Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on sovereign bond-backed securities
Date: 2018-05-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: European Securities and Markets Authority, bond, euro area, financial legislation, financial risk, financial stability, financial supervision, public borrowing

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   EUROPEAN COMMISSION  Brussels, 24.5.2018 COM(2018) 339 final 2018/0171 (COD)  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on sovereign bond-backed securities (Text with EEA relevance) {SEC(2018) 251 final} - {SWD(2018) 252 final} - {SWD(2018) 253 final}  
 
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

This proposal aims to enable a market demand-led development of Sovereign Bond-Backed 
Securities (SBBSs), to support further integration and diversification within Europe's financial 
sector, leading to a stronger and more resilient Economic and Monetary Union. This initiative 
complements  other  elements  of  Banking  Union  and  Capital  Markets  Union  by  enhancing 
integration, risk diversification and risk reduction in the financial system.  

Since the global financial crisis and the euro area sovereign debt crisis, considerable progress 
has  been  achieved  in  stabilising  the  EU  and  euro  area  financial  sector  and  creating  the 
conditions for further integration, by implementing common robust prudential and resolution 
rules  for  financial  institutions.  This  is,  among  others,  due  to  reforms  such  as  the  Bank 
Recovery and Resolution Directive1, the creation of the Single Supervisory Mechanism2 and 
the  Single  Resolution  Mechanism  as  well  as  the  Capital  Requirements  Regulation.3 
Nevertheless,  a  further  integration  and  diversification  of  financial  markets  across  national 
borders has significant potential to make Europe and its Economic and Monetary Union more 
resilient  through  better  risk  diversification  and  better  shock  absorption  via  capital  markets. 
This  is  the  objective  of  the  Commission's  efforts  to  deepen  and  integrate  further  Europe's 
capital markets in the context of the Capital Market Union. The euro-area banking sector in 
particular continues to be vulnerable to the sovereign-bank nexus, i.e. the strong two-way link 
between the creditworthiness of a government and that of the banks in its jurisdiction, which 
is in part due to banks' tendency to concentrate their sovereign bond portfolios in their own 
sovereign (so-called "home bias"). The resulting potential for destabilising mutual contagion 
and  financial  instability  became  apparent  during  the  euro-area  sovereign  debt  crisis: 
deteriorating  creditworthiness  of  a  sovereign  leads,  via  lower  bond  values,  to  balance  sheet 
strains  for  banks  in  its  jurisdiction;  in  turn,  banks'  woes  put  pressure  on  the  government 
budget  either  directly  ("bailout")  or  via,  e.g.,  lower  tax  revenues  from  weakened  credit  and 
economic activity. Beyond these links to  their own government, banks  also remain strongly 
exposed  to  economic  developments  in  their  home  country  (due  to  insufficient  cross-border 
diversification). 

Moreover, despite an increase in overall public debt until recently in the wake of the global 
financial  crisis,  the  supply  of  high-rated  euro-denominated  sovereign  bonds,  which  act  as 
"safe assets" in the modern financial system, has declined. At the same time, banks' and other 
financial  institutions'  demand  for  such  assets  has  increased,  including  because  of  new 
regulatory  requirements  to  hold  sufficient  buffers  of  highly  liquid  assets  (e.g.,  in  terms  of 
liquidity coverage ratios). 

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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  (OJ  L  173, 
12.6.2014, p. 190).  
Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European 
Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 
29.10.2013, p. 63). 
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). 

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As part of the Commission's efforts to advance the Banking Union and deepen the Economic 
and  Monetary  Union,  in  line  with  the  May  2017  Reflection  Paper  on  the  deepening  of  the 
Economic  and  Monetary  Union,  and  as  announced  in  the  2017  September  Letter  of  Intent 
accompanying President Juncker's State of the Union Address, and the December 2017 EMU 
deepening package, this proposal aims at providing an enabling framework for a market-led 
development of Sovereign Bond-Backed Securities (SBBSs).  

SBBSs  would  be  created  by  the  private  sector.  A  private  sector  entity  would  assemble  an 
underlying  portfolio  of  sovereign  bonds  from  the  market  and  would  subsequently  transfer 
them  to  a  legally  separate,  self-standing  entity,  specifically  set  up  for  the  sole  purpose  of 
issuing  to  investors  a  series  of  securities  representing  claims  on  the  proceeds  from  this 
underlying portfolio. The various securities issued would bear any losses from the underlying 
portfolio  in  a  certain  sequence  (i.e.,  losses  would  accrue  first  to  holders  of  sub-senior,  or 
subordinated, securities and only after such securities have been completely wiped out would 
they also accrue to the holders of senior claims).  

SBBSs  would  not  rely  on  any  risk  sharing  or  fiscal  mutualisation  between  Member  States. 
Only  private  investors  would  share  risks  and  possible  losses.  SBBSs  are  therefore  very 
different from Eurobonds.  

In mid-2016, the European Systemic Risk Board (ESRB) established a high-level task force 
(henceforth,  the  ESRB  task  force)  to  assess  SBBSs'  merits  and  feasibility.  The  ESRB  task 
force  comprised  representatives  from  many  Member  States'  central  banks  and  financial 
supervisory  authorities,  as  well  as  of  European  institutions  (the  European  Central  Bank  and 
the European Commission) and agencies (the European Banking Authority and the European 
Insurance  and  Occupational  Pensions  Authority),  public  debt  management  officers  and 
academics.  

The  ESRB  task  force  concluded4  that  a  market  for  SBBSs  can  develop  under  certain 
conditions.  Yet,  whether  or  not  SBBSs  are  viable  can  ultimately  only  be  ascertained  by 
putting them to a market test. This proposal paves the way for such a market test.  

A  key  finding  of  the  ESRB  task  force,  corroborated  also  by  interactions  with  market 
participants  and  other  stakeholders,  is  that  the  current  regulatory  framework  constitutes  a 
significant hindrance to the development of SBBSs. Under the existing regulatory framework, 
SBBSs would be defined as securitisation products, and hence would be treated significantly 
less favourably than their underlying portfolio of euro area sovereign bonds (e.g., via higher 
capital  requirements,  limited/no  eligibility  for  liquidity  coverage  and  collateral,  stricter 
investment  limits  for  various  investor  classes,  etc.).  However,  due  to  the  nature  of  their 
underlying  assets  and  their  standardised  and  simple  nature,  SBBSs  carry  risks  that  are 
comparable  to  the  underlying  sovereign  bonds  rather  than  regular  securitisations.  For 
example,  there  is  no  asymmetry  of  information  between  the  issuer  of  SBBSs  securitisation 
and  the  final  investors,  because  the  underlying  assets  are  well-known  and  traded  on  the 
market. 

It  is  therefore  necessary  that  the  regulatory  framework  is  suitably  adapted  to  capture  the 
unique  features  of  SBBSs.  Importantly,  enabling  SBBSs  does  not  involve  changing  the 
regulatory treatment of sovereign exposures. As set out in the May 2017 Reflection Paper on 

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See volumes I ("main findings) and II ("technical analysis") of the ESRB task force  report "Sovereign 
bond-backed 
at: 
https://www.esrb.europa.eu/pub/task_force_safe_assets/html/index.en.html 

securities: 

feasibility 

available 

study", 

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the  deepening  of  the  Economic  and  Monetary  Union,  the  latter  would  have  profound 
implications, including in terms of financial stability and level-playing field for EU banks.  

• 

Consistency with existing policy provisions in the policy area 

As SBBSs represent a novel concept and do not yet exist in practice, no appropriate regulation 
for  this  kind  of  instrument  has  yet  been  created  that  would  take  into  account  their  unique 
properties.  

Under  the  current  legal  framework,  as  indicated  above,  SBBSs  would  be  defined  as 
securitisation  products.  Thus,  as  a  result  of  the  regulatory  framework  for  securitisations  – 
which  is,  as  such,  appropriate  for  existing  securitisations  –  investing  in  SBBSs  would  be 
associated with higher regulatory charges than investing directly in euro area sovereign bonds, 
which  constitute  SBBSs'  underlying  portfolio.  For  example,  when  it  comes  to  capital 
requirements for banks, euro area sovereign bonds are zero-risk weighted (that is, banks need 
not hold any capital against their investment in these bonds), but investments in securitisation 
tranches  are  associated  with  positive  and—depending  on  the  seniority—often  quite  high 
capital requirements.  

The justification for these higher charges for securitisation products in general (the so-called 
“non-neutrality” of the securitisation framework) lies in securitisation-specific risks, primarily 
due to  asymmetric information  between the originator  of the securitisation products and the 
investors. This is typically compounded by the opaque nature of the securitised assets and the 
complexity  of  the  structure,  which  entail  agency  risks  and  legal  risks.  In  typical 
securitisations,  agency  risks  stem  from  the  fact  that  originators  of  such  products  know 
substantially more than investors about  the assets composing the securitisation pool. This is 
obviously the case where, for instance, a bank issues mortgages and then securitises them. An 
investor does not have access to the same information on the mortgage borrowers as does the 
bank.  Thus  they  may  also  assume  that  the  bank  may  securitise  first/only  the  least 
profitable/more risky mortgages. It is because of this agency problem that many institutional 
investors  as  well  as  banks  are  prevented  from  investing  in  securitisations  unless  the  issuer 
retains some exposure to the underlying assets.  

However, SBBSs are a specific financial product with two key characteristics. First, many of 
the asymmetries of information and complexities of a typical securitisation structure are not 
present because SBBSs' underlying pool is composed of euro-area central government bonds. 
These assets are well known and understood by market participants. Moreover, the structure 
of the underlying asset pool for SBBSs is pre-determined (e.g., the weights of the individual 
Member States' central government bonds would be in line with their contribution to capital 
of the European  Central Bank, with  little  deviation). Second, euro area sovereign bonds  are 
regularly traded  in  the markets. This  means that  anyone  can acquire  a financial exposure to 
them without resorting to securitisation.  

Hence, securitisation-specific regulatory charges are not justified for SBBSs as defined in this 
regulatory proposal. 

This  proposal  addresses  a  similar  problem  as  has  been  addressed  with  the  recent  Simple, 
Transparent and Standardised (STS) Securitisation Regulation. Specifically, the rationale for 
the  recent  STS  Regulation  (Regulation  (EU)  2017/2402)  is  that,  in  the  presence  of 
securitisations  which  are  structured  in  a  simple,  transparent  and  standardised  way  and 
according  to  EU  standards,  failing  to  recognise  such  properties  with  a  specific  (and,  in 
practice,  more  favourable)  regulatory 
their 
development.  

treatment  would  have  unduly  hindered 

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Given the special nature of SBBSs' underlying assets, namely euro area central government 
bonds,  the  wedge  between  the  regulatory  treatment  of  (traditional)  securitisations  and  the 
actual  risk/uncertainty  of  the  instrument  is  even  more  pronounced  for  SBBSs  than  was  the 
case  for  STS  securitisations.  This  is  for  two  reasons:  (1)  the  underlying  assets  (i.e.  namely, 
euro area  sovereign  bonds)  are  even  more  simple,  transparent  and  standardised;  and  (2) 
euro area  sovereign  bonds  themselves  receive  the  most  favourable  regulatory  treatment  in 
light of their properties and functions in the financial sector.  

In  addition,  investment  decisions  as  regards  government  bonds  are  particularly  sensitive  to 
costs and fees because of the volumes involved, the strong competition, and the high market 
liquidity.  Relevant  costs,  from  the  viewpoint  of  a  financial  institution  intending  to  invest  in 
such  assets,  include  the  cost  of  capital  associated  with  their  purchase.  Therefore,  failure  to 
address this regulatory barrier is likely to have a correspondingly greater impeding effect on 
the developments of the market for SBBSs than would have been, for example, the case for 
STS securitisations. 

• 

Consistency with other Union policies 

Reducing  risks  to  financial  stability  by  facilitating  the  diversification  of  banks'  sovereign 
portfolios  and  further  weakening  the  bank-sovereign  nexus  is  of  high  importance  for  the 
completion of the Banking Union.  

This  legislative proposal is  part  of the Commission's efforts  to  enhance Banking Union  and 
Capital Markets Union. It aims to enable the emergence of an efficient market for SBBSs over 
time.  In  turn,  SBBSs  could  support  further  portfolio  diversification  in  the  financial  sector, 
while  creating  a  new  source  of  high-quality  collateral  particularly  suited  for  use  in  cross-
border financial transactions. Also, it could render sovereign bonds issued in otherwise small 
and less liquid markets more attractive for international investors. This would foster private-
sector risk sharing and risk reduction and promote a more efficient allocation of risks among 
investors. Furthermore, enabling SBBSs would increase the range of available instruments on 
financial markets, which feeds into the Commission's efforts to deepen and integrate further 
Europe's  capital  markets  in  the  context  of  Capital  Markets  Union.  By  thereby  helping  to 
complete  Banking  Union  and  advance  Capital  Market  Union,  SBBSs  would  effectively 
contribute  to  the  advancement  of  the  Financial  Union  and  the  deepening  of  Economic  and 
Monetary Union.  

As mentioned, SBBSs will be a market-based instrument which is likely to develop gradually 
over  time,  as  an  alternative  and  complementary  investment  opportunity,  next  to  sovereign 
bonds.  SBBSs  are  not  expected  to  have  any  material  negative  impact  on  existing  national 
bond markets and are not expected to replace them. 

SBBSs are conceptually distinct and different from the European safe asset as discussed in the 
May  2017  Reflection  Paper  on  the  deepening  of  the  Economic  and  Monetary  Union.  The 
European safe asset – differently from SBBSs – would be a new financial instrument for the 
common issuance of debt. Developing such European safe asset raises a number of complex 
legal,  political  and  institutional  questions  that  need  to  be  explored  in  great  detail.  It  would 
have  to  be  designed  in  line  with  the  limitations  in  the  Treaty  in  terms  of  public  sector  risk 
sharing  and  in  particular  the  "no  bail-out  clause"  (Art.  125  TFEU).  In  the  Roadmap  as 
presented  in  the  above-referenced  Reflection  Paper,  the  issuance  of  such  a  European  safe 
asset  is  envisaged  as  a  possible  further  step  during  the  years  until  2025.  It  is,  therefore,  an 
innovation for the medium term.  

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2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

SBBSs are a tool to enhance financial stability and risk sharing across the euro area. They can 
thereby  further  deepen  the  internal  market.  This  proposal  thus  has  as  legal  basis 
Article 114 TFUE,  which  confers  to  the  European  institutions  the  competences  to  lay  down 
appropriate  provisions  that  have  as  their  objective  the  establishment  and  functioning  of  the 
internal market.  

• 

Subsidiarity (for non-exclusive competence)  

The identified regulatory impediments to the development of SBBSs markets are laid down in 
several pieces of Union legislation5. As a consequence, individual Member State action would 
not  be  able  to  achieve  the  goals  of  this  legislative  initiative,  i.e.  to  remove  such  regulatory 
impediments, since amendments of EU legislation can only be done through EU action.  

