Changes from report parliamentary committee draft to plenary report

RemovedDirective 2013/36/EU

Added(9) In some situations (for instance when entities established in various Member States are involved), operations might require multiple notifications and assessments from different competent authorities, including from AML/CFT authorities, requiring an efficient cooperation among those authorities. It is therefore necessary to precise cooperation obligations, in particular early cross notifications, smooth exchange of information and coordination in the assessment.

RemovedArticle 1 – paragraph 1 – point 6, Article 21c – paragraph 2: 2. Where a retail client, an eligible counterparty or a professional client within the meaning of Sections I and II of Annex II to Directive 2014/65/EU established or situated in the Union approaches an undertaking established in a third country at its own exclusive initiative for the provision of any service or activity referred to in Article 47(1), the requirement laid down in paragraph 1 of this Article shall not apply to the provision to that person of the relevant service or activity, including a relationship specifically related to the provision of that service or activity. Where a third country undertaking, including through an entity acting on its behalf or having close links with such third-country undertaking or any other person acting on behalf of such undertaking, solicits clients or potential clients in the Union, it shall not be deemed to be a service provided at the own exclusive initiative of the client.

Added(10) It is necessary to align provisions related to the acquisition of a qualifying holding in a credit institution with provisions on the acquisition of a qualifying holding by an institution, in case both assessments have to be undertaken for the same operation. Indeed, without proper articulation these provisions could lead to inconsistencies in the assessment undertaken by competent authorities, and ultimately the decisions taken by them. It is therefore necessary to provide for similar additional time provided to competent authorities to acknowledge receipt of the notification when the operation is considered complex.

RemovedDirective 2013/36/EU

Added(11) EBA should be mandated to develop regulatory technical standards and implementing technical standards to ensure an appropriate framing of the use of those additional supervisory powers. Those regulatory technical standards and implementing technical standards should, in particular, specify the information to be received by the competent authorities, the elements to be assessed, and cooperation when more than one competent authorities are involved. Those various elements are crucial to ensure that a sufficiently harmonised supervisory methodology allows provisions on the additional powers to be implemented efficiently, with the minimum possible additional administrative burden.

RemovedArticle 1 – paragraph 1 – point 6 a (new), Article 22 – paragraph 2 – subparagraph 1 a (new): (6a) In Article 22(2) after the first subparagraph the following subparagraph is inserted: / ‘By way of derogation from the first subparagraph of this paragraph, when the proposed acquisition referred to in paragraph 1 is deemed complex by the competent authorities, acknowledgment of the receipt of the notification or of any further information shall be done promptly and in any event within ten working days of the receipt of that notification or of the additional information.’

Added(12) It is crucial that credit institutions, financial holding companies and mixed financial holding companies comply with the prudential requirements to ensure their safety and soundness and preserve the stability of the financial system, both at the level of the Union as a whole and in each Member State. Therefore, the ECB and national competent authorities should have the power to take timely and decisive measures where those credit institutions, financial holding companies and mixed financial holding companies and their effective managers fail to comply with the prudential requirements or supervisory decisions.

RemovedDirective 2013/36/EU

Added(12a) Competent authorities responsible for the implementation of this Directive and of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions are expected to ensure an appropriate balance of prudential requirements within banking groups in order to guarantee that the group and each of its subsidiaries are resilient and capable of supporting their customers, also in distressed situations; and to take into account the efficiency of group risk management while ensuring that sufficient safeguards are in place to ensure financial stability in all Member States. To this end, competent authorities and resolution authorities require institutions to maintain an appropriate level of capital and liquidity, and rely on recovery and resolution plans to make sure that losses can be properly distributed across the group and liquidity can flow where needed at times of stress. This should be complemented with additional powers under Regulation (EU) No 806/2014 for competent authorities to be able as part of their early intervention measures to require a parent institution to execute group recovery plans when only its subsidiaries meet recovery indicators, in the case that the banking group has also entered into a group financial support agreement. These additional powers should be introduced on the occasion of the forthcoming review of the EU crisis management framework.

RemovedArticle 1 – paragraph 1 – point 6 b (new), Article 23 – paragraph 1 – subparagraph 1 a (new): (6b) in Article 23(1), the following subparagraph is added: / ‘For the purposes of assessing the criterion laid down in paragraph 1, point (e) of this Article, competent authorities shall consult, in the context of their verifications, the authorities competent for the supervision of the undertakings in line with Directive (EU) 2015/849.’

