REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the rules governing the levels of application of banking prudential requirement
Date: 2015-08-05
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: auditing, banking policy, banking supervision, credit institution, financial legislation, investment company, management audit, private-sector liquidity, subsidiary, trade information

EUROPEAN 
COMMISSION 

Brussels, 5.8.2015  
COM(2015) 388 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the rules governing the levels of application of banking prudential requirement 

EN 

   EN 

 
 
 
 
  
 
TABLE OF CONTENTS 

1. 

2. 

Introduction .................................................................................................................. 3 

Overview of the rules governing the levels of application of prudential requirements 
set out in CRD and CRR .............................................................................................. 4 

2.1. 

The general rule of dual-level supervision................................................................... 4 

2.1.1.  A general rule consistent with the BCBS standards..................................................... 4 

2.1.2.  Both levels of application complement each other ...................................................... 4 

2.2. 

2.3. 

2.4. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

Exceptions to the general rule ...................................................................................... 5 

Justifications to the exceptions .................................................................................... 6 

Use of the waivers in the EU........................................................................................ 7 

Issues identified in the rules governing the levels of application of prudential 
requirements................................................................................................................. 7 

Differences in the derogations applied to credit institutions and investments firms ... 7 

No integration of resolution aspects in the rules.......................................................... 8 

Existence of derogations with inappropriate scope of application............................... 8 

Incomplete conditions for the application of waivers .................................................. 8 

Misalignment of exemption rules between CRD and CRR ......................................... 9 

Insufficient monitoring of the entities excluded from the scope of prudential 
requirements................................................................................................................. 9 

3.7. 

Interpretation issues identified ................................................................................... 10 

3.7.1.  Risk of divergent interpretation on how to apply remuneration rules on a 

consolidated basis ...................................................................................................... 10 

3.7.2.  Risk of diverging interpretation of the conditions to the application of waivers....... 10 

3.7.3.  Unclear treatment of institutions holding participations in financial entities 

established in third countries...................................................................................... 10 

4. 

Conclusion ................................................................................................................. 11 

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1. 

INTRODUCTION 

The  supervision  of  a  banking  group  which  is  composed  of  several  credit  institutions  or 
investment  firms  (hereafter  ‘institutions’)  is  carried  out  at  two  levels,  the  level  of  the  entire 
banking group and the level of each institution of the group. The first level corresponds to the 
supervision on a consolidated basis and the second level corresponds to the supervision on an 
individual basis. According to this principle of dual-level supervision, the banking prudential 
rules set out in Directive 2013/36/EU1 (hereafter ‘CRD’) and Regulation (EU) No 575/20132 
(hereafter  ‘CRR’)  shall  apply  at  both  individual  and  consolidated  levels.  However,  this 
principle is subject to a number of exceptions.  

The purpose of this report is to assess the appropriateness of the rules governing the levels of 
application  of  the  prudential  requirements  set  out  in  CRD  and  CRR,  in  particular  the 
exemption regime. This report jointly covers two mandates given to the Commission by the 
European  Parliament  and  the  Council  as  specified  in  Article  161(4)  of  CRD  and  Article 
508(1) of CRR: 

– 

– 

the  first  mandate  requires  the  Commission  to  review  and  report  by  31  December 
2014  to  the  European  Parliament  and  the  Council,  together  with  any  appropriate 
legislative proposals, on the application of Articles 108 and 109 of CRD; these two 
articles specify the levels of application of the prudential requirements laid down in 
Articles  73  to  96  of  CRD,  as  regards  the  internal  capital  adequacy  assessment 
process  (ICAAP),  governance  arrangements,  risk  management  and  remuneration 
policies;  

the second mandate requires the Commission to review and report on the application 
of Part One, Title II and Article 113(6) and (7) of CRR. Part  One, Title II of CRR 
specifies the rules for applying on an individual or a consolidated basis all the other 
prudential  requirements set  out in CRD and CRR to institutions, including those in 
cooperative networks and institutional protection schemes (IPS). Article 113(6) and 
(7)  of  CRR  specifies  the  conditions  to  be  satisfied  to  exempt  from  liquidity 
requirements on an individual basis institutions which are members of the same IPS 
or institutions which are linked by a relationship within the meaning of Article 12(1) 
of Directive 83/349/EEC3. 

