Changes from report parliamentary committee draft to plenary report

Added(35) The BCBS has revised the international standard on operational risk to address weaknesses that emerged in the wake of the 2008-2009 financial crisis. Besides a lack of risk-sensitivity in the standardised approaches, a lack of comparability arising from a wide range of internal modelling practices under the Advanced Measurement Approach were identified. Therefore, and in order to simplify the operational risk framework, all existing approaches for estimating the operational risk capital requirements were replaced by a single non-model-based method. Regulation (EU) No 575/2013 should be aligned with the revised Basel standards to ensure a level playing field internationally for institutions established inside the Union but also operating outside the Union, and to ensure that the operational risk framework at Union level remains effective.

RemovedRegulation (EU) No 575/2013

Added(36) The new standardised approach for operational risk introduced by the BCBS combines an indicator that relies on the size of the business of an institution with an indicator that takes into account the loss history of that institution. The revised Basel standards envisage a number of discretions on how the indicator that takes into account the loss history of an institution may be implemented. Jurisdictions may disregard historical losses for the calculation of operational risk capital for all relevant institutions, or may take historical loss data into account even for institutions below a certain business size. To ensure a level playing field within the Union and to simplify the calculation of operational risk capital, those discretions should be exercised in a harmonised manner for the minimum own funds requirements by disregarding historical operational loss data for all institutions.

RemovedArticle 1 – paragraph 1 – point 1 – point w b (new), Article 4 – paragraph 1 – point 145 – point f: (wb) in point (145), point (f) is replaced by the following: / (f) the institution's consolidated assets or liabilities relating to activities with counterparties located in the European Economic Area, excluding intragroup exposures in the European Economic Area, exceed 75% of both the institution’s consolidated total assets and liabilities, excluding in both cases the intragroup exposures.

Added(36a) When measuring capital requirements for operational risk, insurance policies should be allowed to be used as effective risk mitigation techniques. To that end, within 24 months after the entry into force of the Regulation EBA shall report to the Commission on a standardised formula, based on specific criteria, to be used for the calculation of operational risk capital requirements. The Commission should be empowered to submit a legislative proposal within the following 36 months, to the European Parliament and Council of the EU taking into account insurance policies for the calculation of capital requirements on operational risk. EBA should identify eligible insurance contracts.

RemovedRegulation (EU) No 575/2013

Added(36b) The severe, double economic shock caused by the COVID-19 pandemic and the Russian-Ukrainian war might have far-reaching impacts on the European economy and disrupt businesses. Institutions will have a key role in contributing to the recovery by extending concessions towards worthy debtors facing or about to face difficulties in meeting their financial commitments. In that respect, EBA should adopt guidelines to specify what constitutes a material diminished financial obligation in the case of distressed restructuring, providing adequate flexibility to institutions. In particular, due consideration should be given to the kind of concession granted, the residual maturity of the exposure and the length of the postponement.

RemovedArticle 1 – paragraph 1 – point 2 – point b, Article 5 – point 5: (5) ‘credit exposure’ means any on-balance sheet item and any off-balance sheet item that results, or may result, in a credit obligation;

Added(37) Information on the amount and on the quality of performing, non-performing and forborne exposures, as well as an ageing analysis of accounting past due exposures should also be disclosed by small and non-complex institutions and by other non-listed credit institutions. This disclosure obligation does not create an additional burden on these credit institutions, as the disclosure of such limited set of information has already been implemented by EBA based on the 2017 Council Action Plan on Non-Performing Loans (NPLs), which invited EBA to enhance disclosure requirements on asset quality and non-performing loans for all credit institutions. This is also fully consistent with the Communication on tackling non-performing loans in the aftermath of the COVID-19 pandemic.

RemovedRegulation (EU) No 575/2013

Added(38) It is necessary to reduce the compliance burden for disclosure purposes and to enhance the comparability of disclosures. EBA should therefore establish a centralised web-based platform that enables the disclosure of information and data submitted by institutions. That centralised web-platform should serve as a single access point on institutions’ disclosures, while ownership of the information and data and the responsibility for their accuracy should remain with the institutions that produce it. The centralisation of the publication of disclosed information should be fully consistent with the Capital Market Union Action Plan and represents further step towards the development of an EU-wide single access point for companies’ financial and sustainable investment-related information.

