RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD

of 5 December 2018

amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures

(ESRB/2018/8)

(2019/C 39/01)

THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (1), and in particular Article 3 and Articles 16 to 18 thereof,

Having regard to 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 (2), and in particular Article 458(8) thereof,

Having regard to Decision ESRB/2011/1 of the European Systemic Risk Board of 20 January 2011 adopting the Rules of Procedure of the European Systemic Risk Board (3), and in particular Articles 18 to 20 thereof,

Whereas:

(1) In order to ensure effective and consistent national macroprudential policy measures, it is important to complement the mandatory reciprocity required under Union law with voluntary reciprocity.

(2) The framework on voluntary reciprocity for macroprudential policy measures, set out in Recommendation ESRB/2015/2 of the European Systemic Risk Board (4), aims to ensure that the same set of macroprudential requirements apply to the same type of risk exposures in a given Member State, irrespective of the legal status and location of the financial service provider.

(3) Recommendation ESRB/2017/4 of the European Systemic Risk Board (5) recommends the relevant activating authority to propose a maximum materiality threshold when submitting a request for reciprocation to the European Systemic Risk Board (ESRB), below which an individual financial service provider’s exposure to the identified macroprudential risk in the jurisdiction where the macroprudential policy measure is applied by the activating authority can be considered non-material. The ESRB may recommend a different threshold if deemed necessary.

(4) As a general principle, in line with Article 458(3) of Regulation (EU) No 575/2013, the activating authority is expected to cooperate with the relevant authorities reciprocating the measure in order to ensure an efficient and effective implementation of the reciprocating measure.

(5) From 1 July 2018, French global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) at the highest level of consolidation of their banking prudential perimeter are subject, pursuant to Article 458(2)(d)(ii) of Regulation (EU) No 575/2013, to a large exposure limit of 5 per cent of their eligible capital in relation to highly-indebted large non-financial corporations having their registered office in France.

(6) Following the request by the Haut Conseil de stabilité financière (High Council for financial stability) to the ESRB under Article 458(8) of Regulation (EU) No 575/2013, and in order to: (i) prevent the materialisation of negative cross-border effects in the form of leakages and regulatory arbitrage that could result from the implementation of the macroprudential policy measure applied in France in accordance with Article 458(2)(d)(ii) of Regulation (EU) No 575/2013; (ii) signal to other market participants the systemic risks associated with the increased leverage of large non-financial corporations having their registered office in France; and (iii) increase the resilience of systemically important institutions in other Member States, the General Board of the ESRB has decided to include this measure in the list of macroprudential policy measures which are recommended to be reciprocated under Recommendation ESRB/2015/2.

(7) As the measure activated by the Haut Conseil de stabilité financière is applied only at the highest level of consolidation, in line with the principle specified in sub-recommendation C(2) of Recommendation ESRB/2015/2 according to which the relevant authorities should implement the same macroprudential policy measure as the one that has been implemented by the activating authority, it should also be possible to reciprocate the measure at the same level of consolidation. In addition, applying the materiality threshold at an individual level could lead to the exemption of institutions which, at a consolidated level, have concentrated large exposures to highly-indebted non-financial corporations having their registered office in France, thereby creating an incentive for regulatory arbitrage. Consequently, the recommended materiality threshold should, in this exceptional case, be applied on a consolidated basis.

(8) Therefore, Recommendation ESRB/2015/2 should be amended accordingly,

HAS ADOPTED THIS RECOMMENDATION:

AMENDMENTS

Recommendation ESRB/2015/2 is amended as follows:

1. in Section 1, sub-recommendation C(1) is replaced by the following: ‘1. The relevant authorities are recommended to reciprocate the macroprudential policy measures adopted by other relevant authorities and recommended for reciprocation by the ESRB. It is recommended that the following measures, as further described in the Annex, be reciprocated: Estonia: — a 1 per cent systemic risk buffer rate applied in accordance with Article 133 of Directive 2013/36/EU to the domestic exposures of all credit institutions authorised in Estonia; Finland: — a 15 per cent floor for the average risk-weight on residential mortgage loans secured by a mortgage on housing units in Finland applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013 to credit institutions authorised in Finland, using the Internal Ratings Based (IRB) Approach for calculating regulatory capital requirements; Belgium: — a risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013 to credit institutions authorised in Belgium, using the IRB Approach for calculating regulatory capital requirements and composed of: (a) a flat risk-weight add-on of 5 percentage points; and (b) a proportionate risk-weight add-on consisting of 33 per cent of the exposure-weighted average of the risk-weights applied to the portfolio of retail exposures secured by residential immovable property located in Belgium; France: — a tightening of the large exposure limit provided for in Article 395(1) of Regulation (EU) No 575/2013, applicable to exposures to highly-indebted large non-financial corporations having their registered office in France to 5 per cent of eligible capital, applied in accordance with Article 458(2)(d)(ii) of Regulation (EU) No 575/2013 to global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) at the highest level of consolidation of their banking prudential perimeter.’;

2. The Annex is replaced by the Annex to this Recommendation.

Done at Frankfurt am Main, 5 December 2018. Francesco MAZZAFERRO The Head of the ESRB Secretariat on behalf of the General Board of the ESRB

(1) OJ L 331, 15.12.2010, p. 1.

(2) OJ L 176, 27.6.2013, p. 1.

(3) OJ C 58, 24.2.2011, p. 4.

(4) Recommendation ESRB/2015/2 of the European Systemic Risk Board of 15 December 2015 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (OJ C 97, 12.3.2016, p. 9).

(5) Recommendation ESRB/2017/4 of the European Systemic Risk Board of 20 October 2017 amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (OJ C 431, 15.12.2017, p. 1).