Changes from plenary report to adopted text

Removed(22) The regulation of branches established by undertakings in a third country to provide banking services in a Member State is subject to national law and only harmonised to a very limited extent by Directive 2013/36/EU. While third country branches have a significant and increasing presence in Union banking markets, they are currently subject only to very high level information requirements, but not to any Union-level prudential standards or supervisory cooperation arrangements. The complete absence of a common prudential framework leads to third country branches’ being subject to disparate national requirements of varying level of prudence and reach. Furthermore, competent authorities lack comprehensive information and the necessary supervisory tools to properly monitor the specific risks created by third country groups operating in one or various Member States through both branches and subsidiaries There are currently no integrated supervisory arrangements in relation to them and the competent authority responsible for the supervision of each branch of a third country group is not obliged to exchanging information with the competent authorities supervising the other branches and subsidiaries of the same group. Such fragmented regulatory landscape creates risks to the financial stability and market integrity of the Union which should be properly addressed through a harmonised framework on third country branches. Such a framework should comprise minimum common requirements on authorisation, prudential standards, internal governance, supervision and reporting. This set of requirements should build on those that Member States already apply to third countries branches in their territories and should take into account similar or equivalent requirements that third countries apply to foreign branches, with the aim of ensuring consistency between Member States and aligning the Union third country branches framework with the prevailing international practices in this field. New third country branches should therefore not be allowed to operate within the Union until a Memorandum of Understanding has been concluded between the EBA and the third country competent authorities.

Removed(23) For reasons of proportionality, the requirements on third country branches should be catered relative to the risk that they pose to the financial stability and market integrity of the Union and the Member States. Third country branches should, therefore, be categorised as either class 1, where they are deemed riskier, or, otherwise, as class 2, where they are small and non-complex and do not pose a significant financial stability risk (consistently with the definition of “small and non-complex institution” in Regulation (EU) No 575/2013). Accordingly, third country branches with booked assets in the Member State in an amount equal to or in excess of EUR 5 000 000 000 should be regarded as posing such a greater risk due to their larger size and complexity, because their failure could lead to a significant disruption of the Member State’s market for banking services or of its banking system. Third country branches authorised to accept retail deposits should also be regarded similarly as riskier regardless of their size, insofar as their failure would affect highly vulnerable depositors and could lead to a loss of confidence in the safety and soundness of the Member State’s banking system to protect citizens’ savings. Both of those types of third country branches should, therefore, be categorised as class 1.

Removed(24) Third country branches should also be classified as class 1 where the undertaking in the third country that is their head office (the “head undertaking”) is subject to regulation, oversight and implementation of such regulation that are not determined to be at least equivalent to Directive 2013/36/EU and Regulation (EU) No 575/2013 or where the relevant third country is listed as a high-risk third country that has strategic deficiencies in its regime on anti-money laundering and counter terrorist financing in accordance with Directive (EU) 2015/849 of the European Parliament and of the Council. Those third country branches pose a significant risk to the financial stability of the Union and of the Member State of establishment because the banking regulatory or anti-money laundering frameworks that apply to their head undertaking fail to adequately capture or permit a proper monitoring of the specific risks that arise from the activities conducted by the branch in the Member State or of the risks to counterparties in the Member State that arise from the third country group. For the purposes of determining the equivalence of the third country’s banking prudential and supervisory standards to the Union’s standards, the Commission should be able to instruct EBA to conduct an assessment in accordance with Article 33 of Regulation (EU) No 575/2013. EBA should ensure that the assessment is conducted in a rigorous and transparent manner and in accordance with a sound methodology. Furthermore, EBA should also consult and cooperate closely with the third countries’ supervisory authorities and government departments in charge of banking regulation and, where appropriate, private sector parties, endeavouring to treat those parties fairly and to give them the opportunity to submit documentation and make representations within reasonable timeframes. Furthermore, EBA should ensure that the report issued in accordance with Article 33 of Regulation (EU) No 575/2013 is adequately reasoned, sets out a detailed description of the assessed matters and is delivered within a reasonable timeframe.

