Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks, and amending Directive 2014/59/EU
Date: 2021-10-27
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU banking union, administrative sanction, banking policy, banking supervision, branch, credit institution, credit policy, financial requirements, financial risk, third country

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   EUROPEAN COMMISSION  Brussels, 27.10.2021  COM(2021) 663 final 2021/0341 (COD)  Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks, and amending Directive 2014/59/EU   (Text with EEA relevance) {SEC(2021) 380 final} - {SWD(2021) 320 final} - {SWD(2021) 321 final}  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The  proposed  amendment  to  Directive  2013/36/EU  (the  Capital  Requirements  Directive  or 
CRD) is part of a legislative package that includes also amendments to Regulation (EU) No 
575/2013 (the Capital Requirements Regulation or CRR)1. 

In  response  to  the  Great  Financial  Crisis  of  2008-09  (GFC),  the  Union  implemented 
substantial reforms of the prudential framework applicable to banks in order to enhance their 
resilience and thus help prevent the recurrence of a similar crisis. Those reforms were largely 
based  on  international  standards  adopted  since  2010  by  the  Basel  Committee  on  Banking 
Supervision  (BCBS)2.  The  standards  are  collectively  known  as  the  Basel  III  standards,  the 
Basel III reforms or the Basel III framework3. 

The global standards developed by the BCBS have become increasingly important due to the 
ever more global and interconnected nature of the banking sector. While a globalised banking 
sector facilitates international trade and investment, it also generates more complex financial 
risks. Without uniform global standards, banks could choose to establish their activities in the 
jurisdiction  with  the  most  lenient  regulatory  and  supervisory  regimes.  This  might  lead  to  a 
regulatory race to the bottom to attract bank businesses, increasing at the same time the risk of 
global  financial instability.  International  coordination on global standards  limits  this  type of 
risky competition to a large extent and is key for maintaining financial stability in a globalised 
world. Global standards also simplify the life of internationally active banks – among which 
are a good number of EU banks – as they guarantee that broadly similar rules are applied in 
the most important financial hubs worldwide. 

The  EU  has  been  a  key  proponent  of  international  cooperation  in  the  area  of  banking 
regulation.  The  first  set  of  post-crisis  reforms  that  are  part  of  the  Basel  III  framework  have 
been implemented in two steps: 

 

 

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in June 2013 with the adoption of CRR4 and CRD IV5; 

in May 2019 with the adoption of Regulation (EU) 2019/8766, also known as CRR 
II, and Directive (EU) 2019/878, also known as CRD V7. 

COM(2021) 664. 
Members of the BCBS comprise central banks and bank supervisors from 28 jurisdictions worldwide. Among the 
EU  Member  States,  Belgium,  France,  Germany,  Italy,  Luxembourg,  the  Netherlands,  and  Spain,  as  well  as  the 
European Central Bank are members of the BCBS. The European Commission and the EBA participate in BCBS 
meetings as observers. 
The consolidated Basel III framework is available at https://www.bis.org/bcbs/publ/d462.htm.  
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 321, 
26.6.2013, p. 6). 
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of 
credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 
Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation 
(EU)  No  575/2013  as  regards  the  leverage  ratio,  the  net  stable  funding  ratio,  requirements  for  own  funds  and 
eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective 
investment  undertakings  (CIU),  large  exposures,  reporting  and disclosure  requirements,  and  Regulation  (EU)  No 
648/2012.  

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The reforms implemented so far focused on increasing the quality and quantity of regulatory 
capital that banks have to hold to cover potential losses. Furthermore, they aimed at reducing 
banks’  excessive  leverage,  increasing  banks’  resilience  to  short-term  liquidity  shocks, 
reducing their reliance on short-term funding and their concentration risk, and addressing too-
big-to-fail problems8. 

As  a  result,  the  new  rules  strengthened  the  criteria  for  eligible  regulatory  capital,  increased 
minimum  capital  requirements,  and  introduced  new  requirements  for  credit  valuation 
adjustment9  (CVA)  risk  and  for  exposures  to  central  counterparties10.  Furthermore,  several 
new  prudential  measures  were  introduced:  a  minimum  leverage  ratio  requirement,  a  short-
term liquidity ratio (known as the liquidity coverage ratio), a longer-term stable funding ratio 
(known as the net stable funding ratio), large exposure limits11 and macro-prudential capital 
buffers12. 
Thanks  to  this  first  set  of  reforms  implemented  in  the  Union13,  the  EU  banking  sector  has 
become significantly more resilient to economic shocks and entered the COVID-19 crisis on a 
significantly more stable footing when compared to its condition at the onset of the GFC. 

