), institutions shall have regard to any code setting out standards of fitness and probity issued by the Bank under section 50 of the Central Bank Reform Act 2010 (No. 23 of 2010).

Remuneration policies

• (a) paragraphs (2) and (3), and

• (b) Regulations 81 to 83,

at group, parent company and subsidiary levels, including those established in offshore financial centres.

• (2) Institutions shall comply with the principles in paragraph (3), in a manner and to the extent that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities, when establishing and applying the total remuneration policies, inclusive of salaries and discretionary pension benefits, for categories of staff including—

• (a) senior management,

• (b) risk takers,

• (c) staff engaged in control functions, and

• (d) any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers,

whose professional activities have a material impact on the risk profile of that institution.

• (3) The principles referred to in paragraph (2) are the following:

• (a) the institutions remuneration policy is consistent with, and promotes, sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the institution;

• (b) the institutions remuneration policy is in line with the business strategy, objectives, values and long-term interests of the institution, and incorporates measures to avoid conflicts of interest;

• (c) the institution’s management body in its supervisory function adopts and periodically reviews the general principles of the remuneration policy and is responsible for overseeing its implementation;

• (d) the implementation of the institutions remuneration policy is, at least annually, subject to central and independent internal review for compliance with policies and procedures for remuneration adopted by the management body in its supervisory function;

• (e) that staff engaged in control functions in the institution are independent from the business units they oversee, have appropriate authority, and are remunerated in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control;

• (f) the remuneration of the senior officers in the risk management and compliance functions of the institution is directly overseen by the remuneration committee referred to in Regulation 83 or, if such a committee has not been established, by the management body in its supervisory function;

• (g) the remuneration policy of the institution, taking into account national criteria on wage setting, makes a clear distinction between criteria for setting—

• (i) basic fixed remuneration, which should primarily reflect relevant professional experience and organisational responsibility as set out in an employees job description as part of the terms of employment, and

• (ii) variable remuneration which should reflect a sustainable and risk adjusted performance as well as performance in excess of that required to fulfil the employees job description as part of the terms of employment.

• (4) In addition to the principles in paragraph (3), where an institution benefits from exceptional government intervention, the additional principles in Regulation 81 shall apply.

Institutions that benefit from government intervention

• (a) variable remuneration is strictly limited as a percentage of net revenue where it is inconsistent with the maintenance of a sound capital base and timely exit from government support;

• (b) the Bank requires the institution to restructure remuneration in a manner aligned with sound risk management and long-term growth, including, where appropriate, establishing limits to the remuneration of the members of the management body of the institution;

• (c) no variable remuneration is paid to members of the management body of the institution unless justified.

Variable elements of remuneration

• (a) where remuneration is performance related, the total amount of remuneration is based on a combination of the assessment of—

• (i) the performance of the individual, taking into account financial and non-financial criteria,

• (ii) the performance of the business unit concerned, and

• (iii) of the overall results of the institution;

• (b) the assessment of the performance is set in a multi-year framework in order to ensure that the assessment process is based on longer-term performance and that the actual payment of performance-based components of remuneration is spread over a period which takes account of the underlying business cycle of the institution concerned and its business risks;

• (c) the total variable remuneration does not limit the ability of the institution to strengthen its capital base;

• (d) guaranteed variable remuneration is not consistent with sound risk management or the pay-for-performance principle and shall not be a part of prospective remuneration plans;

• (e) guaranteed variable remuneration is exceptional, occurs only when hiring new staff and where the institution has a sound and strong capital base and is limited to the first year of employment;

• (f) fixed and variable components of total remuneration are appropriately balanced and the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component;

• (g) subject to paragraph (9), institutions shall set the appropriate ratios between the fixed and the variable component of the total remuneration, whereby the following principles shall apply:

• (i) the variable component shall not exceed 100 per cent of the fixed component of the total remuneration for each individual;

• (ii) subject to paragraph (2), shareholders or owners or members of the institution may approve a higher maximum level of the ratio between the fixed and variable components of remuneration provided the overall level of the variable component shall not exceed 200 per cent of the fixed component of the total remuneration for each individual;

• (iii) institutions may apply the notional discount rate, calculated in accordance with guidelines published by the EBA under Article 94(1)(g)(iii) of the Capital Requirements Directive, to a maximum of 25 per cent of total variable remuneration provided it is paid in instruments that are deferred for a period of not less than 5 years;

• (h) payments relating to the early termination of a contract reflect performance achieved over time and do not reward failure or misconduct;

