Changes from report parliamentary committee draft to plenary report

Added(e) the institutions have in place adequate IT processes, systems and capabilities and have sufficient and accurate data for any model-based monitoring of the value of immovable property collateral and identification of properties in need of revaluation▌;

Added(f) the estimates of models are independently validated and the validation process is generally consistent with the principles set out in Article 185, where applicable and the independent valuer referred to in paragraph 3, point (b) is responsible for the final values used by the institution for the purposes of this Chapter.’;

Added(ba) the following paragraph 3b is inserted:

Added‘3b. The valuation criteria set out in Article 229(1) shall be taken into account for the purpose of monitoring and revaluation of the property value as set out in this Article.’;

Added(c) paragraph 5 is replaced by the following:

Added‘5. The immovable property taken as credit protection shall be adequately insured against the risk of damage and institutions shall have in place procedures to monitor the adequacy of the insurance.’;

Added(104) ▌Article 210 is amended as follows:

Added(a) in paragraph 1, the following subparagraph is added:

Added‘Where general security agreements, or other forms of floating charge, provide the lending institution with a registered claim over a company’s assets and where that claim contains both assets that are not eligible as collateral under the IRB Approach and assets that are eligible as collateral under the IRB Approach, the institution may recognise those latter assets as eligible funded credit protection. In that case, that recognition shall be conditional on those assets meeting the requirements for eligibility of collateral under the IRB Approach as set out in this Chapter.’;

Added(b) the following paragraph is added:

Added‘2. For physical collateral, obsolescence of collateral shall also include ESG-related valuation considerations related to prohibitions or limitations imposed by the relevant Member States and Union legal and regulatory objectives and legislation, as well as, where relevant for internationally active institutions, third country objectives and regulations.’;

Added(105) in Article 213, paragraph 1 is replaced by the following:

Added‘1. Subject to Article 214(1), credit protection deriving from a guarantee or credit derivative shall qualify as eligible unfunded credit protection where all of the following conditions are met:

Added(a) the credit protection is direct;

Added(b) the extent of the credit protection is clearly set out and incontrovertible;

Added(c) the credit protection contract does not contain any clause, the fulfilment of which is outside the direct control of the lending institution, that:

Added(i) would allow the protection provider to cancel or change the credit protection unilaterally;

Added(ii) would increase the effective cost of the credit protection as a result of a deterioration in the credit quality of the protected exposure;

Added(iii) could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original obligor fails to make any payments due, or where the leasing contract has expired for the purposes of recognising guaranteed residual value under Articles 134(7) and 166(4);

Added(iv) could allow the maturity of the credit protection to be reduced by the protection provider;

Added(d) the credit protection contract is legally effective and enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement.

AddedFor the purposes of point (c), a clause in the credit protection contract providing that faulty due diligence or fraud by the lending institution or by the debtor cancels or diminishes the extent of the credit protection offered by the guarantor, shall not disqualify that credit protection from being eligible.

Added▌

AddedFor the purposes of point (c), the protection provider may make one lump sum payment of all monies due under the claim, or may assume the future payment obligations of the obligor covered by the credit protection contract.’;

Added(106) Article 215 is amended as follows:

Added(a) paragraph 1 is amended as follows:

Added(i) point (a) is replaced by the following:

Added‘(a) on the qualifying default of or non-payment by the obligor, the lending institution has the right to pursue, in a timely manner, the guarantor for any monies due under the claim in respect of which the protection is provided.’;

Added(ii) the following subparagraphs are added:

Added‘The payment by the guarantor shall not be subject to the lending institution first having to pursue the obligor.

AddedIn the case of unfunded credit protection covering residential mortgage loans, the requirements in Article 213(1), point (c)(iii), and in the first subparagraph of this point, shall only have to be satisfied within 24 months.’;

Added(b) paragraph 2 is replaced by the following:

Added‘2. In the case of guarantees provided in the context of mutual guarantee schemes or provided by or counter-guaranteed by entities as listed in Article 214(2), the requirements in paragraph 1, point (a), of this Article and in Article 213(1), point (c)(iii) shall be considered to be satisfied where either of the following conditions is met:

Added(a) pursuant to the default of the obligor or to the event that the original obligor fails to make any payments due, the lending institution has the right to obtain in a timely manner a provisional payment by the guarantor that meets both the following conditions:

Added(i) the provisional payment represents a robust estimate of the amount of the loss that the lending institution is likely to incur, including losses resulting from the non-payment of interest and other types of payment which the borrower is obliged to make;

Added(ii) the provisional payment is proportional to the coverage of the guarantee;

Added(b) the lending institution can demonstrate to the satisfaction of the competent authorities that the effects of the guarantee, which shall also cover losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make, justify such treatment.’;

Added(107) in Article 216, the following paragraph 3 is added:

Added‘3. By way of derogation from paragraph 1, for a corporate exposure covered by a credit derivative, the credit event referred to in point (a)(iii) of that paragraph shall not need to be specified in the derivative contract provided that all of the following conditions are met:

Added(a) a 100 % vote is needed to amend the maturity, principal, coupon, currency or seniority status of the underlying corporate exposure;

Added(b) the legal domicile in which the corporate exposure is governed has a well-established bankruptcy code that allows for a company to reorganise and restructure, and provides for an orderly settlement of creditor claims.

AddedWhere the conditions laid down in point (a) and (b) are not met, the credit protection may nonetheless be eligible subject to a reduction in the value as specified in Article 233(2).’;

Added(108) Article 217 is deleted;

Added(109) Article 219 is replaced by the following:

Added‘Article 219 On-balance sheet netting

AddedLoans to and deposits with the lending institution subject to on-balance sheet netting shall be treated by that institution as cash collateral for the purposes of calculating the effect of funded credit protection for those loans and deposits of the lending institution subject to on-balance sheet netting.’;

Added(110) Article 220 is amended as follows:

Added(a) the title is replaced by the following:

Added‘Using the Supervisory Volatility Adjustments Approach for master netting agreements’;

Added(b) paragraph 1 is replaced by the following:

Added‘1. Institutions that calculate the ‘fully adjusted exposure value’ (E*) for the exposures subject to an eligible master netting agreement covering securities financing transactions or other capital market-driven transactions shall calculate the volatility adjustments that they need to apply by using the Supervisory Volatility Adjustments Approach set out in Articles 223 to 227 for the Financial Collateral Comprehensive Method.’;

Added(c) in paragraph 2, point (c) is replaced by the following:

Added‘(c) apply the value of the volatility adjustment, or, where relevant, the absolute value volatility adjustment appropriate for a given group of securities or for a given type of commodities, to the absolute value of the positive or negative net position in the securities in that group of securities, or to the commodities from that type of commodities;’;

Added(d) paragraph 3 is replaced by the following:

Added‘3. Institutions shall calculate E* in accordance with the following formula:

Addedwhere:

Addedi = the index that denotes all separate securities, commodities or cash positions under the agreement, that are either lent, sold with an agreement to repurchase, or posted by the institution to the counterparty;

Addedj = the index that denotes all separate securities, commodities or cash positions under the agreement that are either borrowed, purchased with an agreement to resell, or held by the institution;

Addedk = the index that denotes all separate currencies in which any securities, commodities or cash positions under the agreement are denominated;

Added= the exposure value of a given security commodity or cash position i, that is either lent, sold with an agreement to repurchase, or posted to the counterparty under the agreement that would apply in the absence of credit protection, where institutions calculate the risk weighted exposure amounts in accordance with Chapter 2 or Chapter 3, as applicable;