on the review of Articles 13, 18 and 45 as regards EBA's powers to conduct binding mediation to take account of future developments in financial services law

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on the review of Articles 13, 18 and 45 as regards EBA's powers to conduct binding mediation to take account of future developments in financial services law

Introduction

In accordance with Article 129 of Directive 2014/59/EU on establishing a framework for recovery and resolution of credit institutions and investment firms (“BRRD”) and after consulting the European Banking Authority (EBA), the European Commission has prepared this report to the European Parliament and the Council on the review of the application of Articles 13 (Group Resolution Plan), 18 (Impediment to resolvability: group treatment) and 45 (MREL) as regards EBA's power to conduct binding mediation to take account of developments in financial services.

Provisions

Articles 13, 18 and 45 BRRD are based on the general principle that , with respect to groups decisions in the respective areas should be taken jointly by the resolution authorities concerned. All three provisions set out a period of four months during which an agreement in this respect must be reached. Articles 13 and 18 establish that during this period EBA can be tasked with assisting the authorities in reaching a joint decision with respect to group resolutions plans and impediment to resolvability respectively, if it is requested by a resolution authority. Moreover, the three provisions establish that in absence of a joint decision any resolution authority can, at the end of the four months' period (which counts as conciliation period for the purposes of Article 19(2) EBA Regulation) refer the matter to EBA requesting it to take a binding mediation decision in accordance with Article 19 of the EBA Regulation. In such case, the responsibility to decide on the matter is deferred by the initially responsible resolution authority to EBA. In accordance with Article 19(3) of that Regulation, EBA shall take its decision within one month. The decision of EBA is then binding on the respective resolution authorities.

The following table compares non-binding and binding mediation powers of EBA and shows the subjects of the respective provisions.

Articles Non-binding mediation powers

(Art.31(c) EBA Regulation) Binding mediation powers

(Art.19(3) EBA Regulation) Group Resolution Plans

(Art. 13) Upon request of a resolution authority, EBA may assist in reaching a joint decision during the conciliation period (para. 4).

(exception: decision may impinge on MS fiscal responsibilities (para. 9)) If decision is referred by a resolution authority to EBA at the end of the conciliation period

- on group level (para. 5)

- on subsidiary level (para. 6) impediments to group resolution

(Art. 18) Upon request of a resolution authority, EBA may assist in reaching a joint decision during the conciliation period (para. 5) If decision at group level (para. 6) or at subsidiary level (para. 7) is deferred by a resolution authority to EBA at the end of the conciliation period in case of measures on - changing legal or operational structures - establishing a parent financial holding - establishing a separate financial holding company to control a subsidiary MREL

(Art. 45) If decision at group level (para. 9) or at subsidiary level (para. 10) is deferred by a resolution authority to EBA at the end of the conciliation period

In detail, Article 13(4) BRRD stipulates that a group resolution plan shall be decided jointly by the group-level authority and the resolution authority of the subsidiaries. EBA can be consulted to assist in this process. In absence of a joint decision on the resolution plan within four months after the information was conveyed, the group-level authority shall take its decision at group level and the resolution authorities of the subsidiaries shall take their decisions at individual level (paragraph 5 and 6, respectively). If however, any resolution authority refers the matter within the four months period to EBA, the group-level authority or the resolution authority responsible for the subsidiary on an individual basis shall defer its decision and await any decision that EBA may take. EBA shall take its decision within a month which then is binding for the relevant authority and be applied by the other resolution authorities concerned.

However, if impediments to resolution are identified by the group-level resolution authority the deadline for the preparation of the group resolution plan is suspended. In this case the institution has to propose to the resolution authority possible measures to address or remove the substantive impediments within four months. The resolution authority shall assess whether the proposed measures are effective.

If the resolution authority assess that the measures proposed do not effectively reduce or remove the impediments in question, it shall require the institution to take alternative measures. In a group context, pursuant to Article 18 of the BRRD, the group-level resolution authority in cooperation with the consolidating supervisor and EBA must prepare a report on measures to address such impediments.

The Union parent undertaking may submit observations within four months of the date of receipt of the report.

The group-level resolution authority and the resolution authorities of the subsidiaries, within four months of receipt of the observations from the parent undertaking or upon expiry of the deadline to provide them, shall reach a joint decision on the identification of material impediments and relief measures after consulting the competent authority and the resolution authorities of the jurisdictions of relevant branches and after taking into consideration potential observations of the Union parent undertaking. Pursuant to paragraph (5) of Article 18, EBA can be consulted to assist in reaching a joint decision. In absence of a joint decision on the report on impediments to resolvability, the group level authority shall take its decision at group level, and the resolution authorities of the subsidiaries shall take their decisions at individual level. However, during the four month period, EBA can be asked to provide binding mediation with reference to measures regarding significant changes to legal or operational structures, the establishment of a holding company or the establishment of a holding with the purpose to control the institution. If any resolution authority refers the matter within the four months period to EBA, the group-level authority or the resolution authority responsible for the subsidiary on an individual basis shall defer their decisions and await any decision that EBA may take. EBA shall take its binding decision within a month.

According to Article 45(9) BRRD on the application of the minimum requirement for own funds and eligible liabilities, the group-level resolution authority and the resolution authority responsible for the subsidiaries on an individual basis shall do everything within their power to reach a joint decision on the consolidated minimum requirement. In absence of a joint decision by relevant resolution authorities on the minimum requirement at consolidated level, a decision shall be taken by the group-level authority after duly taking into consideration the assessment of subsidiaries performed by the relevant resolution authority. In absence of a joint decision on subsidiary level, the decision shall be taken by the respective resolution authorities of the subsidiaries after duly considering the views and reservations expressed by the group-level resolution authority. If any resolution authority refers the matter within a four months period to EBA, the group-level authority, or respectively, the resolution authority responsible for the subsidiary on an individual basis shall defer its decision and shall await any decision that EBA may take within a month, which is then binding for the concerned resolution authorities. The decision shall be reviewed and where relevant updated on a regular basis.

Experience gathered from application of mediation powers by EBA

Since its establishment by Regulation (EU) No. 1093/2010, EBA has received nine requests for mediation out of which three for binding and for six non-binding mediation. Out of such nine cases, two mediation requests have been submitted to EBA on the basis of the BRRD, which came into force on 1 January 2015. Until now all requests for mediation proceedings (binding, non-binding) have ultimately been settled by an agreement between the parties concerned under the guidance and assistance of EBA. For this reason, so far there was no need to proceed with binding mediation to reach a decision.

Experience from these cases, albeit limited, seems to indicate that the mediation process can be an effective tool to incentivise joint decisions between competent authorities since EBA was able to settle disagreements within the conciliation phase (or within the non-binding mediation).

Nevertheless, no joint decisions were taken with respect to measures to address or remove substantive impediments and with respect to minimum requirement for own funds and eligible liabilities (MREL).