Changes from plenary report to adopted text

RemovedDRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

AddedP9_TA(2024)0088

Changedon the proposal for a directive of the European Parliament and of the Council amending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certainCertain aspects of the minimum requirement for own funds and eligible liabilities

Removed(COM(2023)0229 – C90134/2023 – 2023/0113(COD))

AddedCommittee on Economic and Monetary Affairs

AddedPE752.913

AddedEuropean Parliament legislative resolution of 27 February 2024 on the proposal for a directive of the European Parliament and of the Council amending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certain aspects of the minimum requirement for own funds and eligible liabilities (COM(2023)0229 – C9-0134/2023 – 2023/0113(COD))

▸7 unchanged paragraphs

(Ordinary legislative procedure: first reading)

The European Parliament,

– having regard to the Commission proposal to Parliament and the Council (COM(2023)0229),

– having regard to Article 294(2) and Article 114 of the Treaty on the Functioning of the European Union, pursuant to which the Commission submitted the proposal to Parliament (C90134/2023),

– having regard to Article 294(3) of the Treaty on the Functioning of the European Union,

– having regard to the opinion of the European Central Bank of 5 July 2023,

– having regard to the opinion of the European Economic and Social Committee of 13 July 2023,

Added– having regard to the provisional agreement approved by the responsible committee under Rule 74(4) of its Rules of Procedure and the undertaking given by the Council representative by letter of 20 December 2023 to approve Parliament’s position, in accordance with Article 294(4) of the Treaty on the Functioning of the European Union,

▸5 unchanged paragraphs

– having regard to Rule 59 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A9-0344/2023),

1. Adopts its position at first reading hereinafter set out;

2. Calls on the Commission to refer the matter to Parliament again if it replaces, substantially amends or intends to substantially amend its proposal;

3. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Change 1

RemovedAMENDMENTS BY THE EUROPEAN PARLIAMENT*

AddedP9_TC1-COD(2023)0113

Removedto the Commission proposal

AddedPosition of the European Parliament adopted at first reading on 27 February 2024 with a view to the adoption of Directive (EU) 2024/… of the European Parliament and of the Council amending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certain aspects of the minimum requirement for own funds and eligible liabilities

Removed---------------------------------------------------------

Added(As an agreement was reached between Parliament and Council, Parliament's position corresponds to the final legislative act, Directive (EU) 2024/1174.)

RemovedProposal for a

RemovedDIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

Removedamending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certain aspects of the minimum requirement for own funds and eligible liabilities

Removed(Text with EEA relevance)

RemovedTHE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

RemovedHaving regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

RemovedHaving regard to the proposal from the European Commission,

RemovedAfter transmission of the draft legislative act to the national parliaments,

RemovedHaving regard to the opinion of the European Central Bank,

RemovedHaving regard to the opinion of the European Economic and Social Committee,

RemovedActing in accordance with the ordinary legislative procedure,

RemovedWhereas:

Removed(1) Directive (EU) 2019/879 of the European Parliament and of the Council and Regulation (EU) 2019/877 of the European Parliament and of the Council amended the minimum requirement for own funds and eligible liabilities (‘MREL’) set out in Directive 2014/59/EU of the European Parliament and of the Council and in Regulation (EU) No 806/2014 of the European Parliament and of the Council, which applies to credit institutions and investment firms (institutions) established in the Union as well as to any other entity that falls under the scope of Directive 2014/59/EU or Regulation (EU) No 806/2014 (entities). Those amendments provided that internal MREL, that is, MREL applicable to institutions and entities that are subsidiaries of resolution entities but are not themselves resolution entities, may be met by those institutions and entities using instruments issued to and bought by the resolution entity either directly or indirectly through other entities in the same resolution group.

Removed(2) The Union MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council which introduced specific deduction rules in the case of indirect subscription of instruments eligible for meeting the internal MREL. That Regulation introduced in Directive 2014/59/EU the requirement for the Commission to review the impact of the indirect subscription of instruments eligible for meeting the MREL on the level playing field between different types of banking group structures, including where banking groups have an operating company between the holding company identified as a resolution entity and its subsidiaries. The Commission was asked to assess whether entities that are not themselves resolution entities should be able to comply with the MREL on a consolidated basis. Furthermore, the Commission was asked to evaluate the treatment, under the rules governing the MREL, of entities whose resolution plan provides that those entities are to be wound up under normal insolvency proceedings (‘liquidation entities’). Finally, the Commission was asked to evaluate the appropriateness of limiting the amount of deductions required pursuant to Article 72e(5) of Regulation (EU) No 575/2013 of the European Parliament of the Council.

