B 4071
L.N. 493 of 2021
BANKING ACT
(CAP. 371)
Banking Act (Supervisory Review)
(Amendment) Regulations, 2021
IN EXERCISE of the powers c onferred by article 3 of the
Banking Act, the Minister for Finance and Employment, after
consultation with the Malta Financial Services Authority, has m ade
the following regulations:-
Citation.
S.L. 371.16.1. (1) The title of these regul ations is the Banking Act
(Supervisory Review) (Amendment) Regulations, 2021, and these
regulations shall be read and construed as one with the Banking Act
(Supervisory Review) Regulations, hereinafter referred to as "theprincipal regulations".
(2) These regulations shall com e into force on such date as the
Minister for Finance and Employm ent may, by notice in the Gazet te
establish and a different date o r dates may be so established f or
different provisions of  these regulations.
Amends 
regulation 1 of the principal 
regulations.2. In sub-regulation (2) of regulation 1 of the principal
regulations, for the words "104, 105, 107 and 110 of the CRD" t here
shall be substituted the words "104, 104a, 104b, 104c, 105, 107, 110,
143 and 144 of the CRD".
Amends 
regulation 2 of 
the principal regulations.3. Regulation 2 of the principal r egulations shall be amended
as follows:
(a) sub-regulation (1) thereof shall be amended as
follows:
(i) in the definition "t he CRD", for the words
"and the prudential supervisio n of credit institutions and
investment firms" there shall be substituted the words "and
the prudential supervision of credit institutions"; and forthe words "and includes any implementing measures that
may be made thereunder" the re shall be substituted the
words "and includes any binding legal instruments,guidelines and other measures that may be issued
thereunder";
(ii) in the definition "the CRR", for the words "onSuppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 20,757, 24 ta’ Diċembru, 2021
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prudential requirements fo r credit institutions and
investment firms" there shall be substituted the words "on
prudential requirements for credit institutions"; and for thewords "and includes any implementing measures" there
shall be substituted the word s "and includes any binding
legal instruments, guidelines and other measures";
(iii) the definition "EU parent institution" shall be
deleted;
(iv) the definition "parent institution in Malta"
shall be deleted;
(v) immediately after the definition "internal
approach" there shall be added the following newdefinitions:
" "Regulation (EU) 2017/2402" means
Regulation (EU) 2017/2402 of the EuropeanParliament and of the Council of 12 December
2017 laying down a general framework forsecuritisation and creating a specific framework for
simple, transparent and standardised securitisation,and amending Direc tives 2009/65/EC, 2009/138/
EC and 2011/61/EU and Regulations (EC) No
1060/2009 and (EU) No 648/2012;
"Resolution Committee" means the
committee responsible for resolution, asestablished by the Mal ta Financial Services
Authority Act;"; and
(b) in sub-regulation (2) thereof, for the words "shall
have the same meaning as in the Act." there shall be substitute d
the words "shall have the same meaning as in the Act:", and
immediately thereafter there sha ll be added the following two
provisos:
"Provided that, in accorda nce with article 2(1A) of
the Act, for the purposes of applying the requirements and
supervisory powers laid down in these regulations on a
consolidated or sub-consolidated basis in accordance withthe Act and any regulations and Banking Rules made or
issued thereunder transposing the CRD, with any binding
legal instruments issued unde r the CRD and with the CRR,
the terms "institution", "par ent institution" and "EU parent
institution" shall also include the entities listed in
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paragraphs (a), (b) and (c) of article 2(1A) of the Act:
Provided further that, for the purposes of applying
the requirements and superv isory powers laid down in
regulations 3(1), (3), (4) and (5), 4, 5, 6, 7(1), (2), (4) and
(5), 8, 9, 10, 13(2), 14, and 15(1), (2) and (3) on a
consolidated or sub-consolidated basis in accordance withthe Act and any regulations and Banking Rules made or
issued thereunder transposing the CRD, with any binding
legal instruments issued under the CRD and with the CRR,
the term "credit institution" s hall also include the entities
listed in paragraphs (a), (b) a nd (c) of article 2(1B) of the
Act.".