Added(13) To ensure a level playing field in the area of sanctioning powers, Member States should be required to provide for effective, proportionate and dissuasive administrative penalties, periodic penalty payments and other administrative measures in relation to breaches of national provisions transposing this Directive and breaches of Regulation (EU) No 575/2013 of the European Parliament and of the Council. In particular, Member States can impose administrative penalties where the relevant breach is also subject to national criminal law. Those administrative penalties, periodic penalty payments and other administrative measures should meet certain minimum requirements, including the minimum powers that should be vested on competent authorities to be able to impose them, the criteria that competent authorities should take into account in their application, publication requirements or the levels of administrative penalties and periodic penalty payments. Member States should lay down specific rules and effective mechanisms regarding the application of periodic penalty payments.

RemovedDirective 2013/36/EU

Added(14) Administrative pecuniary penalties should have a deterrent effect in order to prevent the natural or legal person in breach of national provisions transposing Directive 2013/36/EU or in breach of Regulation (EU) No 575/2013 from engaging in the same or similar conduct in the future. Member States should be required to provide for administrative penalties, which are effective, proportionate and dissuasive. Furthermore, competent authorities should have regard to any previous criminal penalties that may have been imposed on the same natural or legal person responsible for the same breach when determining the type of administrative penalties or other administrative measures and the level of administrative pecuniary penalties. This is to ensure that the severity of all the penalties and other administrative measures imposed for punitive purposes in case of accumulation of administrative and criminal proceedings is limited to what is necessary in the view of the seriousness of the breach concerned. To that end, it is essential to enhance the cooperation between competent authorities and judicial authorities in the case of accumulation of administrative and criminal proceedings against the same persons responsible for the same breach. Member States should lay down specific rules and mechanisms to facilitate such cooperation.

RemovedArticle 1 – paragraph 1 – point 6 c (new), Article 23 – paragraph 2 – subparagraph 1 a (new): (6c) in Article 23(2), the following subparagraph is added: / ‘For the purpose of this paragraph and with regard to the criterion laid down in paragraph 1, point (e) of this Article, an objection in writing by the authorities competent for the supervision of the undertakings in line with Directive (EU) 2015/849 shall constitute reasonable grounds for opposition.’

Added(15) Competent authorities should be able to impose administrative penalties on the same natural or legal person responsible for the same acts or omissions. However, such accumulation of proceedings and penalties on the same breach should pursue different objectives of general interest. Member States should lay down rules to provide for an appropriate coordination between administrative and criminal proceedings. Such rules should limit the imposition of accumulative penalties in relation to the same breach on the natural or legal person concerned to the strictly necessary in order to meet those different objectives. Furthermore, Member States should lay down rules to ensure that the severity of all the administrative and criminal penalties and other measures imposed in cases of accumulation of proceedings are limited to what is necessary in view of the seriousness of the breach concerned. Member States should also ensure that such duplication of proceedings and subsequent penalties comply with the ne bis in idem principle and that the rights of the natural or legal person concerned are duly protected.

RemovedDirective 2013/36/EU

Added(16) Administrative pecuniary penalties on legal persons should be applied consistently, in particular as regards the determination of the maximum amount of administrative penalties, which should take into account the total annual net turnover of the relevant undertaking. However, the current definition of the total annual net turnover in Directive 2013/36/EU is neither exhaustive enough nor sufficiently clear and complete to ensure a level playing field in the application of administrative pecuniary penalties. Therefore, it is necessary to clarify several elements of the current definition of total annual net turnover in order to avoid an inconsistent interpretation.

RemovedArticle 1 – paragraph 1 – point 6 d (new), Article 23 – paragraph 6 (new): (6d) in Article 23, the following paragraph is added: / ‘6. EBA shall develop draft regulatory technical standards specifying the minimum list of information to be provided to the competent authorities at the time of the notification referred to in paragraph 1. / For the purpose of the first subparagraph of this paragraph, EBA shall take into consideration Directive (EU) 2017/1132. / EBA shall submit those draft implementing technical standards to the Commission by ... [18 months from the date of entry into force of this amending Directive]. / Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1093/2010.’

Added(17) In addition to administrative penalties, competent authorities should be empowered to impose periodic penalty payments on credit institutions, financial holding companies, mixed financial holding companies and their effective managers for failure to comply with their obligations under Directive 2013/36/EU, Regulation (EU) No 575/2013 or a decision issued by a competent authority. Those enforcement measures should be imposed where a breach of a requirement or supervisory decision of the competent authority is continuing. Competent authorities should be able to impose those enforcement measures without having to address a prior request, order or warning to the party in breach. Since the purpose of the periodic penalty payments is to compel natural or legal persons to terminate an ongoing breach, the application of periodic penalty payments should not prevent competent authorities from imposing subsequent administrative penalties for the same breach.