1  Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  access  to  the 
activity  of  credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms, 
amending  Directive  2002/87/EC  and  repealing  Directives  2006/48/EC  and  2006/49/EC  (OJ  L  176, 
27.06.2013, p. 338). 

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

3  Seventh  Council  Directive  83/349/EEC  of  13  June  1983  based  on  the  Article  54  (3)  (g)  of  the  Treaty  on 

consolidated accounts (OJ L 193, 18.07.1983, p.1). 

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The  report  is  based  on  the  opinion  delivered  by  the  European  Banking  Authority  (EBA)  in 
consultation with national competent authorities on 31 October 20144. 

The next section gives an overview of the various rules governing the levels of application of 
prudential  requirements,  to  begin  with  a  clear  appreciation  of  the  issues  at  stake.  The  third 
section  identifies  differences,  inconsistencies,  and  interpretation  issues  in  these  rules.  The 
conclusion proposes a way forward to address the issues identified. 

2. 

OVERVIEW  OF  THE  RULES  GOVERNING  THE  LEVELS  OF  APPLICATION  OF 
PRUDENTIAL REQUIREMENTS SET OUT IN CRD AND CRR 

2.1. 

The general rule of dual-level supervision 

As a general rule, a banking group which is composed of one or more institutions is subject to 
prudential  requirements  on  both  individual  and  consolidated  bases.  At  the  individual  level, 
each  institution  within  the  banking  group  shall  comply  with  the  prudential  requirements  on 
the basis of its own situation in accordance with Article 6 of CRR. At the consolidated level, 
the entity at the head of the banking group is required to abide by the prudential requirements 
on the basis of the consolidated situation of the banking group in accordance with Article 11 
of CRR.  

2.1.1.  A general rule consistent with the BCBS standards 

The  rule  of  dual-level  supervision  is  a  key  element  of  the  Core  Principles  for  Effective 
Banking  Supervision  revised  by  the  Basel  Committee  on  Banking  supervision  (BCBS)  in 
September  2012.  These  principles  stress  the  importance  for  supervisory  authorities  to 
supervise  each  bank  in  the  group  on  a  stand-alone  basis,  in  addition  to  supervision  on  a 
consolidated basis.  

The  general  rule  of  dual-level  supervision  is  also  consistent  with  the  June  2006  BCBS 
framework5  which  recommends  that  prudential  rules  should  apply  to  any  internationally 
active  banking  group  on  a  consolidated  basis  and  at  the  level  of  each  internationally  active 
banking subsidiary within such a banking group. 

2.1.2.  Both levels of application complement each other  

The levels of application are complementary. The application on an individual basis enables 
competent authorities to focus on the institution itself while the application on a consolidated 
basis allows an overall assessment of the whole group to which the institution belongs. The 
consolidated supervision helps competent authorities to better identify and monitor the threats 
that  other  group  entities  may  pose  to  each  institution  within  the  group,  which  in  turn 
strengthens the supervision of institutions on an individual basis. 

4  Opinion of the EBA on the application of Articles 108 and 109 of Directive 2013/36/EU and of Part One, 

Title II and Article 113(6) and (7) of Regulation (EU) No 575/2013, 29 October 2013. 

5  June  2006  BCBS  framework  -  Basel  II:  International  Convergence  of  Capital  Measurement  and  Capital 

Standards: A Revised Framework - Comprehensive Version. 

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The  application  on  an  individual  basis  is  consistent  with  the  fact  that  liabilities  have  to  be 
repaid by legal entities, meaning that parent entities are in general not legally responsible for 
liabilities incurred by subsidiaries. On the other hand, the application on a consolidated basis 
helps  to  avoid  double  counting  of  capital  where  an  entity  holds  capital  issued  by  another 
entity  within  the  same  group.  Application  at  individual  level  in  turn  helps  supervisors  to 
ensure that own funds are appropriately distributed within the banking group and available to 
protect savings or investments. 