Removed(25) Competent authorities should have an explicit power to require on a case-by-case basis that third country branches apply for authorisation in accordance with Title III, Chapter 1 of Directive 2013/36/EU, at a minimum where those branches engage in activities with counterparts in other Member States in contravention of the internal market rules or where they pose a significant risk to the financial stability of the Union or of the Member State where they are established. Moreover, competent authorities should be required to periodically assess whether third country branches holding assets on their books in an amount equal to or higher than EUR 40 000 000 000 have systemic importance. All the third country branches that belong to the same third country group established in one Member State or across the Union should be jointly subject to such periodic assessment. That assessment should examine, in accordance with specific criteria, whether those branches pose an analogous level of risk to the financial stability of the Union or its Member States as institutions defined as “systemically important” under Directive 2013/36/EU and Regulation EU No 575/2013. Where competent authorities conclude that the third country branches are systemically important, they should impose requirements on those branches that are appropriate to mitigate the risks to financial stability. For those purposes, competent authorities should be able to require the third country branches to apply for authoritisation as subsidiary institutions under Directive 2013/36/EU in order to continue conducting banking activities in the Member State or across the Union. Moreover, competent authorities should be able to impose other requirements, in particular an obligation to restructure the third country branches’ assets or activities in the Union so that those branches stop being systemic, or a requirement to comply with additional capital, liquidity, reporting or disclosure requirements, where that would be sufficient to address the risks to financial stability. Competent authorities should have the possibility not to impose any of those requirements on third country branches assessed as systemic only where the competent authorities can justify that the risks that those branches pose to the financial stability and market integrity of the Union and the Member States would not significantly increase in the absence of such requirements for a period not exceeding one year.

Removed(26) To ensure the consistency of supervisory decisions on a third country group with branches and subsidiaries across the Union, a lead competent authority should be designated to conduct the assessment of systemic importance. That role should correspond to the consolidated supervisor of the third country group in the Union, where Article 111 of Directive 2013/36/EU applies, or to the competent authority that would become the consolidated supervisor in accordance with that Article, should the third country branches of that group be treated as its subsidiaries. Where the relevant consolidated supervisor has not been determined or where the lead competent authority has not started the assessment of systemic importance within three months. EBA should, instead, perform that assessment. The lead competent authority, or, where applicable, EBA, should consult and cooperate fully with the competent authorities responsible for supervising the relevant third country group’s subsidiaries and branches across the Union. The lead competent authority and those competent authorities should take a joint decision on whether to impose requirements on the third country branches assessed as systemic. For reasons of due process, the lead competent authority or, where applicable, EBA should ensure that the third country branches’ right to be heard and to make representations are respected during the assessment of systemic importance.

Removed(27) Competent authorities should conduct regular reviews of third country branches’ compliance with relevant requirements under Directive 2013/36/EU, and take supervisory measures on those branches to ensure or restore compliance with those requirements. To facilitate the effective supervision of the requirements on third country branches and allow for a comprehensive overview of third country groups’ activities within the Union, common supervisory and financial reporting should be made available to competent authorities in accordance with standardised templates. EBA should be mandated to develop draft implementing technical standards setting out those templates and the Commission should be empowered to adopt those draft implementing technical standards. Furthermore, it is necessary to implement appropriate cooperation arrangements between competent authorities to ensure that all the activities of third country groups operating in the Union through third country branches are subject to comprehensive supervision, to prevent the requirements applicable to those groups under Union law from being circumvented and to minimise the potential risks to the financial stability of the Union. In particular, class 1 third country branches should be included within the scope of the colleges of supervisors of third country groups in the Union. Where such a college does not exist already, competent authorities should set up an ad hoc college for all class 1 third country branches of the same group where it operates in more than one Member State.

