Changes from report parliamentary committee draft to plenary report

Added(b) that institutions using the alternative standardised approach set out in Part Three, Title IV, Chapter 1a of Regulation (EU) No 575/2013 report the results of their calculations for their exposures or positions that are included in the benchmark portfolios;

Added(c) that institutions permitted to use internal approaches under Part Three, Title II, Chapter 3 of Regulation (EU) No 575/2013, as well as relevant institutions that apply the standardised approach under Part Three, Title II, Chapter 2 of that Regulation, report the results of the calculations of the approaches used for the purpose of determining the amount of expected credit losses for their exposures or positions that are included in the benchmark portfolios, where any of the following conditions is met:

Added(i) institutions prepare their accounts in conformity with the international accounting standards adopted in accordance with Article 6(2) of Regulation (EC) No 1606/2002;

Added(ii) institutions perform the valuation of assets and off-balance sheet items and the determination of their own funds in conformity with the international accounting standards pursuant to Article 24(2) of Regulation (EU) No 575/2013;

Added(iii) institutions perform the valuation of assets and off-balance sheet items in conformity with accounting standards under Directive 86/635/EEC*12 and they use an expected credit loss model that is the same as the one used in international accounting standards adopted in accordance with Article 6(2) of Regulation (EC) No 1606/2002.

AddedInstitutions shall submit the results of their calculations referred to in the first subparagraph together with an explanation of the methodologies used to produce them and any qualitative information, as requested by EBA, that can explain the impact of these calculations on own funds requirements, to the competent authorities at least annually, unless the EBA conducts the exercise biennially, while the frequency of the submission may differ in relation to the different approaches referred to in points (a), (b) and (c) of the first subparagraph.’; .

Added(c) paragraph 3 is amended as follows:

Added(i) the introductory wording is replaced by the following:

Added‘Competent authorities shall, on the basis of the information submitted by institutions in accordance with paragraph 1, monitor the range of risk weighted exposure amounts or own funds requirements, as applicable, for the exposures or transactions in the benchmark portfolio resulting from the approaches of those institutions. Competent authorities shall make an assessment of the quality of those approaches with the frequency referred to in paragraph 1, second subparagraph, paying particular attention to:’;

Added(ii) the second subparagraph is replaced by the following:

Added‘EBA shall produce a report to assist the competent authorities in the assessment of the quality of the approaches based on the information referred to in paragraph 2.’;

Added(d) in paragraph 5, the introductory sentence is replaced by the following:

Added‘The competent authorities shall ensure that their decisions on the appropriateness of corrective actions as referred to in paragraph 4, comply with the principle that such actions must maintain the objectives of the approaches within the scope of this Article and therefore do not:’;

Added(e) paragraph 6 is replaced by the following:

Added‘6. EBA may issue guidelines and recommendations in accordance with Article 16 of Regulation (EU) No 1093/2010 where it considers them necessary on the basis of the information and assessments referred to in paragraphs 2 and 3 of this Article in order to improve supervisory practices or practices of institutions with regard to the approaches within the scope of the supervisory benchmarking.’;

Added(f) paragraph 8 is amended as follows:

Added(i) in the first subparagraph, the following point (c) is added:

Added‘(c) the list of relevant institutions referred to in paragraph 1, point (c).’;

Added(ii) the following second subparagraph is inserted:

Added‘For the purposes of point (c), when determining the list of relevant institutions EBA shall take into account proportionality considerations.’;

Added_______

Added*12 Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions (OJ L 372, 31.12.1986, p. 1).

Added(16) paragraph 1 of Article 85 is amended as follows:

Added“1. Competent authorities shall ensure that institutions implement policies and processes to evaluate and manage the exposures to operational risk, including risks resulting from outsourcing, and to cover low-frequency high-severity events. Institutions shall articulate what constitutes operational risk for the purposes of those policies and procedures.”

Added(17) a new Article 87a is inserted:

Added‘Article 87a Environmental, social and governance risks

Added1. Competent authorities shall ensure that institutions have, as part of their robust governance arrangements including risk management framework required under Article 74(1), robust strategies, policies, processes and systems for the identification, measurement, management and monitoring of environmental, social and governance risks over an appropriate set of time horizons.

Added2. The strategies, policies, processes and systems referred to in paragraph 1 shall be proportionate to the scale, nature and complexity of the environmental, social and governance risks of the business model and scope of the institution’s activities, and consider short, medium and a long-term horizon of at least 10 years.

Added3. Competent authorities shall ensure that institutions test their resilience to long-term negative impacts of environmental, social and governance factors, both under baseline and adverse scenarios within a given timeframe, starting with climate-related factors. For the testing, competent authorities shall ensure that institutions include a number of environmental, and social and governance scenarios reflecting potential impacts of environmental and social changes and associated public policies on the long-term business environment. Competent authorities shall ensure that for the testing, institutions use credible scenarios, based on the scenarios elaborated by international organisations.

Added4. Competent authorities shall assess and monitor developments of institutions’ practices concerning their environmental, social and governance strategy and risk management, including the plans to be prepared in accordance with Article 76, as well as the progress made and the risks to adapt their business models to the relevant applicable regulatory objectives towards a sustainable economy, taking into account ▌related loan origination policies, and environmental, social and governance related targets and limits. Competent authorities shall verify the robustness of those plans as part of the supervisory review and evaluation process.