Amends 
regulation 3 of 
the principal regulations.4. Regulation 3 of the principal r egulations shall be amended
as follows:
(a) in sub-regulation (1) thereof, for the words
"Banking Rules issued thereunder, and the CRR" there shall be
substituted the words "Banking Rules issued thereunder, withany binding legal instruments issued under the CRD and with
the CRR,";
(b) in paragraph (a) of sub-regulation (1) thereof, for the
words "or might be exposed;" there shall be substituted thewords "or might be exposed; and";
(c) paragraph (b) of sub-regul ation (1) thereof shall be
deleted;
(d) in sub-regulation (2) thereof, for the words
"Banking Rules issued  thereunder, and the CRR." there shall be
substituted the words "Banking Rules issued thereunder, of anybinding legal instruments issu ed under the CRD and of the
CRR.";
(e) in sub-regulation (4) there of, for the words "referred
to in regulation 5(2)." there shall be substituted the words
"referred to in regulation 5(2) :"; and immediately thereafter
there shall be added the following new proviso:
"Provided that when conducting the review and
evaluation referred to in sub- regulation (1), the competent
authority shall apply the principle of proportionality inaccordance with the criteria disclosed pursuant toregulation 17(1)(c).";
(f) immediately after the proviso to sub-regulation (4)
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thereof, as added, there shall be added the following new sub-
regulation:
"(4A) The competent authority may tailor the
methodologies for the application of the review andevaluation referred to in sub-regulation (1) to take into
account credit institutions with a similar risk profile, suchas similar business models  or geographical location of
exposures. Such tailored methodologies may include risk-oriented benchmarks and quantitative indicators, shall
allow for due consideration of the specific risks that each
credit institution may be exposed to, and shall not affectthe institution-specific nat ure of measures imposed in
accordance with regulation 9:
Provided that where the competent authority
uses tailored methodologies pursuant to this sub-
regulation, it shall notify the EBA."; 
(g) in sub-regulation (5) th ereof, for the words "the
competent authority shall inform EBA" there shall be
substituted the words "the compe tent authority shall inform the
EBA"; and
(h) immediately after sub-re gulation (5) thereof, there
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shall be added the follo wing new sub-regulation:
Amends 
regulation 4 of 
the principal regulations.5. Regulation 4 of the principal r egulations shall be amended
as follows:
(a) sub-regulation (1) thereof shall be amended as
follows:
(i) paragraph (h) thereof shall be substituted by
the following:
"(h) the geographical location of creditCap. 373."(6) Where a review, in particular the
evaluation of governance arrangements, the
business model, or the activities of a credit
institution, gives the competent authority
reasonable grounds to suspect that, inconnection with that credit institution, money
laundering or terrorist financing is being or has
been committed or att empted, or there is
increased risk thereof, the competent authorityshall immediately notify the EBA and theFinancial Intelligence An alysis Unit established
in terms of the Prevention of Money LaunderingAct. In the event of potential increased risk ofmoney laundering or terrorist financing, the
competent authority together with the Financial
Intelligence Analysis Unit shall conduct a jointassessment. Such assessment shall be
immediately notified to the EBA. The
competent authority shall take, as appropriateand without prejudice to the power of other
authorities to take any action or regulatory
measures available to them under any otherapplicable law, measures in accordance with the
Act and any regulati ons made and Banking
Rules issued thereunder transposing the CRD
and with any binding legal instruments issued
under the CRD:
Provided that this sub-regulation
shall be without prejudice to the obligations ofthe competent authority arising out of any other
applicable legislation re lating to the prevention
of money laundering and the funding of
terrorism.".