Removed(28) The Union’s third country branches framework should be applied without prejudice to the discretion that Member States may currently have to require on a general basis that third country undertakings from certain third countries conduct banking activities in their territory solely through subsidiary institutions authorised in accordance with Title III, Chapter 1 of Directive 2013/36/EU. That requirement may refer to third countries that apply banking prudential and supervisory standards that are not equivalent to the standards under the Member State’s national law or to third countries that have strategic deficiencies in its regime on anti-money laundering and counter terrorist financing.

Removed(28a) Notwithstanding current secrecy rules applicable, information exchange between competent authorities and tax authorities should be improved. This exchange of information should, nonetheless, be in line with national law, and, where the information originates in another Member State, agreement for disclosure should be reached between the relevant competent authorities.

Removed(29) Following the introduction of IFRS 9 on 1 January 2018, the outcome of the expected credit losses calculations, which is based on a modelling approaches, directly affects the amount of own funds and the regulatory ratios of institutions. The same modelling approaches are also the basis for the expected credit losses calculation where institutions apply national accounting frameworks. As a result, it is important that competent authorities and EBA have a clear view of the impact that those calculations have on the range of values for risk-weighted assets and own funds requirements that arise for similar exposures. To that end, the benchmarking exercise should cover also those modelling approaches. Given that institutions calculating capital requirements in accordance with the standardised approach for credit risk may also use models for the calculation of expected credit losses within the IFRS 9 framework, those institutions should also be included in the benchmarking exercise, taking into account the principle of proportionality.

Removed(30) Regulation (EU) 2019/876 amended Regulation (EU) No 575/2013 by introducing a revised market risk framework developed by the Basel Committee for Banking Supervision. The alternative standardised approach that is part of that new framework allows institutions to model certain parameters used in the calculation of risk-weighted assets and own funds requirements for market risk. It is therefore important that competent authorities and EBA have a clear view of the range of values for risk-weighted assets and own funds requirements that arise for similar exposures not only under the alternative internal model approach, but also under the alternative standardised approach. As a result, the market risk benchmarking exercise should cover the revised standardised and internal model approaches.

Removed(31) The global transition towards a sustainable economy as enshrined in the Paris Agreement, as concluded by the Union, and the United Nations 2030 Agenda for Sustainable Development will require a profound socio-economic transformation and will depend on the mobilisation of significant financial resources from the public and private sectors. The European Green Deal commits the Union to becoming climate-neutral by 2050. The financial system has a relevant role to play in supporting that transition, which relates not only to capturing and supporting the opportunities that will arise but also to properly managing the risks that it may entail.

Removed(32) The unprecedented scale of transition towards a sustainable, climate-neutral and circular economy will have considerable impacts on the financial system. In 2018, the Network of Central Banks and Supervisors for Greening the Financial System acknowledged that climate-related risks are a source of financial risk. The Commission’s Renewed Sustainable Finance Strategy emphasises that environmental, social and governance (ESG) risks, and risks steaming from the physical impact of climate change, biodiversity loss and the broader environmental degradation of ecosystems in particular, pose an unprecedented challenge to our economies and to the stability of the financial system. Those risks, which should be taken into account equally, present specificities such as their forward-looking nature and their distinctive impacts over short, medium and long-term time horizons. The specificity of climate-related environmental risks, both in terms of transition and physical risks, requires, in particular, that such risks be managed over a period of at least 10 years.