Aside from this legal consideration, action at the Member States' level would be suboptimal. 
It  could  result  in  different  instruments  being  "enabled"  in  different  Member  States.  This 
would  render  the  market  opaque  and  would  segment  market  demand  in  various  different 
instruments. This would make it difficult or even impossible for any one of them to acquire 
the  requisite  liquidity.  Furthermore,  even  if  they  all  targeted  the  same  instrument,  national 
legislators could end up engaging in a race to offer to such instrument a regulatory treatment 
that is as favourable as possible. In both cases, i.e. addressing differently defined products or 
giving different regulatory treatment, national-level action would create obstacles to the single 
market.  These  obstacles  would  have  sizeable  effects,  given  the  very  high  integration  of  the 
underlying  government  bond  markets  and  the  identical  regulatory  treatment  of  these  across 
the EU. For all these reasons, action at the EU level is necessary and appropriate.  

• 

Proportionality 

The proposed regulation aims at enabling the new instrument by removing regulatory barriers 
to the gradual emergence of an SBBSs market. This intervention is proportionate by levelling 
the  playing  field  between  the  new  instrument  and  its  underlying  assets.  The  proposal  is  not 
expected to have any material impact on existing national sovereign bond markets.  

• 

Choice of the instrument 

This proposal aims at enabling a demand-led market development of SBBSs. To this end, the 
proposal  provides  for  the  criteria  to  be  met  by  the  instrument  to  be  labelled  as  SBBSs  and 
provides the necessary supervisory framework.  

In order to achieve the targeted benefits, it is necessary that a standardised product is enabled. 
This standardisation should be uniform across the EU, thus a fully harmonised definition and 
regulatory  treatment  of  SBBSs  at  EU  level  is  required.  Article  114(1)  TFEU  provides  the 
legal basis for a Regulation creating uniform provisions aimed at improving the functioning of 

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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 (CRR) (OJ L 176, 27.6.2013, p. 1); Commission Delegated Regulation (EU) 2015/35 of 10 
October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on 
the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 12, 17.1.2015, 
p.  1);  Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for  collective 
investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). 

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the  internal market.  A  Directive  would  not  lead  to  the  same  results, as  implementation  of  a 
Directive,  due  to  the  discretion  exercised  when  transposing  it,  might  lead  to  differences, 
which, in the case of the SBBSs market, could lead to distortion of competition and regulatory 
arbitrage.  

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

As  part  of  its  SBBSs  feasibility  assessment,  the  ESRB  task  force  conducted  a  public 
consultation  in  late  2016  and  obtained  input  and  feedback  from  the  industry,  i.e.  various 
financial institutions, and from public debt management officers (DMOs), through a range of 
bilateral meetings as well as two dedicated workshops in 2016 and 2017. The Commission did 
not launch an open public consultation of its own to avoid duplication. It should be noted that 
the proposed initiative is not directed towards consumers or retail investors. 

The above-mentioned consultation among industry representatives sought feedback on several 
key  issues  regarding  the  possible  implementation  of  SBBSs,  in  particular  regarding  the 
regulatory treatment and the economic aspects of SBBSs. The feedback, in particular, showed 
strong  consensus  on  the  increasing  scarcity  of  "safe"  (low-risk)  assets  in  the  market.  The 
majority of respondents were of the view that at least senior SBBSs should receive the same 
regulatory treatment as their underlying sovereign bonds.  

While market participants overall agreed that deeper financial integration and a diversification 
of  banks'  sovereign  portfolio  would  be  necessary  in  Europe,  views  were  mixed  as  to  the 
viability  of  SBBSs.  In  particular,  the  marketability  of  the  junior  tranche  of  the  product  was 
questioned.  Participants  broadly  agreed  that  for  an  SBBSs  market  to  emerge,  the  following 
would  be  required:  (1)  coordination  of  issuances  by  Debt  Management  Officers  (DMOs); 
(2) a regulatory framework that levels the playing field between sovereign bonds and SBBSs; 
(3) simple and standardised SBBSs characteristics, including a fixed portfolio weights on the 
asset side and a maximum of three tranches on the liability side; (4) sufficient liquidity in the 
SBBSs market; and (5) clarity on the procedure in the event of a (selective) sovereign default. 
A detailed breakdown of answers on key questions and general conclusions drawn from the 
survey are presented in Volume II of the above-referenced ESRB task force report. 

In a dedicated workshop, DMOs raised concerns regarding the design and implementation of 
SBBSs and  took  the view that  SBBSs would neither to break the bank-sovereign nexus nor 
create a euro area low-risk asset. More specifically, DMOs' concerns related to the impact of 
SBBSs on national sovereign bond markets (in particular on their liquidity), the implications 
of  primary  and/or  secondary  market  sovereign  bond  purchases  by  SBBSs  issuers,  and  the 
possible  regulatory  treatment  of  SBBSs.  They  also  voiced  concerns  about  the  technical 
feasibility and economic viability of the new instrument. 

Besides  the  above  mentioned  stakeholder  consultations  as  part  of  the  ESRB  feasibility 
assessment,  the  Commission  reached  out  to  Member  States  and  organised  a  meeting  of  the 
Commission's Expert Group on banking, payments and insurance (EGBPI) on 11 April 2018 
in order to receive technical feedback on specific questions. Participants pointed to the need to 
first  discuss  the  necessity  of  SBBSs  before  providing  technical  advice,  as  in  their  view  the 
need  for  SBBSs  was  not  obvious.  They  provided  useful  views  on  select  technical issues,  in 
particular  calling  for  greater  flexibility  to  market  participants  when  it  comes  to  determining 

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the fundamental characteristics of SBBSs (i.e. with respect to the weights of different Member 
States' sovereign bonds in the underlying portfolio or the tranching levels).  

• 

Collection and use of expertise 

The Commission actively contributed to the work of the above-mentioned ESRB task force. 
This  regulatory  proposal  builds  to  a  large  extent  on  the  work  of  the  task  force.  Further,  the 
Commission  has  met  with  public  authorities  and  private  sector  representatives  to  seek  their 
expertise and corroborate the findings of the task force.  

• 

Impact assessment 

For the preparation of this proposal, an Impact Assessment was prepared and discussed with 
an Inter-service Steering Group on several occasions. The Impact Assessment considered the 
following policy choices: (i) the scope of applicability of the proposed framework (i.e., to any 
securitisation  of  euro  area  sovereign  bonds,  or  only  to  those  complying  with  certain 
standardisation  requirements);  (ii)  whether  to  restore  "regulatory  neutrality",  i.e.,  grant  the 
same treatment as that of the underlying sovereign bonds only to the senior tranche of SBBSs 
issue or to all tranches of SBBSs issue; and (iii) how to monitor and ensure compliance with 
the  proposed  framework  (i.e.,  whether  through  a  self-attestation  approach  or  via  ex-ante 
certification).  

The  Impact  Assessment  highlighted  several  important  trade-offs.  For  example,  removing 
regulatory  impediments  for  all  and  any  securitisations  would  allow  maximum  flexibility  to 
market participants to design the new instrument to maximize returns while minimizing risks. 
On the other hand, a certain degree of prescribed standardisation might better ensure that the 
liquidity  of  the  new  instrument  is  not  dissipated  across  many  different  variants.  Similarly, 
whereas granting the same treatment of sovereign bonds only to the senior tranche may give 
greater  incentives  for  banks  to  focus  on  senior  tranches,  such  an  approach  would  be 
inconsistent with the current regulatory treatment of sovereign exposures (and would be less 
"enabling" of SBBSs in general, since it would have reduced the potential investor base). 

The Impact Assessment assessed the effects of the various options on the extent to which the 
identified regulatory hindrances would be removed, the extent to which the new instruments 
would  help  with  risk-reduction  in  banks'  balance  sheets  and  with  expanding  the  supply  of 
euro-denominated low-risk assets, and the benefits of the various compliance and supervision 
approaches in terms of instilled market confidence vis-à-vis the associated costs (both public 
and private). 

Because  the  proposed  framework  only  enables  the  private-sector  led  development  of  an 
SBBSs  market,  but  does  not  guarantee  it,  the  Impact  Assessment  considered  two  distinct 
scenarios  to  evaluate  impacts,  one  in  which  SBBSs  reach  only  a  limited  volume 
(EUR 100 billion)  and  a  steady-state  one  in  which  they  reach  EUR  1,5  trillion—a  macro-
economically relevant volume (albeit still contained relative to the overall euro area sovereign 
debt market, which amounted to EUR 9 trillion as of the second quarter of 2017).    

A quantitative indication of the significance of the obstacles that would be removed with this 
proposal  can  be  obtained  by  comparing,  e.g.,  the  capital  requirements  banks  would  incur  if 
they  bought  SBBSs  today  versus  those  they  would  incur  for  the  same  purchases  under  the 
proposed bespoke regulatory framework. Of course, such (virtual) savings would depend on 
the assumptions made (including on the risk weights warranted by the sub-senior tranches). In 
the limited-volume  scenario assuming  banks purchase all tranches, and that banks using the 

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standardised  approach  account  for  a  share  of  such  purchase  equal  to  their  current  share  of 
government  bond  purchases,  aggregate  risk-weighted  assets  would  increase  by  some 
EUR 87 billion. For the steady state scenario the equivalent calculation yields an increase in 
aggregate risk-weighted assets to the tune of EUR 1.3 trillion.  

When  it  comes  to  the  impact  on  the  volume  of  euro-denominated  AAA-rated  assets,  the 
calculation  is  based  on  Eurostat  data  on  euro  area  central  government  debt  as  of 
December 2016,6 as well as Standard & Poor's ratings of euro area sovereign governments on 
the  same  date.7  This  calculation  shows  that  AAA-rated  assets  would  increase  by  2% 
(respectively, 30%) in the limited-volume (respectively, steady state) scenario.  

Finally, as regards the impact of SBBSs on the diversification of banks' sovereign portfolios, 
the  analysis  in  the  Impact  Assessment  shows  that  the  impact  would  be  small  in  the  limited 
volume scenario, but significant under the steady state scenario. Under those assumptions, the 
home bias in the sample of euro area banks covered by the transparency exercise conducted 
by the European Banking Authority would be reduced by 42%. 

The Impact Assessment report was submitted to the Regulatory Scrutiny Board on 19 January 
2018. The board meeting took place on 14 February 2018. The Board gave a positive opinion 
and called for changes and additional input in the following areas: (1) to clarify whether this 
initiative aims at providing an enabling framework and market test or an incentive structure 
for SBBSs; (2) to develop further the initiative's potential net public benefit, as well as risks 
or unintended consequences; and (3) to better present the trade-offs between alternative policy 
proposals.  These  issues  have  been  addressed  and  incorporated  in  the  final  version  which 
accompanies this proposal. 

• 

Regulatory fitness and simplification 

This initiative does not aim at simplification or reduction of administrative burden resulting 
from  existing  legislation,  but  instead  provides  for  new  rules  to  enable  the  development  of 
SBBSs instruments in the market.  

The regulatory proposal is not expected to directly affect retail investors, households, SMEs 
or micro-enterprises, because it is unlikely that they would be active in SBBSs markets. At the 
same time, these sectors would benefit indirectly from this regulatory proposal as a result of 
enhanced  resilience  of  the  financial  sector  –  to  the  extent  that  the  expected  macroeconomic 
and financial-stability benefits materialise. 

• 

Fundamental rights 

This proposal complies with the fundamental rights and observes the principles recognised in 
particular by the Charter of Fundamental Rights of the European Union, notably the rights to 
property  and  the  freedom  to  conduct  a  business,  and  has  to  be  applied  in  accordance  with 
those  rights  and  principles.  In  particular,  this  Regulation  ensures  the  protection  of  SBBSs 
investors'  rights  by  ensuring  the  integrity  of  the  issuance  of  SBBSs  and  of  the  underlying 
portfolio of sovereign debt. 

6 
7 

Downloaded from Eurostat website on 21 December 2017 at 10:42. 
Downloaded from S&P website on 21 December 2017. 

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4. 

BUDGETARY IMPLICATIONS 

This  regulatory  proposal  will  have  limited  novel  financial  implications  for  public  budgets, 
since  the  compliance  mechanism  would  be  based  on  self-attestation  by  SBBSs  issuers  and 
supervisors  would  check  compliance  ex-post  in  the  course  of  their  routine  supervisory 
activities. In view of the envisaged new tasks, and taking account of possible synergies with 
its  existing  functions,  some  additional  resources  are  necessary  for  ESMA  (see  legislative 
financial  statement).  Issuers  of  SBBSs  would  incur  the  self-attestation  costs,  which  should 
however be quite small given the simplicity of the financial product (the extent to which these 
are translated to investors would depend on the competitiveness of the market).  

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The  specific  objectives  of  this  initiative—i.e.,    to  eliminate  regulatory  hindrances  and  to 
contribute  to  the  liquidity  of  the  new  SBBS  products,  including  by  granting  them 
"benchmark" regulatory treatment—would indeed be achieved once the proposed legislation 
enters into force. This is the case because only a standardised product would then be eligible 
for the envisaged specific regulatory treatment and the regulatory treatment of SBBSs would 
be equated to that of the underlying sovereign bonds.8 

In terms of the general objective to enable markets for SBBSs, the  impact of the legislation 
will  be  assessed  by  monitoring  the  extent  to  which  these  new  products  will  actually  be 
assembled  and  traded  and  the  extent  to  which  the  emergence  of  SBBSs  contributes  to 
expansion in the amount of low risk assets and reducing banks' "home bias".  The impact of 
SBBSs on the liquidity of national sovereign bond markets will also be assessed.  

When  interpreting  the  results  of  these  analyses,  it  needs  to  be  kept  in  mind  that  the 
development  of  SBBSs  markets  and  the  evolution  of  the  above-mentioned  benchmarks 
depend on several other factors which are independent of, or may be only tenuously linked to, 
the regulatory framework. This is likely to make it difficult to disentangle the effects of the 
proposed legislation from these other factors. In particular, the supply of new products is also 
likely  to  depend  on  the  legal  costs  of  setting  up  the  issuing  vehicle,  the  ease  of  procuring 
bonds of sufficiently uniform terms, the costs of servicing the structure, etc. Similarly, their 
demand  will  depend  on  the  overall  interest  rate  environment,  risk  appetite,  and  the  demand 
from  various  investor  types  for  the  different  tranches.  Market  developments  may  well  be 
non-linear, as the envisaged product will benefit from returns to scale from size and network 
externalities. Thus, for example, if  the product appears to  attract sufficient investor interest, 
debt managers may decide to organise dedicated auctions for the production of SBBSs, with 
standardised  bonds  of  varying  maturities.  This  would  in  turn  reduce  production  costs  and 
could accelerate the growth of the market. 

• 

Detailed explanation of the specific provisions of the proposal 

This  proposal  contains  four  parts.  The  first  part  provides  a  set  of  rules  that  define  the 
constitutive  elements  of  SBBSs.  These  rules  are  necessary  to  ensure  that  as  standardised  a 
product as possible is produced by the markets. This in turn favours its liquidity and appeal to 
investors.  The  second  part  provides  rules  that  define  notification  and  transparency 

8 

Some specific hindrances, e.g. differential eligibility for liquidity coverage requirements between SBBS 
and euro area sovereign bonds, would be addressed in separate pieces of legislation, as they stem from 
delegated acts. 