• (i) remuneration packages relating to compensation or buy out from contracts in previous employment must align with the long-term interests of the institution including retention, deferral, performance and clawback arrangements;

• (j) the measurement of performance used to calculate variable remuneration components or pools of variable remuneration components includes an adjustment for all types of current and future risks and takes into account the cost of the capital and the liquidity required;

• (k) the allocation of the variable remuneration components within the institution shall also take into account all types of current and future risks;

• (l) a substantial portion, and in any event at least 50 per cent, of any variable remuneration shall consist of a balance of the following:

• (i) shares or equivalent ownership interests, subject to the legal structure of the institution concerned or share-linked instruments or equivalent non-cash instruments, in the case of a non-listed institution;

• (ii) where possible, other instruments within the meaning of Article 52 or 63 of the Capital Requirements Regulation or other instruments which can be fully converted to Common Equity Tier 1 instruments, within the meaning of Part Two, Title I, Chapter 1 of the Capital Requirements Regulation, or written down, that in each case adequately reflect the credit quality of the institution as a going concern and are appropriate to be used for the purposes of variable remuneration;

• (m) subject to paragraph (4), a substantial portion, and in any event not less than 40 per cent, of the variable remuneration component is deferred over a period which is not less than 3 to 5 years and is correctly aligned with the nature of the business, its risks and the activities of the member of staff in question;

• (n) subject to paragraphs (5), (6) and (7), the variable remuneration, including the deferred portion, is paid or vests only if it is sustainable according to the financial situation of the institution as a whole, and justified on the basis of the performance of the institution, the business unit and the individual concerned;

• (o) subject to paragraph (8), the pension policy is in line with the business strategy, objectives, values and long-term interests of the institution;

• (p) staff members are required to undertake not to use—

• (i) personal hedging strategies,

• (ii) remuneration-related insurance, or

• (iii) liability-related insurance,

to undermine the risk alignment effects embedded in their remuneration arrangements;

• (q) variable remuneration is not paid through vehicles or methods that facilitate the non-compliance with these Regulations or the Capital Requirements Regulation.

• (2) Any approval of a higher ratio in accordance with subparagraph (g)(ii) of paragraph (1) shall be carried out in accordance with the following procedure:

• (a) the shareholders or owners or members of the institution shall act upon a detailed recommendation by the institution giving the reasons for, and the scope of, an approval sought, including the number of staff affected, their functions and the expected impact on the requirement to maintain a sound capital base;

• (b) shareholders or owners or members of the institution shall act by a majority of at least 66 per cent provided that at least 50 per cent of the shares or equivalent ownership rights are represented or, failing that, shall act by a majority of 75 per cent of the ownership rights represented;

• (c) the institution shall notify all shareholders or owners or members of the institution, providing a reasonable notice period in advance, that an approval under subparagraph (a) will be sought;

• (d) the institution shall, without delay, inform the Bank of the recommendation to its shareholders or owners or members, including the proposed higher maximum ratio and the reasons therefor and shall be able to demonstrate to the Bank that the proposed higher ratio does not conflict with the institutions obligations under these Regulations and under the Capital Requirements Regulation, having regard in particular to the institutions own funds obligations;

• (e) the institution shall, without delay, inform the Bank of the decisions taken by its shareholders or owners or members, including any approved higher maximum ratio pursuant to subparagraph (a), and the Bank shall use the information received to benchmark the practices of institutions in that regard and shall provide the EBA with that information;

• (f) staff who are directly concerned by the higher maximum levels of variable remuneration referred to in this paragraph shall not, where applicable, be allowed to exercise, directly or indirectly, any voting rights they may have as shareholders or owners or members of the institution.

(3)(a) Institutions shall ensure that the instruments referred to in paragraph (1)(l) shall be subject to an appropriate retention policy designed to align incentives with the longer-term interests of the institution.

• (b) The Minister may place restrictions on the types and designs of those instruments or prohibit certain instruments, as appropriate.

• (c) This paragraph applies to both the portion of the variable remuneration component deferred in accordance with subparagraph (m) of paragraph (1) and the portion of the variable remuneration component not deferred.

• (4) Remuneration payable under deferral arrangements referred to in paragraph (1)(m) shall vest no faster than on a pro-rata basis. In the case of a variable remuneration component of a particularly high amount, at least 60 per cent of the amount shall be deferred and the length of the deferral period shall be established in accordance with the business cycle, the nature of the business, its risks and the activities of the member of staff in question.