Removed(33) The long-term nature and the profoundness of the transition towards a sustainable, climate-neutral and circular economy will entail significant changes in the business models of institutions. The adequate adjustment of the financial sector, and of credit institutions in particular, is necessary to achieve the objective of net-zero greenhouse gas emissions in the Union’s economy by 2050, while maintaining the inherent risks under control. Competent authorities should, therefore, be enabled to assess this process and intervene in cases where institutions’ manage climate risks, as well as risks stemming from environmental degradation and biodiversity loss, in a way that endangers the stability of the individual institutions, or the financial stability overall. Competent authorities should also monitor and be empowered to act, when there is a misalignment of institutions’ business models and strategies with the relevant regulatory objectives ▌towards a sustainable economy, resulting in risks to their business models and strategies, or to the financial stability. These objectives should include Union policy objectives and established international standards such as the Paris Agreement. Climate and, more broadly, environmental risks, should be considered together with social risks and governance risks under one category of risks to enable a comprehensive and coordinated integration of these factors, as they are often intertwined. ESG risks are closely linked with the concept of sustainability, as ESG factors represent the main three pillars of sustainability.

Removed(34) To maintain adequate resilience to the negative impacts of ESG factors, institutions established in the Union need to be able to systematically identify, measure and manage ESG risks, and their supervisors need to assess the risks at the level of the individual institution as well as at the systemic level, giving priority to environmental factors and progressing to the other sustainability factors as the methodologies and tools for the assessment evolve. Institutions should assess the alignment of their portfolios with the ambition of the Union to become climate-neutral by 2050 as well as avert environmental degradation and biodiversity loss. Institutions should set out specific plans to address the risks arising, in the short, medium and long term, from the misalignment of their business model and strategy with relevant policy objectives of the Union, included in the Paris Agreement, the Fit for 55 package [and the post-2020 Global Biodiversity Framework]. Institutions should be required to have robust governance arrangements and internal processes for the management of ESG risks and to have in place strategies approved by their management bodies that take into consideration not only the current but also the forward-looking impact of ESG factors. These strategies should ensure adherence to the Union’s ambition to be climate neutral by 2050 in line with Regulation (EU) 2021/1119 of the European Parliament and of the Council. The collective knowledge and awareness of ESG factors by the management body and institutions’ internal capital allocation to address ESG risks will also be key to drive the change within each and single institution. The specificities of ESG risks ▌means that understandings, measurements and management practices can differ significantly across institutions. To ensure convergence across the Union and a uniform understanding of ESG risks, appropriate definitions and minimum standards for the assessment of those risks should be provided in prudential regulation. To achieve this objective, definitions are laid down in Regulation (EU) No 575/2013 and the EBA is empowered to specify a minimum set of reference methodologies for the assessment of the impact of ESG risks on the financial stability of institutions, giving priority to the impact of environmental factors. Since the forward-looking nature of ESG risks means that scenario analysis and stress testing, together with plans for addressing those risks, are particularly informative assessment tools, EBA should be also empowered to develop uniform criteria for the content of the plans to address those risks and for the setting of scenarios and applying the stress testing methods. EBA should base its scenarios on available scientific evidence, building on the work of the Network for Greening the Financial System and the efforts by the Commission to strengthen cooperation between all relevant public authorities with a view to developing a common methodological base, as outlined in point c of Action 5 of the Communication of the Commission of 6 July 2021 on the Strategy for Financing the Transition to a Sustainable Economy. Environment-related risks, including risks stemming from environmental degradation and biodiversity loss, and climate-related risks in particular should take priority in light of their urgency and the particular relevance of scenario analysis and stress testing for their assessment.

Removed(34a) As major providers of funding for businesses and households in the Union, institutions have a relevant role to play in promoting sustainable development across the Union. For the Union to deliver on its overall climate neutrality objective as set out in Regulation (EU) 2021/1119, institutions need to integrate into the definition and implementation of their policies and activities the role of promoting sustainable development. To cater for this process, institutions’ business model and strategy must be contrasted against the relevant Union policy objectives towards a sustainable economy, for example against the measures prescribed by the European Scientific Advisory Board on Climate Change, to identify their ESG risks from misalignments. Where institutions disclose their sustainability objectives and commitments under other mandatory or voluntary sustainability frameworks, such as under Directive 2013/34/EU, those objectives should be consistent with the specific plans to address the ESG risks they may face, in the short, medium and long term. The competent authorities should assess through their relevant supervisory activities the extent to which institutions face ESG risks and have accompanying management policies and operational actions reflected in the targets and milestones defined in their prudential plans that are consistent with their disclosed sustainability commitments in the context of the process of adjustment towards climate neutrality by 2050. The competent authorities should be empowered to demand institutions to reinforce targets, measures, and actions of their prudential plans where they are considered insufficient to address the ESG risks in the short, medium and long term time horizon and may in that regard pose material risks to their solvability. To promote sound and effective risk oversight as well as managerial behaviour in alignment with their long-term strategy on sustainability, the risk appetite of institutions in relation to ESG risks should be an integral part of their remuneration policies and practices.