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requirements for the issuing entity to ensure that self-attestation is performed in a harmonised 
and  credible  way.  The  third  part  contains  rules  regarding  the  supervision  of  SBBSs  and 
possible  sanctions  in  case  of  non-compliance  and/or  fraudulent  behaviour  of  the  issuing 
entity. The fourth part contains a set of amendments to the existing legal framework required 
to grant SBBSs a regulatory treatment in line with their unique design and properties.  

Introductory provisions (Articles 1 to 3) 

The provisions explain the subject matter, scope and the definitions used for the purposes of 
providing a general framework for standardised SBBSs and entities involved in the issuance 
and  the  holding  of  such  instruments.  The  definitions  used  are  consistent  with  those  used  in 
other pieces of Union law. 

Eligibility  and  composition  of  the  underlying  portfolio  and  tranching  of  SBBSs  issues 
(Articles 4 to 6)  

The  underlying  portfolio  of  SBBSs  should  be  composed  of  sovereign  bonds  of  all  EU 
Member States whose currency is the euro. This restriction is to ensure that none of the bonds 
in the underlying portfolio of SBBSs is affected by currency risk. The relative weight of the 
sovereign  bonds  of  each  Member  State  should  be  very  close  to  the  relative  weight  of  the 
respective Member State' participation to the ECB capital key. The ECB capital key is a proxy 
of each Member State's economic size and its stake in the stability of the European financial 
system. Other keys have been considered but have been found to be inferior. For example, a 
key based on each Member State's outstanding sovereign debt could give rise to moral hazard, 
whereby  a  Member  State  may  benefit  more  from  the  product  if  it  increases  its  overall 
outstanding debt.  

Maturities  of  underlying  sovereign  bonds  should  be  closely  aligned  to  the  maturity  of  the 
SBBSs issue.  

An SBBSs issue should be composed of a senior tranche, corresponding to 70 percent of the 
nominal value of SBBSs issue, and one or more subordinated tranches.9 The purpose of the 
subordinated tranches is to provide protection to the senior tranche, which therefore is a low-
risk instrument. The precise split of the subordinated portion of the SBBSs issue construction 
in the various tranches is left at the discretion of the issuer, who will maximize the total price 
including by catering to the specific risk/return demand of various investor types. The senior 
tranche  is  set  at  70 percent  of  the  overall  structure  to  ensure  standardisation  of  this  tranche 
across  different  issues.  To  limit  the  risk  of  the  junior  tranche  (the  tranche  bearing  losses 
before any other tranche), the nominal value of the junior tranche should be at least 2 percent 
of the outstanding nominal value of the entire SBBS issue. The ESRB task force  has shown 
by way of a comprehensive analysis that a 30-percent thick subordinated tranche is sufficient 
to  ensure low  risk  of  default  for the  corresponding  (that  is, 70  percent  thick)  senior  tranche 
including in scenarios of market stress. 

Articles  4  and  6  foresee  specific  circumstances  in  which  the  structure  of  the  SBBSs  issue 
(composition  of  underlying  portfolio  and  size  of  senior  tranche)  can  be  changed  for  future 
issuances and describe the relevant procedures. Sovereign bonds of a particular Member State 
may  be  excluded  from  the  underlying  portfolio  when  and  until  the  issuance  of  sovereign 
bonds  by  a  Member  State  is  significantly  limited  due  to  a  reduced  need  for  public  debt  or 

9 

In the version analysed by the ESRB task force there were two subordinated tranches, a mezzanine and 
a junior tranche, corresponding respectively to 20 and 10 percent of the nominal value of SBBSs issue. 

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impaired  market  access.  Also,  the  tranching  structure  may  be  changed  in  exceptional  cases 
where  adverse  market  developments  that  severely  disrupt  the  functioning  of  sovereign  debt 
markets  in  a  Member  State  or  in  the  Union  require  a  smaller  senior  tranche  to  ensure  its 
continued  high  quality/low  risk.  ESMA  is  tasked  to  monitor  whether  the  conditions  for  a 
change in the composition of the underlying portfolio or in the size of senior tranche exist and 
to  inform  the  Commission  accordingly.  The  Commission  may  decide  that  such  conditions 
exist  or  have  ceased  to  exist  by  adopting  an  implementing  act.  Such  an  implementing  act 
could only enter into force following a vote by Member States representatives in the European 
Securities Committee, in accordance with the examination procedure. SBBSs issued after the 
adoption  of  such  an  implementing  act  shall  reflect  the  changes  in  the  composition  of 
underlying portfolio or the size of senior tranche for which the implementing act was issued. 

Issuance and management of SBBSs (Articles 7 and 8) 

To  ensure  that  investors  are  protected  from  the  risk  of  insolvency  of  the  institution  that 
acquires  the  sovereign  bonds  (original  purchaser,  typically  a  bank),  the  issuance  of  SBBSs 
should  be  undertaken  by  a  Special  Purpose  Entity  (SPE)  that  is  exclusively  devoted  to  the 
issuance  and  management  of  SBBSs  and  that  does  not  undertake  any  other  risky  activities, 
such as provision of credit.  

The SPE should be subject to strict asset segregation requirements to ensure the integrity of 
the SBBSs issue and of the positions held by SBBSs investors. SPEs should ensure that the 
composition of the underlying pool of sovereign bonds is fixed throughout the lifecycle of an 
SBBSs.  To  manage  limited  maturity  mismatches,  SPEs  should  be  allowed  to  invest  the 
proceeds from the underlying portfolio only in cash or in highly liquid financial instruments 
with low market and credit risk.  

Since investors in SBBSs issues’ tranches would have claims only on the underlying portfolio 
of sovereign bonds, but not on the issuer's or original purchaser's balance sheet, the SPE and 
its  underlying  portfolio  should  not  need  to  be  consolidated  in  the  portfolio  of  the  original 
purchaser. 

Use of the designation 'Sovereign Bond-Backed Securities' (Article 9)  

To  ensure  the  standardisation  of  SBBSs,  only  those  products  that  fulfil  the  requirements 
regarding the composition and maturity of the underlying sovereign bonds and the tranching 
should  enjoy  the  same  regulatory  treatment  as  that  of  the  underlying  sovereign  bonds.  A 
system of notification to ESMA is set out to ensure that no abuses are committed. A product 
can thus be qualified as SBBS only if both the substantive and notification requirements have 
been fulfilled. 

SBBSs notification and transparency requirements (Articles 10 to 12)  

The  SPEs  are  responsible  for  compliance  with  the  product  and  notification  requirements. 
ESMA is entrusted with the publication of notifications on its website. This will ensure that 
the SPEs take responsibility for claiming that a product qualifies as an SBBS and that there is 
transparency  in  the  market.  SPEs  shall  be  liable  for  any  loss  or  damage  resulting  from 
incorrect or misleading notifications under the conditions stipulated by national law. Investors 
will have to perform the due diligence required for any investment in financial products but 
may  place  appropriate  reliance  on  the  SBBSs  notification  and  the  information  disclosed  by 
SPEs  concerning  compliance  with  specific  SBBSs  product  requirements.  Transparency 
requirements  imposed  on  SBBSs  and  underlying  sovereign  bonds  should  allow  investors  to 

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understand, assess and compare transactions in SBBSs and not to rely solely on third parties, 
such as credit rating agencies. They should allow investors to act as prudent investors and do 
their due diligence. This proposal ensures that investors will have all the relevant information 
on SBBSs at their disposal. To facilitate the process for investors and SPEs, the information to 
be provided to ESMA will be harmonised and a template will be developed by ESMA for the 
assessment  of  SBBSs.  SPEs  should  make  the  information  freely  available  to  investors,  via 
standardised templates, on a website that meets certain criteria such as control of data quality 
and business continuity. Moreover, before the transferring of SBBSs  investors should receive 
information  regarding  the  allocation  of  proceeds  and  the  procedure  to  be  followed  in 
anticipation  or  following  a  non-payment  of  an  underlying  asset.  To  allow  supervisory 
authorities to be informed and perform their tasks related to the issuance of an SBBSs issue, 
ESMA  should  inform  the  relevant  competent  authorities  of  each  notification  of  SBBSs 
received. 

Supervision and cooperation among authorities (Articles 13 and 14)  

To safeguard financial stability, ensure investors' confidence and promote liquidity, a proper 
and  effective  supervision  of  the  SBBSs  markets  is  important.  To  this  end,  the  proposal 
requires  Member  States  to  designate  competent  authorities  in  accordance  with  existing  EU 
legal  acts  in  the  area  of  financial  services.  Compliance  with  the  requirements  set  out  in  the 
Regulation  should  be  primarily  performed  to  ensure  investors’  protection  and,  where 
applicable, on prudential aspects that may be linked to the issuance or holding of SBBSs by 
regulated entities.  The designated supervisors should have the powers that are granted to it 
under the relevant financial services legislation. 

In  view  of  the  cross-border  nature  of  the  SBBSs  market,  cooperation  between  competent 
authorities  and  the  ESMA  should  be  ensured  through  information  exchange,  cooperation  in 
supervisory activities and investigations and coordination of decision-taking.  

To ensure a consistent interpretation and common understanding of the SBBSs requirements 
by competent authorities, ESMA should facilitate the coordination of the work of competent 
authorities and assess practical issues which may arise with regards to SBBSs.  

Sanctions and remedial measures (Article 15 to 18)  

As  a  deterrent  to  prevent  abusive  behaviour  and  keep  trust  in  the  product,  appropriate 
administrative  sanctions  and  remedial  measures  should  be  provided  for  situations  where  a 
product  that  is  declared  by  an  SPE  to  be  an  SBBS  does  not  fulfil  the  requirements  for  that 
product to be considered an SBBS or other notification or transparency requirements. The fact 
that a product which is declared to be an SBBS is effectively that is of particular importance 
to  ensure investors’ protection. For this reason, Article 15 provides  for a specific procedure 
according to which a competent authority has to decide whether a product which is suspected 
not  to  comply  with  the  requirements  set  out  in  the  Regulation  is  an  SBBS  or  not.  Where 
criminal  sanctions  for  certain  infringements  are  provided  for  under  national  law,  competent 
authorities  should  have  the  powers  to  transmit  to  ESMA  and  other  competent  authorities 
relevant  information  regarding  criminal  investigations  and  proceedings  related  to  the 
infringement. Sanctions inflicted to an SPE should be published. Moreover, an SBBS that is 
found not fulfilling the requirements laid down in the proposed Regulation should be removed 
without undue delay from the list of SBBSs compiled by ESMA. 

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Macroprudential monitoring (Article 19)  

According  to  the  analysis  performed  ahead  of  the  issuance  of  this  proposal  it  appears  that 
SBBSs will not have impact on the liquidity of other financial products on the market or have 
an  impact  on  financial  stability.  However,  since  SBBSs  are  a  new  product  it  is  appropriate 
that the ESRB, within its mandate, monitor the development of the market.  

Notifications (Article 20) 

Member  States  shall  notify  the  Commission  and  ESMA  about  the  laws,  regulations  and 
administrative  provisions  related  to  the  implementation  of  supervisory  and  sanctioning 
obligations provided for in the Regulation.   

Amendments to other legal acts (Articles 21 to 24)  

Articles  21  to  24  amend  some  articles  of  other  legal  acts,  in  particular  the  undertakings  for 
collective  investment  in  transferable  securities  (UCITS)  Directive,  the  Capital  Requirement 
Regulation (CRR), the institutions for occupational retirement provision (IORP II) Directive 
and  the  Insurance  (Solvency  II)  Directive.  These  modifications  are  needed  to  ensure  that 
investments in SBBSs receive in all financial sectors regulated at European level a regulatory 
treatment  equivalent  to  the  one  given  to  their  underlying  assets,  i.e.  euro  area  sovereign 
bonds. 

In  particular,  UCITS  need  to  respect  diversification  rules,  which  may  prevent  them  from 
holding  certain  volumes  of  SBBSs.  The  aim  of  amending  the  UCITS  Directive  is  to  ensure 
that  when  Member  States  authorise  UCITS  to  invest  up  to  100%  in  transferrable  securities 
issued or guaranteed by a public body, this exception is also granted to SBBSs. To this end a 
new Article 54a is inserted in the Directive. 

For  insurance  companies,  SBBSs  would  be  treated  as  securitisation.  Under  the  Solvency II 
standard formula, any securitisation is subject to capital requirements related to spread risk in 
the calculation of the basic solvency capital requirement. SBBSs would therefore be subject to 
capital requirements for spread risk, putting them at a disadvantage relative to direct holdings 
of Member States' central government bonds denominated and funded in domestic currency. 
Article  104  of  the  Solvency  II  Directive  is  thus  amended  by  adding  a  new  paragraph,  to 
ensure that for the purposes of the calculation of capital requirements, SBBSs are treated as 
Member  States'  central  government  and  central  banks  denominated  and  funded  in  their 
domestic currency.  

Similarly, the Capital Requirement Regulation is amended to ensure that capital requirements 
and  exposure  limits  for  institutions  holding  SBBSs  are  the  same  as  holding  Member  States' 
sovereign  bonds  directly.  This  goal  is  achieved,  through  the  addition  of  a  paragraph  to 
Article 268  (as  modified  by  Regulation  (EU)  2017/2401),  by  extending  to  all  tranches  of 
SBBSs issues the look-through approach granted to the exposure to securitisation positions in 
the calculation of capital requirements. This ensures that exposures to all tranches of SBBSs 
issues  get  the  same  prudential  treatment  as  the  underlying  assets.  In  addition,  by  amending 
Article 304,  the  same  treatment  as  granted  to  sovereign  bonds  in  market  risk  capital 
requirements  is  granted  to  SBBSs.  Finally,  Article  390  is  also  amended  to  ensure  that  for 
exposure limits the look though approach used for securitisation is applied also to exposures 
to SBBSs. 

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For occupational pension funds, the IORP II Directive sets out spread risk limits that Member 
States  may  choose  not  to  apply  to  investments  in  government  bonds.  Moreover,  Member 
States may impose quantitative restrictions for securitisations. To ensure the same treatment 
for SBBSs, a new Article 18a is added in IORP II Directive. 

The Commission will adopt the necessary changes to the delegated acts linked to the above 
mentioned pieces of legislation where necessary.  

is 

for 

the  case 

in  particular 

This 
the  Liquidity  Coverage  Ratio  Regulation 
(Commission Delegated Regulation (EU) No 2015/6110), for which the change should ensure 
that SBBSs are qualified as Level 1 assets that represent claims on the central government of 
a  Member  State  or  that  are  guaranteed  by  a  central  government  of  a  Member  State,  and 
insurance  prudential  requirements  (Commission  Delegated  Regulation  (EU)  2015/3511)  to 
ensure that rules applicable to exposures of insurance companies to euro area sovereign bonds 
are also applicable to exposures to SBBSs.  