RemovedArticle 1 – paragraph 1 – point 2 – point b, Article 5 – point 6: (6) ‘facility’ means a credit exposure arising from contract between an obligor and an institution;

Added(39) To allow for a greater integration of supervisory reporting and disclosures, EBA should publish institutions’ disclosures in a centralised manner, while respecting the right of all institutions to publish data and information themselves. Such centralised disclosures should allow EBA to publish the disclosures of small and non-complex institutions, based on the information reported by those institutions to competent authorities and should thus significantly reduce the administrative burden to which those small and non-complex institutions are subject. At the same time, the centralisation of disclosures should have no cost impact for other institutions, and increase transparency and reduce the cost for market participants to access prudential information. Such increased transparency should facilitate comparability of data across institutions and promote market discipline.

RemovedRegulation (EU) No 575/2013

Added(40) To ensure convergence across the Union and a uniform understanding of the environmental, social and governance (ESG) factors and risks, general definitions should be laid down. Assets or activities subject to impacts from environmental and/or social factors should be defined by reference to the ambition of the Union to become climate-neutral by 2050 as set out in the EU Climate Law, the EU Nature Restoration Law, and the relevant sustainability goals of the Union. The technical screening criteria for ‘do no significant harm’ adopted in accordance with Article 17 of Regulation (EU) 2020/852 of the European Parliament and of the Council, as well as specific Union legislation to avert climate change, environmental degradation and biodiversity loss should be used to identify assets or exposures for the purpose of assessing dedicated prudential treatments and risk differentials. The exposure to ESG risks is not necessarily proportional to an institution’s size and complexity. Level of exposures across the Union are also quite heterogeneous, with some countries showing potential mild transitional impacts and others showing potential high transitional impacts on exposures related to activities that have a significant negative impact on the environment. The transparency requirements that institutions are subject and the sustainability reporting requirements laid down in other pieces of existing legislation in the Union will provide more granular data in a few years. However, to properly assess the ESG risks that institutions may face, it is imperative that markets and supervisors obtain adequate data from all entities exposed to those risks, independently of their size, including on the pool of loans underlying covered bonds issued by institutions. In order to ensure that competent authorities have at their disposal data that are granular, comprehensive and comparable for an effective supervision, information on exposures to ESG risks should be included in the supervisory reporting of institutions. The scope and granularity of that information should be consistent with the principle of proportionality, having regard to the size and complexity of the institutions.

RemovedArticle 1 – paragraph 1 – point 2 – point b, Article 5 – point 7: (7) ‘margin of conservatism’ means an add-on incorporated in risk estimates, to account for the expected range of estimation errors stemming from identified deficiencies in data, methods, models, and changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, as well as from general estimation error;

Added(40a) Level of exposures across the Union are also quite heterogeneous, with some countries showing potential mild transitional impacts and others showing potential high transitional impacts on exposures related to activities that have a significant negative impact on the environment. The transparency requirements that institutions are subject to and the sustainability reporting requirements laid down in other pieces of Union legislation will provide more granular data in a few years. However, to properly assess the ESG risks that institutions might face, it is essential that markets and supervisors obtain adequate data from all entities exposed to those risks, irrespective of their size. In order to ensure that competent authorities have at their disposal data that are granular, comprehensive and comparable for an effective supervision, information on exposures to ESG risks should be included in the supervisory reporting of institutions. The scope and granularity of that information should be consistent with the principle of proportionality, and should have regard to the size and complexity of the institutions.

RemovedRegulation (EU) No 575/2013

Added(41) As the transition of the Union economy towards a sustainable economic model is gaining momentum, sustainability risks become more prominent and will potentially require further consideration. According to the International Energy Agency, to reach the carbon neutrality objective by 2050, no new fossil fuel exploration and expansion can take place. This means that fossil fuel exposures represent a higher risk both at micro level, as the value of such assets is set to decrease over time, and at macro level as financing fossil fuel activities jeopardises the objective of maintaining the global rise of temperature below 1,5°C and therefore threatens the financial stability. It is therefore necessary to bring forward by 2 years EBA’s mandate to assess and report on whether a dedicated prudential treatment of exposures related to assets or activities substantially associated with environmental or social objectives would be justified from a risk-based perspective. However, only after the completion of this accelerated report and the ongoing climate stress tests would it be justified to potentially propose a dedicated prudential treatment for these exposures.

RemovedArticle 1 – paragraph 1 – point 2 – point b, Article 5 – point 10: (10) ‘unconditionally cancellable commitment’ means any commitment the terms of which permit the institution to cancel that commitment, to the full extent allowable under consumer protection and related legislation where applicable, at any time without prior notice to the obligor or that effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness.’;

Added(41a) To ensure that any adjustments for exposures for infrastructure do not undermine the climate ambitions of the Union, departure from the risk-based approach of the banking framework should only take place when such exposures have shown a positive impact on the climate ambitions as set out in Regulation (EU) 2020/852.