• (5) Without prejudice to the general principles of contract law and employment law, the total variable remuneration, referred to in paragraph (1)(n), shall generally be considerably contracted where subdued or negative financial performance of the institution occurs, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or clawback arrangements.

• (6) Up to 100 per cent of the total variable remuneration, referred to in subparagraph (n) of paragraph (1), shall be subject to malus or clawback arrangements and institutions shall set specific criteria for the application of malus and clawback.

• (7) The arrangements, referred to in paragraphs (5) and (6), shall, in particular, cover situations where the staff member concerned—

• (i) participated in or was responsible for conduct which resulted in significant losses to the institution, or

• (ii) failed to meet appropriate standards of fitness and probity which, at a minimum, shall include standards in any code issued by the Bank under section 50 of the Central Bank Reform Act 2010 (No. 23 of 2010).

(8)(a) Where an individual referred to in this Regulation who is an employee leaves an institution before retirement, discretionary pension benefits shall be held by the institution for a period of 5 years in the form of instruments referred to in paragraph (1)(l).

• (b) Where an individual referred to in this Regulation who is an employee reaches retirement, discretionary pension benefits shall be paid to the employee in the form of instruments referred to in paragraph (1)(l), subject to a five-year retention period.

• (9) Institutions shall apply the principles laid down in paragraphs (1)(g) and (2) to remuneration awarded for services provided or performance from the year 2014 onwards, whether due on the basis of contracts concluded before or after 31 December 2013.

Remuneration committee

• (2) Institutions shall ensure that the remuneration committee established under paragraph (1) shall be constituted in such a way as to enable it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity.

• (3) Institutions shall ensure that—

• (a) the remuneration committee established under paragraph (1) is responsible for the preparation of decisions regarding remuneration, including those which have implications for the risk, and risk management, of the institution concerned and which are to be taken by the management body, and

• (b) the chair and the members of the remuneration committee shall be members of the management body who do not perform any executive function in the institution concerned.

• (4) Where employee representation on the management body is provided for in the law of the State, the remuneration committee established under paragraph (1) shall include one or more employee representatives.

• (5) When preparing decisions referred to in paragraph (3)(a), the relevant institutions shall ensure that the remuneration committee shall take into account the long-term interests of shareholders, investors and other stakeholders in the institution and the public interest.

Maintenance of website on corporate governance and remuneration

Supervisory review and evaluation process

Supervisory review and evaluation

• (a) the risks to which the institutions are, or might be, exposed;

• (b) the risks that an institution poses to the financial system taking into account the identification and measurement of systemic risk under Article 23 of Regulation (EU) No 1093/2010, and recommendations of the ESRB, where appropriate;

• (c) risks revealed by stress testing taking into account the nature, scale and complexity of an institutions activities.

• (2) The scope of the review and evaluation shall cover all requirements of these Regulations and the Capital Requirements Regulation.

• (3) On the basis of a review and evaluation, the Bank shall determine whether—

• (a) the arrangements, strategies, processes and mechanisms implemented by institutions, and

• (b) the own funds and liquidity held by institutions,

ensure a sound management and coverage of their risks.

• (4) Subject to paragraph (5), the Bank shall establish the frequency and intensity of the review and evaluation—

• (a) having regard to the size, systemic importance, nature, scale and complexity of the activities of the institution concerned, and

• (b) taking into account the principle of proportionality.

• (5) The review and evaluation shall be updated at least on an annual basis for institutions covered by the supervisory examination programme referred to in Regulation 87(2).

• (6) Where a review shows that an institution may pose systemic risk, in accordance with Article 23 of Regulation (EU) No 1093/2010, the Bank shall communicate with the EBA without delay regarding those results.

• (7) In this Regulation, “review and evaluation” means a review and evaluation by the Bank under paragraph (1).

Technical criteria for the supervisory review and evaluation

• (a) the results of stress tests carried out in accordance with Article 177 of the Capital Requirements Regulation by institutions applying an internal ratings based approach;

• (b) the exposure to and management of concentration risk by institutions, including their compliance with the requirements set out in Part Four of the Capital Requirements Regulation and Regulation 69;

• (c) the robustness, suitability and manner of application of the policies and procedures implemented by institutions for the management of the residual risk associated with the use of recognised credit risk mitigation techniques;

• (d) the extent to which the own funds held by institutions, in respect of assets which they have securitised, are adequate having regard to the economic substance of the transaction, including the degree of risk transfer achieved;

• (e) the exposure to, measurement and management of, liquidity risk by institutions, including the development of alternative scenario analyses, the management of risk mitigants (in particular the level, composition and quality of liquidity buffers) and effective contingency plans;

• (f) the impact of diversification effects and how such effects are factored into the risk measurement system;

• (g) the results of stress tests carried out by institutions using an internal model to calculate market risk own funds requirements under Part Three, Title IV, Chapter 5 of the Capital Requirements Regulation;

• (h) the geographical location of an institutions exposures;

• (i) the business model of institutions concerned;

• (j) the assessment of systemic risk, in accordance with the criteria set out in Regulation 85.