Until the (relevant provisions in the) delegated acts based on these Directives and Regulations 
are amended, they will remain applicable as such. 

The  Commission  will  also  adopt  the  necessary  changes  to  the  prospectus  schedules  and 
building  blocks  (Commission  Delegated  Regulation  (EU)  2017/112912)  to  ensure  that 
appropriate disclosure for this new type of financial instrument, tailored to the characteristics 
of the product, are set out. This should be done in a proportionate manner, taking into account 
the  comparably  simple  nature  of  the  product  and  with  the  aim  of  avoiding  unnecessary 
administrative burden.  

10 

11 

12 

Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) 
No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement 
for credit institutions (OJ L 11 17.1.2015, p.1). 
Commission  Delegated  Regulation  (EU)  2015/35  of  10  October  2014  supplementing  Directive 
2009/138/EC  of  the  European  Parliament  and  of  the  Council  on  the  taking-up  and  pursuit  of  the 
business of Insurance and Reinsurance (Solvency II) (OJ L 12, 17.1.2015, p. 1). 
Regulation  (EU)  2017/1129  of  the  European  Parliament  and  of  the  Council  of  14  June  2017  on  the 
prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  on  a 
regulated market, and repealing Directive 2003/71/EC (OJ L 168, 30.6.2017, p. 12). 

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2018/0171 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on sovereign bond-backed securities 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

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 Bank13, 
Having regard to the opinion of the European Economic and Social Committee14, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

Sovereign  Bond-Backed  Securities  (‘SBBSs’)  can  address  some  vulnerabilities  that 
have  been  exposed  by  or  have  resulted  from  the  2007-2008  financial  crisis.  More 
specifically,  SBBSs  can  help  banks  and  other  financial  institutions  better  diversify 
their sovereign exposures, further weaken the bank-sovereign nexus and enhance the 
supply  of  low-risk  euro  denominated  assets.  SBBSs  could  in  addition  render  bonds 
issued  in  small  and  less  liquid  national  markets  more  attractive  for  international 
investors, which can foster private sector risk sharing and risk reduction and promote a 
more efficient allocation of risks among financial operators. 

Under  the  existing  legal  framework,  SBBSs  would  be  treated  as  securitisations  and 
thus  be  subject  to  additional  charges  and  discounts  relative  to  the  charges  and 
discounts  faced  by  the  euro  area  sovereign  bonds  in  the  underlying  portfolio.  Those 
additional charges and discounts would hinder the production and use of SBBSs by the 
private  sector,  despite  the  fact  that  SBBSs  do  not  carry  the  risks  associated  with 
securitisations  that  justify  such  charges  and  discounts.  SBBS  should  therefore  be 
subject to a regulatory framework that better takes into account the unique features and 
properties of SBBSs to enable that product to emerge on the market. To that end, the 
removal of regulatory obstacles is neecessary. 

Enabling  a  market-led  development  of  SBBSs  is  part  of  the  Commission's  efforts  to 
reduce  risks  to  financial  stability  and  advance  towards  completion  of  the  Banking 
Union.  SBBSs  could  support  further  portfolio  diversification  in  the  banking  sector, 
while creating a new source of high-quality collateral, which is particularly suited for 
use  in  cross-border  financial  transactions.  Furthermore,  enabling  SBBSs  could  also 

13 
14 

OJ C , , p. . 
OJ C , , p. .  

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

increase  the  number  of  instruments  available  for  cross-border  investment  and  risk 
sharing,  which  feeds  into  the  Commission's  efforts  to  deepen  and  integrate  further 
Europe's capital markets in the context of the Capital Markets Union. 

SBBSs  do  not  involve  any  mutualisation  of  risks  and  losses  among  Member  States 
because Member States will not mutually guarantee their respective liabilities within 
the  portfolio  of  sovereign  bonds  underlying  the  SBBSs.  Enabling  the  emergence  of 
SBBSs neither involves any changes to the current regulatory treatment of sovereign 
exposures. 

To achieve the objectives of geographic risk diversification within the Banking Union 
and  the  internal  market,  the  underlying  portfolio  of  SBBSs  should  be  composed  of 
sovereign bonds of Member States whose currency is the euro. To avoid currency risks 
only  euro-denominated sovereign bonds  issued by Member States  whose  currency is 
the euro should be allowed for inclusion in the SBBSs underlying portfolio. To ensure 
that sovereign bonds of each euro-area Member State contribute to the production of 
SBBSs in line with each Member State's stake in the stability of the overall euro area, 
the relative weight of the national sovereign bonds in the SBBSs’ underlying portfolio 
should be very close to the relative weight of the respective Member States in the key 
for  subscription  by  the  national  central  banks  of  Member  States  of  the  European 
Central Bank's capital. 

To provide for a high quality low-risk asset and at the same time cater for investors' 
different levels of risk appetite, an SBBS issue should be composed of both a senior 
tranche and one or more subordinated tranches. The senior tranche, corresponding to 
seventy percent of the nominal value of an SBBS issue, should keep the SBBS issue 
expected loss rate in line with that of the safest euro area sovereign bonds, taking into 
account  the  risk  and  correlation  of  the  sovereign  bonds  in  the  SBBSs  underlying 
portfolio of sovereign bonds. The subordinated tranches should provide for protection 
to the senior tranche. The seniority of the tranches should determine the order in which 
losses on the underlying portfolio of sovereign bonds should be borne by investors. To 
limit  the  risk  of  the  junior  tranche  (the  tranche  bearing  losses  before  any  other 
tranche), the nominal value of the junior tranche should however be at least 2 percent 
of the outstanding nominal value of the entire SBBSs issue. 

To  ensure  the  integrity  of  an  SBBS  issue  and  limit  as  much  as  possible  the  risks 
related to the holding and management of the underlying portfolio of sovereign bonds, 
maturities of underlying sovereign bonds should be closely aligned with the maturity 
of  the  SBBSs  and  the  composition  of  the  underlying  portfolio  of  sovereign  bonds 
should be fixed for the entire lifecycle of the SBBSs. 

The  standardised  composition  of  the  underlying  portfolio  of  an  SBBSs  may  render 
difficult  or  impede  the  issuance  of  an  SBBS  issue  when  sovereign  bonds  of  one  or 
more  Member  States  are  not  available  on  the  market.  For  that  reason,  it  should  be 
possible  to  exclude  sovereign  bonds  of  a  particular  Member  State  from  future 
issuances  of  SBBSs  where  and  as  long  as  the  issuance  of  sovereign  bonds  by  that 
Member  State  is  significantly  limited  due  to  a  reduced  need  for  public  debt  or 
impaired market access.  

To ensure that SBBSs are sufficiently homogeneous, the exclusion and re-integration 
of  sovereign  bonds  of  a  particular  Member  State  from  the  underlying  portfolio  of 
sovereign  bonds  should  be  allowed  only  following  a  decision  of  the  Commission, 
ensuring that all SBBSs issued at the same time have the same underlying portfolio of 
sovereign bonds. 

EN 

16 

  EN 

 
(10)  The  fixed  size  of  the  senior  tranche  of  each  SBBS  issue  may  be  reduced  for  future 
SBBSs issuances where, due to adverse market developments that severely disrupt the 
functioning  of  sovereign  debt  markets  in  a  Member  State  or  in  the  Union,  a  smaller 
size  is  required  to  ensure  continued  high  credit  quality  and  low  risk  for  the  senior 
tranche. When such adverse market developments end, the size of the senior tranche 
for  future  SBBSs  issuances  should  be  brought  back  to  its  initial  value  of 
seventy percent.  To  ensure  that  SBBSs  are  standardised,  the  variation  of  the  senior 
tranche should be allowed only following a decision of the Commission, ensuring that 
all senior tranches of SBBSs issues issued at the same time have the same size. 

(11) 

Investors  should  be  protected  from  the  risk  of  insolvency  of  the  institution  that 
acquires the sovereign bonds ('original purchaser') for the purposes of assembling the 
SBBSs  underlying  portfolio.  For  that  reason,  only  special  purpose  entities  (‘SPEs’) 
that are exclusively devoted to the issuance and management of SBBSs and that do not 
undertake  any  other  activities,  such  as  providing  credit,  should  be  allowed  to  issue 
SBBSs.  For  the  same  reason,  SPEs  should  be  subject  to  strict  asset  segregation 
requirements. 

(12)  To  manage  limited  maturity  mismatches  in  the  time  period  between  receipt  of 
proceeds  of  debt  service  on  the  underlying  portfolio  and  pay  out  dates  to  SBBSs 
investors, SPEs should be allowed to invest the proceeds from the debt service on the 
underlying portfolio of sovereign bonds of the SBBSs  only in cash and highly liquid 
financial instruments with low market and credit risk. 

(13)  Only products that fulfil the requirements regarding the composition and maturity of 
the underlying portfolio as well as the size of the senior and the subordinated tranches 
as  provided for in  this Regulation should  enjoy the same regulatory  treatment as  the 
regulatory treatment granted to sovereign exposures in terms of capital requirements, 
concentration limits, and liquidity.  

(14)  A system of self-attestation by SPEs should ensure that an SBBS issue complies with 
the  requirements  of  this  Regulation.  ESMA  should  therefore  keep  a  list  of  SBBSs 
issued,  enabling  investors  to  verify  whether  a  product  that  is  offered  for  sale  as  an 
SBBS  is  indeed  an  SBBS.  For  the  same  reason,  ESMA  should  indicate  in  that  list 
whether any sanction in relation to a SBBS has been imposed and remove from that 
list those products that are found to be in violation of this Regulation. 

(15) 

Investors should be able to rely on the notification of SBBSs by SPEs to ESMA and 
on the information provided by SPEs. Information on SBBSs and the sovereign bonds 
in the SBBSs underlying portfolio should empower investors to understand, assess and 
compare  SBBSs  transactions  and  not  to  rely  solely  on  third  parties,  including  credit 
rating agencies. That possibility should enable investors to act prudently and to carry 
out  their  due  diligence  efficiently.  Information  on  SBBSs  should  therefore  be  freely 
available to investors, via standardised templates, on a website that ensures continuous 
accessibility. 

(16)  To  prevent  abusive  behaviour  and  to  ensure  that  trust  in  SBBSs  is  maintained, 
appropriate administrative sanctions and remedial measures should be provided for by 
Member  States  for  cases  of  negligent  or  intentional  infringements  of  notification  or 
product requirements for SBBSs.  

(17) 

Investors  in  different  financial  sectors  should  be  able  to  invest  in  SBBSs  under  the 
same conditions as they invest in the underlying euro area sovereign bonds. Directive 

EN 

17 

  EN 

 
2009/65/EC  of  the  European  Parliament  and  of  the  Council15,  Regulation  (EU) 
No 575/2013 of the European Parliament and of the Council16, Directive 2009/138/EC 
of the European Parliament and of the Council17 and Directive (EU) 2016/2341 of the 
European Parliament and of the Council18 should therefore be amended to ensure that 
SBBS are granted the same regulatory treatment as their underlying assets across the 
various regulated financial sectors.  

(18)  To safeguard financial stability, ensure investors' confidence and promote liquidity, a 
proper  and  effective  supervision  of  SBBSs  markets  is  important.  To  that  end, 
competent  authorities  should  be  informed  about  the  issuance  of  SBBSs  and  should 
receive  from  SPEs  all  the  relevant  information  needed  to  perform  their  supervisory 
tasks. Supervision of compliance with this Regulation should primarily be performed 
to ensure investors’ protection and, where applicable, on aspects that may be linked to 
the issuance and holding of SBBSs by regulated financial entities. 

(19)  Competent authorities should closely coordinate their supervision and ensure that their 
decisions  are  consistent.  Where  an  infringement  of  this  Regulation  concerns  the 
fulfilment  of  the  obligations  required  for  a  product  to  be  qualified  as  an  SBBS,  the 
competent authority identifying that infringement should inform ESMA, as well as the 
competent  authorities  of  the  other  Member  States  concerned.  In  the  event  of 
disagreement  between  the  competent  authorities,  ESMA  should  exercise  its  binding 
mediation powers in accordance with Article 19 of Regulation (EU) No 1095/2010 of 
the European Parliament and of the Council19. 

(20)  Given that SBBSs are new products, it is appropriate that the European Systemic Risk 
the  national  competent  and  designated  authorities  for 

Board  (ESRB)  and 
macroprudential instruments oversee the SBBSs market. 

(21)  As  a  body  with  highly  specialised  expertise  regarding  securities  markets,  it  is 
appropriate  to  entrust  ESMA  with  the  development  of  draft  regulatory  technical 
standards  concerning  the  types  of  investment  that  the  SPE  may  conduct  with  the 
proceeds  from  the  payments  of  principal  or  interest  of  the  SBBSs’  underlying 
portfolio, the information to be provided by the SPE for the notification to ESMA of 
an  issuance  of  SBBSs  issues,  the  information  to  be  provided  before  transfering  a  an 
SBBS  and  the  cooperation  and  information  exchange  obligations  among  competent 
authorities.  The  Commission  should  be  empowered  to  adopt  those  standards  in 
accordance with Article 290 of the Treaty on the Functioning of the European Union 
(‘TFEU’) and with Articles 10 to 14 of Regulation (EU) No 1095/2010. 

15 

16 

17 

18 

19 

Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13 July  2009  on  the 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for  collective 
investments in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). 
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 (CRR) (OJ L 176, 27.6.2013, p.1).  
Directive  2009/138/EC  of  the  European  Parliament  and  of  the  Council  of  25  November  2009  on  the 
taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335 17.12.2009, 
p. 1). 
Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the 
activities  and  supervision  of  institutions  for  occupational  retirement  provision  (IORPs)  (OJ  L  354, 
23.12.2016, p.37). 
Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 
establishing a European Supervisory Authority (European Securities and Markets Authority), amending 
Decision  No 716/2009/EC  and  repealing  Commission  Decision  2009/77/EC  (OJ  L331,  15.12.2010, 
p. 84). 

EN 

18 

  EN 

 
                                                 
(22)  The  Commission  should  also  be  empowered  to  adopt  implementing  technical 
standards  by  means  of  implementing  acts  pursuant  to  Article  291  TFEU  and  in 
accordance  with  Article  15  of  Regulation  (EU)  No  1095/2010  with  regard  to 
notification requirements of SPEs prior to the issuance of an SBBS issue. 

(23) 

In  order  to  ensure  uniform  conditions  for  the  implementation  of  this  Regulation, 
implementing  powers  should  be  conferred  on  the  Commission  to  decide  whether 
sovereign  bonds  of  a  Member  State  should  be  removed  from  or  included  in  the 
SBBSs’  underlying  portfolio and whether the size of the senior tranche of the future 
SBBSs  issues  to  be  issued  should  be  changed.  Those  powers  should  be  exercised  in 
accordance with Regulation (EU) No 182/2011 of the European Parliament and of the 
Council20. 