The consolidated application enables competent authorities to supervise financial entities that 
are  not  directly  supervised  on  an  individual  basis.  The  scope  of  consolidation  includes  all 
entities  carrying  out  activities  of  banking  or  financial  nature,  including  those  that  are  not 
qualified  as  institutions  such  as  asset  management  companies,  payment  institutions,  or 
financial holding companies. On the other hand, the application of prudential requirements on 
an individual basis helps competent authorities to better detect intra-group risks that cannot be 
detected by the consolidated application alone. 

2.2. 

Exceptions to the general rule 

The principle of dual-level supervision is subject to the following exceptions:  

– 

– 

– 

– 

competent authorities in a Member State may exempt a subsidiary or its parent from 
solvency requirements on an individual basis where the subsidiary and its parent are 
established in that Member State, are supervised on a consolidated basis and subject 
to  the  same  risk  management  framework  without  obstacles  to  the  transfer  of  funds 
pursuant  to  the  conditions  set  out  in  Article  7  of  CRR;  this  exemption  may  be 
extended to the prudential requirements set out in Articles 74 to 96 of CRD pursuant 
to Article 109(1) of CRD; 

competent  authorities  in  a  Member  State  may  exempt  a  central  body  and  credit 
institutions  permanently  affiliated  to  that  central  body  from  compliance  with  all 
prudential requirements on an individual basis where the conditions set out in Article 
10 of CRR are met; this exemption may be extended to internal capital requirements 
pursuant to Article 108(1) of CRD; 

competent  authorities  may  exempt  a  parent  institution  and  its  subsidiary  from 
disclosure and solvency requirements (with the exception of leverage requirements) 
on  an  individual  basis  by  allowing  the  parent  to  incorporate  its  subsidiary  in  the 
calculation of its solvency requirements where the conditions set out in Article 9 of 
CRR are fulfilled; 

competent authorities may exempt a group of institutions from liquidity requirements 
on  an  individual  basis  and  supervise  them  as  a  single  liquidity  subgroup  where  the 
conditions  set  out  in  Article  8  of  CRR  are  met6;  this  exemption  can  also  apply  to 
institutions which are members of the same IPS and institutions which are linked by 
a relationship within the meaning of Article 12(1) of Directive 83/349/EEC, provided 
that they meet the conditions laid down in paragraphs 6 or 7 of Article 113 of CRR; 

6  Where  the  institutions  are  authorised  in  several  Member  States,  the  competent  authorities  of  the  various 

Member States need to reach a common agreement pursuant to Articles 8(3) and 21 of CRR. 

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– 

– 

– 

– 

– 

– 

Pursuant to paragraphs 4 and 5 of Article 6 of CRR, investment firms with limited 
authorisations to provide investment services are not subject to liquidity and leverage 
requirements  on  an  individual  basis;  competent  authorities  may  also  exempt  any 
investment firm from compliance with liquidity requirements on an individual basis 
taking into account the nature, scale and complexity of its activities; Article 11(3) of 
CRR extends this exemption to liquidity requirements on a consolidated basis where 
the group comprises only investment firms;  

Pursuant to Article 16 of CRR, a group of investment firms is allowed not to comply 
with leverage requirements on a consolidated basis, provided that all group entities 
are  investment  firms  that  are  not  subject  to  leverage  requirements  on  an  individual 
basis; 

Pursuant  to  Article  15  of  CRR  and  Article  108(1)  of  CRD,  the  consolidating 
supervisor  may  exempt  a  group  of  investment  firms  from  capital  and  ICAAP 
requirements on a consolidated basis, provided that the group does not include credit 
institutions,  and  all  investment  firms  in  the  group  carry  out  limited  investment 
activities or services; 