Removed(3) The review of the Commission found that it would be appropriate and proportionate to the objectives pursued by the internal MREL rules to allow resolution authorities to set the internal MREL on a consolidated basis for a range of entities that is wider than the range resulting from the application of Directive 2014/59/EU and Regulation (EU) No 806/2014, where such wider range covers institutions and entities that are not resolution entities themselves, but that are subsidiaries of resolution entities and control themselves other subsidiaries▌(‘intermediate entities’) within the same resolution group. That would be in particular the case for those banking groups that are headed by a holding company. In such cases, the intermediate entities naturally centralise intragroup exposures and channel the internal MREL eligible resources pre-positioned by the resolution entity. Due to that structure, such intermediate entities could be disproportionately affected by the deduction rules. ▌The MREL framework would be more proportionate to only apply the deduction rules to the own funds of liquidation entities if the issuing entity is ▌subjected to a MREL decision. In the cases where there is no MREL decision, it is not expected that the write down and conversion powers will need to be exercised in respect of those liquidation entities, thus removing the need to safeguard the loss and capital transfer mechanisms within resolution groups, which was the purpose of the deduction rules introduced by Regulation (EU) 2022/2036. By contrast, the remaining entities of the resolution group will need to be recapitalised by the resolution entity in case of distress or failure. The necessary MREL resources should ▌be present at all levels of the resolution group and their availability for loss absorption and recapitalisation should be ensured through the deduction mechanism. Thus, the review of the Commission concluded that intermediate entities should continue to deduct the full amount of their holdings of internal MREL eligible resources issued by other non-liquidation entities in the same resolution group.

Removed(3a) For the proper functioning of the deduction and consolidation frameworks and for the calculation of the MREL for specific entities, the definition of liquidation entity is crucial. The definition focuses on the identification of liquidation entities at the stage of resolution planning. Therefore, a proper assessment of institutions and entities in the scope of Directive 2014/59/EU and Regulation (EU) No 806/2014 by the national resolution authorities and the Single Resolution Board while drafting the resolution plan is essential. A central part of that assessment is to identify whether the institution or entity carries out critical functions. Without prejudice to the assessment of the importance of the institution or entity at national or regional level, a thorough analysis of the standing of the potential liquidation entity within the group is expected to take place. An institution or entity that represents a significant part of the total risk exposure amount, leverage ratio exposure or operating income of the group should not in principle be designated as a liquidation entity.

Removed(4) Under Article 45f of Directive 2014/59/EU and Article 12g of Regulation (EU) No 806/2014, institutions and entities are to comply with the internal MREL on an individual basis. Compliance on a consolidated basis is only allowed in two specific cases: for Union parent undertakings that are not resolution entities and are subsidiaries of third-country entities, and for parent undertakings of institutions or entities waived from internal MREL. Pursuant to Article 72e(5) of Regulation (EU) No 575/2013, where an intermediate entity complies with its MREL on a consolidated basis, that entity is not obliged to deduct holdings of internal MREL eligible resources of other entities belonging to the same resolution group and included in its consolidation perimeter, as compliance with the internal MREL on a consolidated basis achieves a similar effect. The review carried out by the Commission has demonstrated that intermediate entities of banking groups headed by a holding company should also be able to comply with the internal MREL on a consolidated basis. Furthermore, the review demonstrated that, where the intermediate entity is subject to own funds requirements or to a combined buffer requirement on a consolidated basis, compliance with the internal MREL on an individual basis could create a risk that the internal MREL eligible resources pre-positioned at the level of the intermediate entity are not sufficient to restore compliance with the applicable consolidated own funds requirement after the write down and conversion of those internal MREL eligible resources. In addition, a key input in the calculation of the MREL for the institution or entity concerned would be missing where the additional own funds requirement or the combined buffer requirement were set at a different level of consolidation, making the calculation of the requirement challenging. Similarly, the power of resolution authorities to prohibit, in accordance with Article 16a of Directive 2014/59/EU and Article 10a of Regulation (EU) No 806/2014, certain distributions above the maximum distributable amount related to the MREL in respect of the individual subsidiary becomes challenging to exercise where the key metric, the combined buffer requirement, is not set on the same basis as the internal MREL. For those reasons, the possibility to comply with the internal MREL on a consolidated basis should also be available to other types of banking group structures, whenever the intermediate entity is subject to own funds requirements ▌on a consolidated basis only. However that approach should not be chosen where it would unduly increase the internal MREL target, in particular because of the prevalence of liquidation entities within the subgroup.