AddedWhere relevant, for the assessment referred to in the first subparagraph, Competent authorities may cooperate with authorities or public bodies in charge of climate change and environmental supervision.

Added5. EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to specify:

Added(a) minimum standards and reference methodologies for the identification, measurement, management and monitoring of environmental, social and governance risks;

Added(b) the content of plans to be prepared in accordance with Article 76(2), which shall include specific timelines and intermediate quantifiable targets and milestones, in order to monitor and address the financial risks stemming from ESG factors, including those arising from the transition and the process of adjustment to the applicable regulatory objectives towards a sustainable economy, in particular the objective to achieve climate neutrality by 2050 as set out in Regulation (EU) 2021/1119;

Added(c) qualitative and quantitative criteria for the assessment of the impact of environmental, social and governance risks on the financial stability of institutions in the short, medium and long term;

Added(d) criteria for setting the scenarios and methods referred to in paragraph 3, including the parameters and assumptions to be used in each of the scenarios and specific risks.

AddedWhere relevant, the targets, methodologies and the content of the plans, including targets criteria and commitments included in the plans, refered to in Directive 2013/34/EU shall be consistent with the criteria, methodologies and the targets as mentioned in (a), (b), (c) and (d) of this paragraph and shall be consistent with assumptions and commitments included in the plans.

AddedEBA shall publish the guidelines referred to in point (b) of the first subparagraph by [OP please insert the date = 12 months from the date of entry into force of this amending Directive], the guidelines referred to in point (d) of the first subparagraph by [OP please insert the date = 18 months from the date of entry into force of this amending Directive] and the the guidelines referred to in points (a) and (c) of the first subparagraph by [OP please insert the date = 24 months from the date of entry into force of this amending Directive]. EBA shall update those guidelines on a regular basis, to reflect the progress made in measuring and managing environmental, social and governance factors as well as the developments of policy objectives of the Union on sustainability.’;

Added(18) Article 88 is amended as follows:

Added(a) in paragraph 1, point (e) is replaced by the following:

Added‘(e) the chairman of the management body in its supervisory function of an institution may not exercise simultaneously the functions of a chief executive officer within the same institution.’;

Added(b) in Article 88, the following paragraph 3 is added:

Added‘3. Member States shall ensure that institutions draw up, maintain and update individual statements setting out the roles and duties of each member of the management body, senior management and key function holders and a mapping of duties, including details of the reporting lines and the lines of responsibility, and the persons who are part of the governance arrangements as referred to in Article 74 (1) and their duties approved by the management body.

AddedMember States shall ensure that the statements of duties and the mapping of the duties are made available and communicated in due time, upon request, to the competent authorities.

Added▌

Added(19) Article 91 is replaced by the following:

Added‘Article 91 Suitability criteria for members of the management body of the entities

Added1. Institutions and financial holding companies and mixed financial holding companies, as approved pursuant to Article 21a(1),(“the entities”), shall have the primary responsibility for ensuring that members of the management body are at all times of good repute, act with honesty integrity and independence and possess sufficient knowledge, skills and experience to perform their duties and fulfil the requirements set out in paragraphs 2 to 8 of this Article. The absence of a criminal conviction or of ongoing prosecutions for a criminal offence shall not in itself be sufficient to fulfil the requirement to be of good repute and act with honesty and integrity.

AddedCompetent authorities shall in particular verify whether the criteria and requirements set out in the first subparagraph of this Article are still fulfilled where they have reasonable grounds to suspect that money laundering or terrorist financing within the meaning of Article 1 of Directive (EU) 2015/849 is being or has been committed or attempted, or there is increased risk thereof in connection with that institution.

Added2. Each member of the management body shall commit sufficient time to perform his or her functions in the entities.

Added3. Each member of the management body shall act with honesty, integrity and independence of mind to effectively assess and challenge the decisions of the senior management where necessary and to effectively oversee and monitor management decision-making. Being a member of the management body of a credit institution permanently affiliated to a central body shall not in itself constitute an obstacle for acting with independence of mind.

Added4. The management body shall possess collective knowledge, skills and experience to be able to adequately understand the institution's activities, as well as the associated risks it is exposed to, in the short, medium and long term, taking into account the environmental, social and governance factors. The overall composition of the management body shall be sufficiently diversified to reflect an adequately broad range of experience.

Added5. The number of directorships which a member of the management body may hold simultaneously shall take into account individual circumstances and the nature, scale and complexity of the institution's activities. Unless where members of the management body represent the interests of a Member State, members of the management body of an institution that is significant in terms of its size, internal organisation and the nature, the scope and the complexity of its activities shall, from 1 July 2014, not hold more than one of the following combinations of directorships simultaneously:

Added(a) one executive directorship with two non-executive directorships;

Added(b) four non-executive directorships.

Added6. For the purposes of paragraph 5, the following shall count as a single directorship:

Added(a) executive or non-executive directorships held within the same group.

Added(b) executive or non-executive directorships held within either of the following:

Added(i) institutions which are members of the same institutional protection scheme provided that the conditions set out in Article 113(7) of Regulation (EU) No 575/2013 are fulfilled;

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