Pursuant  to  Article  6(3)  or  13  of  CRR,  no  institution  included  in  a  prudential 
consolidation,  except  for  significant  subsidiaries,  is  required  to  comply with 
disclosure  requirements  on  an  individual  basis;  institutions  are  exempted  from 
disclosure  requirements  on  a  consolidated  basis  where  equivalent  consolidated 
disclosures are provided by a parent undertaking established in a third country;  

Pursuant to Article 6(2) of CRR, no institution included in a prudential consolidation 
is  required  to  apply  on  an  individual  basis  the  prudential  treatments  laid  down  in 
Articles  89,  90  and  91  of  CRR  to  qualifying  holdings  in  undertakings  carrying  out 
non-financial activities; 

entities  of  a  banking  group  may  be  excluded  from  the  scope  of  prudential 
consolidation under certain circumstances as described in Article 19 of CRR.  

2.3. 

Justifications to the exceptions  

Exempting  institutions  belonging  to  a  banking  group  from  solvency  requirements  on  an 
individual basis under Articles 7, 9 and 10 of CRR is justified where these institutions can be 
regarded  as  a  single  entity.  This  may  happen  where  all  group  entities  are  linked  together 
through strong control relationships and where they are supervised on a consolidated basis by 
the  same  authority  while  being  subject  to  a  group-wide  risk  management  framework  with 
robust  intra-group  commitments  and  without  obstacles  to  capital  movements.  In  such 
situation, the application of prudential requirements on an individual basis does not add value 
to the supervision on a consolidated basis.  

Exempting  institutions  belonging  to  a  banking  group  from  liquidity  requirements  on  an 
individual basis under Article 8 of CRR helps facilitate group-wide liquidity risk management 
and  avoids  trapped  pools  of  liquidity  due  to  restrictions  of  the  group’s  internal  liquidity 
transfers which would result from the application of liquidity requirements to each institution 
within the banking group. 

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Excluding entities of a banking group from prudential consolidation under Article 19 of CRR 
is  deemed  appropriate,  where  parent  entities  face  restrictions  which  substantially  hinder  the 
exercise of the parents’ rights over subsidiaries, or where the activities carried out by a group 
entity  are  so  different  from  those  of  other  group  entities  that  its  inclusion  does  not  give 
supervisors a correct view of the banking group.  

The exemptions under Article 6(3) and 13 of CRR are based on the principle that requiring 
non-significant  subsidiaries  to  disclose  prudential  information  at  individual  level  does  not 
contribute  significantly  to  market  discipline,  given  the  prudential  information  already-
disclosed at group level.  

The exemptions under paragraphs 4 and 5 of Article 6 and Article 16 of CRR are due to the 
fact that the liquidity and leverage ratios were originally developed by the BCBS with a view 
to applying to credit institutions and not to investment firms and without taking account of the 
specificities of the activities and services provided by investment firms. 

The  exemption  under  Article  15  of  CRR  aims  at  avoiding  that  groups  of  investment  firms 
with  limited  investment  services  or  activities  are  disproportionately  burdened  by  capital 
requirements. However, to preserve the solvency of these financial groups, the granting of this 
exemption is coupled with additional conditions to fulfil in terms of the calculation of capital 
requirements, own funds and internal control. 

2.4. 

Use of the waivers in the EU  

The use of some waivers appears relatively limited across the EU: 

– 

– 

– 

– 

only 5 of 28 Member States grant the waiver under Article 7 of CRR; 

only  three  Member  States  allow  parent  institutions  to  consolidate  subsidiaries  in 
accordance with Article 9 of CRR; 

only  a  small  number  of  group  entities  are  excluded  from  the  scope  of  prudential 
consolidation pursuant to Article 19 of CRR; 

only  two  Member  States  exempt  institutions  from  requirements  on  governance, 
remuneration and risk management pursuant to Article 109(1) of CRD. 

The  waiver  under  Article  8  of  CRR  applies  in  a  cross-border  context  only  since  1  January 
2015.  

Conversely,  the  application  of  the  derogation  under  Article  10  of  CRR  for  cooperative 
networks  is  relatively  extensive  since  a  large  number  of  central  bodies  and  affiliated  credit 
institutions  in  at  least  six  Member  States  benefit  from  this  exemption,  which  may  in  turn 
allow them to be exempted from ICAAP requirements pursuant to Article 108(1) of CRD.  

