Text proposed by the Commission Amendments proposed by the ECB (9)

Amendment 1

Preamble of the proposed regulation (new citation)

‘Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national Parliaments, Having regard to the opinion of the European Economic and Social Committee, Acting in accordance with the ordinary legislative procedure,’ ‘Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national Parliaments, Having regard to the opinion of the European Central Bank,, Having regard to the opinion of the European Economic and Social Committee, Acting in accordance with the ordinary legislative procedure,’

Explanation In accordance with Article 296 of the Treaty, which provides that legal acts shall refer to any opinions required by the Treaties, the proposed amendment is necessary in order to reflect the fact that the Union act is adopted in accordance with Articles 127(4) and 282(5) of the Treaty which provide for the obligation to consult the ECB on any proposed Union act falling within its fields of competence.

Amendment 2

Recital 16a of the proposed regulation (new)

No text. ‘(16a) The report from the High Level Group on Financial Supervision in the European Union, chaired by Jacques de Larosière, stated that micro-prudential supervision cannot effectively safeguard financial stability without adequately taking account of macro-level developments, while macro-prudential oversight is not meaningful unless it can somehow impact on supervision at the micro level. Close cooperation between EBA and the ESRB is essential to give full effectiveness to the functioning of the ESRB and the follow-up to its warnings and recommendations. In particular, EBA should be able to transmit to the ESRB all relevant information gathered by competent authorities in accordance with the reporting obligations set out in this Regulation.’

Explanation The proposed recital addresses the importance of macro-prudential oversight across the Union and clarifies that information subject to reporting requirements has both micro- and macro-prudential purposes. An identical recital could be introduced in the proposed directive.

Amendment 3

Recital 56a of the proposed regulation (new)

No text. ‘(56a) An important lesson stemming from the crisis is the need to significantly strengthen the loss absorption capacity of regulatory capital. With this aim, the Basel III agreement requires with respect to joint stock companies that, “for an instrument to be included in Common Equity Tier 1 capital, it must meet all the criteria defined in the agreement and the criteria must be met solely with common shares”. The Regulation implements these strict criteria in order “to cover the highest quality own funds instruments for internationally active banks that are joint stock companies”.’

Explanation The proposal aims at underlining the relevant provisions of the Basel III agreement with respect to the eligibility criteria for shares as common equity tier 1 instruments (see also Amendments 6, 7, 8 and 9).

Amendment 4

Recital 68 of the proposed regulation

‘(68) A leverage ratio is a new regulatory and supervisory tool for the Union. In line with international agreements, it should be introduced first as an additional feature that can be applied on individual institutions at the discretion of supervisory authorities. Reporting obligations for institutions would allow appropriate review and calibration, with a view to migrating to a binding measure in 2018.’ ‘(68) A leverage ratio is a new regulatory and supervisory tool for the Union, n line with the Basel III agreement. It should be introduced first as an additional feature that can be applied on individual institutions at the discretion of supervisory authorities. Reporting obligations for institutions would allow appropriate review and calibration, in order to ensure the compulsory application of the leverage ratio from 2018.’

Explanation This amendment clarifies that the leverage ratio will apply from 1 January 2018.

Amendment 5

Article 4 of the proposed regulation (new definitions)

No text. ‘ “External Credit Assessment Institution”(ECAI) means a credit rating agency that is registered or certified in accordance with Regulation (EC) No 1060/2009 or a central bank issuing credit ratings which are exempt from the application of Regulation (EC) No 1060/2009.’ ‘ “Nominated ECAI”means an ECAI nominated by an institution.’

Explanation For the sake of clarity, the proposed amendment defines ‘ECAI’ and ‘nominated ECAI’ and adds them to the list of definitions of the proposed regulation and directive. Since Regulation (EC) No 1060/2009 defines ECAIs as all credit rating agencies that have been registered or certified in accordance with Regulation (EC) No 1060/2009 or central banks issuing credit ratings which are exempt from Regulation (EC) No 1060/2009, there is no need to define ‘eligible’ and/or ‘recognised’ ECAIs in the proposed regulation and directive. For the same reason, the other provisions refer to these terms should be amended accordingly. For the sake of cross-sectoral consistency, the ECB also recommends ensuring that the provisions correspond to those in the proposal for a Directive of the European Parliament and of the Council amending Directives 2003/71/EC and 2009/138/EC in respect of the powers of the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (11) under discussion which relate to ECAIs. This also applies to the rules related to the mapping of ECAI’s credit assessment and the possibility of involving the Joint Committee of ESAs (12).

Amendment 6

Article 24(4) of the proposed regulation

‘4. EBA shall establish, maintain and publish a list of the forms of capital instrument in each Member State that qualify as Common Equity Tier 1 instruments. EBA shall establish and publish this list by 1 January 2013.’ ‘4. Competent authorities shall notify EBA of the forms of shares they deem eligible as Common Equity Tier 1 instruments according to their national law. EBA shall evaluate these forms of shares on an on-going basis and develop a draft list of the forms of shares in each Member State that qualify as Common Equity Tier 1 instruments in accordance with paragraph 5. Upon a Member State’s request or on its own initiative, the EBA may decide to request legal opinions in order to ascertain the eligibility of the forms of shares notified by Member States against the conditions defined in Article 26.’