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institutions’ exposures; and"
(ii) paragraph (i) thereo f shall be substituted by
the following:
"(i) the business model of the credit
institution."; and
(iii) paragraph (j) thereof shall be deleted;
(b) sub-regulation (5) thereof shall be substituted by the
following:
"(5) The review and evaluation performed by the
competent authority shall in clude the exposure of credit
institutions to the interest rat e risk arising from non-trading
book activities:
Provided that the supervisory powers shall be
exercised at least in the following cases:
(a) where a credit institution’s economic
value of equity as referred t o in Article 84(1) of the
CRD declines by more than 15% of its Tier 1
capital as a result of  a sudden and unexpected
change in interest rates as set out in any of the sixsupervisory shock scenarios applied to interestrates;
(b) where a credit inst itution’s net interest
income as referred to in Article 84(1) of the CRDexperiences a large decline as a result of a sudden
and unexpected change in interest rates as set out in
any of the two supervisory shock scenarios appliedto interest rates:
Provided further that, notwithstanding the
first proviso to this sub-regul ation, the competent authority
shall not be obliged to exercise supervisory powers where
it considers, based on the review and evaluation referred to
in this sub-regulation, that  the credit institution’s
management of interest rate risk arising from non-trading
book activities is adequate and that the credit institution isnot excessively exposed to inte rest rate risk arising from
non-trading book act ivities."; and
(c) immediately after sub-regulation (5) thereof, as
substituted, there shall be a dded the following new sub-
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regulation:
"(5A) For the purposes of sub-regulation (5), the
term "supervisory powers" mea ns the powers referred to in
regulation 9(1) or the power to specify modelling and
parametric assumptions, other than those identified by the
EBA pursuant to point (b) of paragraph 5a of Article 98 ofthe CRD, to be reflected by credit institutions in their
calculation of the economic val ue of equity under Article
84(1) of the CRD.".
Amends 
regulation 5 of 
the principal regulations.6. Sub-regulation (2) of regulation 5 of the principal
regulations shall be amended as follows:
(a) in paragraph (a) thereof, for the words "transposing
the requirements of the CRD, an d of the CRR;" there shall be
substituted the words "transposing the requirements of the CRD,
of any binding legal instruments issued under the CRD and of
the CRR; and"; and
(b) paragraph (b) thereof shall be deleted.
Deletion of 
regulation 8 of 
the principal regulations.7. Regulation 8 of the principal regulations shall be deleted.
Amends 
regulation 9 of 
the principal regulations.8. Regulation 9 of the principal r egulations shall be amended
as follows:
(a) sub-regulation (1) thereof shall be amended as
follows:
(i) for the words "For the purposes of regulations
3, 4(4), 7(4), 8 and article 17E of the Act" there shall be
substituted the words "For the purposes of regulations 3,
4(4) and (5), and 7(4), and a rticle 17E of the Act";
(ii) paragraph (a) thereof shall be substituted by
the following:
"(a) to require credit institutions to have
additional own funds in excess of the requirements
set out in the CRR, under the conditions set out in
regulation 9A;";
(iii) in paragraph (c) thereof, for the words "to
present a plan" there shall be substituted the words "tosubmit a plan"; and for the words "Banking Rules issuedthereunder, and to the CRR", there shall be substituted the
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words "Banking Rules issued t hereunder, with any binding
legal instruments issued under the CRD and with the
CRR";
(iv) in paragraph (e) thereof, for the words "of a
credit institution" there shall be substituted the words "ofthe credit institution";
(v) in paragraph (f) thereof, immediately after the
words "of credit institutions " there shall be added the
words ", including outsourced activities";
(vi) paragraph (j) thereo f shall be substituted by
the following:
"(j) to impose additio nal or more frequent
reporting requirements, inc luding reporting on own
funds, liquidity and leverage;";
(b) sub-regulation (2) thereof shall be substituted by the
following:
"(2) For the purposes of sub-regulation (1)(j), the
competent authority shall only impose additional or more
frequent reporting requireme nts on credit institutions
where the relevant requirement is appropriate and
proportionate with regard to the purpose for which the
information is required and the information requested is
not duplicative:
Provided that, for the purposes of article 17E
of the Act, and regulations 3 to 7, any additional
information that may be required from credit institutionsshall be deemed as duplicative where the same or
substantially the same info rmation has already been
otherwise reported to the com petent authority or may be
produced by the competent authority:
Provided further that cre dit institutions shall
not be required to report additional information where the
competent authority has previously received it in a
different format or level of granularity and that different
format or granularity does not prevent the competentauthority from producing information of the same quality
and reliability as that produced on the basis of the
additional information that w ould be otherwise reported.";
and
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(c) sub-regulation (3) thereof shall be deleted.