• (2) Subject to paragraph (3), for the purposes of subparagraph (e) of paragraph (1), the Bank shall regularly carry out a comprehensive assessment of the overall liquidity risk management by institutions and promote the development of sound internal methodologies.

• (3) While conducting assessments under paragraph (2), the Bank shall have regard to the role played by institutions in the financial markets and duly consider the potential impact of its decisions on the stability of the financial system in all other Member States concerned.

• (4) The Bank shall—

• (a) monitor whether an institution has provided implicit support to a securitisation, and

• (b) where an institution is found to have provided such implicit support on more than one occasion, take appropriate measures reflective of the increased expectation that it will provide future support to its securitisation thus failing to achieve a significant transfer of risk.

• (5) For the purposes of the determination to be made under Regulation 85(3), the Bank shall consider whether the valuation adjustments taken for positions or portfolios in the trading book, as set out in Article 105 of the Capital Requirements Regulation, enables the institution to sell or hedge out its positions within a short period without incurring material losses under normal market conditions.

• (6) The review and evaluation performed by the Bank pursuant to Regulation 85 shall include the exposure of institutions to the interest rate risk arising from non-trading activities.

• (7) Measures shall be taken by the Bank, at a minimum, in respect of institutions whose economic value declines by more than 20 per cent of their own funds as a result of a sudden and unexpected change in interest rates of 200 basis points or such change as defined in the EBA guidelines.

• (8) The review and evaluation performed by the Bank pursuant to Regulation 85 shall include—

• (a) the exposure of institutions to the risk of excessive leverage as reflected by indicators of excessive leverage, including the leverage ratio determined in accordance with Article 429 of the Capital Requirements Regulation, and

• (b) the arrangements, strategies, processes and mechanism implemented by institutions to manage the risk of excessive leverage.

• (9) For the purposes of paragraph (8), the Bank shall take into account the business model of the institution concerned in determining the adequacy of the leverage ratio.

• (10) The review and evaluation performed by the Bank pursuant to Regulation 85, referred to in paragraph (8), shall also include—

• (a) the governance arrangements of institutions,

• (b) their corporate culture and values, and

• (c) the ability of members of the management body to perform their duties.

• (11) For the purposes of paragraph (10), institutions shall facilitate access by the Bank to at least the following:

• (a) agendas and supporting documents for meetings of the management body and its committees;

• (b) the results of the internal or external evaluation of performance of the management body.

Supervisory examination programme

• (2) A supervisory examination programme shall take into account the supervisory review and evaluation process under Regulation 85 and contain the following:

• (a) an indication of how the Bank intends to carry out its tasks and allocate its resources;

• (b) an identification of which institutions are intended to be subjected to enhanced supervision and the measures to be taken for such supervision as set out in paragraph (4);

• (c) a plan for inspections at the premises used by an institution, including its branches and subsidiaries established in other Member States in accordance with Regulations 50, 107 and 110.

• (3) A supervisory examination programme shall include the following institutions:

• (a) institutions for which—

• (i) the results of the stress tests referred to in—

• (I) subparagraphs (a) and (g) of Regulation 86(1), and

• (II) Regulation 88,

or

• (ii) the outcome of the supervisory review and evaluation process under Regulation 85,

indicate significant risks to their ongoing financial soundness or indicate breaches of these Regulations or the Capital Requirements Regulation;

• (b) institutions that pose systemic risk to the financial system;

• (c) any other institution for which the Bank considers it to be necessary.

• (4) Where appropriate under Regulation 85, the following measures shall, in particular, be taken where necessary:

• (a) an increase in the number or frequency of on-site inspections of institutions;

• (b) a permanent presence of the Bank at an institution;

• (c) additional or more frequent reporting by an institution;

• (d) additional or more frequent review of the operational, strategic or business plans of an institution;

• (e) thematic examinations monitoring specific risks that are likely to materialise.

