European Communities (Capital Adequacy of Credit Institutions) Regulations 2006
Statutory Instruments
Source: Statutory Instruments

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paragraphs: Citation and commencement.
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paragraphs: Interpretation.
PART 2
OWN FUNDS
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paragraphs: Unconsolidated own funds of credit institutions.
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paragraphs: Waiver of Regulation 3(2)(d) to (h).
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paragraphs: Alternative to deduction of items referred to in Regulation 3(2)(g) and (h).
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paragraphs: Circumstances in which certain credit institutions need not deduct items referred to in Regulation 3(2)(d) to (h).
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paragraphs: Requirements applicable to items referred to in Regulation 3(1)(a), (b) and (c).
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paragraphs: Other items.
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paragraphs: Fixed term cumulative preferential shares and subordinated loan capital, etc.
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paragraphs: Consolidated amounts relating to items listed under Regulation 3.
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paragraphs: Limits on items referred to in Regulation 3.
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paragraphs: Compliance with this Part.
PART 3
PROVISIONS AGAINST RISKS
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paragraphs: Where compliance must be on an individual basis.
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paragraphs: Discretion of Bank to allow parent credit institutions to incorporate subsidiaries in calculation requirements under Regulation 13(1).
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paragraphs: Application of Regulations 13 and 14 to parent credit institutions in the State, etc.
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paragraphs: Application of Part 11 to EU based parent credit institutions, etc.
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paragraphs: Discretion of Bank to exclude subsidiaries from consolidation, etc.
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paragraphs: Calculation of requirements.
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paragraphs: Minimum level of own funds.
PART 4
MINIMUM OWN FUNDS REQUIREMENTS FOR CREDIT RISK
Chapter 1
Definition of “exposure” and Approaches that may be used for Calculation under Regulation 19(a)
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paragraphs: Definition of “exposure”.
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paragraphs: Calculation of risk-weighted exposure amounts for purposes of Regulation 19(a).
Chapter 2
Standardised Approach
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paragraphs: Determination of exposure values.
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paragraphs: Classification of exposures.
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paragraphs: Calculation of risk-weighted exposure amounts.
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paragraphs: Use of ECAIs.
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paragraphs: Determination of credit quality steps to be associated with eligible ECAI.
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paragraphs: Use of credit assessments.
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paragraphs: Use of treatment accorded exposures in third countries.
Chapter 3
Internal Ratings Based Approach
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paragraphs: Permission to use IRB Approach is required.
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paragraphs: Implementation of IRB Approach.
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paragraphs: Classification of exposures.
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paragraphs: Calculation of risk-weights for various exposure classes.
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paragraphs: Calculation of EL.
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paragraphs: Circumstances in which Chapter 2 may be used for individual business lines.
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paragraphs: Transitional provisions for relevant data.
Chapter 4
Credit Risk Mitigation
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paragraphs: Definition of “lending credit institution”.
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paragraphs: Recognition of credit risk mitigation.
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paragraphs: Credit protection to be legally effective, etc.
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paragraphs: Use of credit risk mitigation.
Chapter 5
Securitization
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paragraphs: Calculation of risk-weighted amounts for securitization positions.
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paragraphs: Transfer of credit risk.
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paragraphs: Calculation of risk-weights under securitization.
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paragraphs: Use of ECAI credit assessments in securitization.
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paragraphs: Determination of credit quality steps to be associated with eligible ECAI.
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paragraphs: Use of credit assessments.
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paragraphs: Securitization of revolving exposures subject to early amortisation provision.
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paragraphs: Originator credit institution shall not provide support to securitization beyond contractual obligations.
PART 5
MINIMUM OWN FUNDS REQUIREMENTS FOR OPERATIONAL RISK
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paragraphs: Use of approaches for operational risk.
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paragraphs: Basic Indicator Approach.
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paragraphs: Standardised Approach.
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paragraphs: Advanced Measurement Approach.
PART 6
LARGE EXPOSURES
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paragraphs: Interpretation of Part 6.
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paragraphs: Calculation of exposures, etc.
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paragraphs: Large exposure to client or group of connected clients.
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paragraphs: Sound administrative and accounting procedures, etc. to identify and monitor large exposures.
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paragraphs: Reporting of large exposures.
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paragraphs: Intra-group loans.
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paragraphs: Requirements applicable to recognition of funded or unfunded credit protection.
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paragraphs: Exposures exempt from the application of Regulation 57.
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paragraphs: How collateral can be taken into account in calculating credit risk in large exposure.
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paragraphs: Action to be taken by credit institution when obligations in other provisions of this Part are disapplied.
PART 7
QUALIFYING HOLDINGS OUTSIDE FINANCIAL SECTOR
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paragraphs: Limits on qualifying holdings which may be held by credit institutions.
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paragraphs: Exclusions from Regulation 62(I) and (2).
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paragraphs: Discretions of Bank.
PART 8
CREDIT INSTITUTIONS' ASSESSMENT PROCESS
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paragraphs: Strategies and processes relating to amount, etc. of internal capital required.
PART 9
SUPERVISION AND DISCLOSURES BY COMPETENT AUTHORITIES
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paragraphs: Review and evaluation by Bank of credit institutions' compliance with recast Directive (CI).
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paragraphs: Joint decisions of competent authorities.
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paragraphs: Reporting by Bank.
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paragraphs: Persons who direct business of financial holding company to be of good repute.
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paragraphs: Actions to be taken by Bank if credit institution does not meet the requirements of these Regulations.
PART 10
DISCLOSURES BY COMPETENT AUTHORITIES
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paragraphs: Disclosures by competent authorities.
PART 11
DISCLOSURES BY CREDIT INSTITUTIONS
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paragraphs: Disclosures by credit institutions.
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paragraphs: Exemptions to disclosures required under Regulation 72.
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paragraphs: Publication of disclosures.
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paragraphs: Where disclosures are published.
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paragraphs: Powers of Bank relating to disclosures.
PART 12
AMENDMENTS TO EUROPEAN COMUNITIES (LICENSING AND SUPERVISION OF CREDIT INSTITUTIONS)REGULATIONS 1992
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paragraphs: Definition of “Principal Regulations”.
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paragraphs: Amendment of Regulation 3 of Principal Regulations.
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paragraphs: Amendment of Regulation 16 of Principal Regulations.
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paragraphs: Amendment of Regulation 20 of Principal Regulations.
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paragraphs: Amendment of Regulation 23 of Principal Regulations.
PART 13
TRANSITIONAL PROVISIONS
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paragraphs: Transitional provisions - general.
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paragraphs: Transitional provisions - calculation of risk-weighted exposure amounts for certain exposures, etc.
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paragraphs: Transitional provisions - discretions of Bank.
I, ______________________, Minister for Finance, in exercise of the powers conferred on me by section 3 of the European Communities Act 1972 (No. 27 of 1972), as amended by the European Communities (Amendment) Act 1993 (No. 25 of 1993), and for the purpose of giving effect to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast)1 , hereby make the following Regulations:
PART 1
Preliminary
Citation and commencement.
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paragraphs: (1) These Regulations may be cited as the European Communities (Capital Adequacy of Credit Institutions) Regulations 2006.
(2) Subject to Part 13 and paragraph (3), these Regulations shall come into operation on 1 January 2007.
(3) Regulations 32 and 51 shall come into operation on 1 January 2008.
Interpretation.
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paragraphs: (1) In these Regulations -
“Bank” means the Central Bank and Financial Services Authority of Ireland within the meaning of the Central Bank Act 1942 (No.22 of 1942) as amended by the Central Bank and Financial Services Authority of Ireland Act 2003 (No. 12 of 2003);
“competent authority” -
(a) in relation to the State, means the Bank, and
(b) in relation to any other Member State, means the body or bodies charged by law in the Member State with the supervision of credit institutions;
“CRD Regulations (IF)” means the European Communities (Capital Adequacy of Investment Firms) Regulations 2006 (S.I.[] of 2006);
“recast Directive (CI)” means Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).
(2) A word or expression that is used in these Regulations and is also used in the recast Directive (CI) shall have in these Regulations the same meaning as it has in the recast Directive (CI) unless the contrary intention appears.
PART 2
Own Funds
Unconsolidated own funds of credit institutions.
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paragraphs: (1) Subject to the limits imposed in Regulation 11, the unconsolidated own funds of a credit institution shall consist of the following items:
(a) capital within the meaning of Article 22 of Directive 86/635/EEC of the European Parliament and of the Council of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions2 , in so far as it has been paid up, plus share premium accounts but excluding cumulative preferential shares,
(b) subject to paragraphs (3) and (4), reserves within the meaning of Article 23 of Directive 86/635/EEC and profits and losses brought forward as a result of the application of the final profit or loss,
(c) revaluation reserves within the meaning of Article 33 of Directive 78/660/EEC of the European Parliament of the Council of 25 July 1978 on the annual accounts of certain types of companies3 ,
(d) other items within the meaning of Regulation 8, and
(e) fixed-term cumulative preferential shares and subordinated loan capital as referred to in Regulation 9(1).
(2) The following items shall be deducted from the unconsolidated own funds of a credit institution in accordance with Regulation 11:
(a) own shares at book value held by a credit institution,
(b) intangible assets within the meaning of Article 4(9) (“Assets”) of Directive 86/635/EEC,
(c) material losses of the current financial year,
(d) holdings in other credit and financial institutions amounting to more than 10% of their capital,
(e) subordinated claims and instruments referred to in Regulations 8 and 9(1) which the credit institution holds in respect of credit and financial institutions in which it has holdings exceeding 10% of the capital in each case,
(f) holdings in other credit and financial institutions of up to 10% of their capital, the subordinated claims and the instruments referred to in Regulations 8 and 9(1) which the credit institution holds in respect of credit and financial institutions other than those referred to in subparagraphs (d) and (e) in respect of the amount of the total of such holdings, subordinated claims and instruments which exceed 10% of the credit institution's own funds calculated before the deduction of items referred to in subparagraphs (d) to (h),
(g) participations within the meaning of Article 4(10) of the recast Directive (CI) which the credit institution holds in -
(i) insurance undertakings within the meaning of Article 6 of First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than a life assurance4 , Article 4 of Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance5 or Article 1(b) of Directive 98/78/EC of the European Parliament and of the Council of 27 October 1998 on the supplementary supervision of insurance undertakings in an insurance group6 ,
(ii) reinsurance undertakings within the meaning of Article 1(c) of Directive 98/78EC, or
(iii) insurance holding companies within the meaning of Article 1(i) of Directive 98/78/EC,
(h) each of the following items which the credit institution holds in respect of the entities defined in subparagraph (g) in which it holds a participation:
(i) instruments referred to in Article 16(3) of Directive 73/239/EEC, and
(ii) instruments referred to in Article 27(3) of Directive 2002/83/EC,
(i) for credit institutions calculating risk-weighted exposure amounts under Chapter 3 of Part 4, negative amounts resulting from the calculation in point 36 of Part 1 of Annex VII to the recast Directive (CI) and expected loss amounts calculated in accordance with points 32 and 33 of Part 1 of Annex VII to the recast Directive (CI),
(j) the exposure amount of securitisation positions which receive a risk-weight of 1250% under Part 4 of Annex IX to the recast Directive(CI), calculated in the manner therein specified, and
(k) any further reductions required by the Bank.
(3) For the purposes of paragraph (1)(b), interim profits may be included before a formal decision has been taken if those profits have been verified by persons responsible for the auditing of the accounts and if it is proved to the satisfaction of the Bank that the amount thereof has been evaluated in accordance with the principles set out in Directive 86/635/EEC and is net of any foreseeable charge or dividend.
(4) In the case of a credit institution which is the originator of a securitisation, net gains arising from the capitalisation of future income from the securitised assets and providing credit enhancement to positions in the securitisation shall be excluded from the item specified in paragraph (1)(b).
Waiver of Regulation 3(2)(d) to (h).
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paragraphs: The Bank may waive the provisions on deduction referred to in Regulation 3(2)(d) to (h) in any case where shares in another credit institution, financial institution, insurance or reinsurance undertaking or insurance holding company are held temporarily for the purposes of a financial assistance operation designed to reorganise and save that entity.
Alternative to deduction of items referred to in Regulation 3(2)(g) and (h).
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paragraphs: (1) Subject to paragraphs (2) and (3), a credit institution may, as an alternative to the deduction of the items referred to in Regulation 3(2)(g) and (h), apply, with all necessary modifications, methods 1, 2 or 3 of Annex I to Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate7 .
(2) A credit institution shall not use method 1 referred to in paragraph (1) as an alternative unless the Bank gives the institution notice that the Bank is confident about the level of integrated management and internal control regarding the entities which would be included in the scope of consolidation.
(3) A credit institution which uses a method referred to in paragraph (1) as an alternative shall apply the method in a consistent manner over time.
Circumstances in which certain credit institutions need not deduct items referred to in Regulation 3(2)(d) to (h).
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paragraphs: A credit institution subject to supervision on a consolidated basis in accordance with Part 9, or to supplementary supervision in accordance with Directive 2002/87/EC, need not, when it calculates own funds on a stand-alone basis, deduct the items referred to in Regulation 3(2)(d) to (h) which are held in credit institutions, financial institutions, insurance or reinsurance undertakings or insurance holding companies, which are included in the scope of consolidated or supplementary supervision.
Requirements applicable to items referred to in Regulation 3(1)(a), (b) and (c).
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paragraphs: The amounts of the items referred to in Regulation 3(1)(a), (b) and (c) of a credit institution shall be -
(a) available to a credit institution for unrestricted and immediate use to cover risks or losses as soon as they occur, and
(b) either -
(i) net of any foreseeable tax charge at the moment of their calculation, or
(ii) suitability adjusted in so far as such tax charge reduces the amount to which those items may be applied to cover risks or losses.
Other items.
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paragraphs: (1) The Bank may allow the inclusion of other items as own funds provided that, whatever their legal or accounting designations might be, they have the following characteristics:
(a) they are freely available to the credit institution to cover normal banking risks where revenue or capital losses have not yet been identified,
(b) their existence is disclosed in internal accounting records, and
(c) their amount is determined by the management of the credit institutions, verified by independent auditors, made known to the Bank and placed under the supervision of the latter.
(2) Securities of indeterminate duration and other instruments that fulfil the following conditions may also be accepted as other items:
(a) they may not be reimbursed on the bearer's initiative or without the prior agreement of the Bank,
(b) the debt agreement provides for the credit institution to have the option of deferring the payment of interest on the debt,
(c) the lender's claims on the credit institution is wholly subordinated to those of all non-subordinated creditors,
(d) the documents governing the issue of the securities provides for debt and unpaid interest to be such as to absorb losses, whilst leaving the credit institution in a position to continue trading, and
(e) only fully paid-up amounts are taken into account.
(3) Cumulative preferential shares (except those referred to in Regulation 3(1)(e)) may be included in the securities which fall within paragraph (2).
(4) For credit institutions calculating risk-weighted exposure amounts under Chapter 3 of Part 4 -
(a) positive amounts resulting from the calculation in point 36 of Part 1 of Annex VII to the recast Directive (CI) may, up to 0.6% of risk-weighted exposure amounts calculated under Chapter 3 of Part 4, be accepted as other items,
(b) value adjustments and provisions included in the calculation referred to in point 36 of Part 1 of Annex VII to the recast Directive (CI) shall not be included in own funds other than in accordance with this paragraph and paragraph (5).
(5) For the purposes of paragraph (4), risk-weighted exposure amounts shall not include those calculated in respect of securitization positions which have a risk-weight of 1250%.
Fixed-term cumulative preferential shares and subordinated loan capital, etc.
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paragraphs: (1) Own funds shall include fixed-term cumulative preferential shares referred to in Regulation 3(1)(e) and subordinated loan capital referred to in that Regulation in own funds, if binding agreements exist under which, in the event of the bankruptcy or liquidation of the credit institution, they rank after the claims of all other creditors and are not to be repaid until all other debts outstanding at the time have been settled.
(2) Subordinated loan capital shall fulfil the following additional criteria:
(a) only fully paid-up funds may be taken into account,
(b) the loans involved have an original maturity of at least five years, after which they may be repaid,
(c) the extent to which they may rank as own funds must be gradually reduced during at least the last five years before the repayment date, and
(d) the loan agreement does not include any clause providing that in specified circumstances, other than the winding-up of the credit institution, the debt will become repayable before the agreed repayment date.
(3) For the purposes of paragraph (2)(b), if the maturity of the debt is not fixed, the loans shall be repayable only subject to five years' notice unless the loans are no longer considered as own funds or unless the prior consent of the Bank is specifically required for early repayment.
(4) The Bank may give the consent referred to in paragraph (3) for the early repayment of such loans provided the request is made at the initiative of the issuer and the solvency of the credit institution in question is not affected.
(5) Credit institutions shall not include in own funds either the fair value reserves related to gains or losses on cash flow hedges of financial instruments measured at amortised cost, or any gains or losses on their liabilities valued at fair value that are due to changes in the credit institutions' own credit standing.
Consolidated amounts relating to items listed under Regulation 3.
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paragraphs: (1) Where the calculation is to be made on a consolidated basis, the consolidated amounts relating to the items listed under Regulation 3 shall be used in accordance with Part 9.
(2) The following may, when they are credit items, be regarded as consolidated reserves for the calculation of own funds:
(a) any minority interests within the meaning of Article 21 of Seventh Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts8 where the global integration method is used,
(b) the first consolidation difference within the meaning of Articles 19, 30 and 31 of Directive 83/349/EEC,
(c) the translation differences included in consolidated reserves in accordance with Article 39(6) of Directive 86/635/EEC, and
(d) any difference resulting from the inclusion of certain participating interests in accordance with the method prescribed in Article 33 of Directive 83/349/EEC.
(3) Where the items referred to in subparagraphs (a) to (d) of paragraph (2) are debit items, they shall be deducted in the calculation of consolidated own funds.
Limits on items referred to in Regulation 3.
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paragraphs: (1) The items referred to in subparagraphs (c), (d) and (e) of Regulation 3(1) shall be subject to the following limits:
(a) the total of those items shall not exceed a maximum of 100% of the total of the items referred to in subparagraphs (a) and (b) of Regulation 3(1) minus the total of the items referred to in subparagraphs (a), (b) and (c) of Regulation 3(2), and
(b) the items referred to in subparagraph (e) of Regulation 3(1) shall not exceed a maximum of 50% of the total of the items referred to in subparagraphs (a) and (b) of Regulation 3(1) minus the total of the items referred to in subparagraphs (a), (b) and (c) of Regulation 3(2).
(2) The total of the items referred to in subparagraphs (d) to (k) of Regulation 3(2) shall be deducted as follows:
(a) half from the total of the items referred to in subparagraphs (a) and (b) of Regulation 3(1) minus the total of the items referred to in subparagraphs (a), (b) and (c) of Regulation 3(2), and
(b) half from the total of the items referred to in subparagraphs (c), (d) and (e) of Regulation 3(1),
after the application of the limits set out in paragraph (1).
(3) To the extent that half of the total of the items referred to in subparagraphs (d) to (k) of Regulation 3(2) exceeds the total of the items referred to in subparagraphs (c), (d) and (e) of Regulation 3(1), the excess shall be deducted from the total of the items referred to in subparagraphs (a) and (b) of Regulation 3(1) minus the total of the items referred to in subparagraphs (a), (b) and (c) of Regulation 3(2).
(4) The item referred to in subparagraph (j) of Regulation 3(2) shall not be deducted if it has already been included in the calculation of risk-weighted exposure amounts for the purposes of Regulation 19 as specified in Part 4 of Annex IX to the recast Directive (CI).
(5) For the purposes of Parts 6 and 7, this Regulation shall be read without taking into account the items referred to in subparagraphs (i) and (j) of Regulation 3(2) and Regulation 8(4) and (5).
(6) The Bank may authorise credit institutions to exceed the limits set out in paragraph (1) in temporary and exceptional circumstances.
Compliance with this Part.
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paragraphs: Compliance with this Part shall be proved to the satisfaction of the Bank.
PART 3
PROVISIONS AGAINST RISKS
Where compliance must be on an individual basis.
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paragraphs: (1) Credit institutions shall comply with the obligations -
(a) under Regulation 16(3) and (4) (as inserted by Regulation 79) of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. 395 of 1992), and
(b) set out in Part 6,
on an individual basis.
(2) Every credit institution -
(a) which is neither a subsidiary in the Member State where it is authorised and supervised nor a parent undertaking, or
(b) which is not included in the consolidation pursuant to Regulation 17,
shall comply with the obligations set out in Regulations 62 and 65 on an individual basis.
(3) Every credit institution -
(a) which is neither a parent undertaking nor a subsidiary, or
(b) which is not included in the consolidation pursuant to Regulation 17,
shall comply with the obligations set out in Part 11 on an individual basis.
Discretion of Bank to allow parent credit institutions to incorporate subsidiaries in calculation of requirement under Regulation 13(1).
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paragraphs: (1) Subject to paragraphs (2) to (5), the Bank may allow, on a case by case basis, parent credit institutions to incorporate in the calculation of their requirement under Regulation 13(1) subsidiaries -
(a) which meet the conditions set out in points (c) and (d) of Article 69(1) of the recast Directive(CI), and
(b) the material exposures or material liabilities of which are to the parent credit institution concerned.
(2) The treatment referred to in paragraph (1) shall be allowed only where the parent credit institution demonstrates fully to the Bank the circumstances and arrangements, including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of own funds, or repayment of liabilities when due by the subsidiary to its parent undertaking.
(3) Where the Bank exercises its discretion in accordance with paragraph (1), it shall on a regular basis and not less than once a year inform the competent authorities of all the other Member States of the use made of that paragraph and of the circumstances and arrangements referred to in paragraph (2).
(4) Where the subsidiary is in a third country, the Bank shall provide the information referred to in paragraph (3) to the competent authorities of that third country on the same basis.
(5) Without prejudice to the generality of Regulation 71, the Bank shall publicly disclose, in the manner indicated in that Regulation -
(a) the criteria it applies to determine that there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities,
(b) the number of parent credit institutions which make use of paragraph (1) and the number of those which incorporate subsidiaries in a third country,
(c) on an aggregate basis for the State:
(i) the total amount of own funds of parent credit institutions which make use of paragraph (1) which are held in subsidiaries in a third country,
(ii) the percentage of total own funds of parent credit institutions which make use of paragraph (1) represented by own funds which are held in subsidiaries in a third country, and
(iii) the percentage of total minimum own funds required under Regulation 19 of parent credit institutions which make use of paragraph (1) represented by own funds which are held in subsidiaries in a third country.
Application of Regulations 13 and 14 to parent credit institutions in the State, etc.
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paragraphs: (1) Without prejudice to Regulations 13 and 14, parent credit institutions in the State shall comply, to the extent and in the manner prescribed in Article 133 of the recast Directive (CI), with the obligations set out in Regulations 19, 62 and 65 and Part 6 on the basis of their consolidated financial situation.
(2) Without prejudice to Regulations 13 and 14, credit institutions controlled by a parent financial holding company in the State shall comply, to the extent and in the manner prescribed in Article 133 of the recast Directive (CI), with the obligations set out in Regulations 19, 62 and 65 and Part 6 on the basis of the consolidated financial situation of that financial holding company.
(3) Where more than one credit institution is controlled by a parent financial holding company in the State, paragraph (1) shall apply only to the credit institution to which supervision on a consolidated basis applies in accordance with Articles 125 and 126 of the recast Directive (CI).
Application of Part 11 to EU based parent credit institutions, etc.
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paragraphs: (1) EU based parent credit institutions shall comply with the obligations set out in Part 11 on the basis of their consolidated financial situation.
(2) Significant subsidiaries of EU based parent credit institutions shall disclose the information specified in point 5 of Part 1 of Annex XII to the recast Directive (CI) on an individual or sub-consolidated basis.
(3) Credit institutions controlled by an EU based parent financial holding company shall comply with the obligations set out in Part 11 on the basis of the consolidated financial situation of that financial holding company.
(4) Significant subsidiaries of EU based parent financial holding companies shall disclose the information specified in point 5 of Part 1 of Annex XII to the recast Directive (CI) on an individual or sub-consolidated basis.
(5) The Bank, in respect of the institutions which it is responsible for exercising supervision on a consolidated basis pursuant to Articles 125 and 126 of the recast Directive (CI), may decide not to apply in full or in part paragraphs (1) to (4) to the credit institutions which are included within comparable disclosures provided on a consolidated basis by a parent undertaking established in a third country.
Discretion of Bank to exclude subsidiaries from consolidation, etc.
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paragraphs: (1) The Bank may decide in the following cases that a credit institution, financial institution or ancillary services undertaking which is a subsidiary or in which a participation is held need not be included in the consolidation:
(a) where the undertaking concerned is situated in a third country where there are legal impediments to the transfer of the necessary information,
(b) where, in the opinion of the Bank, the undertaking concerned is of negligible interest only with respect to the objectives of monitoring credit institutions and in any event where the balance-sheet total of the undertaking concerned is less than the smaller of the following two amounts:
(i) EUR 10 million, or
(ii) 1% of the balance-sheet total of the parent undertaking or the undertaking that holds the participation, or
(c) where, in the opinion of the Bank, the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of credit institutions are concerned.
(2) Where, in the cases referred to in paragraph (1)(b), several undertakings meet the criteria set out in that paragraph, they must nevertheless be included in the consolidation where collectively they are of non-negligible interest with respect to the specified objectives.
(3) The Bank shall require subsidiary credit institutions to apply the requirements set out in Regulations 19, 62 and 65 and Part 6 on a sub-consolidated basis if those credit institutions, or the parent undertaking where it is a financial holding company, have a credit institution or a financial institution or an asset management company as defined in Article 2(5) of Directive 2002/87/EC as a subsidiary in a third country, or hold a participation in such an undertaking.
(4) The Bank shall require the parent undertakings and subsidiaries subject to these Regulations to meet the obligations under in Regulation 16(3) and (4) (as inserted by Regulation 79) of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 on a consolidated or sub-consolidated basis, to ensure that their arrangements, processes and mechanisms are consistent and well-integrated and that any data and information relevant to the purpose of supervision can be produced.
Calculation of requirements.
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paragraphs: (1) Save where otherwise provided, the valuation of assets and off-balance-sheet items shall be effected in accordance with the accounting framework to which the credit institution is subject under Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on international accounting standards9 and Directive 86/635/EEC.
(2) Notwithstanding the requirements set out in Regulations 13 to 16, the calculations to verify the compliance of credit institutions with the obligations set out in Regulation 19 shall be carried out not less than twice in each year.
(3) The credit institutions shall communicate the results and any component data required to the Bank.
Minimum level of own funds.
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paragraphs: Without prejudice to Regulation 70, credit institutions shall provide own funds which are at all times more than or equal to the sum of the following capital requirements:
(a) for credit risk and dilution risk in respect of all of their business activities with the exception of their trading book business and illiquid assets if deducted from own funds under Regulation 11 of the CRD Regulations (IF), 8% of the total of their risk-weighted exposure amounts calculated in accordance with Part 4,
(b) in respect of their trading-book business, for position risk, settlement and counter-party risk and, in so far as the limits set out in Regulations 57 to 60 are authorised to be exceeded, for large exposures exceeding such limits, the capital requirements determined in accordance with Regulation 16 of the CRD Regulations (IF) and Chapter 4 of Part 5 of the CRD Regulations (IF),
(c) in respect of all of their business activities, for foreign-exchange risk and for commodities risk, the capital requirements determined in accordance with Regulation 16 of the CRD Regulations (IF), and
(d) in respect of all of their business activities, for operational risk, the capital requirements determined in accordance with Part 5.
PART 4
MINIMUM OWN FUNDS REQUIREMENTS FOR CREDIT RISK
Chapter 1
Definition of “exposure” and Approaches that may be used for Calculation under Regulation 19(a)
Definition of “exposure”.
num: 20
paragraphs: In this Part, “exposure” means an asset or off-balance sheet item.
Calculation of risk-weighted exposure amounts for purposes of Regulation 19(a).
num: 21
paragraphs: Credit institutions shall apply either the Standardised Approach provided for in Chapter 2 or, if permitted by the Bank in accordance with Regulation 29, the Internal Ratings Based Approach provided for in Chapter 3, to calculate their risk-weighted exposure amounts for the purposes of Regulation 19(a).
Chapter 2
Standardised Approach
Determination of exposure values.
num: 22
paragraphs: (1) Subject to paragraphs (4) and (5) -
(a) the exposure value of an asset item shall be its balance-sheet value, and
(b) the exposure value of an off-balance sheet item listed in Annex II of the recast Directive (CI) shall be the following percentage of its value:
(i) 100% if it is a full-risk item,
(ii) 50% if it is a medium-risk item,
(iii) 20% if it is a medium/low-risk item,
(iv) 0% if it is a low-risk item.
(2) The off-balance-sheet items referred to in paragraph (1)(b) shall be assigned to risk categories as indicated in Annex II of the recast Directive (CI).
(3) In the case of a credit institution using the Financial Collateral Comprehensive Method under Part 3 of Annex VIII to the recast Directive (CI), where an exposure takes the form of securities or commodities sold, posted or lent under a repurchase transaction or under a securities or commodities lending or borrowing transaction, and margin lending transactions the exposure value shall be increased by the volatility adjustment appropriate to such securities or commodities as prescribed in points 34 to 59 of Part 3 of Annex VIII to the recast Directive (CI).
(4) The exposure value of a derivative instrument listed in Annex IV to the recast Directive (CI) shall be determined in accordance with Annex III to the recast Directive (CI) with the effects of contracts of novation and other netting agreements taken into account for the purposes of those methods in accordance with Annex III to the recast Directive (CI).
(5) The exposure value of repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions may be determined either in accordance with Annex III or VIII to the recast Directive (CI).
(6) Where an exposure is subject to funded credit protection, the exposure value applicable to that item may be modified in accordance with Chapter 4.
(7) Notwithstanding paragraphs (4) and (5), the exposure value of credit risk exposures outstanding, as determined by the Bank, with a central counterparty shall be determined in accordance with point 6 of Part 2 of Annex III to the recast Directive (CI), provided that the central counterparty's counterparty credit risk exposures with all participants in its arrangements are fully collateralised on a daily basis.
Classification of exposures.
num: 23
paragraphs: (1) Each exposure shall be assigned to one of the following exposure classes:
(a) claims or contingent claims on central governments or central banks,
(b) claims or contingent claims on regional governments or local authorities,
(c) claims or contingent claims on administrative bodies and non-commercial undertakings,
(d) claims or contingent claims on multilateral development banks,
(e) claims or contingent claims on international organisations,
(f) claims or contingent claims on institutions,
(g) claims or contingent claims on corporates,
(h) subject to paragraphs (2) to (5), retail claims or contingent retail claims,
(i) claims or contingent claims secured on real estate property,
(j) past due items,
(k) items belonging to regulatory high-risk categories,
(l) claims in the form of covered bonds,
(m) securitisation positions,
(n) short-term claims on institutions and corporates,
(o) claims in the form of collective investment undertakings (referred to in this Part as “CIU”), or
(p) other items.
(2) An exposure shall meet the following conditions to be eligible for the retail exposure class referred to in paragraph (1)(h):
(a) the exposure is either to an individual person or persons, or to a small or medium sized entity,
(b) the exposure is one of a significant number of exposures with similar characteristics such that the risks associated with such lending are substantially reduced, and
(c) the total amount owed to the credit institution and parent undertakings and its subsidiaries, including any past due exposure, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential real estate collateral, does not, to the knowledge of the credit institution, exceed EUR 1 million.
(3) A credit institution shall take reasonable steps to acquire the knowledge referred to in paragraph (2)(c).
(4) The present value of retail minimum lease payments is eligible for the retail exposure class.
(5) Securities are not eligible for the retail exposure class.
Calculation of risk-weighted exposure amounts.
num: 24
paragraphs: (1) To calculate risk-weighted exposure amounts, risk-weights shall be applied to all exposures, unless deducted from own funds, in accordance with Part 1 of Annex VI to the recast Directive (CI).
(2) The application of risk-weights shall be based on the exposure class to which the exposure is assigned and, to the extent specified in Part 1 of Annex VI to the recast Directive (CI), its credit quality .
(3) Credit quality may be determined by reference to the credit assessments of External Credit Assessment Institutions (referred to in this Part as “ECAIs”) in accordance with Regulations 25, 26 and 27 or the credit assessments of Export Credit Agencies as described in Part 1 of Annex VI to the recast Directive (CI).
(4) For the purposes of applying a risk-weight, as referred to in paragraphs (1), (2) and (3), the exposure value shall be multiplied by the risk-weight specified or determined in accordance with this Chapter.
(5) For the purposes of calculating risk-weighted exposure amounts for exposures to institutions, the exposure value shall be the method based on the credit quality of the counterparty institution in accordance with Annex VI to the recast Directive (CI).
(6) Notwithstanding paragraphs (1), (2) and (3), where an exposure is subject to credit protection, the risk-weight applicable to that exposure may be modified in accordance with Chapter 4.
(7) Risk-weighted exposure amounts for securitised exposures shall be calculated in accordance with Chapter 5.
(8) Exposures the calculation of risk-weighted exposure amounts for which is not otherwise provided for under this Chapter shall be assigned a risk-weight of 100%.
(9) With the exception of exposures giving rise to liabilities in the form of the items referred to in Regulation 3(1)(a) to (e), the Bank may exempt from the requirements of paragraphs (1), (2) and (3) the exposures of a credit institution to a counterparty which is its parent undertaking, its subsidiary or a subsidiary of its parent undertaking or an undertaking linked by a relationship with the meaning of Article 12(1) of Directive 83/349/EEC, provided that the following conditions are met:
(a) the counterparty is an institution or a financial holding company, financial institution, asset management company or ancillary services undertaking subject to appropriate prudential requirements,
(b) the counterparty is included in the same consolidation as the credit institution on a full basis,
(c) the counterparty is subject to the same risk evaluation, measurement and control procedures as the credit institution,
(d) the counterparty is established in the same Member State as the credit institution, and
(e) there is no current or foreseen material or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the credit institution.
(10) A risk-weight of 0% shall be assigned to an exposure exempted under paragraph (9).
(11) With the exception of exposures giving rise to liabilities in the form of the items referred to in Regulation 3(1)(a) to (e), the Bank may exempt from the requirements of paragraphs (1), (2) and (3) the exposures to counterparties which are members of the same institutional protection scheme as the lending credit institution, provided that the following conditions are met:
(a) the requirements set out in paragraph 9(a), (d) and (e),
(b) the credit institution and the counterparty have entered into a contractual or statutory liability arrangement which protects those institutions and in particular ensures their liquidity and solvency to avoid bankruptcy in case it becomes necessary (referred to in this Part as “institutional protection scheme”),
(c) the arrangements ensure that the institutional protection scheme will be able to grant support necessary under its commitment from funds readily available to it,
(d) the institutional protection scheme disposes of suitable and uniformly stipulated systems for the monitoring and classification of risk (which gives a complete overview of the risk situations of all the individual members and the institutional protection scheme as a whole) with corresponding possibilities to take influence; those systems shall suitably monitor defaulted exposures in accordance with point 44 of Part 4 of Annex VII to the recast Directive (CI)
(e) the institutional protection scheme conducts its own risk review which is communicated to the individual members,
(f) the institutional protection scheme draws up and publishes once in a year either -
(i) a consolidated report comprising the balance sheet, the profit and loss account, the situation report and the risk report, concerning the institutional protection scheme as a whole, or
(ii) a report comprising the aggregated balance sheet, the aggregated profit and loss account, the situation report and the risk report, concerning the institutional protection scheme as a whole,
(g) members of the institutional protection scheme are obliged to give advance notice of at least 24 months if they wish to end the arrangements,
(h) the multiple use of elements eligible for the calculation of own funds (in this Part referred to as “multiple gearing”) as well as any inappropriate creation of own funds between the members of the institutional protection scheme is eliminated,
(i) the institutional protection scheme is based on a broad membership of credit institutions of a predominantly homogeneous business profile, and
(j) the adequacy of the systems referred to in subparagraph (d) is approved and monitored at regular intervals by the relevant competent authorities.
(12) A risk-weight of 0% shall be assigned to an exposure exempted under paragraph (11).
Use of ECAIs.
num: 25
paragraphs: (1) An external credit assessment may be used to determine the risk-weight of an exposure in accordance with Regulation 24 only if the ECAI which provides it has been recognised as eligible for those purposes by the Bank (in this Chapter referred to as “eligible ECAI”).
(2) The Bank shall recognise an ECAI as eligible for the purposes of Regulation 24 only if it is satisfied that its assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency, and that the resulting credit assessments meet the requirements of credibility and transparency.
(3) The Bank shall, for the purposes of paragraph (2), take into account the technical criteria set out in Part 2 of Annex VI to the recast Directive (CI).
(4) Where an ECAI has been recognised as eligible by the competent authorities of a Member State, the Bank may recognise that ECAI as eligible without carrying out its evaluation process.
(5) The Bank shall make publicly available an explanation of the recognition process, and a list of eligible ECAIs.
Determination of credit quality steps to be associated with eligible ECAI.
num: 26
paragraphs: (1) The Bank shall determine, objectively and consistently and taking into account the technical criteria set out in Part 2 of Annex VI to the recast Directive (CI), with which of the credit quality steps set out in Part 1 of that Annex the relevant credit assessments of an eligible ECAI are to be associated.
(2) Where the competent authorities of a Member State have made a determination under any equivalent of paragraph (1), the Bank may recognise that determination without carrying out its determination process.
Use of credit assessments.
num: 27
paragraphs: (1) The use of ECAI credit assessments for the calculation of a credit institution's risk-weighted exposure amounts shall be consistent and in accordance with Part 3 of Annex VI to the recast Directive (CI).
(2) Credit assessments shall not be used selectively.
(3) Credit institutions shall use solicited credit assessments except that, with the permission of the Bank, they may use unsolicited credit assessments.
Use of treatment accorded exposures in third countries.
num: 28
paragraphs: (1) For purposes of point 5 of Part 1 of Annex VI to the recast Directive (CI), where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Community assigns a risk-weight which is lower than point 1 or 2 of that Part would indicate, credit institutions may apply risk-weights to such exposures in the same manner.
(2) For purposes of point 11 of Part 1 of Annex VI to the recast Directive (CI), where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Community treats exposures to regional governments and local authorities as exposures to their central government, credit institutions may apply risk-weights to exposures to such regional governments and local authorities in the same manner.
(3) For the purposes of point 17 of Part 1 of Annex VI to the recast Directive (CI), where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Community treats exposures to public sector entities as exposures to institutions, credit institutions may apply risk-weights to exposures to such regional governments and local authorities in the same manner.
Chapter 3
Internal Ratings Based Approach
Permission to use IRB Approach is required.
num: 29
paragraphs: (1) In accordance with this Chapter, the Bank may permit credit institutions to calculate their risk-weighted exposure amounts using the Internal Ratings Based Approach (referred to in this Chapter as “IRB Approach”).
(2) Explicit permission to use the IRB Approach shall be required in the case of each credit institution.
(3) Permission shall be given only if the Bank is satisfied that the credit institution's systems for the management and rating of credit risk exposures are sound and implemented with integrity and, in particular, that they meet the following standards in accordance with Part 4 of Annex VII to the recast Directive (CI):
(a) the credit institution's rating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk,
(b) internal ratings and default and loss estimates used in the calculation of capital requirements and associated systems and processes play an essential role in the risk management and decision-making process, and in the credit approval, internal capital allocation and corporate governance functions of the credit institution,
(c) the credit institution has a credit risk control unit responsible for its rating systems that is appropriately independent and free from undue influence,
(d) the credit institution collects and stores all relevant data to provide effective support to its credit risk measurement and management process, and
(e) the credit institution documents its rating systems, the rationale for their design and validates its rating systems.
(4) Where an EU parent credit institution and its subsidiaries or an EU parent financial holding company and its subsidiaries use the IRB Approach on a unified basis, the Bank may allow the minimum requirements of Part 4 of Annex VII to the recast Directive (CI) to be met by the parent and its subsidiaries considered together.
(5) A credit institution applying to use the IRB Approach shall demonstrate that it has been using for the IRB exposure classes in question rating systems that were broadly in line with the minimum requirements set out in Part 4 of Annex VII to the recast Directive (CI) for internal risk measurement and management purposes for at least three years prior to its qualification to use the IRB Approach.
(6) A credit institution applying for the use of own estimates of LGDs or conversion factors, or both, shall demonstrate that it has been estimating and employing own estimates of LGDs or conversion factors, or both, as may be appropriate, in a manner that was broadly consistent with the minimum requirements for use of own estimates of those parameters set out in Part 4 of Annex VII to the recast Directive (CI) for at least three years prior to qualification to use own estimates of LGDs or conversion factors, or both.
(7) Where a credit institution ceases to comply with the requirements set out in this Chapter, it shall either present to the Bank a plan for a timely return to compliance or demonstrate that the effect of non-compliance is immaterial.
(8) Where the IRB Approach is intended to be used by the EU parent credit institution and its subsidiaries, or by the EU parent financial holding company and its subsidiaries, the Bank shall co-operate closely with the competent authorities of the different legal entities as provided for in Regulations 67, 68 and 69 and in Articles 129 to 132 of the recast Directive (CI).
Implementation of IRB Approach.
num: 30
paragraphs: (1) Without prejudice to Regulation 34, credit institutions and any parent undertaking and its subsidiaries shall implement the IRB Approach for all exposures.
(2) Subject to the approval of the Bank, implementation may be carried out sequentially across the different exposure classes referred to in Regulation 31, within the same business unit, across different business units in the same group or for the use of own estimates of LGDs or conversion factors for the calculation of risk-weights for exposures to corporates, institutions, and central governments and central banks.
(3) In the case of the retail exposure class referred to Regulation 31, implementation may be carried out sequentially across the categories of exposures to which the different correlations in points 10 to 13 of Part 1 of Annex VII to the recast Directive (CI) correspond.
(4) Implementation as referred to in paragraphs (1), (2) and (3) shall be carried out -
(a) within a reasonable period of time to be agreed with the Bank, and
(b) subject to strict conditions determined by the Bank.
(5) The conditions referred to in paragraph (4)(b) shall be designed to ensure that the flexibility under paragraphs (1), (2) and (3) is not used selectively with the purpose of achieving reduced minimum capital requirements in respect of those exposure classes or business units that are yet to be included in the IRB Approach or in the use of own estimates of LGDs or conversion factors, or both.
(6) Credit institutions using the IRB Approach for any exposure class shall at the same time use the IRB Approach for the equity exposure class.
(7) Subject to paragraphs (1) to (6) and Regulation 34, credit institutions which have obtained permission under Regulation 29 to use the IRB Approach shall not revert to the use of Chapter 2 for the calculation of risk-weighted exposure amounts except for demonstrated good cause and subject to the approval of the Bank.
(8) Subject to paragraphs (1) to (5) and Regulation 34, credit institutions which have obtained permission under Regulation 32(13) to use own estimates of LGDs and conversion factors shall not revert to the use of LGD values and conversion factors referred to in Regulation 32(11) except for demonstrated good cause and subject to the approval of the Bank.
Classification of exposures.
num: 31
paragraphs: (1) Each exposure shall be assigned to one of the following exposure classes:
(a) claims or contingent claims on central governments and central banks,
(b) claims or contingent claims on institutions,
(c) claims or contingent claims on corporates,
(d) retail claims or contingent retail claims,
(e) equity claims,
(f) securitisation positions, or
(g) other non credit-obligation assets.
(2) The following exposures shall be treated as exposures to central governments and central banks:
(a) exposures to regional governments, local authorities or public sector entities which are treated as exposures to central governments under Chapter 2, and
(b) exposures to Multilateral Development Banks and International Organisations which attract a risk-weight of 0% under Chapter 2,
(3) The following exposures shall be treated as exposures to institutions:
(a) exposures to regional governments and local authorities which are not treated as exposures to central governments under Chapter 2,
(b) exposures to Public Sector Entities which are treated as exposures to institutions under Chapter 2, and
(c) exposures to Multilerateral Development Banks which do not attract a 0% risk-weight under Chapter 2.
(4) To be eligible for the retail exposure class referred to in paragraph (1)(d), exposures shall meet the following criteria:
(a) they shall be either to an individual person or persons, or to a small or medium sized entity, provided in the latter case that the total amount owed to the credit institution and parent undertakings and its subsidiaries, including any past due exposure, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential real estate collateral, must not, to the knowledge of the credit institution, which must have taken reasonable steps to confirm the situation, exceed EUR 1 million,
(b) they are treated by the credit institution in its risk management consistently over time and in a similar manner,
(c) they are not managed just as individually as exposures in the corporate exposure class, and
(d) they each represent one of a significant number of similarly managed exposures.
(5) The present value of retail minimum lease payments is eligible for the retail exposure class.
(6) The following exposures shall be classed as equity exposures:
(a) non-debt exposures conveying a subordinated, residual claim on the assets or income of the issuer, and
(b) debt exposures the economic substance of which is similar to the exposures specified in subparagraph (a).
(7) Within the corporate exposure class, credit institutions shall separately identify as specialised lending exposures, exposures which possess the following characteristics:
(a) the exposure is to an entity which was created specifically to finance physical assets, or operate physical assets, or both,
(b) the contractual arrangements give the lender a substantial degree of control over the assets and the income that they generate, and
(c) the primary source of repayment of the obligation is the income generated by the assets being financed, rather than the independent capacity of a broader commercial enterprise.
(8) Any credit obligation not assigned to the exposure classes referred to in paragraph (1) (a), (b), (d), (e) and (f) shall be assigned to the exposure class referred to in paragraph (1)(c).
(9) The exposure class referred to in paragraph (1)(g) shall include the residual value of leased properties if not included in the lease exposure as defined in point 4 of Part 3 of Annex VII to the recast Directive (CI).
(10) The methodology used by the credit institution for assigning exposures to different exposure classes shall be appropriate and consistent over time.
Calculation of risk-weights for various exposure classes.
num: 32
paragraphs: (1) The risk-weighted exposure amounts for credit risk for exposures belonging to one of the exposure classes referred to in Regulation 31(1)(a) to (e) and (g) shall, unless deducted from own funds, be calculated in accordance with points 1 to 27 of Part 1 of Annex VII to the recast Directive (CI).
(2) The risk-weighted exposure amounts for dilution risk for purchased receivables shall be calculated in accordance with point 28 of Part 1 of Annex VII to the recast Directive (CI).
(3) Where a credit institution has full recourse in respect of purchased receivables for default risk and for dilution risk, to the seller of the purchased receivables, the provisions of this Regulation and Regulation 33 in relation to purchased receivables need not be applied and the exposure may instead be treated as a collateralised exposure.
(4) The calculation of risk-weighted exposure amounts for credit risk and dilution risk shall be based on the relevant parameters associated with the exposure in question and such parameters shall include probability of default (PD), loss given default (LGD), maturity (M) and the exposure value of the exposure.
(5) PD and LGD may be considered separately or jointly, in accordance with Part 2 of Annex VII to the recast Directive (CI).
(6) Notwithstanding paragraphs (4) and (5), the calculation of risk-weighted exposure amounts for credit risk for all exposures belonging to the exposure class referred to in Regulation 31(1)(e) shall be calculated in accordance with points 17 to 26 of Part 1 of Annex VII to the recast Directive (CI) subject to the approval of the Bank.
(7) The Bank shall only allow a credit institution to use the approach set out in points 25 and 26 of Part 1 of Annex VII to the recast Directive (CI) if the credit institution meets the minimum requirements of points 115 to 123 of Part 4 of Annex VII to the recast Directive (CI).
(8) Notwithstanding paragraphs (4) and (5), the calculation of risk-weighted exposure amounts for credit risk for specialised lending exposures may be calculated in accordance with point 6 of Part 1 of Annex VII to the recast Directive (CI).
(9) The Bank shall publish guidance on how credit institutions should assign risk-weights to specialised lending exposures under point 6 of Part 1 of Annex VII to the recast Directive (CI) and shall approve institutions' assignment methodologies.
(10) For exposures belonging to the exposure classes referred to in Regulation 31(1)(a) to (d), credit institutions shall provide their own estimates of PDs in accordance with Regulation 29 and Part 4 of Annex VII to the recast Directive (CI).
(11) For exposures belonging to the exposure class referred to in Regulation 31(1)(d), credit institutions shall provide own estimates of LGDs and conversion factors in accordance with Regulation 29 and Part 4 of Annex VII to the recast Directive (CI).
(12) For exposures belonging to the exposure classes referred to in Regulation 31(1)(a), (b) and (c), credit institutions shall apply the LGD values set out in point 8 of Part 2 of Annex VII to the recast Directive (CI), and the conversion factors set out in point 9(a) to (d) of Part 3 of Annex VII to the recast Directive (CI).
(13) Notwithstanding paragraph (12), for all exposures belonging to the exposure classes referred to in Regulation 31(1)(a), (b) and (c), the Bank may permit credit institutions to use own estimates of LGDs and conversion factors in accordance with Regulation 29 and Part 4 of Annex VII to the recast Directive (CI).
(14) The risk-weighted exposure amounts for securitised exposures and for exposures belonging to the exposure class referred to in Regulation 31(1)(f) shall be calculated in accordance with Chapter 5.
(15) Where exposures in the form of a collective investment undertaking (referred to in this Chapter as “CIU”) meet the criteria set out in points 77 and 78 of Part 1 of Annex VI to the recast Directive (CI) and the credit institution is aware of all of the underlying exposures of the CIU, the credit institution shall look through to those underlying exposures in order to calculate risk-weighted exposure amounts and expected loss amounts in accordance with the methods set out in this Chapter.
(16) Where the credit institution does not meet the conditions for using methods set out in this Chapter, risk-weighted exposure amounts and expected loss amounts shall be calculated in accordance with the following approaches:
(a) for exposure belonging to the exposure class referred to in Regulation 31(1)(e), the approach set out in points 19 to 21 of Part 1 of Annex VII to the recast Directive (CI) except that, if, for those purposes, the credit institution is unable to differentiate between private equity, exchange-traded and other equity exposures, it shall treat the exposures concerned as other equity exposures,
(b) for all other underlying exposures, the approach set out in Chapter 2 subject to the following modifications:
(i) the exposures are assigned to the appropriate exposure class and attributed the risk-weight of the credit quality step immediately above the credit quality step that would normally be assigned to the exposure, and
(ii) exposures assigned to the higher credit quality steps, to which a risk-weight of 150% would normally be attributed, are assigned a risk-weight of 200%.
(17) Where exposures in the form of a CIU do not meet the criteria set out in points 77 and 78 of Part 1 of Annex VI to the recast Directive (CI), or the credit institution is not aware of all of the underlying exposures of the CIU, the credit institution shall look through to the underlying exposures and calculate risk-weighted exposure amounts and expected loss amounts in accordance with the approach set out in points 19 to 21 of Part 1 of Annex VII to the recast Directive (CI).
(18) Where, for the purposes of paragraph (17), the credit institution is unable to differentiate between private equity, exchange-traded and other equity exposures, it shall treat the exposures concerned as other equity exposures.
(19) For the purposes of paragraphs (17) and (18), non equity exposures are assigned to one of the classes (private equity, exchange traded equity or other equity) set out in point 19 of Part 1 of Annex VII to the recast Directive (CI) and unknown exposures are assigned to other equity class.
(20) Alternatively to the method described in paragraphs (17), (18) and (19), credit institutions may calculate themselves or may rely on a third party to calculate and report the average risk-weighted exposure amounts based on the CIU's underlying exposures in accordance with the following approaches, provided that the correctness of the calculation and the report is adequately ensured:
(a) for exposures belonging to the exposure class referred to in Regulation 31(1)(e), the approach set out in points 19 to 21 of Part 1 of Annex VII to the recast Directive (CI) except that, if, for those purposes, the credit institution is unable to differentiate between private equity, exchange-traded and other equity exposures, it shall treat the exposures concerned as other equity exposures, or
(b) for all other underlying exposures, the approach set out in Chapter 2 subject to the following modifications:
(i) the exposures are assigned to the appropriate exposure class and attributed the risk-weight of the credit quality step immediately above the credit quality step that would normally be assigned to the exposure, and
(ii) exposures assigned to the higher credit quality steps, to which a risk-weight of 150% would normally be attributed, are assigned a risk-weight of 200%.
Calculation of EL.
num: 33
paragraphs: (1) The expected loss amounts for exposures belonging to one of the exposure classes referred to in Regulation 31(1)(a) to (e) shall be calculated in accordance with the methods set out in points 29 to 35 of Part 1 of Annex VII to the recast Directive (CI).
(2) The calculation of expected loss amounts in accordance with points 29 to 35 of Part 1 of Annex VII to the recast Directive (CI) shall be based on the same input figures of PD, LGD and the exposure value for each exposure as being used for the calculation of risk-weighted exposure amounts in accordance with Regulation 32.
(3) For the defaulted exposures, where credit institutions use own estimates of LGDs, EL shall be the credit institution's best estimate of EL (that is, ELBE) for the defaulted exposure in accordance with point 80 of Part 4 of Annex VII to the recast Directive (CI).
(4) The expected loss amounts for securitised exposures shall be calculated in accordance with Chapter 5.
(5) The expected loss amounts for exposures belonging to the exposure class referred to in Regulation 31(1)(g) shall be zero.
(6) The expected loss amounts for dilution risk or purchased receivables shall be calculated in accordance with the methods set out in point 35 of Part 1 of Annex VII to the recast Directive (CI).
(7) The expected loss amounts for exposures referred to in Regulation 32(15) to (20) shall be calculated in accordance with the methods set out in points 29 to 35 of Part 1 of Annex VII to the recast Directive (CI).
Circumstances in which Chapter 2 may be used for individual business lines.
num: 34
paragraphs: (1) Subject to the approval of the Bank, credit institutions permitted to use the IRB Approach in the calculation of risk-weighted exposure amounts and expected loss amounts for one or more exposure classes may apply Chapter 2 for the following:
(a) the exposure class referred to in Regulation 31(1)(a) where the number of material counterparties is limited and it would be unduly burdensome for the credit institution to implement a rating system for those counterparties,
(b) the exposure class referred to in Regulation 31(1)(b) where the number of material counterparties is limited and it would be unduly burdensome for the credit institution to implement a rating system for those counterparties,
(c) exposures in non-significant business units and exposure classes that are immaterial in terms of size and perceived risk profile,
(d) exposures to the State including local authorities and administrative bodies, provided that -
(i) there is no difference in risk between the exposures to the central government and those other exposures because of specific public arrangements, and
(ii) exposures to the central government are associated with a 0% risk-weight under Chapter 2,
(e) exposures of a credit institution to a counterparty which is its parent undertaking, its subsidiary or a subsidiary of its parent undertaking provided that the counterparty is an institution or a financial holding company, financial institution, asset management company or ancillary services undertaking linked by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC and exposures between credit institutions which meet the requirements set out in Regulation 24(9),
(f) equity exposures to entities whose credit obligations qualify for a zero risk-weight under Chapter 2 (including those publicly sponsored entities where a zero risk-weight can be applied),
(g) equity exposure incurred under legislated programmes to promote specified sectors of the economy that provide significant subsidies for the investment to the credit institution and involve some form of government oversight and restrictions on the equity investments provided that this exclusion is limited to an aggregate of 10% of original own funds plus additional own funds,
(h) the exposures identified in point 40 of Part 1 of Annex VI to the recast Directive (CI) meeting the conditions specified therein, and
(i) State and State-reinsured guarantees pursuant to point 19 of Part 2 of Annex VIII to the recast Directive (CI).
(2) Paragraph (1) shall not prevent the Bank to allow the application of Chapter 2 for equity exposures which have been allowed for this treatment in other Member States.
(3) Subject to paragraph (4), the equity exposure class of a credit institution shall be considered material if the aggregate value of the equity exposures, excluding equity exposures incurred under legislative programmes referred to in paragraph (1)(g), exceeds, on average over the preceding year, 10% of the credit institution's own funds.
(4) If the number of equity exposures referred to in subparagraph (3) is less than 10 individual holdings, then the threshold referred to in that paragraph shall be 5% of the credit institution's own funds.
Transitional provisions for relevant data.
num: 35
paragraphs: (1) For the purposes of point 66 of Part 4 of Annex VII to the recast Directive (CI), credit institutions which are not permitted to use own estimates of LGDs or conversion factors, or both, when they implement the IRB approach, may have relevant data covering a period of two years but thereafter that period shall increase by one year each year until relevant data are covering a period of five years.
(2) For the purpose of point 71 of Part 4 of Annex VII to the recast Directive (CI), credit institutions, when they implement the retail IRB approach, may have relevant data covering a period of two years but thereafter that period shall increase by one year each year until relevant date are covering a period of five years.
(3) For the purposes of point 86 of Part 4 of Annex VII to the recast Directive (CI), credit institutions, when they implement the IRB approach, may have relevant LGD data covering a period of two years but thereafter that period shall increase by one year until relevant data are covering a period of five years.
(4) For the purposes of point 95 of Part 4 of Annex VII to the recast Directive (CI), credit institutions, when they implement the IRB approach, may have relevant conversion factor data covering a period of two years but thereafter that period shall increase by one year each year until relevant data are covering a period of five years.
Chapter 4
Credit Risk Mitigation
Definition of “lending credit institution”.
num: 36
paragraphs: In this Chapter, “lending credit institution” means the credit institution which has the exposure in question, whether or not deriving from a loan.
Recognition of credit risk mitigation.
num: 37
paragraphs: Credit institutions using Chapter 2, or credit institutions using Chapter 3 but not using their own estimates of LGD and conversion factors under Regulations 32 and 33, may recognise credit risk mitigation in accordance with this Chapter in the calculation of risk-weighted exposure amounts for the purposes of Regulation 19(a) or as relevant expected loss amounts for the purposes of -
(a) the calculation referred to in Regulation 3(2)(i), and
(b) Regulation 8(4) and (5).
Credit protection to be legally effective, etc.
num: 38
paragraphs: (1) The technique used to provide the credit protection together with the actions and steps taken and procedures and policies implemented by the lending credit institution shall be such as to result in credit protection arrangements which are legally effective and enforceable in all relevant jurisdictions.
(2) The lending credit institutions shall take all appropriate steps to ensure the effectiveness of the credit protection arrangement and to address related risks.
(3) In the case of funded credit protection, to be eligible for recognition the assets relied upon must be -
(a) assets set out in Part 1 of Annex VIII to the recast Directive (CI), and
(b) sufficiently liquid and their value over time sufficiently stable to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk-weighted exposure amounts and to the degree of recognition allowed.
(4) In the case of funded credit protection, the lending credit institution shall have the right to liquidate or retain, in a timely manner, the assets from which the protection derives in the event of the default, insolvency or bankruptcy of the obligor (or other credit event set out in the transaction documentation) and, where applicable, of the custodian holding the collateral.
(5) The degree of correlation between the value of the assets relied upon for protection and the credit quality of the obligor shall not be undue.
(6) In the case of unfunded credit protection, to be eligible for recognition -
(a) the protection providers and types of protection agreement shall be as set out in Part 1 of Annex VIII to the recast Directive (CI), and
(b) the party giving the undertaking shall be sufficiently reliable, and the protection agreement legally effective and enforceable in the relevant jurisdictions, to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk-weighted exposure amounts and to the degree of recognition allowed.
(7) The minimum requirements set out in Part 2 of Annex VIII to the recast Directive (CI) shall be complied with.
Use of credit risk mitigation.
num: 39
paragraphs: (1) Where the requirements of Regulation 38 are met, the calculation of risk-weighted exposure amounts and, as relevant, expected loss amounts, may be modified in accordance with Parts 3 to 6 of Annex VIII to the recast Directive (CI).
(2) No exposure in respect of which credit risk mitigation is obtained shall produce a higher risk-weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.
(3) Where the risk-weighted exposure amount already takes account of credit protection under Chapter 2 or 3, as relevant, the calculation of the credit protection shall not be further recognised under this Chapter.
Chapter 5
Securitisation
Calculation of risk-weighted amounts for securitisation positions.
num: 40
paragraphs: (1) Where a credit institution uses Chapter 2 for the calculation of risk-weighted exposure amounts for the exposure class to which the securitised exposures would be assigned under Regulation 23, it shall calculate the risk-weighted exposure amount for a securitisation position in accordance with points 1 to 36 of Part 4 of Annex IX to the recast Directive (CI).
(2) In any case which does not fall within paragraph (1), a credit institution shall calculate the risk-weighted exposure amount for a securitisation position in accordance with points 1 to 5 and 37 to 76 of Part 4 of Annex IX to the recast Directive (CI).
Transfer of credit risk.
num: 41
paragraphs: (1) Where significant credit risk associated with securitised exposures has been transferred from the originator credit institution in accordance with the terms of Part 2 of Annex IX to the recast Directive (CI), that credit institution may -
(a) in the case of a traditional securitisation, exclude from its calculation of risk-weighted exposure amounts and, as relevant, expected loss amounts, the exposures which it has securitised, and
(b) in the case of a synthetic securitisation, calculate risk-weighted exposure amounts and, as relevant, expected loss amounts, in respect of the securitised exposures in accordance with Part 2 of Annex IX to the recast Directive (CI).
(2) Where paragraph (1) applies, the originator credit institution shall calculate the risk-weighted exposure amounts prescribed in Annex IX to the recast Directive (CI) for the positions that it may hold in the securitisation.
(3) Where the originator credit institution fails to transfer significant credit risk in accordance with paragraph (1), it need not calculate risk-weighted exposure amounts for any positions it may have in the securitisation in question.
Calculation of risk-weights under securitisation.
num: 42
paragraphs: (1) To calculate the risk-weighted exposure amount for a securitisation position, risk-weights shall be assigned to the exposure value of the position in accordance with Annex IX to the recast Directive (CI), based on the credit quality of the position, which may be determined by reference to an ECAI credit assessment or otherwise, as set out in that Annex.
(2) Where there is an exposure to different tranches in a securitisation, the exposure to each tranche shall be considered a separate securitisation position.
(3) The providers of credit protection to securitisation positions shall be considered to hold positions in the securitisation.
(4) Securitisation positions shall include exposures to a securitisation arising from interest rate or currency derivative contracts.
(5) Where a securitisation position is subject to funded or unfunded credit protection, the risk-weight to be applied to that position may be modified in accordance with Chapter 4 as read in conjunction with Annex IX to the recast Directive (CI).
(6) Subject to Regulations 3(2)(j) and 11(2), (3) and (4), the risk-weighted exposure amount shall be included in the credit institution's total of risk-weighted exposure amounts for the purposes of Regulation 19(a).
Use of ECAI credit assessments in securitisation.
num: 43
paragraphs: (1) An ECAI credit assessment may be used to determine the risk-weight of a securitisation position in accordance with Regulation 42 only if the ECAI has been recognised as eligible by the Bank for this purpose (in this Chapter referred to as “eligible ECAI”).
(2) The Bank shall recognise an ECAI as eligible for the purpose referred to in of paragraph (1) only if it is satisfied as to the ECAI's compliance with the requirements set out in Regulation 25 taking into account the technical criteria set out in Part 2 of Annex VI to the recast Directive (CI), and that it has a demonstrated ability in the area of securitisation, which may be evidenced by a strong market acceptance.
(3) Where an ECAI has been recognised as eligible by the competent authorities of a Member State under a provision equivalent to paragraph (1), the Bank may recognise that ECAI as eligible for the purpose referred to in that paragraph without carrying out its evaluation process.
(4) The Bank shall make publicly available an explanation of the recognition process and a list of eligible ECAIs.
(5) To be used for the purpose referred to in paragraph (1), a credit assessment of an eligible ECAI shall comply with the principles of credibility and transparency set out in Part 3 of Annex IX to the recast Directive (CI).
Determination of credit quality steps to be associated with eligible ECAI.
num: 44
paragraphs: (1) For the purposes of applying risk-weights to securitisation positions, the Bank shall determine, objectively and consistently, with which of the credit quality steps set out in Annex IX to the recast Directive (CI) the relevant credit assessments of an eligible ECAI are to be associated.
(2) When the competent authorities of a Member State have made a determination under a provision equivalent to paragraph (1), the Bank may recognise that determination without carrying out its determination process.
Use of credit assessments.
num: 45
paragraphs: (1) The use of ECAI credit assessments for the calculation of a credit institution's risk-weighted exposure amounts under Regulation 42 shall be consistent and in accordance with Part 3 of Annex IX to the recast Directive (CI).
(2) Credit assessments shall not be used selectively.
Securitisation of revolving exposures subject to early amortisation provision.
num: 46
paragraphs: (1) Where there is a securitisation of revolving exposures subject to an early amortisation provision, the originator credit institution shall calculate, in accordance with Annex IX to the recast Directive (CI), an additional risk-weighted exposure amount in respect of the risk that the levels of credit risk to which it is exposed may increase following the operation of the early amortisation provision.
(2) In this Regulation -
(a) a revolving exposure is an exposure whereby customers' outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to an agreed limit, and
(b) an early amortisation provision is a contractual clause which requires, on the occurrence of defined events, investors' positions to be redeemed before the originally stated maturity of the securities issued.
Originator credit institutions shall not provide support to securitisation beyond contractual obligations.
num: 47
paragraphs: (1) An originator credit institution which, in respect of a securitisation, has made use of Regulation 41 in the calculation of risk-weighted exposure amounts, or a sponsor credit institution, shall not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.
(2) Where an originator credit institution or a sponsor credit institution fails to comply with paragraph (1) in respect of a securitisation -
(a) the Bank shall require it, at a minimum, to hold capital against all of the securitised exposures as if they had not been securitised, and
(b) the credit institution shall disclose publicly that it has provided non-contractual support and the regulatory capital impact of having done so.
PART 5
MINIMUM OWN FUNDS REQUIREMENTS FOR OPERATIONAL RISK
Use of approaches for operational risk.
num: 48
paragraphs: (1) The Bank shall require credit institutions to hold own funds against operational risk in accordance with the approaches set out in Regulations 49, 50 and 51.
(2) Without prejudice to paragraph (4), credit institutions that use the approach set out in Regulation 50 shall not revert to the use of the approach set out in Regulation 49 except for demonstrated good cause and subject to approval by the Bank.
(3) Without prejudice to paragraph (4), credit institutions that use the approach set out in Regulation 51 shall not revert to the use of the approaches set out in Regulation 49 or 50 except for demonstrated good cause and subject to approval by the Bank.
(4) The Bank may allow credit institutions to use a combination of approaches in accordance with Part 4 of Annex X to the recast Directive (CI).
Basic Indicator Approach.
num: 49
paragraphs: The capital requirement for operational risk under the Basic Indicator Approach shall be a certain percentage of a relevant indicator, in accordance with the parameters set out in Part 1 of Annex X to the recast Directive (CI).
Standardised Approach.
num: 50
paragraphs: (1) Under the Standardised Approach, credit institutions shall divide their activities into a number of business lines as set out in Part 2 of Annex X to the recast Directive (CI).
(2) For each business line, credit institutions shall calculate a capital requirement for operational risk as a certain percentage of a relevant indicator, in accordance with the parameters set out in Part 2 of Annex X to the recast Directive (CI).
(3) The capital requirement for operational risk under the Standardised Approach shall be the sum of the capital requirements for operational risk across all individual business lines.
(4) The parameters for the Standardised Approach shall be as set out in Part 2 of Annex X to the recast Directive (CI).
(5) To qualify for use of the Standardised Approach, credit institutions shall meet the criteria set out in Part 2 of Annex X to the recast Directive (CI).
Advanced Measurement Approach.
num: 51
paragraphs: (1) Credit institutions may use the Advanced Measurement Approach based on their own operational risk measurement systems provided that the Bank expressly approves the use of the models concerned for calculating the own funds requirement.
(2) Credit institutions shall satisfy the Bank that they meet the qualifying criteria set out in Part 3 of Annex X to the recast Directive (CI).
(3) Where an Advanced Measurement Approach is intended to be used by an EU parent credit institution and its subsidiaries or by the subsidiaries of an EU parent credit financial holding company, the Bank shall cooperate closely, as provided for in Regulations 67, 68 and 69, with other competent authorities.
(4) The application shall include the elements listed in Part 3 of Annex X to the recast Directive (CI).
(5) Where an EU parent credit institution and its subsidiaries or the subsidiaries of an EU parent financial holding company use an Advanced Measurement Approach on a unified basis, the Bank may allow the qualifying criteria set out in Part 3 of Annex X to the recast Directive (CI) to be met by the parent and its subsidiaries considered together.
PART 6
LARGE EXPOSURES
Interpretation of Part 6.
num: 52
paragraphs: In this Part -
“credit institution” means -
(a) a credit institution within the meaning of Article 4(1) of the recast Directive (CI), including its branches in third countries, and
(b) any private or public undertaking, including its branches, which meets the definition of “credit institution” in Article 4(1) of the recast Directive (CI) and has been authorised in a third country;
“exposure” -
(a) subject to paragraph (b), means any asset or off-balance item referred to in Chapter 2 of Part 4 without application of the risk-weights or degrees of risk therein provided for,
(b) does not include -
(i) in the case of foreign exchange transactions, an exposure incurred in the ordinary course of settlement during the 48 hours following payment, and
(ii) in the case of transactions for the purchase or sale of securities, an exposure incurred in the ordinary course of settlement during the five working days following payment or delivery of the securities, whichever is the earlier;
“guarantee”, in relation to Regulations 59 and 60, includes credit derivatives recognised under Chapter 4 of Part 4 other than credit linked notes.
Calculation of exposures, etc.
num: 53
paragraphs: (1) Exposures arising from the items referred to in Annex IV to the recast Directive (CI) shall be calculated in accordance with one of the methods set out in Annex III to the recast Directive (CI).
(2) For the purposes of this Part, point 2 of Part 2 of Annex III to the recast Directive (CI) shall also apply.
(3) All elements entirely covered by own funds may, with the agreement of the Bank, be excluded from the determination of exposures, provided that such own funds are not included in the credit institution's own funds for the purposes of Regulation 19 or in the calculation of other monitoring ratios provided for in this Directive and in other Community acts.
Large exposure to client or group of connected clients.
num: 54
paragraphs: A credit institution's exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its own funds.
Sound administrative and accounting procedures, etc. to identify and monitor large exposures.
num: 55
paragraphs: The Bank shall require that every credit institution have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of -
(a) identifying and recording all large exposures and subsequent changes to them, in accordance with these Regulations, and
(b) monitoring those exposures in the light of each credit institution's own exposure policies.
Reporting of large exposures.
num: 56
paragraphs: (1) A credit institution shall report every large exposure to the Bank if so required by the Bank.
(2) The Bank shall provide that reporting is to be carried out, at its discretion, in accordance with one of the following two methods:
(a) reporting of all large exposures at least once a year, combined with reporting during the year of all new large exposures and any increases in existing large exposures of at least 20% with respect to the previous communication, or
(b) reporting of all large exposures at least four times a year.
(3) Except in the case of credit institutions relying on Regulation 60 for the recognition of collateral in calculating the value of exposures for the purposes of Regulation 57(1) to (5), exposures exempted under Regulation 59(a), (b), (c), (d), (f), (g) and (h) need not be reported as set out in paragraphs (1) and (2) and the reporting frequency laid down in paragraph (2)(b) may be reduced to twice a year for the exposures referred to in Regulation 59(e) and (i).
(4) Where a credit institution invokes paragraph (3), it shall keep a record of the grounds advanced for at least one year after the event giving rise to the dispensation, so that the Bank may establish whether it is justified.
(5) The Bank may require credit institutions to analyse their exposures to collateral issuers for possible concentrations and where appropriate take action or report any significant findings to the Bank.
Intra-group loans.
num: 57
paragraphs: (1) Subject to paragraph (2), a credit institution may not incur an exposure to a client or group of connected clients the value of which exceeds 25% of its own funds.
(2) Where a client or group of connected clients is the parent undertaking or subsidiary of the credit institution or one or more subsidiaries of that parent undertaking, or both, the percentage set out in paragraph (1) shall be reduced to 20%.
(3) A credit institution shall not incur large exposures which in total exceed 800% of its own funds.
(4) A credit institution shall at all times comply with the limits set out in paragraphs (1), (2) and (3) in respect of its exposures.
(5) Where in an exceptional case exposures exceed limits set out in paragraphs (1), (2) and (3), that fact shall be reported without delay to the Bank which may, where the circumstances warrant it, allow the credit institution a limited period of time in which to comply with the limits.
Requirements applicable to recognition of funded or unfunded credit protection.
num: 58
paragraphs: (1) Subject to paragraph (2), where, under Regulations 59 and 60, the recognition of funded or unfunded credit protection may be permitted, this shall be subject to compliance with the eligibility requirements and other minimum requirements, set out under Chapter 4 of Part 4 for the purposes of calculating risk-weighted exposure amounts under Chapter 2 of that Part..
(2) Where a credit institution relies upon Regulation 60(3) to (6), the recognition of funded credit protection shall be subject to the relevant requirements under Chapter 3 of Part 4.
Exposures exempt from the application of Regulation 57.
num: 59
paragraphs: (1) The following exposures are exempt from the application of Regulation 57:
(a) asset items constituting claims on central governments or central banks which unsecured would be assigned a 0% risk-weight under Chapter 2 of Part 4,
(b) asset items constituting claims on international organisations or multilateral development banks which unsecured would be assigned a 0% risk-weight under Chapter 2 of Part 4,
(c) asset items constituting claims carrying the explicit guarantees of central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity providing the guarantee would be assigned a 0% risk-weight under Chapter 2 of Part 4,
(d) other exposures attributable to, or guaranteed by, central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity to which the exposure is attributable or by which it is guaranteed would be assigned a 0% risk-weight under Chapter 2 of Part 4,
(e) asset items constituting claims on and other exposures to central governments or central banks not mentioned in subparagraph (a) which are denominated and, where applicable, funded in the national currencies of the borrowers,
(f) asset items and other exposures secured, to the satisfaction of the Bank, by collateral in the form of debt securities issued by central governments or central banks, international organisations, multilateral development banks, Member States' regional governments, local authorities or public sector entities, which securities constitute claims on their issuer which would be assigned a 0% risk-weighting under Chapter 2 of Part 4,
(g) asset items and other exposures secured, to the satisfaction of the Bank, by collateral in the form of cash deposits placed with the lending credit institution or with a credit institution which is the parent undertaking or a subsidiary of the lending institution,
(h) asset items and other exposures secured, to the satisfaction of the Bank, by collateral in the form of certificates of deposit issued by the lending credit institution or by a credit institution which is the parent undertaking or a subsidiary of the lending credit institution and lodged with either of them,
(i) asset items constituting claims on and other exposures to institutions, with a maturity of one year or less, but not constituting such institutions' own funds,
(j) asset items constituting claims on and other exposures to those institutions which are not credit institutions but which fulfil the conditions referred to in point 85 of Part 1 of Annex VI to the recast Directive (CI), with a maturity of one year or less, and secured in accordance with that point,
(k) bills of trade and other similar bills, with a maturity of one year or less, bearing the signatures of other credit institutions,
(l) covered bonds falling within the terms of points 68 to 70 of Part 1 of Annex VI to the recast Directive (CI),
(m) pending subsequent coordination, holdings in the insurance companies referred to in Regulation 64(1) up to 40% of the own funds of the credit institution acquiring such a holding,
(n) asset items constituting claims on regional or central credit institutions with which the lending credit institution is associated in a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network,
(o) exposures secured, to the satisfaction of the Bank, by collateral in the form of securities other than those referred to in subparagraph (f),
(p) loans secured, to the satisfaction of the Bank, by mortgages on residential property or by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation and leasing transactions under which the lessor retains full ownership of the residential property leased for as long as the lessee has not exercised his option to purchase, in all cases up to 50% of the value of the residential property concerned,
(q) exposures in the form of commercial real estate where the competent authority of another Member State has availed of the discretion to risk-weight such exposures at 50% provided that this exemption applies only up to 50% of the value of the property concerned,
(r) 50% of the medium/low-risk off-balance-sheet items referred to in Annex II to the recast Directive (CI),
(s) subject to the Bank's agreement, guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions, subject to a weighting of 20% of their amount, and
(t) the low-risk off-balance-sheet items referred to in Annex II to the recast Directive (CI), to the extent that an agreement has been concluded with the client or group of connected clients under which the exposure may be incurred only if it has been ascertained that it will not cause the limits applicable under Regulation 57(1) to (5) to be exceeded.
(2) Cash received under a credit linked note issued by the credit institution and loans and deposits of a counterparty to or with the credit institution which are subject to an on-balance sheet netting agreement recognised under Chapter 4 of Part 4 shall be deemed to fall within paragraph (1)(g).
(3) For the purposes of paragraph (1)(o) -
(a) the securities used as collateral shall be valued at market price, have a value that exceeds the exposures guaranteed and be either traded on a stock exchange or effectively negotiable and regularly quoted on a market operated under the auspices of recognised professional operators and allowing, to the satisfaction of the competent authorities of the Member State of origin of the credit institution, for the establishment of an objective price such that the excess value of the securities may be verified at any time,
(b) the excess value referred to in subparagraph (a) shall be -
(i) subject to sub-subparagraphs (ii), (iii) and (iv), 100%,
(ii) 150% in the case of shares issued by institutions, Member State regional governments or local authorities, other than those referred to in paragraph (1)(f),
(iii) 50% in the case of debt securities issued by institutions, Member State regional governments or local authorities, other than those referred to in paragraph (1)(f),
(iv) 50% in the case of debt securities issued by multilateral development banks other than those receiving a 0% risk-weighting under Chapter 2 of Part 4,
(c) there shall not be a mismatch, in the securities used as collateral, between the maturity of the exposure and the maturity of the credit protection, and
(d) securities used as collateral may not constitute credit institutions' own funds.
(4) For the purposes of paragraph (1)(p) -
(a) the value of the property shall be calculated, to the satisfaction of the Bank, on the basis of strict valuation standards laid down by law, regulation or administrative provisions,
(b) valuation shall be carried out at least once a year, and
(c) residential property shall mean a residence to be occupied or let by the borrower.
How collateral can be taken into account in the calculating credit risk in large exposure.
num: 60
paragraphs: (1) Subject to paragraphs (7) to (11), for the purposes of calculating the value of exposures for the purposes of Regulation 57(1) to (5), credit institutions are permitted to use a value lower than the value of the exposure, but not lower than the total of the fully-adjusted exposure values of their exposures to the client or group of connected clients.
(2) Where paragraph (1) is applied to a credit institution, Regulation 59 (1)(f), (g), (h) and (o) shall not apply to the credit institution.
(3) Subject to paragraphs (7) to (11), a credit institution permitted to use own estimates of LGDs and conversion factors for an exposure class under Chapter 3 of Part 4 may be permitted, where it is able to the satisfaction of the Bank to estimate the effects of financial collateral on its exposures separately from other LGD-relevant aspects, to recognise such effects in calculating the value of exposures for the purposes of Regulation 57 (1) to (5).
(4) The Bank shall be satisfied as to the suitability of the estimates produced by the credit institution for use for the reduction of the exposure value for the purposes of compliance with Regulation 57.
(5) Where a credit institution is permitted to use its own estimates of the effects of financial collateral, it shall do so on a basis consistent with the approach adopted in the calculation of capital requirements.
(6) Credit institutions permitted to use own estimates of LGDs and conversion factors for an exposure class under Chapter 3 of Part 4 which do not calculate the value of their exposures using the method referred to in paragraph (3) may be permitted to use one only of -
(a) the approach set out in paragraph (1), or
(b) the exemption set out in Regulation 59(1)(o),
for calculating the value of exposures.
(7) A credit institution which is permitted to use the methods described in paragraphs (1) to (6) in calculating the value of exposures for the purposes of Regulation 57(1) to (5) shall conduct periodic stress tests of their credit risk concentrations including in relation to the realisable value of any collateral taken.
(8) The stress tests shall address risks arising from potential changes in market conditions that could adversely impact the credit institution's adequacy of own funds and risks arising from the realisation of collateral in stressed situations.
(9) The credit institution shall satisfy the Bank that the stress tests carried out are adequate and appropriate for the assessment of such risks.
(10) Where a stress test indicates a lower realisable value of collateral taken than would be permitted to be taken into account under paragraphs (1) and (2)or (3) to (6), as appropriate, the value of collateral permitted to be recognised in calculating the value of exposures for the purposes of Regulation 57 (1) to (5) shall be reduced accordingly.
(11) Such credit institutions shall include the following in their strategies to address concentration risk:
(a) policies and procedures to address risks arising from maturity mismatches between exposures and any credit protection on those exposures,
(b) policies and procedures in the event that a stress test indicates a lower realisable value of collateral than taken into account under paragraphs (1) to (6), and
(c) policies and procedures relating to concentration risk arising from the application of credit risk mitigation techniques, and in particular large indirect credit exposures (for example, a single issuer of securities taken as collateral).
(12) Where the effects of collateral are recognised under the terms of paragraphs (1) and (2) or (3) to (6), any covered part of the exposure shall be treated as having been incurred to the collateral issuer rather than to the client.
(13) In paragraph (1), “fully adjusted exposure value” means that calculated under Chapter 4 of Part 4 taking into account the credit risk mitigation, volatility adjustments, and any maturity mismatch (E*).
Action to be taken by credit institution when obligations in other provisions of this Part are disapplied, etc.
num: 61
paragraphs: Where compliance by a credit institution on an individual or sub-consolidated basis with the obligations imposed in the other provisions of this Part is disapplied under Article 69(1) of the recast Directive (CI), or Regulation 14 is applied in the case of parent credit institutions, then measures must be taken to ensure the satisfactory allocation of risks within the group.
PART 7
QUALIFYING HOLDINGS OUTSIDE FINANCIAL SECTOR
Limits on qualifying holdings which may be held by credit institutions.
num: 62
paragraphs: (1) No credit institution may have a qualifying holding the amount of which exceeds 15% of its own funds in an undertaking which is neither a credit institution, nor a financial institution, nor an undertaking carrying on an activity referred to in the second subparagraph of Article 43(2)(f) of Directive 86/635/EEC.
(2) The total amount of a credit institution's qualifying holdings in undertakings other than credit institutions, financial institutions or undertakings carrying on activities referred to in the second subparagraph of Article 43(2)(f) of Directive 86/635/EEC may not exceed 60% of its own funds.
(3) The limits set out in paragraphs (1) and (2) may be exceeded only in exceptional circumstances.
(4) Where paragraph (3) applies to a credit institution, the Bank shall require the institution to increase its own funds or to take other equivalent measures.
Exclusions from Regulation 62(1) and (2).
num: 63
paragraphs: (1) Shares held temporarily during a financial reconstruction or rescue operation or during the normal course of underwriting or in an institution's own name on behalf of others shall not be counted as qualifying holdings for the purpose of calculating the limits set out in Regulation 62 (1) and (2).
(2) Shares which are not financial fixed assets as defined in Article 35(2) of Directive 86/635/EEC shall not be included in the calculation.
Discretions of Bank.
num: 64
paragraphs: (1) The Bank need not apply the limits set out in Regulation 62 (1) and (2) to holdings in insurance companies as defined in Directive 73/239/EEC and Directive 2002/83/EC, or in reinsurance companies as defined in Directive 98/78/EC.
(2) The Bank need not apply the limits set out in Regulation 62 (1) and (2) if it provides that 100% of the amounts by which a credit institution's qualifying holdings exceed those limits must be covered by own funds and that the latter shall not be included in the calculation under Regulation 19.
(3) Where both the limits set out in Regulation 62 (1) and (2) are exceeded, the amount to be covered by own funds shall be the greater of the excess amounts.
PART 8
CREDIT INSTITUTIONS' ASSESSMENT PROCESS
Strategies and processes relating to amount, etc. of internal capital required.
num: 65
paragraphs: (1) Credit institutions shall have in place sound, effective and complete strategies and processes to assess and maintain on an ongoing basis the amounts, types and distribution of internal capital that they consider adequate to cover the nature and level of the risks to which they are or might be exposed.
(2) The strategies and processes referred to in paragraph (1) shall be subject to regular internal review to ensure that they remain comprehensive and proportionate to the nature, scale and complexity of the activities of the credit institution concerned.
PART 9
SUPERVISION AND DISCLOSURES BY COMPETENT AUTHORITIES
Review and evaluation by Bank of credit institutions' compliance with recast Directive (CI).
num: 66
paragraphs: (1) Taking into account the technical criteria set out in Annex XI to the recast Directive (CI), the Bank shall review the arrangements, strategies, processes and mechanisms implemented by the credit institutions to comply with that Directive and evaluate the risks to which the credit institutions are or might be exposed.
(2) The scope of the review and evaluation referred to in paragraph (1) shall be that of the requirements of the recast Directive (CI).
(3) The Bank shall, on the basis of the review and evaluation referred to in paragraph (1), determine whether the arrangements, strategies, processes and mechanisms implemented by the credit institutions and the own funds held by them ensure a sound management and coverage of their risks.
(4) Subject to paragraph (5), the Bank shall establish the frequency and intensity of the review and evaluation referred to in paragraph (1) having regard to the size, systemic importance, nature, scale and complexity of the activities of the credit institution concerned and taking into account the principle of proportionality.
(5) The review and evaluation referred to in paragraph (1) shall be updated at least on an annual basis.
(6) The review and evaluation referred to in paragraph (1) shall include the exposure of credit institutions to the interest rate risk arising from non-trading activities.
(7) For the purposes of paragraph (6), measures shall be required in the case of credit institutions whose economic value declines by more than 20% of their own funds as a result of a sudden and unexpected change in interest rates the size of which shall be prescribed by the Bank and shall not differ between credit institutions.
Joint decisions of competent authorities.
num: 67
paragraphs: (1) The Bank shall, in addition to the obligations imposed by the provisions of the recast Directive (CI), carry out the following tasks where it is responsible for the exercise of supervision on a consolidated basis of EU parent credit institutions and credit institutions controlled by EU parent financial holding companies:
(a) coordination of the gathering and dissemination of relevant or essential information in going concern and emergency situations, and
(b) planning and coordination of supervisory activities in going concern as well as in emergency situations, including in relation to the activities in Regulation 66, in cooperation with the competent authorities involved.
(2) In the case of applications for the permissions referred to in Regulations 29(1) to (4), 32(13) and 51 and in Part 6 of Annex III to the recast Directive (CI), respectively submitted by an EU parent credit institution and its subsidiaries, or jointly by the subsidiaries of an EU parent financial holding company, the Bank shall work together with any other EU competent authorities that have authorised any subsidiaries, in full consultation, to decide whether or not to grant the permission sought and to determine the terms and conditions, if any, to which such permission should be subject.
(3) An application referred to in paragraph (2) shall be submitted only to the Bank.
(4) The Bank shall make reasonable efforts to reach a joint decision with the other competent authorities on the application within six months.
(5) This joint decision shall be set out in a document containing the fully reasoned decision which shall be provided to the applicant by the Bank.
(6) The period referred to in subparagraph (4) shall begin on the date of receipt of the complete application by the Bank.
(7) The Bank shall forward the complete application to the other competent authorities without delay.
(8) In the absence of a joint decision between the competent authorities within six months, the Bank shall -
(a) make its own decision on the application,
(b) ensure that the decision is set out in a document, is fully reasoned and takes into account the views and reservations of the other competent authorities expressed during the six months period, and
(c) provide the decision to the applicant and the other competent authorities.
(9) The Bank shall apply any decisions made in pursuance of this Regulation by the competent authorities in the Member States of any parent entity of a subsidiary authorised by the Bank.
Reporting by Bank.
num: 68
paragraphs: (1) Where an emergency situation arises within a banking group which potentially jeopardises the stability of the financial system in any of the Member States where entities of that group have been authorised, and the Bank is responsible for the exercise of supervision on a consolidated basis, it shall alert as soon as is practicable, subject to Section 2 of Chapter 1 of Title V to the recast Directive (CI), the authorities referred to in Articles 49(a) and 50 of that Directive by using, where possible, existing defined channels of communication.
(2) The Bank, when it needs information which has already been given to another competent authority in respect of a group for which it is the consolidating supervisor, shall contact that competent authority whenever possible in order to prevent duplication of reporting to the various authorities involved in supervision.
Persons who direct business of financial holding company to be of good repute.
num: 69
paragraphs: Persons who effectively direct the business of a financial holding company shall be of sufficiently good repute and have sufficient experience to perform those duties.
Actions to be taken by Bank if credit institution does not meet the requirements of these Regulations.
num: 70
paragraphs: (1) The Bank shall require any credit institution that does not meet the requirements of these Regulations to take the necessary actions or steps at an early stage to address the situation.
(2) For the purposes of paragraph (1), the measures available to the Bank shall include the following:
(a) obliging credit institutions to hold own funds in excess of the minimum level set out in Regulation 19,
(b) requiring the reinforcement of the arrangements, processes, mechanisms and strategies implemented to comply with Regulation 16(3) and 4 (as inserted by Regulation 79) of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 and Regulation 65,
(c) requiring credit institutions to apply a specific provisioning policy or treatment of assets, in terms of own funds requirements,
(d) restricting or limiting the business, operations or network of credit institutions,
(e) requiring the reduction of the risk inherent in the activities, products and systems of credit institutions.
(3) The adoption of measures referred to in paragraph (2) shall be subject to Articles 44 to 52 of the recast Directive (CI).
(4) A specific own funds requirement in excess of the minimum level laid down in Regulation 19 shall be imposed by the Bank at least on the credit institutions which do not meet the requirements set out under Regulation 16(3) and 4 (as inserted by Regulation 79) of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 and Regulations 55 and 65, or in respect of which a negative determination has been made on the issue described in Regulation 66(3), if the sole application of other measures is unlikely to improve the arrangements, processes, mechanisms and strategies sufficiently within an appropriate timeframe.
PART 10
DISCLOSURES BY COMPETENT AUTHORITIES
Disclosure by competent authorities.
num: 71
paragraphs: (1) The Bank shall disclose the following information:
(a) the texts of laws, regulations, administrative rules and general guidance adopted in the State in the field of prudential regulation,
(b) the manner of exercise of the options and discretions available in Community legislation,
(c) the general criteria and methodologies they use in the review and evaluation referred to in Regulation 66, and
(d) without prejudice to the provisions set out in Section 2 of Chapter 1 of Title V to the recast Directive (CI), aggregate statistical data on key aspects of the implementation of the prudential framework in each Member State.
(2) The disclosures provided for in paragraph (1) shall be -
(a) sufficient to enable a meaningful comparison of the approaches adopted by the competent authorities of the different Member States,
(b) published with a common format and updated regularly, and
(c) accessible at a single electronic location.
PART 11
DISCLOSURES BY CREDIT INSTITUTIONS
Disclosures by credit institutions.
num: 72
paragraphs: (1) For the purposes of the recast Directive (CI), credit institutions shall publicly disclose the information set out in Part 2 of Annex XII to that Directive, subject to Regulation 73.
(2) Recognition by the Bank under Chapters 3 and 4 of Part 4 and Regulation 51 of the instruments and methodologies referred to in Part 3 of Annex XII to the recast Directive (CI) shall be subject to the public disclosure by credit institutions of the information set out therein.
(3) Credit institutions shall adopt a formal policy to comply with the disclosure requirements set out in paragraphs (1) and (2), and have policies for assessing the appropriateness of their disclosures, including their verification and frequency.
Exceptions to disclosures required under Regulation 72.
num: 73
paragraphs: (1) Notwithstanding Regulation 72, credit institutions may omit one or more of the disclosures listed in Part 2 of Annex XII to the recast Directive (CI) if the information provided by such disclosures is not, in the light of the criterion specified in point 1 of Part 1 of Annex XII to the recast Directive (CI), regarded as material.
(2) Notwithstanding Regulation 72, credit institutions may omit one or more items of information included in the disclosures listed in Parts 2 and 3 of Annex XII to the recast Directive (CI) if those items include information which, in the light of the criteria specified in points 2 and 3 of Part 1 of Annex XII to the recast Directive (CI), is regarded as proprietary or confidential.
(3) In the exceptional cases referred to in paragraph (2), the credit institution concerned shall state in its disclosures the fact that the specific items of information are not disclosed, the reason for non-disclosure, and publish more general information about the subject matter of the disclosure requirement, except where these are to be classified as secret or confidential under the criteria set out in points 2 and 3 of Part 1 of Annex XII to the recast Directive (CI).
Publication of disclosures.
num: 74
paragraphs: (1) Credit institutions shall publish the disclosures required under Regulation 72-
(a) on an annual basis at a minimum, and
(b) as soon as is practicable.
(2) Credit institutions shall determine whether more frequent publication than is provided for in paragraph (1) is necessary in the light of the criteria set out in point 4 of Part 1 of Annex XII to the recast Directive (CI).
Where disclosures are published.
num: 75
paragraphs: (1) Subject to paragraph (2), credit institutions may determine the appropriate medium, location and means of verification to comply effectively with the disclosure requirements set out in Regulation 72.
(2) To the degree feasible, all disclosures shall be provided in one medium or location.
(3) Equivalent disclosures made by credit institutions under accounting, listing or other requirements may be deemed to constitute compliance with Regulation 72.
(4) Where disclosures are not included in the financial statements, credit institutions shall indicate where they can be found.
Powers of Bank relating to disclosures.
num: 76
paragraphs: Notwithstanding Regulations 73, 74 and 75, the Bank may require credit institutions -
(a) to make one or more of the disclosures referred to in Parts 2 and 3 of Annex XII to the recast Directive (CI),
(b) to publish one or more disclosures more frequently than annually, and to set deadlines for publication,
(c) to use specific media and locations for disclosures other than the financial statements,
(d) to use specific means of verification for the disclosures not covered by statutory audit.
PART 12
AMENDMENTS TO EUROPEAN COMMUNITIES (LICENSING AND SUPERVISION OF CREDIT INSTITUTIONS) REGULATIONS 1992
Definition of “Principal Regulations”.
num: 77
paragraphs: In this Part, “Principal Regulations” means the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. 395 of 1992).
Amendment of Regulation 3 of Principal Regulations.
num: 78
paragraphs: Regulation 3 of the Principal Regulations is amended by inserting the following after paragraph (2):
“(3) The institutions to which Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) does not apply pursuant to Article 2 of that Directive shall, except in the case of the central banks of the Member States, be treated as financial institutions for the purposes of -
(a) Article 39 of that Directive, and
(b) Section 1 of Chapter 4 of Title V to that Directive.”.
Amendment of Regulation 16 of Principal Regulations.
num: 79
paragraphs: Regulation 16 of the Principal Regulations is amended by inserting the following after paragraph (2):
“(3) Subject to paragraph (4), every credit institution shall have robust governance arrangements including -
(a) a clear organisational structure with well defined, transparent and consistent lines of responsibility,
(b) effective processes to identify, manage, monitor and report the risks it is or might be exposed to,
(c) adequate internal control mechanisms, and
(d) without prejudice to the generality of subparagraph (c), sound administrative and accounting procedures.
(4) Every credit institution shall, for the purposes of complying with paragraph (3) -
(a) ensure that the arrangements, processes and mechanisms referred to in that paragraph are comprehensive and proportionate to the nature, scale and complexity of the activities of the institution, and
(b) take into account the technical criteria set out in Annex V to Directive 2006/48/EC.”.
Amendment of Regulation 20 of Principal Regulations.
num: 80
paragraphs: Regulation 20(3) of the Principal Regulations is amended -
(a) in subparagraph (g), by deleting “and” where it last occurs,
(b) in subparagraph (h), by substituting “with; and” for “with.”, and
(c) by inserting the following after subparagraph (h):
“(i) the financial institution is effectively included, for the activities in question in particular, in the consolidated supervision of the parent undertaking, or of each of the parent undertakings, in accordance with Part 9 of the European Communities (Capital Adequacy of Credit Institutions) Regulations 2006 [S.I. [..] of 2006), in particular for the purposes of the minimum own funds requirements set out in Regulation 19 of those Regulations for the control of large exposures and for purposes of the limitation of holdings provided for in Part 7 of those Regulations.”.
Amendment of Regulation 23 of Principal Regulations.
num: 81
paragraphs: Regulation 23 of the Principal Regulations is amended by inserting the following after paragraph (2):
“(3) Branches which have commenced their activities, in accordance with the provisions in force in their host Member States, before 1 January 1993, shall be -
(a) presumed to be subject to the procedure set out in Regulation 21(1), and
(b) governed, on and from that date, by Regulations 18, 20(1) and 21(2) and (3) in addition to Regulations 23(3)(h), 27, 29 and 30.”.
PART 13
TRANSITIONAL PROVISIONS
Transitional provisions - general.
num: 82
paragraphs: (1) Credit institutions calculating risk-weighted exposure amounts in accordance with Chapter 3 of Part 4 shall during the first, second and third twelve-month periods after 31 December 2006 provide own funds which are at all times more than or equal to the amounts indicated in paragraphs (3), (4) and (5).
(2) Credit institutions using Regulation 51 for the calculation of their capital requirements for operational risk shall, during the second and third twelve-month periods after 31 December 2006, provide own funds which are at all times more than or equal to the amounts indicated in paragraphs (4) and (5).
(3) For the first twelve-month period referred to in paragraph (1), the amount of own funds shall be 95% of the total minimum amount of own funds that would be required to be held during that period by the credit institution under Article 4 of Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions as that Directive and Directive 2000/12/EC10 stood prior to 1 January 2007.
(4) For the second twelve-month referred to in paragraph (1), the amount of own funds shall be 90% of the total minimum amount of own funds that would be required to be held during that period by the credit institution under Article 4 of Directive 93/6/EEC as that Directive and Directive 2000/12/EC stood prior to 1 January 2007.
(5) For the third twelve-month period referred to in paragraph (1), the amount of own funds shall be 80% of the total minimum amount of own funds that would be required to be held during that period by the credit institution under Article 4 of Directive 93/6/EEC as that Directive and Directive 2000/12/EC stood prior to 1 January 2007.
(6) Compliance with the requirements of paragraphs (1) to [(4)] shall be on the basis of amounts of own funds fully adjusted to reflect differences in the calculation of own funds under Directive 2000/12/EC and Directive 93/6/EEC as those Directives stood prior to 1 January 2007 and the calculation of own funds under the recast Directive (CI) deriving from the separate treatments of expected loss and unexpected loss under Chapter 3 of Part 4.
(7) For the purposes of paragraphs (1) to (6), Regulations 13 to 17 shall apply.
(8) Until 1 January 2008 credit institutions may treat the Articles constituting the Standardised Approach set out in Subsection 1 of Section 3 of Chapter 2 of Title V to the recast Directive (CI) as being replaced by Articles 42 to 46 of Directive 2000/12/EC as those Articles stood prior to 1 January 2007, and Chapter 2 of Part 4 shall be construed accordingly.
(9) Where the discretion referred to in paragraph (8) is exercised, the following shall apply concerning the provisions of Directive 2000/12/EC:
(a) the provisions of that Directive referred to in Articles 42 to 46 shall apply as they stood prior to 1 January 2007,
(b) “risk-adjusted value” as referred to in Article 42(1) of that Directive shall mean “risk-weighted exposure amount”,
(c) the figures produced by Article 42(2) of that Directive shall be considered risk-weighted exposure amounts,
(d) “credit derivatives” shall be included in the list of “Full risk” items in Annex II to that Directive, and
(e) the treatment set out in Article 43(3) of that Directive shall apply to derivative instruments listed in Annex IV to that Directive whether on- or off-balance sheet and the figures produced by the treatment set out in Annex III to that Directive shall be considered risk-weighted exposure amounts.
(10) Where the discretion referred to in paragraph (8) is exercised, the following shall apply in relation to the treatment of exposures for which Chapter 2 of Part 4 is used:
(a) Chapter 4 of Part 4 shall not apply,
(b) Chapter 5 of Part 4 may be disapplied by the Bank.
(11) Where the discretion referred to in paragraph (8) is exercised, the capital requirement for operational risk under Regulation 19(d) shall be reduced by the percentage representing the ratio of the value of the credit institution's exposures for which risk-weighted exposure amounts are calculated in accordance with the discretion referred to in that paragraph to the total value of its exposures.
(12) Where a credit institution calculates risk-weighted exposure amounts for all of its exposures in accordance with the discretion referred to in paragraph (8), Articles 48 to 50 of Directive 2000/12/EC relating to large exposures may apply as they stood prior to 1 January 2007.
(13) Where the discretion referred to in paragraph (8) is exercised, references to Articles 78 to 83 of the recast Directive (CI) shall be read as references to Articles 42 to 46 of Directive 2000/12/EC as those Articles stood prior to 1 January 2007, and Chapter 2 of Part 4 shall be construed accordingly.
(14) Where the discretion referred to in paragraph (8) is exercised, Regulations 65, 66, 72 and 76 shall not apply before 1 January 2008.
Transitional provisions - calculation of risk-weighted exposure amounts for certain exposures, etc.
num: 83
paragraphs: (1) In the calculation of risk-weighted exposure amounts for exposures arising from property leasing transactions concerning offices or other commercial premises situated in their territory and meeting the criteria set out in point 54 of Part 1 of Annex VI to the recast Directive (CI), the Bank may, until 31 December 2012, allow a 50% risk-weighting to be applied without the application of points 55 and 56 of Part 1 of Annex VI to the recast Directive (CI).
(2) Until 31 December 2010, the Bank may, for the purpose of defining the secured portion of a past due loan for the purposes of Annex VI to the recast Directive (CI), recognise collateral other than eligible collateral as set out under Chapter 4 of Part 4.
(3) In the calculation of risk-weighted exposure amounts for the purposes of point 4 of Part 1 of Annex VI to the recast Directive (CI), until 31 December 2012 the same risk-weight shall be assigned in relation to exposures to Member States' central governments or central banks denominated and funded in the domestic currency of any Member State as would be applied to such exposures denominated and funded in their domestic currency.
Transitional provisions - discretions of Bank.
num: 84
paragraphs: (1) Until 31 December 2011, the Bank may, for the purposes of point 61 of Part 1 of Annex VI to the recast Directive (CI), set the number of days past due up to a figure of 180 for those exposures indicated in points 12 to 17 and 41 to 43 of Part 1 of Annex VI to the recast Directive (CI), if local conditions make it appropriate, but the specific number may differ across product lines.
(2) Where the Bank does not exercise the discretion provided for in paragraph (1) in relation to exposures in the State, it may set a higher number of days for exposures to counterparties situated in the territories of other Member States, the competent authorities of which have exercised the discretion except that the specific number shall fall within 90 days and such figures as the other competent authorities have set for exposures to such counterparties within their territory.
(3) For credit institutions applying for the use of the IRB Approach before 2010, subject to the approval of the Bank, the three years' use requirement prescribed in Regulation 29(5) may be reduced to a period not shorter than one year until 31 December 2009.
(4) For credit institutions applying for the use of own estimates of LGDs or conversion factors, or both, the three year use requirement prescribed in Regulation 29(5) may be reduced to two years until 31 December 2008.
(5) Until 31 December 2012, the Bank may allow credit institutions to continue to apply to participations of the type set out in Regulation 3(2)(g) acquired before 20 July 2006 the treatment set out in Article 38 of Directive 2000/12/EC as that Article stood prior to 1 January 2007.
(6) Until 31 December 2010 the exposure-weighted average LGD for all retail exposures secured by residential properties and not benefiting from guarantees from central governments shall not be lower than 10%.
(7) Until 31 December 2017, the Bank may exempt from the IRB treatment certain equity exposures held by credit institutions and EU subsidiaries of credit institutions in the State at 31 December 2007.
(8) For the purposes of paragraph (7) -
(a) the exempted position shall be measured at the number of shares as of 31 December 2007 and any additional share arising directly as a result of owning those holdings, as long as they do not increase the proportional share of ownership in a portfolio company,
(b) where an acquisition increases the proportional share of ownership in a specific holding, the exceeding part of the holding shall not be subject to the exemption (except that the exemption shall not apply to holdings that were originally subject to exemption, but have been sold and then bought back), and
(c) equity exposures shall be subject to the capital requirements calculated in accordance with Chapter 2 of Part 4.
(9) Until 31 December 2011, for corporate exposures the Bank may set the number of days past due that all credit institutions in its jurisdiction shall abide by under the definition of “default” set out in point 44 of Part 4 of Annex VII to the recast Directive (CI) for exposures to such counterparties situated within the State.
(10) For the purposes of paragraph (9) -
(a) the specific number shall fall within 90-up to a figure of 180 days if local conditions make it appropriate,
(b) for exposures to counterparties situated in the territories of other Member States, the Bank shall set a number of days past due which is not higher than the number set by the competent authority of the respective Member State.