While appearing of lesser material importance, waivers may strongly influence the structure 
and internal organisation of EU banking groups and the way competent authorities supervise 
banking  groups.  Changes  to  the  existing  rules  might  result  in  potentially  far-reaching 
adjustments and costs for institutions, competent authorities, and EBA. However, there may 
be some merit in reviewing the derogation regime in the future to take account of the lessons 

7 

 
 
learnt from the application of the liquidity coverage requirement and the Single Supervisory 
Mechanism (SSM).  

3. 

ISSUES  IDENTIFIED  IN  THE  RULES  GOVERNING  THE  LEVELS  OF  APPLICATION  OF 
PRUDENTIAL REQUIREMENTS 

The analysis of the rules governing the levels of application of prudential requirements raises 
the  following  differences,  inconsistencies  and  interpretation  issues  that  merit  further 
consideration. 

3.1. 

Differences  in  the  derogations  applied  to  credit  institutions  and  investments 
firms 

Credit  institutions  and  investment  firms  are  subject  to  prudential  requirements  on  both 
individual  and  consolidated  bases  unless  exempted.  However,  the  derogation  regime  is  not 
similar  for  both  types  of  institutions.  Unlike  credit  institutions,  investment  firms  may  be 
exempted  from  compliance  with  liquidity  or  leverage  requirements  on  an  individual  basis 
pursuant  to  Article  6  of  CRR,  without  being  required  to  meet  specific  conditions.  Unlike 
groups of credit institutions, competent authorities may waive groups of investment firms to 
comply with prudential requirements on a consolidated basis in accordance with Article 11(3), 
15 or 16 of CRR.  

There may be some merit in maintaining less stringent rules for investment firms, given their 
size,  the  nature  of  their  activities  or  their  risk  profiles.  It  will  be  therefore  important  to 
understand  whether  such  differentiated  treatment  could  give  rise  to  negative  effects.  The 
Commission will review the derogation regime applicable to investment firms as part of the 
overall  review  of  the  whole  prudential  regime  applicable  to  investment  firms  that  the 
Commission has to carry out in 2015 pursuant to Article 508(2) and (3) of CRR.   

3.2. 

No integration of resolution aspects in the rules 

The conditions for exempting institutions from prudential requirements on an individual basis 
do not take resolution aspects into consideration. These conditions could be reviewed in light 
of the new requirements introduced in Directive 2014/59/EU7 (hereafter ‘BRRD’) to maintain 
coherence  between  banking  resolution  and  the  way  banking  groups  are  supervised.  In 
particular,  the  existence  of  a  group  financial  support  agreement  as  specified  in  Chapter  III, 
Title II of BRRD could be taken into account when assessing whether there are impediments 
to the free movement of funds within the banking group.   

3.3. 

Existence of derogations with inappropriate scope of application 

Competent  authorities  may  exempt  institutions  from  the  prudential  requirements  set  out  in 
Articles 74 to 96 of CRD on an individual basis in accordance with Article 109(1) of CRD. 
However,  Articles  74  to  96  cover  fundamental  prudential  requirements,  for  example,  the 

7  Directive  2014/59/EU  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  establishing  a 
framework for the recovery and resolution of credit institutions and investment firms and amending Council 
Directive  82/891/EEC,  and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC, 
2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of 
the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190). 

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implementation of robust governance arrangements, effective risk management processes and 
robust internal control mechanisms. Competent authorities are therefore reluctant to grant this 
exemption  because  these  requirements  are  considered  essential  for  effective  prudential 
supervision.  It  is  therefore  more  prudent  to  limit  the  scope  of  this  exemption  where  the 
application of these requirements on an individual basis is not essential and can be adequately 
replaced with an application on consolidated basis. 

In  addition,  Article  9  of  CRR  does  not  allow  for  exempting  institutions  from  leverage 
requirements, which is permitted under Article 7 of CRR. It might be worth considering the 
possibility of better aligning these two articles. 