Explanation EBA should be competent to evaluate the forms of shares deemed eligible as common equity tier 1 instruments on the basis of the information received from competent authorities and in accordance with the rules defined in the proposed regulation, in particular Article 26(1) of the proposed regulation. For this purpose, EBA may also request external legal opinions to assess the eligibility of certain notified forms of shares by Member States.

Amendment 7

Article 24(5) and (6) of the proposed regulation (new)

No text. ‘5. EBA shall develop draft implementing technical standards listing the forms of shares meeting the conditions defined in Article 26. EBA shall submit the draft implementing technical standards to the Commission by 1 January 2013. Power is conferred on the Commission to adopt the draft implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 6. Only the forms of shares included in the implementing act adopted by the Commission in accordance with paragraph 5 shall be considered eligible as Common Equity Tier 1 instruments. Competent authorities shall monitor compliance with the conditions for Common Equity Tier 1 capital defined in Chapter 2 on an ongoing basis.’

Explanation EBA should be competent to evaluate the forms of shares eligible as common equity tier 1 instruments on the basis of the information received from competent authorities and in accordance with the rules defined in the proposed regulation, in particular Article 26(1). The ECB proposes that the draft list established by EBA be converted into a Commission implementing act.

Amendment 8

Article 26(1) of the proposed regulation

‘1. Capital instruments shall qualify as Common Equity Tier 1 instruments only if all the following conditions are met: […].’ ‘1. Capital instruments issued by other institutions than those referred to in Article 27 shall consist of shares of undertakings referred to in the list in Article 24(4) and qualify as Common Equity Tier 1 instruments only if all the following conditions are met: […].’

Explanation The proposed regulation refers to ‘capital instruments’ as components of common equity tier 1 items. The Basel III agreement refers to ‘common shares’ as a predominant form of common equity tier 1 capital. The ECB recommends clarifying that common equity tier 1 instruments will consist solely of shares meeting the criteria in Article 26(1) of the proposed regulation.

Amendment 9

Article 26(3) of the proposed regulation

‘3. EBA shall develop draft regulatory technical standards to specify the following: (a) the applicable forms and nature of indirect funding of capital instruments; (b) the meaning of distributable items for the purposes of determining the amount available to be distributed to the holders of own funds instruments of an institution.’ ‘3. EBA shall develop draft regulatory technical standards to specify the following: (a) the applicable forms and nature of indirect funding of capital instruments; (b) the meaning of distributable items for the purposes of determining the amount available to be distributed to the holders of own funds instruments of an institution; (c) the meaning of preferential distributions; (d) the definition and implications of ‘absorbing the first and proportionately greatest share of losses as they occur’; (e) the nature of a cap or other restriction on the maximum level of distributable items.’

Explanation The ECB considers that the EBA should develop draft regulatory technical standards in the above areas to improve the harmonised application of the criteria for eligibility of shares as common equity tier 1 items across Member States.

Amendment 10

Article 46 of the proposed regulation

‘Article 46 Other exemptions from, and alternatives to, deduction where consolidation is applied 1. As an alternative to the deduction of holdings of an institution in the Common Equity Tier 1 instruments of insurance undertakings, reinsurance undertakings and insurance holding companies in which the institution has a significant investment, competent authorities may allow institutions to apply methods 1, 2 or 3 of Annex I to Directive 2002/87/EC. The institution shall apply the method chosen in a consistent manner over time. An institution may apply method 1 (accounting consolidation) only if it has received the prior consent of the competent authority. The competent authority may grant such consent only if it is satisfied that the level of integrated management and internal control regarding the entities that would be included in the scope of consolidation under method 1 is adequate. […] 3. Competent authorities may permit institutions not to deduct a holding of an item referred to in points (h) and (i) of Article 33 (1) in the following cases: (a) where the holding is in a relevant entity which is included in the same supplementary supervision as the institution in accordance with Directive 2002/87/EC; (b) where an institution referred to in Article 25 has a holding in another such institution, or in its central or regional credit institution, and the following conditions are met: […].’ ‘Article 46 Other exemptions from, and alternatives to, deduction where consolidation is applied 1. As an alternative to the deduction of holdings of an institution in the Common Equity Tier 1 instruments of insurance undertakings, reinsurance undertakings and insurance holding companies in which the institution has a significant investment, competent authorities may allow institutions to apply methods 1, 2 or 3 of Annex I to Directive 2002/87/ECprovided that the application of these methods does not result in higher own funds vis-à-vis the deduction approach at the level of the institutions and financial institutions referred to in Article 16. The institution shall apply the method chosen in a consistent manner over time. An institution may apply method 1 (accounting consolidation) only if it has received the prior consent of the competent authority. The competent authority may grant such consent only if it is satisfied that the level of integrated management and internal control regarding the entities that would be included in the scope of consolidation under method 1 is adequate. […] 3. Competent authorities may permit institutions not to deduct a holding of an item referred to in points (h) and (i) of Article 33 (1) in the following cases: (a) where the holding is in a relevant entity which is included in the same supplementary supervision as the institution in accordance with Directive 2002/87/EC; (b) where the alternative to deduction does not result in higher own funds vis-à-vis the deduction approach at the level of the institutions and financial institutions referred to in Article 16; (c) a holding in another such institution, or in its central or regional credit institution, and the following conditions are met: […].’

Explanation The ECB understands that eliminating the double use of regulatory own funds at the sectoral level (by deducting significant investments in insurance undertakings) and determining additional own funds requirements at the level of the financial conglomerate (by using one of the three methods as laid down in Annex I to Directive 2002/87/EC) are not mutually exclusive. As a consequence, any alternative to the deduction approach as agreed by the GHOS should not result in higher regulatory own funds at the level of the group of institutions and financial institutions as referred to in Article 16 of the proposed regulation.

Amendment 11

Article 95 of the proposed regulation

‘Article 95 Reporting on own funds requirements 1. Institutions that calculate own funds requirements for position risk shall report these own funds requirements at least every 3 months. This reporting shall include financial information drawn up in accordance with the accounting framework to which the institution is subject under Regulation (EC) No 1606/2002 and Directive 86/635/EEC to the extent this is necessary to obtain a comprehensive view of the risk profile of an institution’s activities. Reporting by institutions on the obligations laid down in 87 shall be carried out at least twice each year. Institutions shall communicate the results and any component data required to the competent authorities. 2. EBA shall develop draft implementing technical standards to specify the uniform formats, frequencies and dates of reporting and the IT solutions to be applied in the Union for such reporting. The reporting formats shall be proportionate to the nature, scale and complexity of the activities of the institutions. EBA shall submit those draft implementing technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt the implementing standards referred to in the first sub-paragraph in accordance with the procedure laid down in Article 15 of Regulation (EU) No 1093/2010.’ ‘Article 95 Reporting on own funds requirements and financial information 1. Reporting by institutions on the obligations laid down in Article 87 shall be carried out at least on aquarterly basis. 1a. This reporting shall also include financial information drawn up in accordance with the accounting framework to which the institution is subject under Regulation (EC) No 1606/2002 and Directive 86/635/EEC to the extent that: (a) EBA considers this information necessary to obtain a comprehensive view of the risk profile of an institution’s activities; (b) EBA, in cooperation with the ESRB, considers this information necessary for the performance of macro-prudential oversight tasks, in accordance with Regulation (EU) No 1092/2010 and Regulation (EU) No 1093/2010. Institutions shall communicate the results and any component data required to the competent authorities in a timely manner. 2. EBA shall develop draft implementing technical standards to specify the definitions, classification criteria, uniform formats, frequencies and dates of reporting and the IT solutions to be applied in the Union for such reporting. The reporting formats and frequency shall be proportionate to the nature, scale and complexity of the activities of the institutions. EBA shall consult the ESRB on the development of draft implementing technical standards related to the information referred to in paragraph 1a(b). EBA shall submit those draft implementing technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt the implementing standards referred to in the first sub-paragraph in accordance with the procedure laid down in Article 15 of Regulation (EU) No 1093/2010.’

Explanation This amendment clarifies the current legal basis for the adoption of the COREP reporting formats and introduces a legal basis for FINREP reporting formats (13) . Moreover, the ECB recommends that reporting take place on a quarterly basis, within two months after the quarter in reference to ensure better information flow. It should also be clarified that the information provided for macro-prudential oversight purposes should follow common definitions and classification criteria. The EBA and ESRB should cooperate to define the scope of financial information necessary for the purposes of macro-prudential oversight. It will be important to ensure that the reporting formats and frequencies are adjusted according to the size of the institutions. In order to collect necessary information for the performance of macro-prudential oversight tasks with regard to the reporting requirements for large exposures, liquidity reporting and leverage ratio (14) , the ECB suggests introducing at least quarterly reporting and involving the ESRB in the development of the draft implementing technical standards. Lastly, in line with the principle of proportionality, the draft implementing technical standards could include specific requirements in terms of frequency of the reporting depending on the nature, scale and complexity of the activities of the institutions.

Amendment 12

Article 130 of the proposed regulation

‘Section 3 Recognition and mapping of credit risk assessment Sub-section 1 Recognition of ECAIs Article 130 ECAIs 1. An external credit assessment may be used to determine the risk weight of an exposure under this Chapter only if it has been issued by an eligible ECAI or has been endorsed by an eligible ECAI in accordance with Regulation (EC) No 1060/2009. 2. Eligible ECAIs are all credit rating agencies that have been registered or certified in accordance with Regulation (EC) No 1060/2009 and central banks issuing credit ratings which are exempt from Regulation (EC) No 1060/2009. 3. EBA shall publish a list of eligible ECAIs.’ ‘Section 3 Use of credit assessments and mapping of credit risk assessment Sub-section 1 ECAIs Article 130 Use of credit assessments by ECAIs 1. An external credit assessment may be used to determine the risk weight of an exposure under this Chapter only if it has been issued or endorsed by an ECAI in accordance with Regulation (EC) No 1060/2009. 2. EBA shall publish the list of ECAIs in accordance with Article 2(4) and 18(3) of Regulation (EC) No 1060/2009 on its website.’

Explanation The proposed amendment aims to align the proposed regulation with the procedure currently in Regulation (EC) No 1060/2009 where ESMA and the Commission respectively determine the lists of credit rating agencies and central banks that are exempt from the application of Regulation (EC) No 1060/2009 (see also Amendments 5, 14 and 15).

Amendment 13

Articles 238(6) of the proposed regulation

‘6. The competent authorities shall keep EBA informed about the specific cases, referred to in paragraph 2, where the possible reduction in risk-weighted exposure amounts is not justified by a commensurate transfer of credit risk to third parties, and the use institutions make of paragraph 4. EBA shall monitor the range of practices in this area and shall, in accordance with Article 16 of Regulation (EU) No. 1093/2010, issue guidelines.’ ‘6. The competent authorities shall keep EBA informed about the specific cases, referred to in paragraph 2, where the possible reduction in risk-weighted exposure amounts is not justified by a commensurate transfer of credit risk to third parties, and the use institutions make of paragraph 4. EBA shall monitor the range of practices in this area and shall, in the light of the observed best practices in accordance with Article 1 of Regulation (EU) No 1093/2010, develop draft implementing technical standards.’

Explanation The ECB considers that, to ensure a level playing field in the area of securitisation and increase the transparency and clarity of the applicable rules, the EBA should develop draft implementing technical standards, rather than guidelines, with regard to the recognition of significant credit risk transfer, allowing a reduction in risk-weighed exposure amounts. Improving transparency and clarity of the rules in this area would contribute not only to ensuring a level playing field across borders and market participants, but also to setting the conditions for revitalising securitisation markets. A similar amendment is proposed for Article 239(6) of the proposed regulation.

Amendment 14

Article 262 of the proposed regulation

‘Article 262 Recognition of ECAIs 1. Institutions may use ECAI credit assessments to determine the risk weight of a securitisation position only where the credit assessment has been issued by an ECAI or has been endorsed by an eligible ECAI in accordance with Regulation (EC) No 1060/2009. 2. Eligible ECAIs are all credit rating agencies that have been registered or certified in accordance with Regulation (EC) No 1060/2009 and central banks issuing credit ratings which are exempt from Regulation (EC) No 1060/2009. 3. EBA shall publish a list of eligible ECAIs.’ ‘Article 262 Use of credit assessments by ECAIs Institutions may use credit assessments to determine the risk weight of a securitisation position only where the credit assessment has been issued or endorsed by an eligible ECAI in accordance with Regulation (EC) No 1060/2009. 3. ’

Explanation See Amendments 5,12 and 15.

Amendment 15

Article 263 of the proposed regulation

‘Article 263 Requirements to be met by the credit assessments of ECAIs For the purposes of calculating risk-weighted exposure amounts according to Section 3, institutions shall only use a credit assessment of an eligible ECAI if the following conditions are met: […] (b) the credit assessments, procedures, methodologies assumptions and the key elements underpinning the assessments shall have been published by the ECAI. Also, loss and cashflow analysis as well as sensitivity of ratings to changes in the underlying ratings assumptions, including the performance of pool assets, shall bepublished by the ECAI. Information that is made available only to a limited number of entities shall not be considered to have been published. The credit assessments shall be included in the ECAI's transition matrix; […].’ ‘Article 263 Requirements to be met by the credit assessments of ECAIs For the purposes of calculating risk-weighted exposure amounts according to Section 3, institutions shall only use a credit assessment of an ECAI if the following conditions are met: […] (b) loss and cashflow analysis as well as sensitivity of ratings to changes in the underlying ratings assumptions, including the performance of pool assets, shall bepublished by the ECAI, as well as the credit assessments, procedures, methodologies, assumptions and the key elements underpinning the assessments in accordance with Regulation (EC) No 1060/2009. Information that is made available only to a limited number of entities shall not be considered to have been published. The credit assessments shall be included in the ECAI's transition matrix; […].’

Explanation The amendments aim to clarify that the requirements in the proposed regulation are supplementary to those already provided for in Regulation (EC) No 1060/2009.

Amendment 16

Article 295(2)(b) of the proposed regulation

‘(b) the competent authority of the CCP referred to in point (a) has published a document confirming that that CCP complies with all the recommendations for central counterparties published by the Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions;’ ‘(b) the competent authorities for supervision and oversight of the CCP referred to in point (a) have published a document confirming that CCP complies with applicable international standards for CCPs published by the Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions;’

Explanation This article sets conditions under which the ‘competent authority’ confirms that the central counterparty (CCP) complies with all recommendations for CCPs published by the Committee on Payment and Settlement Systems and the International Organisation of Securities Commissions (CPSS-IOSCO). The ‘competent authority’ on its own may not adequately address the joint competencies of securities regulators and overseers. Therefore, reference should instead be made to ‘the competent authorities for supervision and oversight of the CCP’, in line with Opinion CON/2011/1 (15) . This would be also in line with the draft CPSS-IOSCO principles for financial market infrastructures (FMIs) which provide that ‘the relevant authorities, consistent with their respective responsibilities for regulation, supervision, and oversight of an FMI, are expected to perform their own assessments of the FMI’ (16) . Furthermore, the reference to CPSS-IOSCO recommendations for CCPs may be obsolete soon, because the recommendations will be replaced by principles for FMIs. The use of a more general term would therefore be more appropriate to avoid misunderstandings and prepare for upcoming developments.

Amendment 17

Article 296(5)(b) of the proposed regulation

‘(b) relevant laws, regulations, rules and contractual arrangements applicable to or binding that institution or the CCP ensure that in the event of default or insolvency of the clearing member, the transfer of the institution’s positions relating to those contracts and transactions and of the corresponding collateral to another clearing member within the relevant margin period of risk.’ ‘(b) relevant laws, regulations, rules and contractual arrangements applicable to or binding that institution or the CCP facilitate that in the event of default or insolvency of the clearing member, the transfer of the institution’s positions relating to those contracts and transactions and of the corresponding collateral to another clearing member within the relevant margin period of risk.’

Explanation The proposed regulation provides that the lower capital charges for direct participants would only be applied to client portfolios where they are both fully segregated from the portfolios of the client’s clearing member and it is ensured that the positions could be ‘ported’ to another clearing member in the event of the default of the client’s clearing member. In other circumstances, clients would face much higher capital charges associated with purely bilateral transactions. In practice, while the first condition is achievable (and will be encouraged by the proposed CPSS/IOSCO principle on segregation (17) , providing legal assurance of portability in all circumstances may prove difficult and perhaps impossible to achieve. However, CCPs often already seek to facilitate portability, which they will be required to do under the proposed CPSS/IOSCO principles. The ECB would therefore suggest replacing the term ‘ensure’ with ‘facilitate,’ which would provide a reduction in the capital requirement in the presence of measures taken by CCPs that support portability, but which do not actually ‘ensure’ it. In this context, it should be kept in mind that sound segregation of positions and collateral is already beneficial from a financial stability viewpoint as it protects the client against credit risk in relation to the default of its clearing member. Given the G20 commitment to extend central clearing to all standardised over-the-counter derivatives products (18) , and that in practice many smaller participants will only have to access such clearing indirectly, this amendment would be beneficial for the effective implementation of the G20 commitment and for the promotion of financial stability.

Amendment 18

Article 299(7) of the proposed regulation

‘7. EBA shall develop implementing technical standards to specify the following: (a) the frequency and dates of the calculations specified in paragraph 1; (b) the frequency, dates and uniform format of the notification specified in paragraph 4; (c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than the ones set out following points a and b. EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.’ ‘7. EBA, in close cooperation with the competent authorities for supervision and oversight of CCPs, shall develop implementing technical standards to specify the following: (a) the frequency and dates of the calculations specified in paragraph 1; (b) the frequency, dates and uniform format of the notification specified in paragraph 4; (c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than the ones set out following points a and b. EBA, in close cooperation with the competent authorities for supervision and oversight of CCPs, shall submit those draft implementing technical standards to the Commission by 1 January 2014.’

Explanation An adequate level of capital requirements is essential for financial stability. Close coordination between securities regulators, banking supervisors and central banks as overseers is needed to avoid overlapping regulation or creating loopholes. Under the CPSS/IOSCO recommendations, regulators, supervisors and overseers are placed on an equal footing. Therefore, the development of any draft implementing technical standards and requirements for CCPs by a Union authority should be conducted in cooperation with ESCB members.

Amendment 19

Article 402 of the proposed regulation

‘Article 402 Compliance with liquidity requirements Where a credit institution does not meet, or is expected not to meet the requirement set out in Article 401(1), it shall immediately notify the competent authorities and shall submit without undue delay to the competent authority a plan for the timely restoration of compliance with Article 401. Until such compliance has been restored, the credit institution shall report the items daily by the end of each business day unless the competent authority authorises a lower frequency and a longer delay. Competent authorities shall only grant such authorisations based on the individual situation of a credit institution. They shall monitor the implementation of the restoration plan and shall require a more timely restoration if appropriate.’ ‘Article 402 Compliance with liquidity requirements Where an institution does not meet, or is expected not to meet the requirement set out in Article 401(1), it shall immediately notify the competent authorities and shall submit without undue delay to the competent authority a plan for the timely restoration of compliance with Article 401. Until such compliance has been restored, the institution shall report the items daily by the end of each business day unless the competent authority authorises a lower frequency and a longer delay. Competent authorities shall only grant such authorisations based on the individual situation of an institution. They shall monitor the implementation of the restoration plan and shall require a more timely restoration if appropriate. EBA, in cooperation with the ESRB, shall issue guidance on compliance with liquidity requirements, including principles for the possible use of the stock of liquid assets in a stress scenario and how to address non-compliance.’

Explanation An adequate compliance framework for the liquidity coverage requirement should allow institutions to run down the stock of liquid assets in a stress scenario. Such a framework is not only very important for micro-prudential purposes but also from a broader market- and system-wide perspective. If the liquidity coverage requirement becomes a binding constraint at all times, the requirement may increase the pro-cyclical effect and worsen the impact of liquidity shocks, as credit institutions would be unable to use their liquid assets to respond to a shock. This could lead to ‘fire sales’, liquidity hoarding and the restriction of credit. Article 402 of the proposed regulation introduces a basic framework for compliance with liquidity requirements, granting competent authorities discretion to ensure adequate use and restoration of the pool of liquid assets. In the ECB’s view, the EBA, in cooperation with the ESRB, should be involved in the formulation of guidance on the possible release and build-up of the pool of liquid assets in times of stress. In line with recitals 74 and 75 of the proposed regulation, the ECB understands that this provision should also apply to investment firms and would therefore recommend substituting the reference to ‘credit institutions’ by the notion of ‘institutions’ throughout the Article.

Amendment 20

Article 404(1) of the proposed regulation

‘1. Institutions shall report the following as liquid assets unless excluded by paragraph 2 and only if the liquid assets fulfil the conditions in paragraph 3: (a) cash and deposits held with central banks to the extent that these deposits can be withdrawn in times of stress; (b) transferable assets that are of extremely high liquidity and credit quality; (c) transferable assets representing claims on or guaranteed by the central government of a Member State or a third country if the institution incurs a liquidity risk in that Member State or third country that it covers by holding those liquid assets; (d) transferable assets that are of high liquidity and credit quality. […].’ ‘1. Institutions shall report the following as liquid assets unless excluded by paragraph 2 and only if the liquid assets fulfil the conditions in paragraph 3: (a) cash; (b) deposits held with central banks to the extent that these deposits can be withdrawn in times of stress; (c) transferable assets that are of extremely high liquidity and credit quality; (c)(d) transferable assets representing claims on or guaranteed by the central government of a Member State or a third country if the institution incurs a liquidity risk in that Member State or third country that it covers by holding those liquid assets; (e) transferable assets that are of high liquidity and credit quality. As regards deposits held with central banks as referred to in Article 404(1)(b), the competent authority and the central bank shall aim at reaching a common understanding regarding the extent to which these deposits can be withdrawn in times of stress. […].’

Explanation The proposed amendment is aimed at clarifying that central banks should be involved in determining the types of assets held with central banks that should be considered as liquid assets. This is in line with the Basel III agreement, which notes that competent supervisory authorities should discuss and agree with the relevant central bank the extent to which central bank reserves should count towards the stock of liquid assets. In other words, they should determine the extent to which the central bank reserves can be drawn down in times of stress (19). While Article 404 of the proposed regulation refers to ‘deposits held with central banks to the extent that these deposits can be withdrawn in times of stress’, Annex III of the proposed regulation refers to ‘central bank reserves to the extent that these reserves can be drawn down in times of stress’. Given that these are equivalent concepts, the terminology could be harmonised (see also Amendment 30). With regard to deposits held with the Eurosystem, the ECB is of the view that overnight deposits, i.e. funds deposited at the deposit facility and the current account holdings of credit institutions minus the average reserve requirement over the 30-day period should count towards liquid assets.

Amendment 21

Article 404(5) of the proposed regulation

‘5. Shares or units in CIUs may be treated as liquid assets up to an absolute amount of 250 million EUR provided that the requirements in Article 127 (3) are met and that the CIU, apart from derivatives to mitigate interest rate or credit risk, only invests in liquid assets.’ ‘5. Shares or units in CIUs may be treated as liquid assets up to an absolute amount of 250 million EUR provided that their share in the total liquidity coverage requirement does not exceed the threshold determined in accordance with paragraph 5a, that the requirements in Article 127(3) are met and that the CIU, apart from derivatives to mitigate interest rate or credit risk, only invests in liquid assets.’

Explanation As regards the treatment of shares or units in CIUs as liquid assets, the ECB is concerned about the appropriateness of setting only an absolute limit of EUR 250 million, as this could allow smaller institutions to fulfil the liquidity coverage requirement with only these instruments. Instead, in order to limit concentration risk, a limit of, e.g. 10 % of the total liquidity coverage requirement could be introduced. The ECB is of the view that the EBA should further assess and adequately calibrate this limit as part of its overall analysis on the definition of liquid assets. In addition, the treatment of shares or units in CIUs as liquid assets in the proposed regulation is inconsistent, at least for the Eurosystem with the requirement in Article 404(3)(b) of the proposed regulation that liquid assets must be eligible collateral in normal times for intraday liquidity needs and overnight liquidity facilities of a central bank in a Member State. In fact, shares or units in CIUs are not eligible collateral for Eurosystem monetary policy operations, regardless of the type of underlying assets in which the CIUs invest. In addition, shares or units in CIUs are not included on the detailed list of liquid assets in the Basel III agreement.

Amendment 22

Article 404(5a) of the proposed regulation (new)

No text. ‘5a. EBA shall develop draft implementing technical standards specifying the threshold referred to in paragraph 5. EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the draft implementing technical standards referred to in the first subparagraph in accordance with the procedure laid down in Article 15 of Regulation (EU) No 1093/2010.’

Explanation The ECB suggests that EBA establish, by way of draft implementing technical standards, the threshold referred to in Article 404(5) of the proposed regulation to determine the maximum share of shares/units of CIUs in the total LCR.

Amendment 23

Article 443 of the proposed regulation

‘Article 443 Prudential requirements The Commission shall be empowered to adopt delegated acts in accordance with Article 445, to impose stricter prudential requirements, for a limited period of time, for all exposures or for exposures to one or more sectors, regions or Member States, where this is necessary to address changes in the intensity of micro-prudential and macro-prudential risks which arise from market developments emerging after the entry into force of this Regulation, in particular upon the recommendation or opinion of the ESRB, concerning […]’. ‘Article 443 Prudential requirements 1. The Commission shall be empowered to adopt delegated acts in accordance with Article 445, to impose stricter prudential requirements, for a limited period of time, for all exposures or for exposures to one or more sectors, regions or Member States, where this is necessary to address changes in the intensity of micro-prudential and macro-prudential risks which arise from market developments emerging after the entry into force of this Regulation, in particular upon the recommendation or opinion of the ESRB concerning […] (l) the requirements for large exposures, laid down in Article 381 and Articles 384 to 392; (m) the disclosure requirements, laid down in Articles 419 to 420 and Articles 422 to 436; (n) the liquidity requirements and the leverage ratio [once introduced into the Union regulatory framework]. This delegation of power shall be subject to the procedure referred to in Article 446. 2. The ESRB may recommend an extension of the list of prudential requirements set out in paragraph 1.’

Explanation The scope of the delegated acts which the Commission may adopt should be extended to cover prudential requirements on large exposures and disclosure requirements as well as, once they become part of the applicable Union regulatory framework, leverage and liquidity requirements. The ECB also suggests that the ESRB could issue recommendations to the Commission regarding the extension of the list of prudential requirements.

Amendment 24

Part Nine a of the proposed regulation (new)

No text. ‘PART NINEa APPLICATION OF STRICTER PRUDENTIAL REQUIREMENTS BY NATIONAL AUTHORITIES Article 443a Application of stricter prudential requirements by national authorities 1. National authorities, either on their own initiative or based on an ESRB recommendation pursuant to Regulation (EU) No 1092/2010, may impose stricter prudential requirements on institutions where macro-prudential risks are identified as posing a threat to financial stability at national level in the following areas: (a) the level of own funds laid, down in Article 87(1); (b) the requirements for large exposures, laid down in Article 381 and Articles 384 to 392; (c) the liquidity requirements and the leverage ratio [once introduced into the Union regulatory framework]. 2. National authorities shall notify the ESRB of their proposal to impose stricter prudential requirements in accordance with paragraph 1(a) to (c) no later than two working days from the date of their proposal in view of the identified macro-prudential risks to financial stability. In accordance with Regulation (EU) No 1092/2010 and taking into account confidentiality requirements, the ESRB shall play a coordination role by assessing, upon request of the Commission or of at least three Member States, the financial stability concerns and possible unintended consequences and spillover effects on other Member States that could result from the imposition of the stricter requirements. 3. The stricter prudential requirements referred to in paragraph 1 shall be applied only by tightening the quantitative ratios and limits for points (a), (b) and (c) of paragraph 1, and in full compliance with all other aspects of the provisions of this Regulation. 4. The ESRB and the EBA shall publish the stricter prudential requirements adopted by national authorities on their respective websites. 5. Where the ESRB determines that the identified macro-prudential risks to financial stability, as assessed in accordance with paragraph 2, that led to stricter prudential requirements cease to exist, the national authorities shall repeal the stricter requirements and the original provisions of this Regulation shall apply. If this does not occur, the ESRB shall issue a recommendation to the Commission to take action against a Member State where the Member State concerned does not act appropriately from a systemic risk perspective. 6. The ESRB may, in accordance with Regulation (EU) No 1092/2010, recommend the extension of the list of prudential requirements specified in paragraph 1.’

Explanation This amendment is aimed at defining the procedures and the conditions under which national authorities may apply more stringent prudential requirements where systemic risks to financial stability arise in the Member States and at specifying the role of the ESRB in this context (for more details regarding the rationale for this provision, see paragraphs 5.4 to 5.6 of the Opinion). The ECB also suggests that the ESRB could issue recommendations to the Commission regarding the extension of the list of prudential requirements.

Amendment 25

Article 444(3) of the proposed regulation

‘3. The Commission shall adopt the first delegated act referred to in paragraph 1 at the latest by 31 December 2015. A delegated act adopted in accordance with this Article shall, however, not apply before 1 January 2015.’ ‘3. The Commission shall adopt the first delegated act referred to in paragraph 1 at the latest by 31 December 201. A delegated act adopted in accordance with this Article shall, however, not apply before 1 January 2015.’

Explanation In order to be consistent with the Commission’s commitment to implement the liquidity coverage requirement by 1 January 2015, the delegated act specifying the requirement in detail should be adopted, at the latest, by 31 December 2014.

Amendment 26

Article 473(1)(c) of the proposed regulation (new)

No text. ‘(c) those senior units qualify for credit quality step 1.’