Removed(35) ESG risks can have far-reaching implications for the stability of both individual institutions and the financial system as whole. Hence, competent authorities should consistently factor those risks into their relevant supervisory activities, including the supervisory evaluation and review process and the stress testing of those risks. The European Commission, via its Technical Support Instrument, has been providing support to national competent authorities in developing and implementing stress testing methodologies and stands ready to continue to provide technical support in this respect. However, the stress testing methodologies for ESG risks have so far mainly been applied in an exploratory manner. To firmly and consistently embed stress testing of ESG in supervision, the EBA, the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA) and the European Supervisory Authority (European Securities and Markets Authority) (ESMA) should jointly develop guidelines to ensure consistent considerations and common methodologies for stress testing ESG risks. Stress testing of those risks should start with climate and environment-related factors, and as more ESG risk data and methodologies become available to support the development of additional tools to assess their quantitative impact on financial risks, competent authorities should increasingly assess the impact of those risks in their adequacy assessments of credit institutions. In order to ensure convergence of supervisory practices, EBA should issue guidelines regarding the uniform inclusion of ESG risks in the supervisory review and evaluation process (SREP).

Removed(36) The provisions in Article 133 of Directive 2013/36/EU on the systemic risk buffer framework may already be used to address various kinds of systemic risks, including risks related to climate change. To the extent that the relevant competent or designated authorities, as applicable, consider that risks related to climate change have the potential to have serious negative consequences for the financial system and the real economy in Member States, they should introduce a systemic risk buffer rate which could also be applied to certain sets or subsets of exposures, for instance those subject to physical and transition risks related to climate change, where they consider the introduction of such rate effective and proportionate to mitigate those risks.

Removed(37) Members of the management body may undergo the suitability assessment only after a significant time after their appointment or, in the case of key function holders, not at all. Thus, members of the management body who do not meet the suitability criteria may have exercised their duties for a long time, which is problematic especially for large institutions. Moreover, cross-border institutions must navigate through a wide diversity of national rules and processes, which does not make the current system efficient. The existence of different requirements as regards the suitability assessment across the Union is a particularly acute issue in the context of the Banking Union. As a result, it is important to provide a set of rules at Union level to put in place a consistent and predictable “fit-and-proper” framework. This will foster supervisory convergence, enabling further trust between competent authorities and give more legal certainty to institutions. Having a robust “fit-and-proper” framework for assessing the suitability of members of the management body and key function holders is a crucial factor to ensure that institutions are adequately run and their risks appropriately managed.

Removed(38) The purpose of assessing the suitability of members of management bodies is to ensure that those members are qualified for their role and are of good repute. Having the primary responsibility for assessing the suitability of each member of the management body, institutions should carry out the suitability assessment, followed by a verification by the competent authorities that may perform it before or after the member of the management body takes up the position. In particular, small and non-complex institutions should be given more flexibility in line with the principle of proportionality. In this case, and in exceptional and well justified situations where an ex-ante assessment cannot be performed, this assessment should be performed without undue delay immediately after members of management bodies take up their position. However, due to the risks posed by large institutions resulting in particular from potential contagion effects, unsuitable members of management body should be prevented from influencing the running of such large institutions with potential serious detrimental effects. It is therefore appropriate that, safe in exceptional circumstances, the competent authorities assess the suitability of members of the management body of large institutions before those members exercise their duties. This should not interfere with any statutory rights of certain bodies or legal entities to appoint representatives to supervised entities’ management bodies under applicable national law. In these cases, appropriate safeguards should be in place to ensure the suitability of these representatives.