Removed(5) To ensure that the possibility to comply with MREL on a consolidated basis is available only in the relevant cases ▌and does not lead to a shortage of internal MREL eligible resources across the resolution group, the power to set the internal MREL on a consolidated basis for intermediate entities should be a discretionary power of the resolution authority and should be subject to certain conditions. The intermediate entity should be the only direct subsidiary, that is an institution or an entity, of a resolution entity which is a parent Union parent financial holding company or a Union parent mixed financial holding company, is established in the same Member State and is part of the same resolution group. Alternatively, the intermediate entity concerned should comply with the additional own funds requirement ▌on the basis of its consolidated situation only. In both cases, however, compliance with the internal MREL on a consolidated basis only should not, in the assessment of the resolution authority, negatively affect in a significant way the resolvability of the resolution group concerned, nor the application by the resolution authority of the power to write down or convert relevant capital instruments and eligible liabilities of the intermediate entity concerned or of other entities in its resolution group. One situation where the setting of the internal MREL on a consolidated basis would be detrimental to the resolvability of the resolution group, may be where the amount of that MREL would not allow to ensure compliance with the individual own funds requirements applicable after the exercise of the write-down and conversion powers.

Removed(6) Pursuant to Article 45f(2) of Directive 2014/59/EU and Article 12g(2) of Regulation (EU) No 806/2014, intermediate entities may comply with the consolidated internal MREL using own funds and eligible liabilities. To fully deliver on the possibility to comply with MREL on a consolidated basis, it is necessary to ensure that the eligible liabilities of intermediate entities are computed in a way that is similar to the computation of own funds. The eligibility criteria for eligible liabilities that may be used to comply with internal MREL on a consolidated basis should therefore be aligned with the rules on the calculation of consolidated own funds laid down in Regulation (EU) No 575/2013. To ensure consistency with the existing rules on the external MREL, that alignment should also reflect the existing rules laid down in Article 45b(3) of Directive 2014/59/EU and Article 12d(3) of Regulation (EU) No 806/2014 for the calculation of eligible liabilities that resolution entities may use to comply with their consolidated MREL. In particular, it is necessary to ensure that eligible liabilities issued by the subsidiaries of the entity subject to consolidated internal MREL and held by the resolution entity, either directly or indirectly through other entities of the same resolution group but outside the scope of consolidation or by existing shareholders not belonging to the same resolution group, count towards the own funds and eligible liabilities of the entity subject to consolidated internal MREL.

Removed(7) Under the current framework, for entities earmarked for liquidation ▌, the MREL is set, in the majority of the cases, to the amount necessary for loss absorption, which corresponds to the own funds requirements. In such cases, the MREL does not entail for the liquidation entity any additional requirement directly related to the resolution framework. That means that a liquidation entity can fully comply with the MREL by complying with the own funds requirements and that a dedicated decision of the resolution authority determining the MREL does not contribute in a meaningful way to the resolvability of liquidation entities. Such a decision entails many procedural obligations for resolution authorities and for the liquidation entities without a corresponding benefit in terms of improved resolvability. For that reason, resolution authorities should not set a MREL for liquidation entities.

Removed(8) When preparing resolution plans and assessing the resolvability of resolution groups, resolution authorities may consider that a subsidiary institution qualifies as a liquidation entity as the exercise of the write-down and conversion powers is not envisaged in respect of that entity. Where that is the case, the group entity may not need to hold own funds and eligible liabilities in excess of its own funds requirements. In those circumstances, intermediate entities should not be required to deduct from their internal MREL capacity their holdings of own funds that are issued by liquidation entities which are not subject to a MREL decision. However, they should not be required to deduct liabilities that would meet the conditions for compliance with the internal MREL and that are issued by liquidation entities. In such a case, the liquidation entity is no longer required to comply with the MREL, and therefore there is no indirect subscription of internal MREL eligible resources through the chain formed by the resolution entity, the intermediate entity and the liquidation entity. In case of failure, the resolution strategy does not envisage that the liquidation entity would be recapitalised by the resolution entity. That means that the upstreaming of losses above the existing own funds from the liquidation entity to the resolution entity, via the intermediate entity, would not be expected, and neither would the downstreaming of capital in the opposite direction. That adjustment to the scope of the holdings to be deducted in the context of the indirect subscription of internal MREL eligible resources would thus not affect the prudential soundness of the framework. Not requiring intermediate entities, in some cases, to deduct from their internal MREL capacity their holdings of own funds, as opposed to only liabilities that do not qualify as own funds instruments, is a justified proportionate approach, as liquidation entities, in many cases, do not issue any liabilities.