3.4. 

Incomplete conditions for the application of waivers  

Parent institutions and their subsidiaries may be exempted from prudential requirements on an 
individual  basis  under  Article  7  of  CRR,  provided  that  certain  conditions  specified  in  that 
Article  are  met.  However,  there  might  be  some  merit  to  supplement  the  current  conditions 
with further specifications as follows: 

– 

– 

Control relationships between the parent undertaking and the subsidiaries should be 
assumed where the parent undertaking has the power to issue binding instructions to 
its subsidiaries; such a condition already exists under Article 10 of CRR; 

The implementation of the risk management framework of the parent undertaking in 
the subsidiaries could be assumed where a uniform and integrated risk management 
framework is established in both the parent undertaking and subsidiaries.         

3.5.  Misalignment of exemption rules between CRD and CRR 

The supervisory review and evaluation process (SREP) applies at the same level as the level 
of application of prudential requirements set out in CRR. As the ICAAP under Article 73 of 
CRD is the starting point of the SREP and the latter covers the obligations set out in Articles 
74 to 96 of CRD, the levels of application of the prudential requirements specified in Articles 
108 and 109 of CRD may lead to the following inconsistencies:  

– 

– 

– 

– 

The ICAAP and prudential requirements set out in Articles 74 to 96 of CRD may not 
apply  at  the  same  level  where  institutions  are  exempted  under  Article  108(1)  or 
109(1) of CRD; 

Institutions  benefitting  from  the  derogations  provided  for  in  Article  8  or  9  of  CRR 
may  be  required  to  apply  the  prudential  rules  set  out  in  Articles  73  to  96  on  an 
individual basis; 

The granting of the exemption under Article 108(1) of CRD is not determined by the 
granting of the exemption under Article 10 of CRR, meaning that credit institutions 
permanently affiliated to a central body may be exempted from capital requirements 
on an individual basis while being subject to internal capital requirements; 

Institutions  belonging  to  banking  groups  are  not  required  to  implement  the  ICAAP 
on an individual basis whereas they are subject to solvency requirements at this level. 

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The levels of application of the ICAAP and the prudential rules on governance arrangements, 
risk management and remuneration policies as set out in Articles 108 and 109 of CRD could 
therefore  be  made  consistent  with  the  levels  of  application  of  the  other  prudential 
requirements set out in CRR and CRD. Requiring an ICAAP for every institution in a large 
banking group might, however, be considered excessively burdensome, particularly for those 
institutions which are not significant in relation to the rest of the group. Jointly with ICAAP 
requirements on a consolidated basis, where applicable, the ICAAP could therefore apply on 
an  individual  basis  to  any  institution,  including  those  belonging  to  banking  groups,  except 
where  competent  authorities  make  use  of  the  derogations  under  Article  7,  9  or  10  of  CRR, 
taking account of the significance of the institution in relation to the rest of the group. 

3.6. 

Insufficient  monitoring  of  the  entities  excluded  from  the  scope  of  prudential 
requirements 

Banking  groups  are  allowed  to  exclude  group  entities  from  the  scope  of  prudential 
consolidation  pursuant  to  Article  19(1)  of  CRR  without  referring  to  their  competent 
authorities. However, it could be worth assessing the costs and benefits of requiring banking 
groups to notify the use of the waiver under that Article to their competent authorities so that 
the  latter  could  grant  permission  to  banks  before  undertaking  exclusions  and  monitor  the 
number of entities and volume of assets covered by the waiver.  

3.7. 

Interpretation issues identified 

3.7.1.  Risk  of  divergent  interpretation  on  how  to  apply  remuneration  rules  on  a 

consolidated basis 

Article 92 (1) of CRD requires competent authorities to ensure that the principles and rules on 
remuneration  laid  down  in  Articles  92  to  95  of  CRD  apply  to  institutions  at  group,  parent 
company  and  subsidiary  levels,  including  those  established  in  offshore  financial  centres. 
Recital  67  of  CRD  clarifies  that  this  is  to  protect  and  foster  financial  stability  within  the 
Union and to address any possible avoidance of the requirements laid down in CRD.  