RemovedRegulation (EU) No 575/2013

Added(42) It is essential for supervisors to have the necessary empowerments to assess and measure in a comprehensive manner the risks to which a banking group is exposed at a consolidated level and to have the flexibility to adapt their supervisory approach to new sources of risks. It is important to avoid loopholes between prudential and accounting consolidation which may give rise to transactions aimed at moving assets out of the scope of prudential consolidation, even though risks remain in the banking group. The lack of coherence in the definition of “parent undertaking”, “subsidiary” and “control” concepts, and the lack of clarity in the definition of “ancillary services undertaking”, “financial holding company” and “financial institution” make it more difficult for supervisors to apply the applicable rules consistently in the Union and to detect and appropriately address risks at a consolidated level. Those definitions should therefore be amended and further clarified. In addition, it is deemed appropriate for EBA to investigate further whether these empowerments of the supervisors might be unintendedly constrained by any remaining discrepancies or loopholes in the regulatory provisions or in their interaction with the applicable accounting framework.

RemovedArticle 1 – paragraph 1 – point 5 a (new), Article 13 – paragraph 1 – subparagraph 2: (5 a) in Article 13(1), subparagraph 2 is replaced by the following: / "Large subsidiaries of EU parent institutions shall disclose the information specified in Articles 437, 438, 440, 442, 449a, 450, 451, 451a and 453 on an individual basis or, where applicable in accordance with this Regulation and Directive 2013/36/EU, on a sub-consolidated basis.”

Added(42a) The rapid increase in the financial markets’ activity on crypto-assets and the potentially increasing involvement of institutions in crypto-assets related activities should be thoroughly reflected in the Union prudential framework, in order to adequately mitigate the risks of these instruments for the institutions’ financial stability. This is even more urgent in light of the recent adverse developments in the crypto-assets markets. The existing prudential rules are not designed to adequately capture the risks inherent to crypto-assets. The recently published BCBS standards on the prudential treatment of crypto-asset exposures, to be implemented by 1 January 2025, provide a dedicated prudential treatment that should be implemented in Union law in a timely manner. The Commission should follow up on these developments and, if appropriate, adopt a legislative proposal by 31 December 2024, to transpose the different elements of the BCBS standards into Union law. Until the legislative proposal is adopted, institutions’ exposure to crypto-assets should apply prudent own funds requirements.

Removed(https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0575&from=EN)

Added(43) The lack of clarity of certain aspects of the minimum haircut floors framework for securities financing transactions (SFTs), developed by the BCBS in 2017 as part of the final Basel III reforms, as well as reservations about the economic justification of applying it to certain types of SFTs have raised the question of whether the prudential objectives of this framework could be attained without creating undesirable consequences. The Commission should therefore reassess the implementation of the minimum haircut floors framework for SFTs in Union law by [OP please insert date = 24 months after entry into force of this Regulation]. In order to provide the Commission with sufficient evidence, EBA, in close cooperation with ESMA, should report to the Commission on the impact of that framework, and on the most appropriate approach for its implementation in Union law.

RemovedRegulation (EU) No 575/2013

Added(44) The Commission should transpose into Union law the revised standards for the capital requirements for CVA risks, published by the BCBS in July 2020, as these standards overall improve the calculation of own funds requirement for CVA risk by addressing several previously observed issues, in particular that the existing CVA capital requirements framework fails to appropriately capture CVA risk.

RemovedArticle 1 – paragraph 1 – point 6 a (new), Article 19 – paragraph 1 – introductory part: (6 a) Article 19(1), introductory part, is replaced by the following: / 1. An institution or a financial institution which is a subsidiary or an undertaking in which a participation is held, need not to be included in the consolidation where the total amount of assets and off-balance sheet items of the undertaking concerned is less than the smaller of the following two amounts:

Added(45) When implementing the initial Basel III reforms in Union law through the CRR, certain transactions were exempted from the calculation of capital requirements for CVA risk. These exemptions were agreed to prevent a potential excessive increase in the cost of some derivative transactions triggered by the introduction of the capital requirement for CVA risk, particularly when banks could not mitigate the CVA risk of certain clients that were not able to exchange collateral. According to estimated impacts calculated by EBA, the capital requirements for CVA risk under the revised Basel standards would remain unduly high for the exempted transactions with these clients. To ensure that banks’ clients continue hedging their financial risks via derivative transactions, the exemptions should be maintained when implementing the revised Basel standards.