(24)  Since the objective of this Regulation, namely laying down a framework for SBBSs, 
cannot be sufficiently achieved by the Member States, given that the emergence of a 
SBBSs market depends on the removal of obstacles resulting from the application of 
Union  legislation  and  that  a  level  playing  field  in  the  internal  market  for  all 
institutional  investors  and  entities  involved  in  the  operation  of  SBBSs,  can  only  be 
achieved  at  Union  level,  the  Union  may  adopt  measures,  in  accordance  with  the 
principle  of  subsidiarity  as  set  out  in  Article 5  of  the  Treaty  on  European  Union.  In 
accordance  with  the  principle  of  proportionality,  as  set  out  in  that  Article,  this 
Regulation does not go beyond what is necessary in order to achieve that objective, 

HAVE ADOPTED THIS REGULATION: 

Chapter 1 

Subject matter, scope and definitions 

Article 1 

Subject matter 

This  Regulation  lays  down  a  general  framework  for  sovereign  bond-backed  securities 
(‘SBBSs’). 

Article 2 

Scope 

This  Regulation  applies  to  original  purchasers,  special  purpose  entities,  investors  and  any 
other entity involved in the issuance or holding of SBBSs. 

20 

Regulation  (EU)  No  182/2011  of  the  European  Parliament  and  of  the  Council  of  16  February  2011 
laying down the rules and general principles concerning mechanisms for control by Member States of 
the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). 

EN 

19 

  EN 

 
 
                                                 
Article 3 

Definitions 

For the purposes of this Regulation, the following definitions shall apply: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

‘competent  authority’  means  a  public  authority  or  a  body  officially  recognised  by 
national law that is empowered by national or Union law to perform the tasks set out in 
this Regulation; 

‘sovereign  bond’  means  any  debt  instrument  issued  by  the  central  government  of  a 
Member State that is denominated and funded in the domestic currency of that Member 
State and has an original maturity of one year or more;  

‘sovereign bond-backed security’ or ‘SBBS’ means a financial instrument denominated 
in  euro  whose  credit  risk  is  associated  with  the  exposures  to  a  portfolio  of  sovereign 
bonds and that complies with this Regulation; 

‘special  purpose  entity’  or  ‘SPE’  means  a  legal  person,  other  than  the  original 
purchaser, that issues SBBSs and carries out the activities in relation to the underlying 
portfolio of sovereign bonds in accordance with Articles 7 and 8 of this Regulation; 

‘original  purchaser’  means  a  legal  person  that  purchases  sovereign  bonds  on  its  own 
account and subsequently transfers those sovereign bonds to an SPE for the purpose of 
issuing SBBSs; 

‘investor’ means a natural or legal person that holds an SBBS; 

‘tranche’  means  a  contractually  established  segment  of  the  credit  risk  associated  with 
the SBBSs' underlying portfolio of sovereign bonds and that bears a risk of greater or 
smaller credit loss than a position of the same amount in another segment of that credit 
risk; 

‘senior tranche’ means the tranche within an SBBSs issue that bears losses after all the 
subordinated tranches of that SBBS issue have done so; 

‘subordinated tranche’ means any tranche within an SBBSs issue bearing losses before 
the senior tranche;  

(10)  ‘junior  tranche’  means  the  tranche  within  an  SBBSs  issue  bearing  losses  before  any 

other tranche.. 

Chapter 2 

Composition, maturity and structure of SBBSs 

Article 4 

1. 

The underlying portfolio of an SBBS issue shall only consist of the following: 

Composition of the underlying portfolio 

(a) 

(b) 

sovereign bonds of Member States whose currency is the euro; 

the proceeds from the redemption of those sovereign bonds. 

2. 

The weight of sovereign bonds of every Member State within an SBBSs' underlying 
portfolio (‘baseline weight’) shall be equal to the relative weight of the contribution 

EN 

20 

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to  the  European  Central  Bank  (ECB)  by  that Member  State  in  accordance  with  the 
key for subscription, by the national central banks of Members States, of the ECB's 
paid-in  capital  as  laid  down  in  Article 29  of  the  Protocol  on  the  Statute  of  the 
European System of Central Banks and of the European Central Bank annexed to the 
Treaty  on  European  Union  and  to  the  Treaty  on  the  Functioning  of  the  European 
Union. 

SPEs  may  however  deviate  from  the  nominal  value  of  sovereign  bonds  of  each 
Member State, as given by the application of the baseline weight, by maximum five 
percent. 

3. 

Sovereign bonds of a Member State shall be excluded from the SBBSs’ underlying 
portfolio  where  the  Commission  has  adopted  an  implementing  act  establishing  that 
any of the following situations exist: 

(a)  over the previous twelve months (‘period of reference’), the Member State has 
issued  less  than  half  of  the  amount  of  sovereign  bonds  resulting  from  its 
relative  weight  determined  in  accordance  with  paragraph  1,  multiplied  by  the 
aggregate amount of SBBSs issued in the twelve months prior to the period of 
reference;  

(b)  over the previous twelve months, the Member State has financed at least half of 
its annual funding requirements through official financial assistance in support 
of the implementation of a macroeconomic adjustment programme as specified 
in Article 7 of Regulation (EU) No 472/2013 of the European Parliament and 
of the Council21. 

Where  the first subparagraph applies, SPEs  shall  determine the baseline weights of 
sovereign bonds of the remaining Member States by excluding the sovereign bonds 
of  the  Member  referred  to  in  the  first  subparagraph  and  applying  the  calculation 
method of paragraph 1.  

ESMA shall monitor and assess whether the situation referred to in points (a) or (b) 
of paragraph 3 exist or has ceased to exist and inform the Commission thereof. 

The  Commission  may  adopt  an  implementing  act  establishing  that  the  situation 
referred  to  in  points  (a)  or  (b)  of  paragraph 3  exist  or  has  ceased  to  exist.  That 
implementing  act  shall  be  adopted  in  accordance  with  the  examination  procedure 
referred to in Article 26(2). 

Article 5 

Maturity of the underlying assets 

SBBSs tranches that are part of the same issue shall have a single original maturity 
date. That maturity date shall be equal to or up to one day longer than the remaining 
maturity  of  the  sovereign  bond  with  the  longest  remaining  maturity  within  the 
underlying portfolio. 

Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the 
strengthening of economic and budgetary surveillance of Member States in the euro area experiencing 
or threatened with serious difficulties with respect to their financial stability (OJ L 140, 27.5.2013, p. 
1). 

4. 

5. 

1. 

21 

EN 

21 

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2. 

1. 

2. 

3. 

4. 

5. 

6. 

The  remaining  maturity  of  any  sovereign  bond  in  an  SBBSs'  underlying  portfolio 
shall  not  be  shorter  than  six  months  than  the  remaining  maturity  of  the  sovereign 
bond with the longest remaining maturity in that portfolio. 

Article 6 

Structure of the tranches, payment and losses 

An  SBBSs  issue  shall  be  composed  of  one  senior  tranche  and  one  or  more 
subordinated tranches. The outstanding nominal value of the senior tranche shall be 
seventy  percent  of  the  outstanding  nominal  value  of  the  entire  SBBSs  issue.  The 
number  and  the  outstanding  nominal  values  of  the  subordinated  tranches  shall  be 
determined by the SPE, subject to the limitation that the nominal value of the junior 
tranche  shall  be  at  least  two  percent  of  the  outstanding  nominal  value  of  the  entire 
SBBSs issue. 

Where  adverse  developments  severely  disrupt  the  functioning  of  sovereign  debt 
markets  in  a  Member  State  or  in  the  Union,  and  where  that  disruption  has  been 
confirmed by the Commission in accordance with paragraph 4, SPEs shall lower the 
outstanding nominal value of the senior tranche to sixty percent for any SBBSs issue 
issued after that confirmation. 

Where  the  Commission,  in  accordance  with  paragraph 4,  has  confirmed  that  that 
disruption has ceased to exist, paragraph 1 will apply to all SBBSs issues issued after 
that confirmation. 

ESMA  shall  monitor  and  assess  whether  the  situation  referred  to  in  paragraph  2 
exists or has ceased to exist and inform the Commission thereof. 

The  Commission  may  adopt  an  implementing  act  establishing  that  the  disruption 
referred to in paragraph 2 exists or has ceased to exist. That implementing act shall 
be adopted in accordance with the examination procedure referred to in Article 26(2). 

Payments  under  an  SBBS  shall  be  dependent  upon  the  payments  of  the  underlying 
portfolio of sovereign bonds.  

The  distribution  of  losses  and  the  order  of  payments  shall  be  determined  by  the 
tranche of the SBBSs issue and shall be fixed for the entire life cycle of the SBBSs 
issue. 

Losses shall be recognised and assigned as they materialise. 

Article 7 

Issuance of SBBSs and obligations of SPEs 

1. 

SPEs shall comply with all of the following requirements: 

(a) 

(b) 

they are established in the Union; 

their activities are limited to issuing and servicing SBBSs issues and managing 
the underlying portfolio of those SBBSs issues in accordance with Articles 4, 
5, 6 and 8; 

(c)  SPEs are solely responsible for the provision of services and activities referred 

to in point (b). 

EN 

22 

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2. 

SPEs shall have full ownership of the underlying portfolio of an SBBSs issue. 

The  underlying  portfolio  of  an  SBBSs  issue  shall  constitute  a  security  financial 
collateral  arrangement  as  defined  in  Article 2(c)  of  Directive  2002/47/EC  of  the 
European  Parliament  and  of  the  Council22  securing  the  financial  obligations  of  the 
SPE towards investors in that SBBSs issue.  

Holding an SBBS of a specific SBBS issue shall not provide for any rights or claims 
on  the  assets  of  that  SPE  issuing  the  SBBSs  issue  that  go  beyond  the  underlying 
portfolio of that isse and the income generated from holding that SBBS. 

Any  reduction  in  the  value  or  proceeds  of  the  underlying  portfolio  of  sovereign 
bonds shall not give rise to a liability claim from investors. 

3. 

An SPE shall keep records and accounts so that it:  

(a) 

(b) 

(c) 

segregates its own assets and financial resources from those of the underlying 
portfolio of the SBBSs issue and the related proceeds; 

segregates the underlying portfolios and proceeds of different SBBSs issues; 

segregates the positions held by different investors or intermediaries; 

(d)  verifies that at any point in time the number of SBBSs of one issue is equal to 
the sum of the SBBSs held by all investors or intermediaries in that issue;  

(e)  verifies that the outstanding nominal value of the SBBSs of one issue is equal 
to the outstanding nominal value of the underlying portfolio of sovereign bonds 
of that issue. 

SPEs  shall  hold  the  sovereign  bonds  referred  to  in  Article 4(1)(a)  in  custody,  as 
permitted  under  point  (1)  of  Section  B  of  Annex  I  to  Directive  2014/65/EU  of  the 
European Parliament and of the Council23 and point (2) of Section A of the Annex to 
Regulation (EU) No 909/2014 of the European Parliament and of the Council24 only 
at  central  banks,  central  securities  depositories,  authorised  credit  institutions  or 
authorised investment firms. 

Article 8 

Investment policy 

An  SPE  shall  invest  payments  of  principal  or  interest  from  the  sovereign  bonds 
referred  to  in  Article 4(1)(a)  that  are  due  prior  to  payments  of  principal  or  interest 
under the SBBS only in cash, or in highly liquid financial instruments denominated 
in  euro  with  low  market  and  credit  risk.  Those  investments  shall  be  eligible  for 
liquidation within one day with minimal adverse price effect. 

Directive  2002/47/EC  of  the  European  Parliament  and  of  the  Council  of  6  June  2002  on  financial 
collateral arrangements (OJ L 168, 27.6.2002, p. 43). 
Directive 2014/65/EU  of  the European Parliament  and of  the  Council of 15  May 2014 on  markets  in 
financial  instruments  and  amending  Directive  2002/92/EC  and  Directive  2011/61/EU  (OJ  L  173, 
12.6.2014, p. 349). 
Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the  Council  of  23  July  2014  on 
improving  securities  settlement  in  the  European  Union  and  on  central  securities  depositories  and 
amending  Directives  98/26/EC  and  2014/65/EU  and  Regulation  (EU)  No  236/2012  (OJ  L  257, 
28.8.2014, p.1). 

4. 

1. 

22 

23 

24 

EN 

23 

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2. 

3. 

An SPE shall hold in custody, as permitted under point (1) of Section B of Annex I 
to 
to  Directive  2014/65/EU  and  point  (2)  of  Section  A  of 
Regulation (EU) No 909/2014,  the  payments  referred  to  in  the  first  subparagraph 
only at central banks, central securities depositories, authorised credit institutions or 
authorised investment firms. 

the  Annex 

An SPE shall not change the underlying portfolio of an SBBS until the maturity of 
that SBBS. 

ESMA  shall  develop  draft  regulatory  technical  standards  further  specifying  the 
financial instruments that can be considered to be highly liquid with minimal market 
and  credit  risk  as  referred  to  in  paragraph  1.  ESMA  shall  submit  those  draft 
regulatory technical standards to the Commission by [6 months from the date of entry 
into force of this Regulation].  

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred to  in the first  subparagraph in  accordance  with  the procedure laid down in 
Articles 10 to 14 of Regulation (EU) No 1095/2010. 

Chapter 3 

Use of the designation SBBS and notification, transparency and 
information requirements  

Article 9 

Use of the designation 'Sovereign Bond-Backed Securities' 

The designation ‘Sovereign Bond-Backed Security’ or ‘SBBS’ shall only be used for financial 
products that comply with both of the following conditions: 

(a) 

the financial product complies on an ongoing basis with Articles 4, 5 and 6; 

(b)  ESMA has been notified of that financial product in accordance with Article 10(1) and 

the financial product has been included in the list referred to in Article 10(2). 

Article 10 

SBBS notification requirements 

1. 

2. 

3. 

An SPE shall notify ESMA at least one week before issuance of an SBBSs issue by 
means of the template referred to in paragraph 5 of this Article that an SBBSs issue 
meets  the  requirements  of  Articles  4,  5  and  6.  ESMA  shall  inform  the  SPE's 
competent authority thereof without undue delay.  

ESMA shall maintain on its official website a list of all SBBSs issues that have been 
notified by SPEs. ESMA shall update that list instantly and remove any SBBSs issue 
that is no longer considered to be an SBBSs issue following a decision of competent 
authorities in accordance with Article 15. 

A  competent  authority  that  has  imposed  remedial  measures  or  administrative 
sanctions as referred to in Article 15 shall immediately notify ESMA thereof. ESMA 
shall immediately indicate on the list referred to in paragraph 2 of this Article that a 

EN 

24 

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competent  authority  has  imposed  administrative  sanctions  for  which  there  is  no 
longer a right of appeal, in relation to the SBBS concerned. 

4. 

ESMA shall develop draft regulatory technical standards specifying the information 
referred to in paragraph 1. 

ESMA shall submit those draft regulatory technical standards to the Commission by 
[6 months from the date of entry into force of this Regulation]. 

Power  is  conferred  on  the  Commission  to  adopt  the  regulatory  technical  standards 
to  14  of 
in 
referred 
Regulation (EU) No 1095/2010. 

in  accordance  with  Articles  10 

this  paragraph 

to 

5. 