Removed(38a) To facilitate independent opinions and critical challenges, the management body should be sufficiently diverse as regards age, gender, geographical provenance and educational and professional background to present a variety of views and experiences. Gender balance is of particular importance to ensure adequate representation of the population. Institutions should set target and define measures to balance gender participation in the management body.

Removed(39) Not only members of the management body, but also key function holders have a significant influence in ensuring the sound and prudent management of an institution on a day-to-day basis. Because Directive 2013/36/EU does not currently define key function holders, Member States have diverging practices across the Union, which impedes an effective and efficient supervision and prevents a level playing field. It is therefore necessary to define key function holders. In addition, the responsibility for assessing the suitability of key function holders should primarily belong to institutions. In particular, small and non-complex institutions should be given more flexibility in line with the principle of proportionality. However, due to the risks posed by the activities of large institutions, the suitability of the heads of internal control functions and the chief financial officer in such large institutions should be assessed by competent authorities before those persons take up their positions. In any case, the assessment of the members of the management body should be without prejudice to provisions of the Member States in regards to the appointment by representation of employees or by regional or local elected bodies.

Removed(40) In order to ensure legal certainty and predictability for the institutions, it is necessary to establish an efficient and timely process for verifying the suitability of members of the management body and key function holders by competent authorities. Such process should enable competent authorities to request any additional information where necessary, but also ensure that those competent authorities are able to handle the suitability assessments within the prescribed timeframe. Institutions, from their side, should provide the competent authorities with correct and complete information within the allocated time and respond quickly and in good faith to requests for additional information from the competent authorities.

Removed(41) In light of the role of the suitability assessment for the prudent and sound management of institutions, it is necessary to provide competent authorities with new tools, such as statements of responsibilities and a mapping of duties, to assess the suitability of members of the management body and key function holders. Those new tools will also support the work of competent authorities when reviewing the governance arrangements of institutions as part of the supervisory review and evaluation process. Notwithstanding the overall responsibility of the management body as a collegial body, institutions should be required to draw up individual statements and a mapping that clarify the duties held by members of the management body, senior management and key function holders. Their individual duties are not always clearly or consistently laid down and there may be situations where two or more roles overlap or where areas of duties are overlooked because they do not fall neatly under the remit of a single person. The scope of each individual’s duties should be well defined and no areas of duties should be left without ownership. Those tools should ensure further accountability of the members of the management body, senior management and key function holders.

Removed(42) In order to safeguard financial stability, competent authorities should be able to take and implement decisions swiftly. In the context of early intervention measures or resolution action, competent authorities and resolution authorities may consider it appropriate to remove or replace members of the management body or senior management. To take into account such situations, competent authorities should perform the suitability assessment of members of the management body or key function holders after those members of the management body or key function holders have taken up their position.

Removed(43) The additional own funds requirement set by an institution’s competent authority in accordance with Article 104(1), point (a), of Directive 2013/36/EU to address risks other than the risk of excessive leverage should not be increased as a result of the institution becoming bound by the output floor laid down in Regulation (EU) No 575/2013, all else being equal. Furthermore, upon the institution's becoming bound by the output floor, the competent authority should review the institution’s additional own funds requirement and assess, in particular, whether and to what extent such requirement captures risks of excessive variability or lack of comparability of risk weights from the use of internal models by the institution. Where that is the case, the institution’s additional own funds requirement should be regarded as overlapping with the risks captured by the output floor in the own funds requirement of the institution and, consequently, the competent authority should reduce that requirement to the extent necessary to remove any such overlap for as long as the institution remains bound by the output floor.