• (5) The adoption by the Bank of a supervisory examination programme shall not prevent the competent authorities of a host Member State from carrying out, on a case-by-case basis, on-the-spot checks and inspections of the activities carried out by branches of institutions within their territory in accordance with Article 52(3) of the Capital Requirements Directive.

• (6) Where a supervisory examination programme is adopted by the competent authorities in another Member State in accordance with Article 99 of the Capital Requirements Directive, the Bank may carry out, on a case-by-case basis, on-the-spot checks and inspections of the activities carried out by branches of institutions in the State in accordance with Regulation 50(3).

• (7) In this Regulation, “supervisory examination programme” means a supervisory programme adopted by the Bank under paragraph (1).

Supervisory stress testing

• (2) Nothing in these Regulations, the Capital Requirements Regulation or section 33AK of the Act of 1942 shall prevent the Bank from publishing the results of supervisory stress tests carried out in accordance with paragraph (1).

Ongoing review of the permission to use internal approaches

• (2) When conducting a review under paragraph (1)—

• (a) the Bank shall have particular regard to—

• (i) changes in an institutions business, and

• (ii) the implementation of the approaches, referred to in paragraph (1), to new products,

• (b) where material deficiencies are identified in risk capture by an institutions internal approach, the Bank shall ensure the deficiencies are rectified or take appropriate steps to mitigate their consequences, including by—

• (i) imposing higher multiplication factors,

• (ii) imposing capital add-ons, or

• (iii) taking other appropriate and effective measures,

• (c) the Bank shall in particular review and assess whether the institution uses well developed and up-to-date techniques and practices for those approaches, and

• (d) where for an internal market risk model numerous overshootings referred to in Article 366 of the Capital Requirements Regulation indicate that the model is not, or is no longer, sufficiently accurate, the Bank shall revoke the permission for using the internal model or impose appropriate measures, including measures under financial services legislation, to ensure that the model is improved promptly.

• (3) Where an institution—

• (a) has received permission to apply an approach that requires permission by the Bank before using such an approach for the calculation of own funds requirements in accordance with Part Three of the Capital Requirements Regulation, and

• (b) does not meet the requirements for applying that approach any longer,

the Bank shall require the institution to either—

• (i) demonstrate to the satisfaction of the Bank that the effect of non-compliance is immaterial where applicable in accordance with the Capital Requirements Regulation, or

• (ii) present a plan for the timely restoration of compliance with the requirements and set a deadline for its implementation.

• (4) The Bank shall require improvements to the plan, referred to in paragraph (3)(ii), where—

• (a) it is unlikely to result in full compliance, or

• (b) the deadline is inappropriate.

• (5) Where an institution is unlikely to be able to restore compliance in accordance with paragraph 3(ii), within an appropriate deadline and, where applicable, has not satisfactorily demonstrated that the effect of non-compliance is immaterial, the permission to use the approach shall be—

• (a) revoked, or

• (b) limited to compliant areas or to those where compliance can be achieved within an appropriate deadline,

by the Bank.

• (6) In performing its functions under this Regulation, the Bank shall take into account any guidelines on analysis and benchmarks developed by the EBA, in accordance with Article 101 of the Capital Requirements Directive, for the review of the permissions it grants to institutions to use internal approaches.

• (7) In this Regulation, "approach" means an approach for the calculation of own funds requirements in accordance with Part Three of the Capital Requirements Regulation that requires permission by the Bank.

Supervisory measures and powers

Supervisory measures

• (a) the institution does not meet the requirements of these Regulations or of the Capital Requirements Regulation;

• (b) the Bank has evidence that the institution is likely to breach the requirements of these Regulations, or of the Capital Requirements Regulation, within the subsequent 12 months.

• (2) For the purposes of paragraph (1), the powers of the Bank shall include the powers referred to in Regulation 92.

Application of supervisory measures to institutions with similar risk profiles

• (2) For the purpose of paragraph (1)—

• (a) the type of institution may in particular be determined in accordance with the criteria referred to in Regulation 86(1)(j), and

• (b) the Bank may impose requirements under these Regulations, and the Capital Requirements Regulation, on institutions in a similar or identical manner, including in particular the supervisory powers under Regulations 92 to 94.

• (3) The Bank shall notify the EBA where it applies paragraph (1).

Supervisory powers

• (a) Regulation 85,

• (b) Regulation 86(5),

• (c) Regulation 89(3) to (5),

• (d) Regulations 90 and 91, and

• (e) the application of the Capital Requirements Regulation,

the Bank shall have, without limitation to the Bank’s powers under financial services legislation, at least, the powers set out in paragraph (2).