Explanation Article 124 of the proposed regulation provides that certain categories of covered bonds are eligible for preferential treatment where they meet certain requirements. One of these categories is covered bonds secured by senior units issued by French Fonds Communs de Créances (FCCs) or by equivalent securitisation entities governed by the laws of a Member State securitising residential property exposures. One of the requirements provided by Article 124 to this category of covered bonds is that the senior units issued by FCCs or by equivalent securitisation entities do not exceed 10 % of the nominal amount of the outstanding issue. Article 473(1) of the proposed regulation provides that, until 31 December 2014, the 10 % limit for senior units issued by FCCs or by equivalent securitisation entities laid down in Article 124(1)(d) and (e) do not apply under certain conditions. Thus, until 31 December 2014, no limit is imposed regarding the percentage of senior units issued by FCCs or by equivalent securitisation entities laid down in Article 124(1)(d) and (e) of the proposed regulation. As expressed in Opinion CON/2010/65 (20) , the ECB is of the view that the aim for the regulators in the near future should be to remove the 10 % waiver limit for FCCs or equivalent securitisation entities laid down in Article 124(1) (d) and (e) and to develop a rigorous set of criteria for assets to be included in the cover pool of covered bonds which: (a) do not rely on external ratings; (b) are strong enough to secure market confidence in covered bonds, while allowing financial institutions sufficient time to adjust their respective business model; (c) allow only securitisation within a group; (d) require from the supervisory authorities a ‘look-through’ approach for the assets underlying the securitisation. The ECB welcomes regulatory steps which mitigate the reliance of legislation on external ratings. Nonetheless, the ECB proposes to maintain a reference to the most favourable credit quality required for these units as long as the derogation provided for in Article 473(1) applies in order to provide credibility and transparency regarding the covered bonds market.

Amendment 27

Article 473(2) of the proposed regulation

‘2. By 1 January 2013, the Commission shall review the appropriateness of the derogation set out in paragraph 1 and, if relevant, the appropriateness of extending similar treatment to any other form of covered bond. In the light of that review, the Commission may, if appropriate, adopt delegated acts in accordance with Article 445 to make that derogation permanent or make legislative proposals to extend it to other forms of covered bonds.’ ‘2. By 1 January 2013, the Commission shall review the appropriateness of the derogation set out in paragraph 1. In the light of that review, the Commission may, if appropriate, adopt delegated acts in accordance with Article 445 to make that derogation permanent or to abrogate it. .’

Explanation See the explanation to Amendment 26.

Amendment 28

Article 481 of the proposed regulation

‘Article 481 Liquidity requirements 1. […] EBA shall in its report review in particular the appropriateness of the calibration of the following: […] 2. EBA shall, by 31 December 2013, report to the Commission on appropriate uniform definitions of high and of extremely high liquidity and credit quality of transferable assets for purposes of Article 404. 3. By 31 December 2015, EBA shall report to the Commission on whether and how it would be appropriate to ensure that institutions use stable sources of funding […] By 31 December 2016, the Commission shall, on the basis of these reports, submit a report, and if appropriate a legislative proposal to the European Parliament and Council.’ ‘Article 481 Liquidity requirements 1. […] EBA shall, after consulting the ECB, in its report review in particular the appropriateness of the calibration of the following: […] (d) the appropriate limit as percentage of the total of the liquidity coverage requirement for shares or units in CIUs for the purposes of Article 404(5). 2. EBA shall, by 31 December 2013, report, after consulting the ECB, to the Commission on appropriate uniform definitions of high and of extremely high liquidity and credit quality of transferable assets for purposes of Article 404 […] 3. By 31 December 2015, EBA shall, after consulting the ECB, report to the Commission on whether and how it would be appropriate to ensure that institutions use stable sources of funding […] By 31 December 2016, the Commission shall, on the basis of these reports, submit a report and a legislative proposal to the European Parliament and Council.’

Explanation The proposed amendment relating to the consultation of the ECB aims to clarify that the ECB should contribute to the development of the reports owing to its competence and expertise in the area. The interaction between liquidity regulation and monetary policy operations is expected to be significant and complex and it is therefore important to ensure that regulation does not lead to unintended consequences with regard to recourse to central bank funding and related financial markets. As noted in Amendment 24, the EBA could prepare draft implementing technical standards on calibration of the limit for investments in shares or units in CIUs as a percentage of the total liquidity coverage requirement. The proposed amendments relating to the implementation of the NSFR are aimed at avoiding any possible ambiguity, even if the exact content of the NSFR is not yet determined, with respect to the implementation of this requirement. The Basel III agreement provides that the NSFR will move to a minimum standard by 1 January 2018, after an observation period that includes a review clause to address any unintended consequences.

Amendment 29

Article 482(1) of the proposed regulation

‘1. The Commission shall submit by 31 December 2016 a report on the impact and effectiveness of the leverage ratio to the European Parliament and the Council. Where appropriate, the report shall be accompanied by a legislative proposal on the introduction of one ore more levels for the leverage ratio that institutions would be required to meet, suggesting and adequate calibration for those levels and any appropriate adjustments to the capital measure and the total exposure measure as defined in Article 416.’ ‘1. The Commission shall submit by 31 December 2016 a report on the impact and effectiveness of the leverage ratio to the European Parliament and the Council. The report shall be accompanied by a legislative proposal on the introduction of one or more levels for the leverage ratio that institutions shall be required to meet, suggesting and adequate calibration for those levels and any appropriate adjustments to the capital measure and the total exposure measure as defined in Article 416.’

Explanation The proposed amendment aims to dispel any concerns with regard to the commitment to introduce a leverage ratio, subject to appropriate calibration, following the observation period.

Amendment 30

Annex III of the proposed regulation

‘ANNEX III Items subject to supplementary reporting of liquid assets […].’ ‘ ’