Adds new 
regulations to 
the principal 
regulations.9. Immediately after regulation 9 of the principal regulations,
as amended, there shall be added the following new regulations:
"Additional 
own funds 
requirement.9A. (1) The additional own funds
requirement referred to in regulation 9(1)(a)
shall be imposed by the competent authority
where, on the basis of the reviews carried out in
accordance with regulations 3 and 7, itdetermines any of the following situations for
an individual credit institution:
(a) the credit institution is
exposed to risks or elements of risk that
are not covered or not sufficientlycovered, as specified in sub-regulation
(2), by the own funds requirements set
out in Parts Three, Four and Seven of theCRR and in Chapter 2 of Regulation
(EU) 2017/2402;
(b) the credit institution does not
meet the requirements set out in articles
17B and 17C of the Act or in Article 393of the CRR and it is unlikely that other
supervisory measures would be sufficient
to ensure that those requirements can bemet within an appropriate time-frame;
(c) the adjustments referred to in
regulation 4(4) are deemed to be
insufficient to enable the credit
institution to sell or hedge out itspositions within a short period without
incurring material losses under normal
market conditions;
(d) the evaluation carried out in
accordance with regulation 7(4) reveals
that the non-compliance with the
requirements for the application of thepermitted approach will likely lead to
inadequate own funds requirements;
(e) the credit institution
repeatedly fails to establish or maintain
an adequate level of additional own fundsto cover the guidance communicated in
accordance with regulation 9B(3);
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(f) other institution-specific
situations deemed by the competent
authority to raise material supervisory
concerns:
Provided that the competent
authority shall only impose the additional own
funds requirement referred to in regulation9(1)(a) to cover the risk s incurred by individual
credit institutions due to their activities,including those reflecting the impact of certain
economic and market developments on the risk
profile of an individual credit institution.
(2) For the purposes  of sub-regulation
(1)(a), risks or elements of risk shall only beconsidered as not covered or not sufficiently
covered by the own funds  requirements set out
in Parts Three, Four and Seven of the CRR and
in Chapter 2 of Regulation (EU) 2017/2402
where the amounts, types and distribution of
capital considered adequate by the competentauthority, taking into account the supervisory
review of the assessment carried out by credit
institutions in accordance with article 17C ofthe Act, are higher than the own funds
requirements set out in Parts Three, Four and
Seven of the CRR and in Chapter 2 ofRegulation (EU) 2017/2402.
(3) For the purposes  of sub-regulation
(2), the competent author ity shall assess, taking
into account the risk profile of each individualcredit institution, the risks to which the creditinstitution is exposed, including:
(a) institution-specific risks or
elements of such risks that are explicitly
excluded from or not e xplicitly addressed
by the own funds requirements set out in
Parts Three, Four and Seven of the CRR
and in Chapter 2 of Regulation (EU)
2017/2402;
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(b) institution-specific risks or
elements of such risks likely to be
underestimated despite compliance with
the applicable requirements set out in
Parts Three, Four and Seven of the CRRand in Chapter 2 of Regulation (EU)
2017/2402:
Provided that, to the extent that risks
or elements of risk are subject to transitional
arrangements or grandfathering provisions laiddown in the Act and any regulations made and
Banking Rules issued thereunder transposingthe CRD, in any binding legal instruments
issued under the CRD or in the CRR, they shall
not be considered risks or elements of such riskslikely to be underestimated despite compliance
with the applicable requirements set out in Parts
Three, Four and Seven of the CRR and inChapter 2 of Regulation (EU) 2017/2402.