RemovedDirective 2013/36/EU

Added(18) It is necessary to lay down administrative penalties, periodic penalty payments and other administrative measures in order to ensure the greatest possible scope for action following a breach and to help prevent further breaches, irrespective of their qualification as an administrative penalty or other administrative measure under national law. Member States should therefore be able to provide for additional penalties and higher level of administrative pecuniary penalties.

RemovedArticle 1 – paragraph 1 – point 7, Chapter 3 – title: Acquisition or divesture of a material holding

Added(19) Competent authorities should impose periodic penalty payments that are proportionate and effective. Accordingly, the competent authority should take into account the potential impact of the periodic penalty payment on the financial situation of the legal or natural person in breach, and seek to avoid that the penalty would cause the legal or natural person in breach to become insolvent, lead it to serious financial distress or represent a disproportionate percentage of its total annual turnover.

RemovedDirective 2013/36/EU

Added(20) By way of derogation, restricted only to those limited situations where the legal system of the Member State does not allow the administrative penalties provided for in this Directive, it should be possible to exceptionally apply the rules on administrative penalties ▌in such a manner that the penalty is initiated by the competent authority and imposed by judicial authorities. Therefore, it is necessary that those Member States still ensure that the application of the rules and penalties has an effect equivalent to the administrative penalties imposed by the competent authorities. When imposing such penalties, judicial authorities should take into account the recommendation by the competent authority initiating the penalty. The penalties imposed should be effective, proportionate and dissuasive.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 1: 1. Member States shall require any institution or any financial holding company or mixed financial holding company within the scope of Article 21a(1) (the “acquirer”) to notify their competent authority where they intend to acquire, directly or indirectly, a holding which exceeds 15 % of the eligible capital of the acquirer on a consolidated basis (the “proposed acquisition”), indicating the size of the intended holding and the relevant information, as specified in Article 27b(5).

Added(21) In order to provide for appropriate sanctions for breaches of national provisions transposing Directive 2013/36/EU and Regulation (EU) No 575/2013, the list of breaches subject to administrative penalties, periodic penalty payments and other administrative measures should be supplemented. Therefore, the list of breaches under Article 67 of Directive 2013/36/EU should be amended.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 2 – subparagraph 2: By way of derogation from Article 27a(1) and (2), when the proposed acquisition referred to in paragraph 1 is deemed complex by the competent authorities, acknowledgment of the receipt of the notification or of any additional information shall be done promptly and in any event within ten working days following the receipt of that notification.

Added(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.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 3 – subparagraph 1: The competent authorities shall have 60 working days from the date of the written acknowledgement of receipt of the notification and from the receipt of all documents, including those required by the Member State to be attached to the notification in accordance with Article 27b(5) (the “assessment period”), to carry out the assessment provided for in Article 27b(1) (the “assessment”).

Added(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.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 3 – subparagraph 2: If the proposed acquisition consists in a qualifying holding in a credit institution as referred in Article 22(1), the acquirer shall also still be subject to the notification requirement and the assessment under that Article. In that event, the period for the competent authority to carry out both assessments referred to in the first subparagraph of this paragraph and in Article 22(2) shall expire only when the latter of the relevant assessment periods expires.

Added(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.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 4: 4. The competent authorities shall inform the proposed acquirer of the date of the expiry of the assessment period at the time of acknowledging receipt referred to in paragraph 2.

Added(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.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 7 – introductory part: 7. The competent authorities may extend the suspension referred to in the second sentence of paragraph 6 up to 30 working days in the following situations:

Added(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.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 8: deleted

Added(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.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27a – paragraph 12: 12. Member States may not impose requirements for notification to, or approval by, competent authorities of direct or indirect acquisitions that are more stringent than those set out in this Article.

Added(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.

RemovedDirective 2013/36/EU

Added(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.

RemovedArticle 1 – paragraph 1 – point 7, Article 27b – paragraph 3 – subparagraph 1: 3. The competent authorities may oppose the proposed acquisition only if there are reasonable grounds for doing so on the basis of the criteria set out in paragraph 1 of this Article or if the information provided by the acquirer is incomplete, despite a request made in accordance with Article 27a(5).

Added(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).