Removed(9) The main objective of the permission regime for the reduction of eligible liabilities instruments laid down in Articles 77(2) and 78a of Regulation (EU) No 575/2013, which is also applicable to institutions and entities subject to the MREL and to the liabilities issued to comply with MREL, is to enable resolution authorities to monitor the actions that result in a reduction of the stock of eligible liabilities and to prohibit any action that would amount to a reduction beyond a level which resolution authorities deem adequate. Where the resolution authority has not adopted a decision determining the MREL in respect of an institution or entity, that objective is not relevant. Moreover, institutions or entities that are not subject to a decision determining the MREL might not have eligible liabilities on their balance sheet, even if some of their liabilities would theoretically meet the criteria for MREL eligibility. Institutions or entities for which no decisions determining the MREL have been adopted should therefore not be required to obtain the prior permission of the resolution authority to effect the call, redemption, repayment or repurchase of liabilities that would meet the eligibility requirements for MREL.

Removed(10) There are liquidation entities for which the resolution authority may consider that the MREL should exceed the amount ▌for loss absorption . That is the case where the resolution authorities consider that such a higher amount is necessary to protect financial stability or address the risk of contagion to the financial system. In those situations, resolution authorities should determine a MREL for the liquidation entity consisting of an amount sufficient to absorb losses, increased by the amount necessary to properly address the potential risks identified by he resolution authorities. The liquidation entity concerned should comply with the MREL and should not be exempted from the prior permission regime laid down in Articles 77(2) and 78a of Regulation (EU) No 575/2013. Any intermediate entities belonging to the same resolution group as the liquidation entity concerned should continue to be required to deduct from their internal MREL capacity their holdings of internal MREL eligible resources issued by that liquidation entity. In addition, since liquidation proceedings take place at the level of the legal entity, liquidation entities still subject to MREL should comply with the requirement on an individual basis only. Lastly, certain eligibility requirements related to the ownership of the liability concerned are not relevant, as without the exercise of the write-down and conversion powers there would be no need to preserve the control of the subsidiary by the resolution entity, and should therefore not apply.

Removed(11) Pursuant to Article 45i of Directive 2014/59/EU, institutions and entities are to report to their competent and resolution authorities the levels of eligible and bail-inable liabilities and the composition of those liabilities, and to disclose that information to the public, together with the level of their MREL, on a regular basis. For liquidation entities, no such reporting or disclosure is required. However, to ensure the transparent application of the MREL, those reporting and disclosure obligations should also apply to liquidation entities for which the resolution authority determines that the MREL should be higher than the amount sufficient to absorb losses. In accordance with the principle of proportionality, the resolution authority should ensure that those obligations do not go beyond what is necessary to monitor compliance with the MREL.

Removed(12) Directive 2014/59/EU and Regulation (EU) No 806/2014 should therefore be amended accordingly.

Removed(13) To ensure consistency, the national measures transposing the amendments to Directive 2014/59/EU and the amendments to Regulation (EU) No 806/2014 should apply from the same date. However, to ensure that the derogation in Regulation (EU) No 806/2014, Article 12g(1), subparagraph 4, is effective immediately, Article 2, point (3), of this amending Directive should apply one day after the date of entry into force of this amending Directive.

Removed(13a) This amending Directive should respect the principles of the original review mandate to the Commission by the European Parliament and the Council to ensure proportionality and a level playing field between different types of banking group structures.

Removed(14) Since the objectives of this Directive, namely to adjust the treatment of liquidation entities under the MREL framework and the possibility for resolution authorities to determine the internal MREL on a consolidated basis, cannot be sufficiently achieved by the Member States but can rather, by amending rules that are already set at Union level, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on the European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives,

RemovedHAVE ADOPTED THIS DIRECTIVE:

RemovedAmendments to Directive 2014/59/EU

RemovedDirective 2014/59/EU is amended as follows:

Removed(1) in Article 2(1), the following point (83aa) is inserted:

Removed‘(83aa) ‘liquidation entity’ means a legal person established in the Union in respect of which the group resolution plan or, for entities that are not part of a group, the resolution plan, provides that the entity is to be wound up under normal insolvency proceedings; or with regard to an entity within a resolution group other than a resolution entity, the group resolution plan does not envisage the exercise of the write-down and conversion powers with respect to that entity;’;

Removed(2) Article 45c is amended as follows: