# Decision (EU) 2015/656 of the European Central BankShow full title

Decision (EU) 2015/656 of the European Central Bank of 4 February 2015 on the conditions under which credit institutions are            permitted to include interim or year-end profits in Common Equity Tier 1 capital in accordance with Article 26(2) of Regulation            (EU) No 575/2013 (ECB/2015/4)         

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U.K.

# Decision (EU) 2015/656 of the European Central Bank

# of 4 February 2015

# on the conditions under which credit institutions are permitted to include interim or year-end profits in Common Equity Tier                        1 capital in accordance with Article 26(2) of Regulation (EU) No 575/2013 (ECB/2015/4)                     

THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

Having regard to Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central                           Bank concerning policies relating to the prudential supervision of credit institutions(1), and in particular Article 4(1)(d) and the second subparagraph of Article 4(3) thereof,                        

Whereas:

(1)Article 26(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council(2) has introduced a new procedure whereby the permission of the competent authority is required for the inclusion of interim                              profits or year-end profits in Common Equity Tier 1 (CET1) capital before an institution has taken a formal decision confirming                              the final profit or loss of the institution for the year. Such permission is granted where the following two conditions are                              met: profits have been verified by persons independent of the institution that are responsible for the auditing of the accounts                              of that institution; and the institution has demonstrated that any foreseeable charge or dividend has been deducted from the                              amount of those profits.

(2)Articles 2 and 3 of Commission Delegated Regulation (EU) No 241/2014(3) specify the meaning of ‘foreseeable’ for the purposes of Article 26(2)(b) of Regulation (EU) No 575/2013.

(3)Commission Implementing Regulation (EU) No 680/2014(4) lays down uniform requirements in relation to supervisory reporting.

(4)In accordance with Article 4(1)(d) of Regulation (EU) No 1024/2013, the European Central Bank (ECB) is the competent authority                              responsible for granting permission to credit institutions under its direct supervision to include interim or year-end profits                              in CET1 capital, where the abovementioned conditions are met.

(5)Taking into account the fact that Delegated Regulation (EU) No 241/2014 has harmonised the approach to the deduction of foreseeable                              dividends from interim or year-end profits for the purposes of granting the permission referred to in Article 26(2) of Regulation                              (EU) No 575/2013, permission to include interim or year-end profits in CET1 capital should be granted when certain conditions                              are met.

(6)In cases where the conditions to apply this Decision are not met the ECB will individually assess requests for permission                              to include interim or year-end profits in CET1 capital,

HAS ADOPTED THIS DECISION:

## Article 1U.K.Subject matter and scope

1.This Decision lays down the conditions under which the ECB has determined to grant permission to credit institutions to include                        interim or year-end profits in CET1 capital pursuant to Article 26(2)(a) and (b) of Regulation (EU) No 575/2013.                  

2.This Decision is without prejudice to the right of credit institutions to request permission from the ECB to include interim                        or year-end profits in CET1 capital in cases not covered by this Decision.                  

3.This Decision applies to credit institutions for which the ECB carries out direct supervision in accordance with Regulation                        (EU) No 468/2014 of the European Central Bank (ECB/2014/17)(5).                  

## Article 2U.K.Definitions

For the purposes of this Decision, the following definitions shall apply:

‘credit institution’ means a credit institution as defined in point 1 of Article 4(1) of Regulation (EU) No 575/2013 and which                              is supervised by the ECB.                           

‘consolidated basis’ has the same meaning as defined in point 48 of Article 4(1) of Regulation (EU) No 575/2013.

‘sub-consolidated basis’ has the same meaning as defined in point 49 of Article 4(1) of Regulation (EU) No 575/2013.

‘consolidating entity’ means the credit institution which shall comply with the requirements laid down in Regulation (EU)                              No 575/2013 on consolidated basis or sub-consolidated basis, as applicable, in accordance with Articles 11 and 18 of Regulation                              (EU) No 575/2013.                           

‘interim profits’ means profits as laid down in the applicable accounting framework, computed for a reference period shorter                              than a full financial year, and before the credit institution has taken a formal decision confirming such a profit or loss                              of the institution.                           

‘year-end profits’ means profits as defined in the applicable accounting framework, computed for a reference period equal                              to a full financial year, and before the credit institution has taken a formal decision confirming such a profit or loss of                              the institution.                           

‘pay-out ratio at consolidated level’ means the ratio between: (a) dividends, other than those paid in a form that does not                              reduce CET1 capital (e.g. scrip-dividends), distributed to owners of the consolidating entity; and (b) profit after tax attributable                              to owners of the consolidating entity. If for a given year the ratio between (a) and (b) is negative or above 100 %, the pay-out                              ratio shall be deemed to be 100 %. If for a given year (b) is zero, the pay-out ratio shall be deemed to be 0 % if (a) is                              zero, and 100 % if (a) is above zero.                           

‘pay-out ratio at solo level’ means the ratio between: (a) dividends, other than those paid in a form that does not reduce                              CET1 capital (e.g. scrip-dividends), distributed to owners of the entity; and (b) profit after tax. If for a given year the                              ratio between (a) and (b) is negative or above 100 %, the pay-out ratio shall be deemed to be 100 %. If for a given year (b)                              is zero, the pay-out ratio shall be deemed to be 0 % if (a) is zero and 100 % if (a) is above zero.                           

## Article 3U.K.Permission to include interim or year-end profits in CET1 capital

1.For the purposes of Article 26(2) of Regulation (EU) No 575/2013, credit institutions shall be permitted to include interim                        or year-end profits in CET1 capital before a formal decision confirming the final profit or loss of the institution for the                        year has been taken, provided that the credit institution has met the conditions set out in Articles 4 and 5 of this Decision.                  

2.The conditions set out in Articles 4 and 5 shall be met prior to submission of the applicable reporting on own funds and own                        funds requirements in accordance with the reporting remittance dates laid down in Article 3 of Implementing Regulation (EU)                        No 680/2014.                  

3.Credit institutions that intend to include interim or year-end profits in CET1 capital shall send a letter addressed to the                        ECB that includes the documentation required in Articles 4 and 5 of this Decision. Within three working days from receipt                        of the relevant documentation, the ECB shall notify credit institutions whether such documentation contains the information                        required in this Decision.                  

## Article 4U.K.Verification of the profits

1.The ECB shall consider that the verification requirement under Article 26(2)(a) of Regulation (EU) No 575/2013 has been met                        if the notifying credit institution provides the ECB with a document signed by its external auditor that complies with the                        requirements set out in paragraphs 3 and 4.                  

2.Credit institutions notifying their intention to include interim or year-end profits as CET1 capital, at various levels of                        consolidation or on an individual basis, may provide the document referred to in paragraph 1 at the highest level of consolidation.                  

3.For year-end profits, the verification shall consist either of an audit report or of a comfort letter stating that the audit                        has not been completed and nothing has come to the attention of the auditors that causes them to believe that the final report                        will include a qualified opinion.                  

4.For interim profits, the verification shall consist either of an audit report or of a review report (as defined by the International                        Standard on Review Engagements 2410 issued by the International Auditing and Assurance Standards Board or a comparable standard                        applicable at national level) or, provided that the verification carried out by the credit institution consists of an audit                        report, a comfort letter along the lines set out in paragraph 3.                  

## Article 5U.K.Deduction from profits of any foreseeable charge or dividend

1.In order to demonstrate that any foreseeable charges or dividends have been deducted from the amount of profits, the credit                        institution shall:                  

(a)provide a declaration that those profits have been recorded in accordance with the principles set out in the applicable accounting                        framework and that the scope of prudential consolidation is not materially wider than the scope of verification referred to                        in the external auditor's document referred to in Article 4; and                  

(b)submit to the ECB a document signed by a qualified person detailing the main components of those interim or year-end profits,                        including deductions for any foreseeable charges or dividends.                  

2.In those cases where interim or year-end profits are to be included on a consolidated or sub-consolidated basis, the requirements                        referred to in paragraph 1 shall be satisfied by the consolidating entity.                  

3.The dividends to be deducted shall be the amount formally proposed or decided by the management body. If such formal proposal                        or decision has not yet been taken, the dividend to be deducted shall be the highest of the following:                  

(a)the maximum dividend calculated in accordance with internal dividend policy;                  

(b)the dividend calculated on the basis of the average pay-out ratio over the last three years;                  

(c)the dividend calculated on the basis of the previous year's pay-out ratio.                  

4.Any deduction of dividends based on an approach not listed in paragraph 3 shall not be covered by this Decision.                  

5.For the purposes of paragraph 1(b), a qualified person means a person who has been duly authorised by the institution's management                        body to sign on its behalf.                  

6.For the purposes of paragraph 1, institutions shall use the model letter in the Annex to this Decision.                  

## Article 6U.K.Entry into force

1.This Decision shall enter into force on 6 February 2015.                  

2.This Decision shall apply from the reporting reference date of 31 December 2014 in accordance with Article 2 of Implementing                        Regulation (EU) No 680/2014.                  

Done at Frankfurt am Main, 4 February 2015.

*The President of the ECB*                            

Mario Draghi                            

## ANNEXU.K.

[Name and details of the institution]

[Name and details of the JST Coordinator]

[Place, date]

[Institution's reference]

**Inclusion of profits in Common Equity Tier 1 (CET1) capital**                   

Dear [Sir/Madam],

For the purpose of the submission of supervisory reporting referred to [regulatory reporting reference date], pursuant to                     Article 26(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and to Decision (EU) 2015/656 of                     the European Central Bank (ECB/2015/4), I hereby notify the intention of [name of the institution/banking group/banking sub-group]                     to include in its [individual/consolidated] CET1 capital the net profits resulting from its [interim/annual] financial statements                     as of [balance sheet date].                  

The net profits to be included in CET1 capital have been calculated as follows:

[EUR 0]

[EUR 0]

6

[EUR 0]

7

[EUR 0]

[EUR 0]

8

[EUR 0/blank]

9

[EUR 0]

10

[EUR 0]

[EUR 0]

[EUR 0]

11

[EUR 0]

[EUR 0]

For the purposes of the above, I hereby declare that:
          -  the figures above are accurate to the best of my knowledge; 
          -  the profits have been verified by persons who are independent of this institution and who are responsible for the auditing                           of this institution's accounts, as required by Article 26(2) of Regulation (EU) No 575/2013 and by Decision (EU) 2015/656                           (ECB/2015/4). In this regard, I enclose the [audit report/review report/comfort letter] from [auditor's name];                         
          -  the profits have been evaluated in accordance with the principles set out in the applicable accounting framework; 
          -  any foreseeable charge or dividend has been deducted from the amount of the profits, as shown above; 
          -  the amount of dividends to be deducted has been estimated in accordance with Decision (EU) 2015/656 (ECB/2015/4). In particular,                           deductible dividends are based on a formal decision/proposal or, if such formal decision/proposal is not available, on the                           highest of: (i) maximum dividend according to dividend policy; (ii) dividend based on the average pay-out ratio over the last                           three years; (iii) dividend based on last year's pay-out ratio. If the expected dividend pay-out has been calculated by using                           a pay-out range instead of a fixed value, the upper end of that range has been used;                         
          -  the management body of [name of the institution/banking group/banking sub-group] commits to make a proposal for distributing                           dividends that is fully consistent with the above calculation of the net profits.                         

Yours sincerely,

[Name and position of authorised signatory]

1

OJ L 287, 29.10.2013, p. 63.                           

2

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit                              institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).                           

3

Commission Delegated Regulation (EU) No 241/2014 of 7 January 2014 supplementing Regulation (EU) No 575/2013 of the European                              Parliament and of the Council with regard to regulatory technical standards for Own Funds requirements for institutions (OJ L 74, 14.3.2014, p. 8).                           

4

Commission Implementing Regulation (EU) No 680/2014 of 16 April 2014 laying down implementing technical standards with regard                              to supervisory reporting of institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council                              (OJ L 191, 28.6.2014, p. 1).                           

5

Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within                              the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated                              authorities (SSM Framework Regulation) (ECB/2014/17) (OJ L 141, 14.5.2014, p. 1).                           

6

Article 3(1)(b) of Delegated Regulation (EU) No 241/2014.

7

Article 3(2) of Delegated Regulation (EU) No 241/2014.

8

Article 2(2) and (10) of Delegated Regulation (EU) No 241/2014. This should only be zero if there is a formal decision or                              proposal not to distribute any dividend. If there is no formal proposal or decision the field is left blank.                           

9

Article 2(4) to (6) of Delegated Regulation (EU) No 241/2014.

10

Article 2(7) of Delegated Regulation (EU) No 241/2014.

11

Article 2(9) of Delegated Regulation (EU) No 241/2014.