• (2) The powers referred to in paragraph (1) are the following:

• (a) to require institutions to hold own funds in excess of the requirements set out in—

• (i) Regulations 115 to 130, and

• (ii) the Capital Requirements Regulation, relating to elements of risks and risks not covered by Article 1 of that Regulation;

• (b) to require the reinforcement of the arrangements, processes, mechanisms and strategies implemented in accordance with Regulations 60 to 62;

• (c) to require institutions to present a plan to restore compliance with supervisory requirements pursuant to these Regulations and the Capital Requirements Regulation, and set a deadline for its implementation, including improvements to that plan regarding scope and deadline;

• (d) to require institutions to apply a specific provisioning policy or treatment of assets in terms of own funds requirements;

• (e) to restrict or limit the business, operations or network of institutions, or to request the divestment of activities that pose excessive risks to the soundness of an institution;

• (f) to require the reduction of the risk inherent in the activities, products and systems of institutions;

• (g) to require institutions to limit variable remuneration as a percentage of net revenues where it is inconsistent with the maintenance of a sound capital base;

• (h) to require institutions to use net profits to strengthen own funds;

• (i) to restrict or prohibit distributions or interest payments by an institution to shareholders, members or holders of Additional Tier 1 instruments, within the meaning of Part Two, Title I, Chapter 3 of the Capital Requirements Regulation, where the prohibition does not constitute an event of default of the institution;

• (j) to impose additional or more frequent reporting requirements, including reporting on capital and liquidity positions;

• (k) to impose specific liquidity requirements, including restrictions on maturity mismatches between assets and liabilities;

• (l) to require additional disclosures for the purposes of these Regulations.

• (3) Without limitation to the Bank’s powers under financial services legislation, the additional own funds requirements, referred to in subparagraph (a) of paragraph (2), shall be imposed by the Bank at least where—

• (a) an institution does not meet a requirement set out in—

• (i) Regulations 60 to 62, or

• (ii) Article 393 of the Capital Requirements Regulation,

• (b) risks, or elements of risks, are not covered by the own funds requirements set out in Regulations 115 to 130 or in the Capital Requirements Regulation,

• (c) the sole application of other administrative measures is unlikely to improve the arrangements, processes, mechanisms and strategies sufficiently, within an appropriate timeframe,

• (d) the review referred to in Regulation 86(5) or 89(3) to (5) reveals that the non-compliance with the requirements for the application of the respective approach will likely lead to inadequate own funds requirements,

• (e) the risks, referred to in subparagraph (b), are likely to be underestimated despite compliance with the applicable requirements of—

• (i) these Regulations, and

• (ii) the Capital Requirements Regulation,

or

• (f) an institution reports to the Bank in accordance with Article 377(5) of the Capital Requirements Regulation that the stress test results, referred to in that Article, materially exceed its own funds requirement for the correlation trading portfolio.

• (4) For the purposes of determining the appropriate level of own funds on the basis of the review and evaluation carried out in accordance with Regulations 85 to 89, the Bank shall assess whether any imposition of an additional own funds requirement in excess of the own funds requirement is necessary to capture risks to which an institution is, or might be, exposed, taking into account the following:

• (a) the quantitative and qualitative aspects of an institutions assessment process, referred to in Regulation 60;

• (b) an institutions arrangements, processes and mechanisms referred to in Regulation 61;

• (c) the outcome of the review and evaluation carried out in accordance with Regulation 85 or 89;

• (d) the assessment of systemic risk.

• (5) The powers of the Bank referred to in paragraph (2) are in addition to and not in substitution for its powers in financial services legislation.

Specific liquidity requirements

• (a) the particular business model of the institution;

• (b) the institutions arrangements, processes and mechanisms referred to in Regulations 61 to 84, in particular in Regulation 74;

• (c) the outcome of the review and evaluation carried out in accordance with Regulation 85;

• (d) systemic liquidity risk that threatens the integrity of the financial markets of the State.

• (2) In particular, and without prejudice to Regulation 55, the Bank may consider the need to apply administrative penalties or other administrative measures, including prudential charges, the level of which broadly relate to the disparity between the actual liquidity position of an institution and any liquidity and stable funding requirements established at State or Union level.

Specific publication requirements

• (a) publish the information referred to in Part Eight of the Capital Requirements Regulation more than once per year, not later than the deadline for publication set out by the Bank in its requirement, and

• (b) use specific media and locations for publications, referred to in subparagraph (a), other than the financial statements.