RemovedRegulation (EU) No 575/2013

Added(46) However, the actual CVA risk of the exempted transactions may be a source of significant risk for banks applying those exemptions; if those risks materialise, the banks concerned could suffer significant losses. As EBA highlighted in their report on CVA from February 2015, the CVA risks of the exempted transactions raise prudential concerns that are not being addressed under CRR. To help supervisors monitor the CVA risk arising from the exempted transactions, institutions should report the calculation of capital requirements for CVA risks of the exempted transactions that would be required if those transactions were not exempted. In addition, EBA should develop guidelines to help supervisors identify excessive CVA risk and to improve the harmonisation of supervisory actions in this area across the EU.

RemovedArticle 1 – paragraph 1 – point 13, Article 49 – paragraph 4: 4. The holdings in respect of which deduction is not made in accordance with paragraph 1, 2 or 3 shall qualify as exposures and shall be risk weighted in accordance with Part Three, Title II, Chapter 2. / (deleted)

Added(47) Regulation (EU) No 575/2013 should therefore be amended accordingly,

RemovedRegulation (EU) No 575/2013

AddedHAVE ADOPTED THIS REGULATION:

RemovedArticle 1 – paragraph 1 – point 19, Article 84 – paragraph 1 – point a – point i – indent 1: — where the subsidiary is an undertaking referred to in Article 81(1), points (a)(i) to (a)(iii) and point (a)(v) of this Regulation, the sum of the requirement laid down in Article 92(1), point (a) of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital, as applicable;

AddedAmendments to Regulation (EU) No 575/2013

Change 2

ChangedRegulation (EU) No 575/2013 is amended as follows:

Change 3

RemovedArticle 1 – paragraph 1 – point 19, Article 84 – paragraph 1 – point a – point i – indent 2: — where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries, insofar as those requirements are to be met by Common Equity Tier 1 capital, as applicable;

Added(1) in Article 4, paragraph 1 is amended as follows:

RemovedRegulation (EU) No 575/2013

Added(-a) point (12) is deleted

RemovedArticle 1 – paragraph 1 – point 20, Article 85 – paragraph 1 – point a – point i – indent 1: — where the subsidiary is an undertaking referred to in Article 81(1), points (a)(i) to (a)(iii) and point (a)(v) of this Regulation, the sum of the requirement laid down in Article 92(1), point (b), of this Regulation the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 Capital, as applicable;

Added(a) points (15) and (16) are replaced by the following:

RemovedRegulation (EU) No 575/2013

Added‘(15) ‘parent undertaking’ means an undertaking that controls, in the meaning of point (37), one or more undertakings;

RemovedArticle 1 – paragraph 1 – point 20, Article 85 – paragraph 1 – point a – indent 2: — where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital, as applicable;

Added(16) ‘subsidiary’ means an undertaking that is controlled, in the meaning of point (37), by another undertaking;’;

RemovedRegulation (EU) No 575/2013

Added(b) point (18) is replaced by the following:

RemovedArticle 1 – paragraph 1 – point 20 a (new), Article 87 – paragraph 1 – point a: (20 a) Article 87(1), point (a) is replaced by the following: / "(a) the own funds of the subsidiary minus the lower of the following: / – where the subsidiary is an undertaking referred to in Article 81(1), points (a)(i) to (a)(iii) and point (a)(v), of this Regulation, the sum of the requirement laid down in Article 92(1), point (c), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by own funds , as applicable;; / –where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries insofar as those requirements are to be met by own funds, as applicable; / (ii) the amount of own funds that relates to the subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in Article 92(1), point (c), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/E…

Added‘(18) ‘ancillary services undertaking’ means an undertaking the principal activity of which, whether provided to undertakings inside the group or to clients outside the group, the competent authority is any of the following:

Removed(https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02013R0575-20230628&from=EN)

Added(a) a direct extension of banking;

RemovedRegulation (EU) No 575/2013

Added(b) operational leasing, factoring, the management of unit trusts, the ownership or management of property, the provision of data processing services or any other activity that is ancillary to banking;

RemovedArticle 1 – paragraph 1 – point 26, Article 104 – paragraph 2 – subparagraph 1– point d: (d) instruments classified unambiguously as having a trading purpose under the accounting framework applicable to the institution;

Added(c) any other activity considered similar by EBA to those mentioned in points (a) and (b);’;