A number of the remuneration requirements in Article 92 of CRD apply only to staff whose 
activities have  a  material impact on  an  institution's risk  profile. The  Commission  Delegated 
Regulation (EU) No 604/20148 set out criteria to identify such staff at group, parent company 
and subsidiary levels.  

Moreover, pursuant to Article 92 (2) of CRD the remuneration requirements are to be applied 
in a manner and to an extent that is appropriate to the institutions' size, internal organization 
and the nature, scope and complexity of their activities. The updated EBA guidelines on the 
application of the remuneration rules will contain further guidance on the scope of the concept 
of ‘group’ and the application of the proportionality principle, which will help address risks of 
divergent interpretation and application of the remuneration rules.  

8  See  Article  1  of  Commission  Delegated  Regulation  (EU)  No 604/2014  of  4  March  2014  supplementing 
Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council  with  regard  to  regulatory  technical 
standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose 
professional activities have a material impact on an institution's risk profile (OJ L 167, 6.6.2014, p. 30). 

10 

 
 
                                                 
It  should  also  be  noted  that  Article  161(2)  of  CRD  provides  for  the  Commission,  in  close 
cooperation  with  EBA,  to  review  the  provisions  on  remuneration  by  30  June  2016.  This 
review  will,  amongst  other  elements,  assess  efficiency,  implementation  and  enforcement  of 
remuneration  provisions,  including  the  identification  of  any  lacunae  arising  from  the 
application of the principle of proportionality. 

3.7.2.  Risk of diverging interpretation of the conditions to the application of waivers 

Institutions  may  be  exempted  from  solvency  or  liquidity  requirements  in  accordance  with 
Articles  7,  8  or  9  of  CRR,  provided  that  there  is  no  impediment  to  funds  movements. 
However, supervisors may face difficulties in identifying impediments. Clarifying this could 
help  enhance  the  convergence  of  supervisory  practices  on  the  application  of  the  waivers. 
More broadly, the conditions set out in those three Articles, especially in Article 8 of CRR, 
might  benefit  from  further  specifying  how  to  reduce  risk  of  diverging  interpretation  from 
authority to authority.  

3.7.3.  Unclear  treatment  of  institutions  holding  participations  in  financial  entities 

established in third countries 

Article  22  of  CRR  and  Article  108(4)  of  CRD  stipulate  that  a  subsidiary  institution  which 
holds  participations  in  a  financial  entity  established  in  a  third  country  shall  apply  on  a  sub-
consolidated basis the capital and large exposure requirements as well as the rules related to 
qualifying holdings and those related to ICAAP. However, the purpose of these two Articles 
is  open  to  several  possible  interpretations.  Consequently,  the  treatment  applicable  to 
institutions holding participations in financial entities established in third countries could be 
clarified. 

4. 

CONCLUSION 

It  does  not  appear  suitable  to  propose  amendments  to  the  existing  rules  in  the  wake  of  the 
report  as  the  Commission  needs  to  continue  to  reflect  further  on  whether  and  how  these 
exceptions  and  conditions  for  their  application  should  be  maintained.  Some  of  these 
considerations  will  be  particularly  apposite  in  the  context  of  SSM.  Moreover,  since  some 
rules are new or have not been used extensively yet, experience in their application must still 
be  gained  so  that  the  Commission  could  carefully  assess  the  feasibility  of  amending  the 
existing rules.  

It also appears particularly important to take account of the conclusions of the report on the 
prudential  regime  for  European  investment  firms  that  the  Commission  shall  issue  in 
accordance with Article 508(2) and (3) of CRR before considering the possibility of changing 
the rules applicable to investment firms.  

Finally, the experience gained by competent authorities in the implementation of the liquidity 
coverage  requirement  and  the  application  of  the  provisions  laid  down  in  the  BRRD  will 
contribute  to  the  reflection  of  the  Commission  on  whether  amendments  to the  application 
regime for banking prudential requirements would be appropriate. 

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