• (2) The Bank may require parent undertakings to, and, where required parent undertakings shall, publish annually, either in full or by way of references to equivalent information, a description of their legal structure and governance and the organisational structure of the group of institutions in accordance with–

• (a) Regulations 61(1) and 97(2) to (4),

• (b) section 9G(7) of the Act of 1971, or

• (c) section 17D(7) of the Act of 1989.

Consistency of supervisory reviews, evaluations and supervisory measures

• (a) the functioning of its review and evaluation process referred to in Regulation 85;

• (b) the methodology used to base decisions referred to in Regulations 86, 88 to 90, 92 and 93 on the process referred to in subparagraph (a);

• (c) any additional information requested by the EBA pursuant to Article 107 of the Capital Requirements Directive.

Level of application

Internal capital adequacy assessment process

• (a) is neither a subsidiary, nor a parent undertaking, in the State, or

• (b) is not included in a consolidation pursuant to Article 19 of the Capital Requirements Regulation,

shall meet the obligations set out in Regulation 60 on an individual basis.

• (2) The Bank may waive the requirements set out in Regulation 60 in respect of a credit institution, in accordance with Article 10 of the Capital Requirements Regulation.

• (3) Where the Bank waives the application of own funds requirements on a consolidated basis provided for in Article 15 of the Capital Requirements Regulation, the requirements of Regulation 60 shall apply on an individual basis.

• (4) Parent institutions in the State, to the extent and in the manner prescribed in Part One, Title II, Chapter 2, Sections 2 and 3 of the Capital Requirements Regulation, shall comply with the obligations set out in Regulation 60 on a consolidated basis.

• (5) Subject to paragraph (6), institutions controlled by a parent financial holding company or a parent mixed-financial holding company in a Member State, to the extent and in the manner prescribed in Part One, Title II, Chapter 2, Sections 2 and 3 of the Capital Requirements Regulation, shall comply with the obligations set out in Regulation 60 on the basis of the consolidated situation of that financial holding company or mixed-financial holding company.

• (6) Where more than one institution is controlled by a parent financial holding company or a parent mixed-financial holding company in a Member State, paragraph (5) shall apply only to the institution to which supervision on a consolidated basis applies in accordance with Regulation 99.

• (7) Subsidiary institutions shall apply the requirements set out in Regulation 60 on a sub-consolidated basis where those institutions, or the parent undertaking where it is a financial holding company or mixed-financial holding company, have an institution or a financial institution or an asset management company, as defined in Article 2(5) of Directive 2002/87/EC, as a subsidiary in a third country, or hold a participation in such an undertaking.

Institutions’ arrangements, processes and mechanisms

• (2) Parent undertakings, and subsidiaries, subject to these Regulations shall comply with the obligations set out in Regulations 61 to 84 on a consolidated or sub-consolidated basis to ensure that their arrangements, processes and mechanisms required by those Regulations are consistent and well-integrated and that any data and information relevant to the purpose of supervision can be produced.

• (3) Parent undertakings, and subsidiaries, subject to these Regulations shall implement such arrangements, processes and mechanisms, in accordance with paragraph (2), in their subsidiaries, not subject to these Regulations or the Capital Requirements Directive.

• (4) The arrangements, processes and mechanisms in subsidiaries, referred to in paragraph (3), shall also be consistent and well-integrated and those subsidiaries shall also be able to produce any data and information relevant to the purpose of supervision.

• (5) The obligations contained in Regulations 61 to 84 concerning subsidiary undertakings, not themselves subject to these Regulations, shall not apply where—

• (a) the EU parent institution, or

• (b) institutions controlled by an EU parent financial holding company or an EU parent mixed-financial holding company,

can demonstrate to the Bank that the application of those Regulations is unlawful under the laws of the third country where the subsidiary is established.

Review and evaluation and supervisory measures

• (a) the review and evaluation process referred to in Regulations 85 to 89, and

• (b) the supervisory measures referred to in Regulations 90 to 95,

in accordance with the level of application of the requirements set out in Part One, Title II of the Capital Requirements Regulation.

• (2) Where the Bank waives the application of own funds requirements on a consolidated basis, as provided for in Article 15 of the Capital Requirements Regulation, the requirements of Regulation 85 shall apply to the supervision of investment firms on an individual basis.

Chapter 3 Supervision on a consolidated basis

Principles for conducting supervision on a consolidated basis

Determination of consolidating supervisor

• (a) a parent institution in the State,

• (b) an EU parent institution.

• (2) Subject to paragraphs (3) to (7), where the Bank has authorised an institution and the parent of that institution is one of the following:

• (a) a parent financial holding company in a Member State;

• (b) a parent mixed-financial holding company in a Member State;

• (c) an EU parent financial holding company;

• (d) an EU parent mixed-financial holding company;

the Bank is responsible for supervision on a consolidated basis.

• (3) Where 2 or more institutions, authorised in 2 or more Member States, one of which is the State, have as their parent—

• (a) the same parent financial holding company or parent mixed-financial holding company established in the State, or

• (b) the same EU parent financial holding company or EU parent mixed-financial holding company established in the State,

the Bank is responsible for supervision on a consolidated basis.

• (4) Where—

• (a) the parent undertakings of institutions authorised in 2 or more Member States comprise 2 or more financial holding companies or mixed-financial holding companies that have their head offices in different Member States, and

• (b) there is an institution authorised in each of those Member States, one of which is the State,

the Bank is responsible for supervision on a consolidated basis where the institution authorised by the Bank had the largest balance sheet total at the end of its immediately preceding financial year.

• (5) Where—

(a)2 or more institutions authorised in Member States, one of which is the State, have the same financial holding company or mixed-financial holding company as their parent, and

• (b) those institutions are not authorised in the Member State in which the financial holding company or mixed-financial holding company is established,

the Bank is responsible for supervision on a consolidated basis where the institution that had the largest balance sheet total at the end of its immediately preceding financial year is an institution authorised by the Bank.

• (6) In a case to which paragraph (5) applies, the institution authorised by the Bank is to be regarded, for the purposes of these Regulations, as the institution controlled by an EU parent financial holding company or an EU parent mixed-financial holding company.

• (7) Notwithstanding paragraphs (3), (4) and (5), in a particular case, the Bank may agree with the competent authorities of other Member States that another competent authority is to exercise supervision on a consolidated basis where, in the opinion of the Bank and the other competent authorities concerned, it is appropriate to do so having regard to the institutions concerned and the relative importance of their activities in the State and the other Member States.

• (8) In entering into an agreement under paragraph (7), the Bank and the competent authority concerned may appoint a different competent authority to exercise supervision on a consolidated basis.

• (9) The Bank and the other competent authorities concerned shall not make a decision under paragraph (7) without having given the following parties, where concerned, an opportunity to state its opinion on the proposed decision:

• (a) the EU parent institution;

• (b) the EU parent financial holding company;

• (c) the EU parent mixed-financial holding company;

• (d) the institution that had, at the end of its immediately preceding financial year, the largest balance sheet total.

• (10) The Bank shall notify the Commission and the EBA of any agreement falling within paragraph (7).

Coordination of supervisory activities by consolidating supervisor

• (a) coordination of the gathering and dissemination of relevant or essential information in going-concern, and emergency, situations;

• (b) planning and coordination of supervisory activities in going-concern situations, including in relation to the activities referred to in Chapter 3 of Part 6, in cooperation with the competent authorities involved;

• (c) planning and coordination of supervisory activities in cooperation with the competent authorities involved, and if necessary with the ESCB central banks, in preparation for and during emergency situations, including adverse developments in institutions or in financial markets using, where possible, existing channels of communication for facilitating crisis management.

• (2) Where the Bank is responsible for exercising supervision on a consolidated basis, it may refer to the EBA situations where a competent authority in another Member State has not cooperated with the Bank to the extent required for carrying out the tasks in paragraph (1), and request the EBA’s assistance under Article 19 of Regulation (EU) No 1093/2010.

• (3) Where the Bank is responsible for the supervision of subsidiaries of—

• (a) an EU parent institution,

• (b) an EU parent financial holding company, or

• (c) an EU parent mixed-financial holding company,

it may, if the competent authority responsible for exercising supervision on a consolidated basis fails to carry out the tasks referred to in Article 112(1) of the Capital Requirements Directive, refer the matter to the EBA and request its assistance under Article 19 of Regulation (EU) No 1093/2010.

• (4) The planning and coordination of supervisory activities referred to in paragraph (1)(c) includes—

• (a) the exceptional measures referred to in Regulation 105(4)(d) and (10)(b),

• (b) the preparation of joint assessments,

• (c) the implementation of contingency plans, and

• (d) communication to the public.

Joint decisions on institution-specific prudential requirements

• (a) the Bank is responsible for supervision on a consolidated basis, it shall make all efforts to reach a joint decision with the competent authorities of other Member States responsible for the supervision of subsidiaries of an EU parent institution, an EU parent financial holding company or EU parent mixed-financial holding company, or