(4) For the purposes of sub-regulation
(2), the capital consider ed adequate shall cover
all risks or elements of risks identified asmaterial pursuant to the assessment laid down insub-regulation (3) that are not covered or not
sufficiently covered by the own funds
requirements set out in Parts Three, Four andSeven of the CRR and in Chapter 2 of
Regulation (EU) 2017/2402:
Provided that interest rate risk
arising from non-tradi ng book positions may be
considered material at leas t in the cases referred
to in regulation 4(5), unless the competent
authority, in performing the review and
evaluation, comes to the conclusion that thecredit institution’s management of interest rate
risk arising from non-trading book activities is
adequate and that the credit institution is notexcessively exposed to interest rate risk arising
from non-trading book activities.
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(5) Where additional own funds are
required to address risks other than the risk of
excessive leverage not sufficiently covered by
point (d) of Article 92(1) of the CRR, the
competent authority shall determine the level ofthe additional own funds required under sub-
regulation (1)(a) as the difference between the
capital considered adequate pursuant to sub-regulations (2) to (4) and the relevant own funds
requirements set out in Parts Three and Four of
the CRR and in Chapter 2 of Regulation (EU)
2017/2402:
Provided that where additional own
funds are required to address the risk of
excessive leverage not sufficiently covered bypoint (d) of Article 92(1) of the CRR, the
competent authority shall determine the level of
the additional own funds required under sub-regulation (1)(a) as the difference between the
capital considered adequate pursuant to sub-
regulations (2) to (4) and the relevant own fundsrequirements set out in Parts Three and Seven of
the CRR.
(6) The credit institution shall meet the
additional own funds requirement imposed by
the competent authority under regulation 9(1)(a)to address risks other than the risk of excessive
leverage with own funds that satisfy the
following conditions:
(a) at least three quarters of the
additional own funds requirement shallbe met with Tier 1 capital;
(b) at least three quarters of the
Tier 1 capital referred to in paragraph (a)
shall be composed of Common Equity
Tier 1 capital.
(7) The credit institution shall meet the
additional own funds re quirement imposed by
the competent authority under regulation
9(1)(a) to address the risk of excessive
leverage with Tier 1 capital.
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(8) By way of derogation from sub-
regulations (6) and (7), the competent authority
may require the credit institution to meet its
additional own funds requirement with a
higher portion of Tier 1 capital or CommonEquity Tier 1 capital, where necessary, and
having regard to the specific circumstances of
the credit institution.
(9) Own funds that are used to meet the
additional own funds requirement referred to in
regulation 9(1)(a) imposed by the competent
authority to address risks other than the risk ofexcessive leverage shall not be used to meet any
of the following:
(a) own funds requirements set
out in points (a), (b) and (c) of Article
92(1) of the CRR;
(b) the combined buffer
requirement;
(c) the guidance on additional
own funds referred to in regulation 9B(3)where that guidance addresses risks other
than the risk of excessive leverage.
(10) Own funds that are used to meet the
additional own funds requirement referred to in
regulation 9(1)(a) imposed by the competentauthority to address the risk of excessive
leverage not sufficiently covered by point (d) of
Article 92(1) of the CRR shall not be used tomeet any of the following:
(a) the own funds requirement set
out in point (d) of Article 92(1) of the
CRR;
(b) the leverage ratio buffer
requirement referred to in Article 92(1a)
of the CRR;
(c) the guidance on additional
own funds referred to in regulation9B(3), where that guidance addresses
risks of excessive leverage.
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(11) The competent authority shall duly
justify in writing to the credit institution the
decision to impose an additional own funds
requirement under regula tion 9(1)(a), at least by
giving a clear account of the full assessment of
the elements referred to in sub-regulations (1) to
(10). That justification shall include, in the case
set out in sub-regulation (1)(e), a specificstatement of the reasons for which the
imposition of guidance on additional own funds
is no longer considered sufficient.
Guidance on 
additional 
own funds.9B. (1) Pursuant to the strategies and
processes referred to in article 17C of the Act,
credit institutions shall set their internal capital
at an adequate level of own funds that issufficient to cover all the risks that a credit
institution is exposed to and to ensure that the
credit institution’s own funds can absorbpotential losses resulti ng from stress scenarios,
including those identified under the supervisorystress test referred to in regulation 6.