ESMA  shall  develop  draft  implementing  technical  standards  to  establish  the 
templates to be used for the provision of the information referred to in paragraph 1. 

ESMA shall submit those draft implementing technical standards to the Commission 
by [6 months from the date of entry into force of this Regulation]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred 
accordance  with  Article  15  of 
in 
in 
Regulation (EU) No 1095/2010. 

this  paragraph 

to 

Article 11 

Transparency requirements  

1. 

An SPE shall, without undue delay, provide investors and competent authorities with 
the following information: 

(a) 

(b) 

information on the underlying portfolio that is essential for assessing whether 
the financial product complies with Articles 4, 5 and 6; 

a detailed description of the priority of payments of the tranches of the SBBSs 
issue; 

(c)  where  no  prospectus  has  been  drawn  up  in  the  cases  set  out  in  Articles  1(4), 
1(5) or 3(2) of Regulation (EU) No 2017/1129 of the European Parliament and 
of  the  Council25,  an  overview  of  the  main  features  of  the  SBBS,  including, 
where applicable, details regarding the exposure characteristics, the cash flows 
and loss waterfall; 

(d) 

the notification referred to in Article 10(1). 

The information referred to in point (a) of this paragraph shall be made available at 
the latest one month after the due date for the payment of interest of the SBBS. 

2. 

An SPE shall make the information referred to in paragraph 1 available on a website 
that: 

(a)  has a well-functioning data quality control system; 

(b) 

is subject to appropriate governance standards and is maintained and operated 
in  accordance  with  an organisational structure that  ensures the continuity and 
orderly functioning of the website; 

25 

Regulation  (EU)  2017/1129  of  the  European  Parliament  and  of  the  Council  of  14  June  2017  on  the 
prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  on  a 
regulated market, and repealing Directive 2003/71/EC (OJ L 168, 30.6.2017, p.12). 

EN 

25 

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(c) 

(d) 

is subject to systems, controls and procedures that identify all relevant sources 
of operational risk; 

includes  systems  that  ensure  the  protection  and  integrity  of  the  information 
received and the prompt recording of that information; 

(e)  makes it possible to keep records of the information for at least five years after 

the maturity date of every SBBSs issue. 

Information  referred  to  in  paragraph 1  and  the  location  where  the  information  is 
made  available  shall  be  indicated  by  the  SPE  in  the  documentation  regarding  the 
SBBSs provided to investors. 

Article 12 

Information requirements 

1. 

Before  transferring  an  SBBS,  the  transferor  shall  provide  to  the  transferee  all  the 
following information: 

(a) 

the procedure to  allocate proceeds from the underlying  portfolio of sovereign 
bonds  to  the  different  tranches  of  the  SBBSs  issue,  including  following  or  in 
anticipation of a non-payment on the underlying assets; 

(b)  how  voting  rights  on  an  exchange  offer  following  or  in  anticipation  of  a 
non-payment  on  any  sovereign  bonds  in  the  underlying  portfolio  shall  be 
assigned  to  investors  and  how  any  losses  from  a  debt  non-payment  shall  be 
allocated across the different tranches of the SBBSs issue. 

2. 

ESMA shall develop draft regulatory technical standards to specify the information 
referred to in paragraph 1. 

ESMA shall submit those draft regulatory technical standards to the Commission by 
[6 months from the date of entry into force of this Regulation].  

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred to  in the first  subparagraph in  accordance  with  the procedure laid down in 
Articles 10 to 14 of Regulation (EU) No 1095/2010. 

Chapter 4 

Product oversight 

Article 13 

Supervision 

1. 

Member  States  shall  designate  one  or  more  competent  authorities  to  supervise  the 
compliance  of  SPEs  with  this  Regulation.  Member  States  shall  inform  the 
Commission  and  ESMA  about  those  competent  authorities  and,  where  relevant, 
about how their functions and duties are divided. 

The competent authority of the Member State of where the SPE is established shall 
supervise compliance with the requirements laid down in this Regulation. 

EN 

26 

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2. 

Member  States  shall  ensure  that  competent  authorities  have  the  supervisory, 
investigatory and sanctioning powers to fulfil their duties under this Regulation.  

They shall have the power to, at least: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

request  access  to  any  documents  in  any  form  to  the  extent  that  they  relate  to 
SBBSs, and to receive or take a copy thereof; 

require the SPE to provide information without delay; 

require information from any person related to the activities of the SPE; 

carry out on-site inspections with or without prior announcement; 

take appropriate measures to ensure that an SPE continues to comply with this 
Regulation; 

issue an order to ensure that an SPE complies with this Regulation and desists 
from a repetition of any conduct that breaches this Regulation. 

3. 

ESMA  shall  publish  and  keep  up-to-date  on  its  website  a  list  of  competent 
authorities. 

Article 14 

1. 

2. 

3. 

Cooperation between competent authorities and ESMA 

Competent authorities and ESMA shall cooperate closely and exchange information 
to carry out their duties. In particular, they shall closely coordinate their supervision 
to  identify  and  remedy  infringements  of  this  Regulation,  develop  and  promote  best 
practices,  facilitate  collaboration,  foster  consistency  of  interpretation  and  provide 
cross-jurisdictional assessments in the event of any disagreements. 

To  facilitate  the  use  of  powers  of  competent  authorities  and  ensure  the  consistent 
application  and  enforcement  of  the  obligations  set  out  in  this  Regulation,  ESMA 
shall act within the powers set out in Regulation (EU) No 1095/2010.  

A  competent  authority  that  has  clear  and  demonstrable  grounds  that  an  SPE  is  in 
breach of this Regulation shall promptly inform in a detailed manner the competent 
authority of the Member State where the SPE is established. The competent authority 
of  the  Member  State  where the  SPE  is  established  shall  take  appropriate  measures, 
including the decision referred to in Article 15. 

Where  the  SPE  persists  in  acting  in  a  manner  that  is  clearly  in  breach  of  this 
Regulation despite measures taken by the competent authority of the Member State 
where  it  is  established,  or  because  that  competent  authority  has  failed  to  take 
measures  within  a  reasonable  time,  the  competent  authority  that  has  detected  a 
breach  of  this  Regulation  may,  after  informing  the  competent  authority  of  the 
Member  State  where  the  SPE  is  established  and  ESMA,  take  all  appropriate 
measures  to  protect  investors,  including  prohibiting  the  SPE  from  carrying  out  any 
further marketing of SBBSs within its territory and taking the decision referred to in 
Article 15. 

Article 15 

Misuse of the SBBS designation 

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27 

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1. 

2. 

Where there are reasons to believe that an SPE in infringement of Article 9 has used 
the  designation  ‘SBBS’  to  market  a  product  that  fails  to  comply  with  the 
requirements  set  out  in  that  Article,  the  competent  authority  of  the  Member  State 
where the SPE is established shall follow the procedure provided for in paragraph 2. 

Within  15  days  after  becoming  aware  of  the  possible  infringement  referred  to  in 
paragraph 1 the competent authority of the Member State where the SPE suspected 
of the infringement is established shall decide whether Article 9 has been infringed 
and  shall  notify  ESMA  and  the  other  relevant  competent  authorities  thereof, 
including  the  competent  authorities  of  the  investors,  when  known.  A  competent 
authority  that  disagrees  with  the  decision  taken  shall  notify  all  other  relevant 
competent  authorities  about  its  disagreement  without  undue  delay.  Where  that 
disagreement  is  not  resolved  within  three  months  of  the  date  on  which  all  relevant 
competent  authorities  have  been  notified,  the  matter  shall  be  referred  to  ESMA  in 
accordance with Article 19 and, where applicable, Article 20 of Regulation (EU) No 
1095/2010.  The  conciliation  period  referred  to  in  Article  19(2)  of  Regulation  (EU) 
No 1095/2010 shall be one month. 

Where  the  competent  authorities  concerned  fail  to  reach  an  agreement  within  the 
conciliation phase referred to in the first subparagraph, ESMA shall take the decision 
referred  to  in  Article 19(3)  of  Regulation  (EU)  No  1095/2010  within  one  month. 
During  the  procedure  set  out  in  this  paragraph,  an  SBBS  appearing  on  the  list 
maintained  by  ESMA  pursuant  to  Article  10(2)  shall  continue  to  be  considered  a 
SBBS and shall be kept on that list. 

Where the relevant competent authorities agree that the infringement by the SPE is 
related to non-compliance with Article 9 in good faith, they may decide to grant the 
SPE  a  period  of  maximum  three  months  to  remedy  the  identified  infringement, 
starting  from  the  day  the  SPE  was  informed  of  the  infringement  by  the  competent 
authority.  During  that  period,  an  SBBS  appearing  on  the  list  maintained  by  ESMA 
pursuant to Article 10(2) shall continue to be considered an SBBS and shall be kept 
on that list. 

3. 

ESMA shall develop draft regulatory technical standards to specify the cooperation 
obligations and the information to be exchanged under paragraph 1 and 2. 

ESMA shall submit those draft regulatory technical standards to the Commission by 
[6 months from the date of entry into force of this Regulation]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred to in this paragraph in accordance with Articles 10 to 14 of Regulation (EU) 
No 1095/2010. 

Article 16 

Remedial measures and administrative sanctions 

1. 

Without  prejudice  to  the  right  for  Member  States  to  lay  down  criminal  sanctions 
pursuant to Article 17, competent authorities shall impose on the SPE or the natural 
person managing the SPE the appropriate remedial measures, including the decision 
referred  to  in  Article  15,  and  the  appropriate  administrative  sanctions  set  out  in 
paragraph 3 where SPEs: 

(a)  have failed to comply with the obligations set out in Articles 7 and 8; 

EN 

28 

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(b)  have  failed  to  meet  the  requirements  of  Article  9,  including  where  they  have 
not  notified  ESMA  in  accordance  with  Article 10(1),  or  have  made  a 
misleading notification; 

(c)  have failed to meet the transparency requirements of Article 11. 

2. 

The administrative sanctions referred to in paragraph 1 shall be at least the following: 

(a) 

(b) 

(c) 

(d) 

(e) 

a public statement indicating the identity of the natural or legal person having 
committed the infringement and the nature of the infringement;  

an order requiring the natural or legal person that committed the infringement 
to cease the conduct and to desist from a repetition of that conduct; 

a temporary ban preventing any member of the SPE's management body or any 
other  natural  person  held  responsible  for  the  infringement  from  exercising 
management functions in SPEs; 

in  case  of  an  infringement  as  referred  to  in  point  (b)  of  paragraph  1,  a 
temporary ban on the SPE from making a notification as referred to in Article 
10(1); 

an  administrative  pecuniary  sanctions  of  maximum  EUR  5  000  000,  or  in 
Member States the currency of which is not the euro, the corresponding value 
in the national currency on [the date of entry into force of this Regulation], or 
of maximum 10 % of the total annual net turnover of the SPE, as established in 
the  most  recent  available  accounts  approved  by  the  management  body  of  the 
SPE;  

(f) 

an  administrative  pecuniary  sanctions  of  maximum  twice  the  amount  of  the 
benefit  derived  from  the  infringement  where  that  benefit  can  be  determined, 
even where that benefit exceeds the maximum amounts referred to in point (e). 

3. 

Competent  authorities,  when  determining  the  type  and  level  of  administrative 
sanctions,  shall  take  into  account  the  extent  to  which  the  infringement  was 
intentional or results from negligence and all other relevant circumstances, including, 
where appropriate: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the materiality, gravity and the duration of the infringement; 

the  degree  of  responsibility  of  the  natural  or  legal  person  responsible  for  the 
infringement; 

the financial strength of the responsible natural or legal person; 

the importance of profits gained or losses avoided by the responsible natural or 
legal person, insofar as those profits or losses can be determined; 

the losses for third parties caused by the infringement; 

the  level  of  cooperation  of  the  responsible  natural  or  legal  person  with  the 
competent authority; 

(g)  previous infringements by the responsible natural or legal person. 

4. 

Member  States  shall  ensure  that  any  decision  imposing  the  remedial  measures  or 
administrative sanctions is properly reasoned and is subject to a right of appeal. 

EN 

29 

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Article 17 

Interaction with criminal sanctions 

Member  States  that  have  laid  down  criminal  sanctions  for  the  infringement  referred  to  in 
Article  16(1)  shall  give  their  competent  authorities  all  the  necessary  powers  to  liaise  with 
judicial,  prosecuting, or criminal  justice authorities within  their jurisdiction to receive from, 
and to provide to, other competent authorities and ESMA specific information about criminal 
investigations or proceedings commenced for the infringements referred to in Article 16(1). 

Article 18 

Publication of administrative sanctions 

1. 

Competent  authorities  shall  publish  on  their  website  any  decision  imposing  an 
administrative sanction in  respect of which there is  no longer a right  of appeal and 
which  is  imposed  for  an  infringement  as  referred  to  in  Article 16(1)  without  undue 
delay and after the person concerned has been informed.   

The publication referred to in subparagraph 1 shall include information on the type 
and nature of the  infringement, the identity of the natural or legal person on whom 
the administrative sanction has been imposed. 

2. 

Competent  authorities  shall  publish  the  administrative  sanction  on  an  anonymous 
basis, in accordance with national law, in any of the following circumstances:  

(a)  where  the  administrative  sanction  is  imposed  on  a  natural  person  and, 
following  an  prior  assessment,  publication  of  personal  data  is  found  to  be 
disproportionate;  

(b)  where  publication  would  jeopardise  the  stability  of  financial  markets  or  an 

ongoing criminal investigation;  

(c)  where publication would cause disproportionate damage to the SPE or natural 

persons involved.  

Alternatively, where the circumstances referred to in the first subparagraph are likely 
to  cease  within  a  reasonable  period  of  time,  publication  under  paragraph  1  may  be 
postponed for such a period of time.  

3. 

Competent authorities shall ensure that information published under paragraph 1 or 2 
remains on their official website for five years. Personal data shall be retained on the 
official website of the competent authority only for the period necessary.  

Article 19 

Macroprudential oversight of the SBBSs market 

Within the limits of its mandate laid down in Regulation (EU) No 1092/2010 of the European 
Parliament  and  of  the  Council26,  the  ESRB  shall  be  responsible  for  the  macroprudential 

26 

Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 
on  European  Union  macro-prudential  oversight  of  the  financial  system  and  establishing  a  European 
Systemic Risk Board (OJ L 331, 15.12.2010, p.1). 

EN 

30 

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oversight of the Union’s SBBSs market and act in accordance with the powers set out in that 
Regulation.   

Article 20 

Member States notifications 

Member States shall notify the laws, regulations and administrative provisions referred  to in 
Articles 13  and  16  to  the  Commission  and  ESMA  by  [one  year  from  the  date  of  entry  into 
force  of  this  Regulation].  Member  States  shall  notify  the  Commission  and  ESMA  of  any 
subsequent amendments thereto without undue delay. 