Removed(44) Similarly, upon becoming bound by the output floor, the nominal amount of an institution’s CET1 capital required under the systemic risk buffer should not increase where there has been no increase in the macroprudential or systemic risks associated with the institution. In such cases, it should be possible for the institution’s competent or designated authority, as applicable, to review the calibration of the systemic risk buffer rates if needed, to ensure that they remain appropriate and do not double-count the risks that are already covered by virtue of the fact that the institution is bound by the output floor. EBA is mandated to issue guidelines on this review. As a rule, competent and designated authorities, as applicable, should not impose systemic risk buffer requirements for risks which are already fully covered by the output floor, regardless of whether or not an institution is bound by the output floor.

Removed▌

Removed(46) To enable the timely and effective activation of the systemic risk buffer it is necessary to clarify the application of the relevant provisions and simplify and align the applicable procedures. Setting a systemic risk buffer should be possible for designated authorities in all Member States to enable the recognition of systemic risk buffer rates set by authorities in other Member States and to ensure that authorities are empowered to address systemic risks in a timely, proportionate and effective manner. Recognition of a systemic risk buffer rate set by another Member State should require only a notification from the authority recognising the rate. To avoid unnecessary authorisation procedures where the decision to set a buffer rate results in a decrease or no change from any of the previously set rates, the procedure laid down in Article 131(15) of Directive 2013/36/EU needs to be aligned with the procedure laid down in Article 133(9) of that Directive. The procedures laid down in Article 133(11) of that Directive should be clarified and made more consistent with the procedures applying for other systemic risk buffer rates, where relevant.

Removed(46a) When drafting regulatory technical standards, guidelines and Q&As, EBA should pay due attention to the principle of proportionality and ensure that those legal acts can also be transposed by small and non-complex institutions without undue effort,

RemovedHAVE ADOPTED THIS DIRECTIVE:

RemovedDirective 2013/36/EU is amended as follows:

Removed(-1) in Article 2(5), point 5 is replaced by the following:

Removed‘(5) in Germany, the ‘Kreditanstalt für Wiederaufbau’, ‘Landwirtschaftliche Rentenbank’, ‘Bremer Aufbau-Bank GmbH’, ‘Hamburgische Investitions- und Förderbank’, ‘Investitionsbank Berlin’, ‘Investitionsbank des Landes Brandenburg’, 'Investitionsbank Sachsen-Anhalt', ‘Investitionsbank Schleswig-Holstein’, ‘Investitions- und Förderbank Niedersachsen – NBank’, ‘Investitions- und Strukturbank Rheinland-Pfalz’, ‘Landeskreditbank Baden-Württemberg – Förderbank’, ‘LfA Förderbank Bayern’, ‘NRW.BANK’, ‘Saarländische Investitionskreditbank AG’, ‘Sächsische Aufbaubank – Förderbank’, ‘Thüringer Aufbaubank’, undertakings which are recognised under the ‘Wohnungsgemeinnützigkeitsgesetz’ as bodies of State housing policy and are not mainly engaged in banking transactions, and undertakings recognised under that law as non-profit housing undertakings;’;

Removed(1) in Article 3, paragraph 1 is amended as follows:

Removed(a) the following point (8a) is inserted:

Removed‘(8a) ‘management body in its management function’ means the management body acting in its role of directing effectively the institution and includes the persons who direct the business of the institution;’;

Removed(b) point (9) is replaced by the following:

Removed‘(9) ‘senior management’ means those natural persons who exercise executive functions within an institution and are directly accountable to the institution’s management body but are not members of that body, and who are responsible for the day-to-day management of the institution under the direction of the management body of the institution;’;

Removed(c) the following points (9a) to (9d) are inserted:

Removed‘(9a) ‘key function holders’ means ▌the heads of internal control functions and the chief financial officer, where those heads or that officer are not members of the management body, and the AML Compliance Officer referred to in Article 9(3) of Regulation [please insert reference – proposal for Anti-Money Laundering Regulation - COM/2021/420 final];