(2) The competent authority shall
regularly review the level of the internal capitalset by the credit institution in accordance with
sub-regulation (1) as p a r t  o f  t h e  r e v i e w s  a n d
evaluations performed in accordance with
regulations 3 and 7, including the results of the
stress tests referred to in regulation 6. Pursuant
to that review, the competent authority shall
determine for the credit institution the overall
level of own funds it considers appropriate.
(3) The competent authority shall
communicate its guidance on additional own
funds to the credit institution. The guidance onadditional own funds shall be the own funds
exceeding the relevant amount of own funds
required pursuant to Parts Three, Four andSeven of the CRR, Chapter 2 of Regulation
(EU) 2017/2402, regulation 9(1)(a) and Article
128(6) of the CRD or pursuant to Article 92(1a)of the CRR, as relevant, which are needed to
reach the overall level of own funds considered
appropriate by the competent authority pursuantto sub-regulation (2).
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(4) The competent authority’s guidance
on additional own funds pursuant to sub-
regulation (3) shall be i nstitution-specific. The
guidance may cover risks addressed by theadditional own funds requirement imposedpursuant to regulation 9(1)(a) only to the extent
that it covers aspects of those risks that are not
already covered under that requirement.
(5) Own funds that are used to meet the
guidance on additional own funds
communicated in accordance with sub-
regulation (3) to address risks other than the riskof excessive leverage shall not be used to meet
any of the following:
(a) the own funds requirements
set out in points (a), (b) and (c) of Article
92(1) of the CRR;
(b) the requirement laid down in
regulation 9A imposed by the competentauthority to address risks other than the
risk of excessive leverage and the
combined buffer requirement:
Provided that own funds that are
used to meet the guidance on additional ownfunds communicated in accordance with sub-
regulation (3) to address the risk of excessive
leverage shall not be used to meet the own fundsrequirement set out in poi nt (d) of Article 92(1)
of the CRR, the requirement laid down inregulation 9A imposed by the competentauthority to address the risk of excessive
leverage and the leverage ratio buffer
requirement referred to in Article 92(1a) of theCRR.
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Amends 
regulation 10 of 
the principal regulations.10. Sub-regulation (1) of regulation 10 of the principal
regulations shall be amended as follows:
(a) in paragraph (c) thereof, for the words "in
accordance with regulation 3;" there shall be substituted the
words "in accordance with regulation 3."; and
(b) paragraph (d) thereof shall be deleted.
Amends regulation 13 of 
the principal 
regulations.11. Sub-regulation (1) of regulation 13 of the principal
regulations shall be substituted by the following:
"(1) The competent authority shall collect the
information disclosed in accordance with the criteria for
disclosure established in points (g), (h), (i) and (k) of Artic le
450(1) of the CRR as well as th e information provided by credit
institutions on the gender pay gap and shall use that informati on
to benchmark remuneration trends and practices. The competent
authority shall provide the EBA with such information.".
Amends 
regulation 17 of 
the principal 
regulations.12. In paragraph (c) of sub-regulat ion (1) of regulation 17 of
the principal regulations, immedia tely after the words "referre d to in
regulation 3" there shall be adde d the words "including the cri teria for
applying the principle of proportionality as referred to in reg ulation
3(4)".(6) The failure to meet the guidance
referred to in sub-regulation (3) where a credit
institution meets the relevant own funds
requirements set out in Parts Three, Four and
Seven of the CRR and in Chapter 2 ofRegulation (EU) 2017/2402, the relevant
additional own funds requirement referred to in
regulation 9(1)(a) and, as relevant, thecombined buffer requirement or the leverage
ratio buffer requirement  referred to in Article
92(1a) of the CRR shall not trigger therestrictions referred to in Article 141 or 141b of
the CRD.
Cooperation 
with 
Resolution Committee.9C. The competent authority shall notify
the Resolution Committee  of the additional own
funds requirement imposed on credit
institutions pursuant to r egulation 9( 1)(a) and of
any guidance on additional own funds
communicated to credit institutions in
accordance with regulation 9B(3).".
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