Chapter 4 
Implementing powers and final provisions 

Article 21 

In Directive 2009/65/EC the following Article 54a is inserted: 

Amendment to Directive 2009/65/EC 

“Article 54a 

1.  Where Member States apply a derogation as referred to in Article 54 or 
grant a waiver as referred to in Article 56(3), the competent authorities of the 
UCITS home Member State shall: 

(a) 

apply the same derogation or grant the same waiver for UCITS to invest 
up  to  100%  of  their  assets  in  SBBSs  as  defined  in  Article  3(3)  of 
Regulation  [reference  of  the  SBBS  Regulation  to  be  inserted]  in 
accordance  with  the  principle  of  risk-spreading  where  those  competent 
authorities consider that unit-holders in the UCITS have a protection that 
is equivalent to that of unit-holders in UCITS complying with the limits 
laid down in Article 52; 

(b) 

shall waive the application of paragraphs 1 and 2 of Article 56. 

2. 
By  [6  months  from  date  of  entry  into  force  of  SBBS  Regulation  ], 
Member States  shall adopt,  publish and communicate to the Commission  and 
ESMA measures necessary to comply with paragraph 1.”. 

Article 22 

In Article 104 of Directive 2009/138/EC, the following paragraph 8 is added: 

Amendment to Directive 2009/138/EC 

"8.  For  the  purposes  of  the  calculation  of  the  Basic  Solvency  Capital 
Requirement,  exposures  to  sovereign  bond-backed  securities  as  defined  in 
Article  3(3)  of  Regulation  [reference  of  the  SBBS  Regulation  to  be  inserted] 

EN 

31 

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shall be treated as exposures to Member States' central governments or central 
banks denominated and funded in their domestic currency. 

By  [6  months  from  date  of  entry  into  force  of  SBBS  Regulation],  Member 
States  shall  adopt,  publish  and  communicate  to  the  Commission  and  ESMA 
measures necessary to comply with the first subparagraph.”. 

Article 23 

Amendments to Regulation EU No 575/2013 

Regulation (EU) No 575/2013 is amended as follows: 

(1) 

in Article 268 , the following paragraph 5 is added: 

"5.  By  way  of  derogation  from  the  first  paragraph,  sovereign  bond-backed 
securities  as  defined  in  Article  3(3)  of  Regulation  [reference  of  the  SBBS 
Regulation to be  inserted]  may always be treated in accordance with the first 
paragraph of this Article."; 

(2) 

in Article 325, the following paragraph 4 is added: 

"4.  For the purpose of this Title, institutions shall treat exposures in the form 
of  sovereign  bond-backed  securities  as  defined  in  Article 3(3)  of  Regulation 
[reference  of  the  SBBS  Regulation  to  be  inserted]  as  exposures  to  the  central 
government of a Member State."; 

(3) 

in Article 390(7), the following subparagraph is added: 

“The  first  subparagraph  shall  apply  to  exposures  to  sovereign  bond-backed 
securities  as  defined  in  Article  3(3)  of  Regulation  [reference  of  the  SBBS 
Regulation to be inserted].”. 

Article 24 

In Directive (EU) 2016/2341, the following Article 18a is inserted: 

Amendment to Directive (EU) 2016/2341 

“Article 18a 

Sovereign-Bond Backed Securities 

1.  In  their  national  rules  regarding  the  valuation  of  assets  of  IORPs,  the 
calculation of  own  funds  of  IORPs,  and  the  calculation  of  a  solvency margin 
for  IORPs,  Member  States  shall  treat  sovereign-bond  backed  securities,  as 
defined in Article 3(3) of Regulation [reference of the SBBS Regulation to be 
inserted], in the same way as euro area sovereign debt instruments. 

2. By [6 months from date of entry into force of the SBBS Regulation], Member 
States  shall  adopt,  publish  and  communicate  to  the  Commission  and  ESMA 
measures necessary to comply with paragraph 1.”. 

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32 

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Article 25 

Evaluation clause 

No  sooner  than  five  years  after  the  date  of  entry  into  force  of  this  Regulation  and  once 
sufficient  data  have  become  available,  the  Commission  shall  carry  out  an  evaluation  of  this 
Regulation  assessing  whether  it  has  achieved  its  objectives  to  eliminate  undue  regulatory 
hindrances to the emergence of SBBSs. 

Article 26 

Committee procedure 

1. 

The Commission shall be assisted by the European Securities Committee established 
by  Commission  Decision  2001/528/EC27.  That  Committee  shall  be  a  committee 
within the meaning of Regulation (EU) No 182/2011. 

Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 

2. 
shall apply. 

Article 27 

Entry into force 
This  Regulation  shall  enter  into  force  the  20th  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

27 

Commission  Decision  2001/528/EC  of  6  June  2001  establishing  the  European  Securities  Committee 
(OJ L 191, 13.7.2001, p. 45).  

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33 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE  

1.1.  Title of the proposal/initiative  

1.2.  Policy area(s) concerned in the ABM/ABB structure 

1.3.  Nature of the proposal/initiative  

1.4.  Objective(s)  

1.5.  Grounds for the proposal/initiative  

1.6.  Duration and financial impact  

1.7.  Management mode(s) planned  

2. 

MANAGEMENT MEASURES  

2.1.  Monitoring and reporting rules  

2.2.  Management and control system  

2.3.  Measures to prevent fraud and irregularities  

3. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

3.1.  Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget  line(s) 
affected  

3.2.  Estimated impact on expenditure  

3.2.1. Summary of estimated impact on expenditure  

3.2.2. Estimated impact on operational appropriations  

3.2.3. Estimated impact on appropriations of an administrative nature 

3.2.4. Compatibility with the current multiannual financial framework 

3.2.5. Third-party contributions  

3.3.  Estimated impact on revenue 

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34 

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LEGISLATIVE FINANCIAL STATEMENT  

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE  

1.1. 

Title of the proposal/initiative  

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on sovereign bond-backed securities 

1.2. 

Policy area(s) concerned 

Financial Market Regulation, Banking Union 

1.3. 

Nature of the proposal/initiative  

 The proposal/initiative relates to a new action  

 The proposal/initiative relates to a new action following a pilot project/preparatory 
action28  

 The proposal/initiative relates to the extension of an existing action  

 The proposal/initiative relates to an action redirected towards a new action  

1.4. 

Objective(s) 

1.4.1.  The Commission's multiannual strategic objective(s) targeted by the proposal/initiative  

The  proposal  is  part  of  the  Commission's  ambitions  to  complete  the  Banking  Union  by 
fostering  risk  reduction  and  private  sector  risk  sharing.  It  consists  of  an  enabling 
framework that overcomes the present regulatory impediments to Sovereign Bond-Backed 
Securities (SBBSs) that stem from the difference of treatment between SBBSs themselves 
and  government  bonds,  which  constitute  SBBSs'  underlying  portfolio. SBBSs  could  help 
banks  (and  other  institutions)  diversify  their  sovereign  bond  portfolios  and  weaken  the 
bank-sovereign nexus, which despite recent progress remains strong in some cases. 

1.4.2. 

Specific objective(s)  

Specific objective No 

For an asset like SBBSs to be "enabled", thus allowing for a market test of its viability, the 
following two specific objectives would have to be achieved: 

Eliminate  undue  regulatory  hindrances  (i.e.,  restore  regulatory  "neutrality"  for 

1. 
SBBSs).  

2. 
Encourage  liquidity  and  "benchmark"  quality  (i.e.,  the  new  instrument  should  be 
treated like other  benchmarks in  regulation—de jure liquidity—and  should  be capable of 
attaining a sufficient critical mass/standardisation so as to be liquid also de facto). 

28 

As referred to in Article 54(2)(a) or (b) of the Financial Regulation 

EN 

35 

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1.4.3.  Expected result(s) and impact 

Specify the effects which the proposal/initiative should have on the beneficiaries/groups targeted. 

financial 

The key stakeholders that would be affected by the proposed legislation include banks (and 
other 
the 
arrangers/issuers of the product, supervisors, and debt management officers (as proxies for 
the effect of the legislation and of SBBSs on the national sovereign debt markets).  

to  CRR/CRD),  other  asset  managers, 

institutions  subject 

The  impact,  both  in  terms  of  potential  benefits  and  potential  costs,  would  depend  on  the 
size of the market for this novel financial product. The proposed intervention aims only at 
"enabling"  this  novel  product,  which  presently  does  not  yet  exist.  The  viability  of  this 
novel  product,  however,  and  thus  the  extent  to  which  a  market  for  this  novel  financial 
product may develop, depends also on factors other than their regulatory treatment and can 
thus  only  be  ascertained  via  a  market  test—which  the  proposed  intervention  makes 
possible.  

In general terms, if SBBSs—once enabled from a regulatory perspective by, for example, 
eliminating  regulatory  surcharges  as  regards  capital  requirements  and  liquidity  coverage 
requirements—prove viable, the following benefits are expected  

-  Availability  of  a  new  product  which  would  help  banks,  insurance  companies,  pension 
funds and other investors to diversify their sovereign bond portfolios. 

-  Enhanced  financial  stability  as  SBBSs  would  help  weaken  the  bank-sovereign  loop. 
Further, SBBSs could also prove stabilising in times of financial market stress as the share 
of the outstanding sovereign bonds held in SBBS would not be liable to fire sales.  

- Expanded investor base for European sovereign debt, an effect which is expected to be 
larger for smaller Member States whose sovereign bonds may not be on the radar screen of 
international investors.  

-  Indirect  benefits  for  retail  investors,  households  and  SMEs  to  the  extent  that  above-
mentioned benefits in terms of enhanced financial stability materialise.  

As regards the costs, these are expected to be limited.  

- For citizens/consumers indirect limited costs may appear due to SBBS's impact on some 
sovereign  bond  markets'  liquidity  which  could  lead  to  higher  costs  of  financing,  which 
would in turn be carried by the tax-payer. If SBBSs prove viable, these effects are likely to 
be  offset  by  the  reduction  in  overall  risk  (and  thus  borrowing  costs)  from  enhanced 
financial stability.  

- Issuers of SBBSs would have to bear the limited costs of creating such a product, such as 
legal costs of setting up the issuing vehicle, etc. 

-  Administrations  (the  Commission,  ESMA,  national  supervisory  authorities,  …)  would 
bear  the  rather  limited  costs  of  the  drafting  of  the  legislation  and  of  the  legislative 
interventions that were to be required in the future to adapt it to evolving circumstances. 
The  new  instrument  would  also  give  rise  to  supervision  costs,  but  these  are  likely  to  be 
marginal (since supervisors would need to supervise SBBSs investors regardless). 

1.4.4. 

Indicators of results and impact  

Specify the indicators for monitoring implementation of the proposal/initiative. 

The  impact  of  the  legislation  could  be  assessed  by  monitoring  the  extent  to  which  these 
new products will be actually created and traded. It needs to be kept in mind, however, that 
the enabling legislation will allow for a market test of the product's viability and that the 
development  of  this  new  market  depends  on  several  other  factors  which  are  independent 
of, or may be only tenuously linked to, the regulatory framework. This is likely to make it 

EN 

36 

  EN 

 
difficult  to  disentangle  the  effects  of  the  proposed  legislation  per  se  (in  other  words,  the 
legislation  may  work  precisely  as  intended,  and  yet  SBBSs  may  fail  to  develop  for 
independent reasons). Similarly, demand for SBBSs will depend on the overall interest rate 
environment, the risk appetite and the demand from various investor types for the different 
tranches,  etc.  In  other  words,  while  SBBSs  may  not  develop  in  the  current  economic 
backdrop, it does not mean that they won't in the future, once the regulatory hindrances are 
successfully removed. 

1.5. 

Grounds for the proposal/initiative  

1.5.1.  Requirement(s) to be met in the short or long term  

In the short term, ESMA is tasked with developing its capacity to receive notifications for 
SBBSs  issuances,  to  verify  their  compliance  with  the  regulation,  to  inform  national 
competent  authorities  and  receive  information  from  them  and  to  publish  notified  SBBSs 
issuances and national competent authorities on its website.  

In addition, ESMA will need to develop regulatory and implementing technical standards 
within XXX months after the date of entry into force of this initiative. 

1.5.2.  Added value of Union involvement (it may result from different factors, e.g. coordination 
gains, legal certainty, greater effectiveness or complementarities). For the purposes of this 
point  'added  value  of  Union  involvement'  is  the  value  resulting  from  Union  intervention 
which is additional to the value that would have been otherwise created by Member States 
alone. 

Reasons for action at European level (ex-ante)  

SBBSs are a tool to enhance financial stability and risk sharing across the euro area. They 
can thus contribute to the better functioning of the internal market. Article 114 TFEU, that 
confers  to  the  European  institutions  the  competence  to  lay  down  appropriate  provisions 
that have as their objective the establishment and functioning of the internal market, is thus 
the  appropriate  legal  basis.  The  identified  regulatory  impediments  to  the  development  of 
SBBSs  markets  are  laid  down  in  several  pieces  of  EU  legislation.  As  a  consequence, 
individual Member State action would not be able to achieve the goals of this legislative 
initiative, i.e. to remove such regulatory impediments, since amendments of EU legislation 
can only be done through EU action. 

Expected generated Union added value (ex-post)  

The  legislative  proposal  aims  at  progressing  in  the  area  of  Banking  Union.  SBBS  could 
help banks and other institutions diversify their sovereign bond portfolios and weaken the 
bank-sovereign nexus, thus enhancing financial stability at large. 

1.5.3.  Lessons learned from similar experiences in the past 

ESMA has been charged keeping registers already for UCITS, AIFs, EuVECA and EuSEF. 
The experience has been overall positive. 

1.5.4.  Compatibility and possible synergy with other appropriate instruments 

The initiative is in line with the enhanced role ESMA is given in the proposal concerning 
the ESAs' review. It has, however, no direct impact on the Commission’s proposal on the 
ESA’s review since it concerns specific technical issue not addressed in the review. 

EN 

37 

  EN 

 
1.6. 

Duration and financial impact  

 Proposal/initiative of limited duration  

–    Proposal/initiative in effect from [DD/MM]YYYY to [DD/MM]YYYY  

–    Financial impact from YYYY to YYYY 

 Proposal/initiative of unlimited duration 

–  Implementation with a start-up period from YYYY to YYYY, 

–  followed by full-scale operation. 

1.7.  Management mode(s) planned29 

 Direct management by the Commission through 

–    executive agencies  

 Shared management with the Member States  

 Indirect management by entrusting budget implementation tasks to: 

 international organisations and their agencies (to be specified); 

the EIB and the European Investment Fund; 

 bodies referred to in Articles 208 and 209; 

 public law bodies; 

  bodies  governed  by  private  law  with  a  public  service  mission  to  the  extent  that  they 
provide adequate financial guarantees; 

  bodies  governed  by  the  private  law  of  a  Member  State  that  are  entrusted  with  the 
implementation  of  a  public-private  partnership  and  that  provide  adequate  financial 
guarantees; 

 persons entrusted with the implementation of specific actions in the CFSP pursuant to 
Title V of the TEU, and identified in the relevant basic act. 

Comments  

N/A 

29 

Details of management modes and references to the Financial Regulation may be found on the BudgWeb site: 
https://myintracomm.ec.europa.eu/budgweb/EN/man/budgmanag/Pages/budgmanag.aspx. 

EN 

38 

  EN 

 
                                                 
 
2. 

MANAGEMENT MEASURES  

2.1.  Monitoring and reporting rules  

Specify frequency and conditions. 

In line with already existing arrangements, ESMA prepares regular reports on its activity 
(including  internal  reporting  to  Senior  Management,  reporting  to  Boards  and  the 
production  of  the  annual  report),  and  undergoes  audits  by  the  Court  of  Auditors  and  the 
Internal  Audit  Service  on  its  use  of  resources.  Monitoring  and  reporting  of  the  present 
proposed actions will comply with already existing requirements. 

2.2.  Management and control system  

2.2.1.  Risk(s) identified  

In  relation  to  the  legal,  economic,  efficient  use  of  appropriations  resulting  from  the 
proposal, it is expected that the proposal would not bring about new risks that would not be 
currently covered by an ESMA existing internal control framework. 

2.2.2.  Control method(s) envisaged  

Management  and  control  systems  as  provided  for  in  the  ESMA  Regulation  are  already 
implemented.  ESMA  works  closely  together  with  the  Internal  Audit  Service  of  the 
Commission to ensure that the appropriate standards are met in all internal control areas. 
These  arrangements  will  apply  also  with  regard  to  the  role  of  ESMA  according  to  the 
present proposal. Annual internal audit reports are sent to the Commission, Parliament and 
Council. 

2.3.  Measures to prevent fraud and irregularities  

Specify existing or envisaged prevention and protection measures. 

For  the  purposes  of  combating  fraud,  corruption  and  any  other  illegal  activity,  the 
provisions of Regulation (EC) No 883/2013 of the European Parliament and of the Council 
of  11  September  2013  concerning  investigations  conducted  by  the  European  Anti-Fraud 
Office (OLAF) applies to ESMA without any restriction. 

ESMA currently has a dedicated anti-fraud strategy and resulting action plan. The strategy 
and action plan has been put in place in 2014. ESMA’s strengthened actions in the area of 
anti-fraud will be compliant to the rules and guidance provided by the Financial Regulation 
(anti-fraud  measures  as  part  of  sound  financial  management),  OLAF’s  fraud  prevention 
policies, 
the  Commission  Anti-Fraud  Strategy 
(COM(2011)376)  as  well  as  set  out  by  the  Common  Approach  on  EU  decentralised 
agencies (July 2012) and the related roadmap. 

the  provisions  provided  by 

The Regulation establishing ESMA sets out the provisions on implementation and control 
of the ESMA budget and applicable financial rules. 

EN 

39 

  EN 

 
3. 

3.1. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget  line(s) 
affected  

  Existing budget lines  

In order of multiannual financial framework headings and budget lines. 

Budget line 

Type of  
expenditure 

Contribution  

1a:  Competitiveness  for  growth  and 
jobs 

Diff./Non-
30 

diff.

from 
EFTA 
countries
31 

from 
candidate 
32

countries

from third 
countries 

within the meaning 
of Article 21(2)(b) 
of the Financial 
Regulation  

Heading of 
multiannual 
financial 
framework 

1.a 

12 02 06 ESMA 

Diff. 

NO 

NO 

NO 

NO 

Heading of 
multiannual 
financial 
framework 

  New budget lines requested  

In order of multiannual financial framework headings and budget lines. 

Budget line 

Type of 
expenditure 

Contribution  

Number  
[Heading……………………………………
…] 

Diff./non-
diff. 

from 
EFTA 
countries 

from 
candidate 
countries 

from third 
countries 

within the meaning 
of Article 21(2)(b) 
of the Financial 
Regulation  

[XX.YY.YY.YY] 

YES/N
O 

YES/N
O 

YES/N
O 

YES/NO 

30 
31 
32 

Diff. = Differentiated appropriations / Non-diff. = Non-differentiated appropriations. 
EFTA: European Free Trade Association. 
Candidate countries and, where applicable, potential candidates from the Western Balkans. 

EN 

40 

  EN 

 
 
 
 
 
                                                 
3.2. 

Estimated impact on expenditure  

3.2.1. 

Summary of estimated impact on expenditure  

Heading of multiannual financial  
framework  

1A 

Competitiveness for growth and jobs  

EUR million (to three decimal places) 

ESMA 

Title 1: 

Title 2: 

Title 3: 

TOTAL appropriations 
for ESMA 

Commitments 

Payments 

Commitments 

Payments 

Commitments 

Payments 

Commitments 

Payments 

(1) 

(2) 

(1a) 

(2a) 

(3a) 

(3b) 

=1+1a 
+3a 

=2+2a 

+3b 

Year 
N33 

Year 
N+134 

Year 
N+2 

Year 
N+3 

Enter as many years as 
necessary to show the duration 
of the impact (see point 1.6) 

TOTAL 

0.419 

0.225 

0.419 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

0.419 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

0.419 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

33 
34 

EN 

Year N is the year in which implementation of the proposal/initiative starts. 
The expenditure for the period after 2020 is given only for illustrative purposes. The financial impact on the European Budget post 2020 will be part of the   
Commission proposals for the next Multiannual Financial Framework. 

41 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Heading of multiannual financial  
framework  

5 

‘Administrative expenditure’ 

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as 
necessary to show the duration 
of the impact (see point 1.6)  

TOTAL 

EUR million (to three decimal places) 

DG: <…….> 

 Human Resources  
 Other administrative expenditure  

TOTAL DG <…….> 

Appropriations  

TOTAL appropriations 
under HEADING 5 
of the multiannual financial framework  

(Total  commitments  = 
Total payments) 

Year 
N35 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as 
necessary to show the duration 
of the impact (see point 1.6) 

TOTAL 

EUR million (to three decimal places) 

TOTAL appropriations  
under HEADINGS 1 to 5 
of the multiannual financial framework  

Commitments 

0.419 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

Payments 

0.419 

0.225 

0.225 

0.225 

0.225 

0.225 

0.225 

35 

Year N is the year in which implementation of the proposal/initiative starts. 

EN 

42 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.2.2.  Estimated impact on ESMA's appropriations  

–    The proposal/initiative does not require the use of operational appropriations  

–    The proposal/initiative requires the use of operational appropriations, as explained below: 

Year 
N 

Year 
36
N+1

Year 
N+2 

Year 
N+3 

Enter as many years as necessary to show the duration 
of the impact (see point 1.6) 

TOTAL 

Commitment appropriations in EUR million (to three decimal places) 

OUTPUTS 

o
N

Cost  N

o

Cost  N

o

Cost  N

o

Cost 

o
N

Cost 

o
N

Cost 

o
N

Cost 

Total 
No 

Total 
cost 

0.281 

0.097 

0.097 

0.097 

0.097 

0.097 

0.097 

Indicate objectives and 
outputs  

 

37

Type

Average 
cost 

SPECIFIC OBJECTIVE No 1

38

… 

- Developing an SBBS 
notifications register, an 
SBBS sanctions database, a 
list of SBBS NCAs and 
models for SBBS 
notifications 
- Output 

- Output 

Subtotal for specific objective No 1 

SPECIFIC OBJECTIVE No 2 ... 

- Output 

36 

37 
38 

EN 

The expenditure for the period after 2020 is given only for illustrative purposes. The financial impact on the European Budget post 2020 will be part of the   Commission 
proposals for the next Multiannual Financial Framework. 
Outputs are products and services to be supplied (e.g.: number of student exchanges financed, number of km of roads built, etc.). 
As described in point 1.4.2. ‘Specific objective(s)…’ 

43 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Subtotal for specific objective No 2 

TOTAL COST 

0.281 

0.097 

0.097 

0.097 

0.097 

0.097 

0.097 

EN 

44 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2.3.  Estimated impact on ESMA's human resources  

3.2.3.1.  Summary  

–    The  proposal/initiative  does  not  require  the  use  of  appropriations  of  an 

administrative nature  

–    The proposal/initiative requires the use of appropriations of an administrative 

nature, as explained below: 

EUR million (to three decimal places) 

Year 
N39 

Year 
N+140 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary to 
show the duration of the impact (see 
point 1.6) 

TOTAL41 

Officials (AD Grades) 

0.087 

0.082 

0.082 

0.082 

0.082 

0.082 

0.082 

Officials 
grades) 

(AST 

Contract staff 

0.051 

0.046 

0. 046 

0. 046 

0. 046 

0. 046 

0. 046 

Temporary staff  

Seconded National 
Experts 

TOTAL 

0.119 

0.128 

0.128 

0.128 

0.128 

0.128 

0.128 

Estimated impact on the staff (additional FTE) – establishment plan 

Function group and grade 

Year N 

Year N+1 

Year N+2 

Enter as many years as necessary 
to show the duration of the impact 
(see point 1.6) 

AD16 

AD15 

AD14 

AD13 

39 
40 

41 

Year N is the year in which implementation of the proposal/initiative starts. 
The expenditure for the period after 2020 is given only for illustrative purposes. The financial impact on 
the  European  Budget  post  2020  will  be  part  of  the      Commission  proposals  for  the  next  Multiannual 
Financial Framework. 
Including recruitment costs 

EN 

45 

  EN 

 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
1 

1 

1 

1 

1 

1 

1 

1 

AD12 

AD11 

AD10 

AD9 

AD8 

AD7 

AD6 

AD5 

AD Total 

AST11 

AST10 

AST9 

AST8 

AST7 

AST6 

AST5 

AST4 

AST3 

AST2 

AST1 

AST Total 

AST/SC 6 

AST/SC 5 

AST/SC 4 

EN 

46 

  EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AST/SC 3 

AST/SC 2 

AST/SC 1 

AST/SC  Total 

GRAND TOTAL 

Estimated impact on the staff (additional) – external personnel 

Contract agents 

Year N 

Year N+1 

Year N+2 

Function group IV 

0.5 

1 

1 

Function group III 

Function group II 

Function group I 

Total 

0.5 

1 

1 

Enter as many years as necessary 
to show the duration of the impact 
(see point 1.6) 

1 

1 

Seconded National Experts 

Year N 

Year N+1 

Year N+2 

Enter as many years as necessary 
to show the duration of the impact 
(see point 1.6) 

Total 

Please indicate the planned recruitment date and adapt the amount accordingly (if recruitment 
occurs  in  July,  only  50 %  of  the  average  cost  is  taken  into  account)  and  provide  further 
explanations in an annex.  

EN 

47 

  EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2.3.2.  Estimated requirements of human resources for the parent DG 

–    The proposal/initiative does not require the use of human resources.  

–    The  proposal/initiative  requires  the  use  of  human  resources,  as  explained 

below: 

Estimate to be expressed in full amounts (or at most to one decimal place) 

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as 
necessary to show the 
duration of the impact 
(see point 1.6) 

 Establishment plan posts (officials and 

temporary staff) 

XX 01 01 01 (Headquarters and 
Commission’s Representation Offices) 

XX 01 01 02 (Delegations) 

XX 01 05 01 (Indirect research) 

10 01 05 01 (Direct research) 

 External staff (in Full Time Equivalent unit: 
FTE)42 

XX 01 02 01 (AC, END, INT from the 
‘global envelope’) 

XX 01 02 02 (AC, AL, END, INT and 
JED in the Delegations) 

XX 
01 
04 
yy43 

- at 
Headquarters44 

- in 
Delegations  

XX 01 05 02 (AC, END, INT – Indirect 
research) 

10 01 05 02 (AC, END, INT – Direct 
research) 

Other budget lines (specify) 

TOTAL 

XX is the policy area or budget title concerned. 

42 

43 
44 

AC = Contract Staff; AL = Local Staff; END = Seconded National Expert; INT = agency staff; JED = 
Junior Experts in Delegations. 
Sub-ceiling for external staff covered by operational appropriations (former ‘BA’ lines). 
Mainly for the Structural Funds, the European Agricultural Fund for Rural Development (EAFRD) and 
the European Fisheries Fund (EFF). 

EN 

48 

  EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
The human resources required will be met by staff from the DG who are already assigned to 
management of the action and/or have been redeployed within the DG, together if necessary 
with any additional allocation which may be granted to the managing DG under the annual 
allocation procedure and in the light of budgetary constraints. 

Description of tasks to be carried out: 

Officials and temporary staff 

External staff 

Description  of  the  calculation  of  cost  for  FTE  units  should  be  included  in  the  Annex  V, 
section 3.  

EN 

49 

  EN 

 
 
 
 
3.2.4.  Compatibility with the current multiannual financial framework  

–    The  proposal/initiative  is  compatible  the  current  multiannual  financial 

framework. 

–    The proposal/initiative will entail reprogramming of the relevant heading in the 

multiannual financial framework. 

Explain what reprogramming is required, specifying the budget lines concerned and the corresponding 
amounts. 

–    The  proposal/initiative  requires  application  of  the  flexibility  instrument  or 

revision of the multiannual financial framework45. 

Explain what is required, specifying the headings and budget lines concerned  and the corresponding 
amounts. 

[…] 

3.2.5.  Third-party contributions  

–  The proposal/initiative does not provide for co-financing by third parties.  

–  The proposal/initiative provides for the co-financing estimated below: 

EUR million (to three decimal places) 

Year 
N 

Year 
N+146 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary 
to show the duration of the 
impact (see point 1.6) 

Total 

NCAs47 

0.600 

0.338 

0.338 

0.338 

0.338 

0.338 

0.338 

TOTAL 
co-financed  

appropriations 

0.600 

0.338 

0.338 

0.338 

0.338 

0.338 

0.338 

45 

46 

47 

See  Articles  11  and  17  of  Council  Regulation  (EU,  Euratom)  No  1311/2013  laying  down  the 
multiannual financial framework for the years 2014-2020. 
The expenditure for the period after 2020 is given only for illustrative purposes. The financial impact on 
the  European  Budget  post  2020  will  be  part  of  the      Commission  proposals  for  the  next  Multiannual 
Financial Framework. 
The level of co-financing for the ESAs is calculated according to the current governance and funding 
modalities and does not take into account the proposal of the Commission on the ESAs review which is 
not adopted yet. 

EN 

50 

  EN 

 
 
 
 
 
 
 
                                                 
3.3. 

Estimated impact on revenue  

–    The proposal/initiative has no financial impact on revenue. 

–    The proposal/initiative has the following financial impact: 

– 

– 

 

 

on own resources  

on miscellaneous revenue  

Appropriation
s available for 
the current 
financial year 

Budget revenue line: 

Article …………. 

EUR million (to three decimal places) 

Impact of the proposal/initiative

48

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary to show 
the duration of the impact (see point 1.6) 

For miscellaneous ‘assigned’ revenue, specify the budget expenditure line(s) affected. 

Specify the method for calculating the impact on revenue. 

48 

As regards traditional own resources (customs duties, sugar levies), the amounts indicated must be net 
amounts, i.e. gross amounts after deduction of 25 % for collection costs. 

EN 

51 

  EN