Removed(9b) ‘chief financial officer’ means the person with overall responsibility for the financial resources management, financial planning and financial reporting of the institution;

Removed(9c) ‘heads of internal control functions’ means the persons at the highest hierarchical level responsible for effectively managing the day-to-day operation of the independent risk management, compliance and internal audit functions of the institution;

Removed(9d) ‘internal control functions’ means risk management, compliance and internal audit functions;’;

Removed(d) point (11) is replaced by the following:

Removed‘(11) ‘model risk’ means model risk as defined in Article 4(1), point (52b), of Regulation (EU) No 575/2013;’;

Removed(e) the following point (29a) is inserted:

Removed‘(29a) ‘stand-alone institution in the EU’ means stand-alone institution in the EU as defined in Article 4(1), point (33a), of Regulation (EU) No 575/2013;’;

Removed(f) the following point (47a) is inserted:

Removed‘(47a) ‘eligible capital’ means the eligible capital as defined in Article 4(1), point (71), of Regulation (EU) No 575/2013;’;

Removed(g) the following points (66) to (69) are added:

Removed‘(66) ‘large institution’ means an institution as defined in Article 4(1), point (146), of Regulation (EU) No 575/2013;

Removed(67) ‘relevant subsidiary’ means a material subsidiary as defined in Article 4(1), point (135), of Regulation (EU) No 575/2013 or a large subsidiary as defined in Article 4(1), point (147), of that Regulation;

Removed(68) ‘periodic penalty payments’ means daily penalties, aimed at ending ongoing breaches and compelling legal or natural person to return to compliance with their obligations under national provisions transposing this Directive, obligations under Regulation (EU) No 575/2013, or obligations arising from a decision issued by the competent authority;

Removed(69) ‘environmental, social and governance risk’ means environmental, social and governance risk as defined in Article 4(1), point (52d), or Regulation (EU) No 575/2013;’;

Removed(69a) “climate neutrality” means the overall climate neutrality objective set out in Article 2 of Regulation (EU) 2021/1119.

Removed(2) in Article 4, paragraph 4 is replaced by the following:

Removed‘4. Member States shall ensure that competent authorities have the expertise, resources, operational capacity, powers and independence necessary to carry out the functions relating to prudential supervision, investigations and the powers to impose periodic penalty payments and penalties set out in this Directive and in Regulation (EU) No 575/2013.

RemovedFor the purposes of preserving the independence of competent authorities in the exercise of their powers, Member States shall provide ▌the necessary arrangements to ensure that those competent authorities, including their staff and members of their governance bodies, can act independently and objectively, and that those governance bodies are legally distinct from, and functionally independent of, other public and private bodies without seeking or taking instructions, or being subject to influence from supervised institutions, from any government of a Member State or body of the Union or from any other public or private body. Member States shall ensure that members of the governance bodies are appointed for a fixed term, renewable once, based on objective, transparent and published criteria and can be dismissed only if they no longer meet the criteria of appointment or have incurred serious criminal convictions. The reasons for dismissal shall be publicly disclosed. Member States shall ensure that competent authorities publish their objectives, are accountable for the discharge of their duties in relation to those objectives and are subject to financial control which does not affect their independence. These arrangements shall be without prejudice to relevant arrangements under national law whereby the competent authorities are subject to public and democratic accountability..

RemovedMember States shall, in particular, ensure that competent authorities have in place all the necessary arrangements to prevent conflicts of interests of their staff and members of their governance bodies. For those purposes, Member States shall lay down rules proportionate to the role and responsibilities of those staff and members of the governance bodies, and at a minimum prohibiting them from:

Removed(a) trading in financial instruments issued by or referenced to the institutions supervised by the competent authorities, their direct or indirect parent undertakings, subsidiaries or affiliates;