In addition, temporary relief measures were taken by supervisors and legislators at the outset 
of  the  COVID-19  crisis.  In  its  Interpretative  Communication  on  the  application  of  the 
accounting  and  prudential  frameworks  to  facilitate  EU  bank  lending  supporting  businesses 
and  households  amid  COVID-19  of  28  April  202014,  the  Commission  confirmed  the 
flexibility  embedded  in  the  prudential  and  accounting  rules  as  highlighted  by  the  European 
Supervisory  Authorities  and  international  bodies.  On  that  basis,  in  June  2020,  the  co-
legislators  adopted  targeted  temporary  amendments  to  specific  aspects  of  the  prudential 
framework – the so-called CRR “quick fix” package15. Together with resolute monetary and 
fiscal policy measures16, this helped banks to keep on lending to households and companies 
during the pandemic. This, in turn, helped mitigate the economic shock17 resulting from the 
pandemic. 

While the overall level of capital in the EU banking system is now considered satisfactory on 
average, some of the problems that were identified in the wake of the GFC have not yet been 
addressed.  Analyses  performed  by  the  EBA  and  the  ECB  have  shown  that  the  capital 

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Directive  (EU)  2019/878  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending  Directive 
2013/36/EU  as  regards  exempted  entities,  financial  holding  companies,  mixed  financial  holding  companies, 
remuneration, supervisory measures and powers and capital conservation measures. 
See https://www.bis.org/publ/bcbs189.htm. 
CVA is an accounting adjustment to the price of a derivative to account for counterparty credit risk. 
These were the only significant changes to the part of the standards that deal with risk-based capital requirements 
that were introduced as part of the first stage of the Basel III reform. 
A minimum requirement on large exposure limits was already a feature of Union legislation, but was a novelty for 
the Basel standards. 
More  specifically  the  capital  conservation  buffer  (CCB),  the  countercyclical  capital  buffer  (CCyB),  the  systemic 
risk buffer (SRB), and capital buffers for global and other systemically important banks (respectively, G-SII and O-
SII). 
Those first set of reforms have also been implemented in most jurisdictions worldwide as can be observed in the 
eighteenth  progress  report  on  adoption  of  the  Basel  regulatory  framework  published  in  July  2020  (see 
https://www.bis.org/bcbs/publ/d506.htm). 
See https://ec.europa.eu/info/publications/200428-banking-package-communication_en. 
See https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32020R0873&from=EN. 
A comprehensive list of such measures has been collected by the ESBR, see “Policy measures in response to the 
COVID-19 pandemic”.  
In its COVID-19 vulnerability analysis published in July 2020, the ECB showed that the largest euro area banks 
would be sufficiently capitalised to withstand a short-lived deep recession and that the number of those banks with 
(see 
a  more 
insufficient 
https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200728_annex~d36d893ca2.en.pdf). 

recession  would  be 

resources 

case  of 

limited 

capital 

severe 

in 

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requirements  calculated by EU banks using internal models demonstrated a significant level 
of variability that was not justified by differences in the underlying risks and that ultimately 
undermines the reliability and comparability of their capital ratios. In addition, the lack of risk 
sensitivity  in  the  capital  requirements  calculated  using  standardised  approaches  results  in 
insufficient or unduly high capital requirements for some financial products or activities (and 
hence for specific business models primarily based on them). In December 2017, the BCBS 
agreed on a final set of reforms18 to the international standards to address these problems. In 
March 2018, the G20 Finance Ministers and Central Bank Governors welcomed these reforms 
and repeatedly confirmed their commitment to full, timely and consistent implementation. In 
2019,  the  Commission  announced  its  intention  to  table  a  legislative  proposal  to  implement 
these reforms in the EU prudential framework.19 

In light of the COVID-19 pandemic, the preparatory work of this proposal has been delayed. 
The delay reflected the BCBS’s decision of 26 March 2020 to postpone the previously agreed 
implementation deadlines for the final elements of the Basel III reform by one year. 20 

Considering  the  above,  the  present  legislative  initiative  has  two  general  objectives: 
contributing to financial stability and contributing to the steady financing of the economy in 
the  context  of  the  post-COVID-19  crisis  recovery.  These  general  objectives  can  be  broken 
down in four more specific objectives: 

(1) 

(2) 

(3) 

(4) 

to  strengthen  the  risk-based  capital  framework,  without  significant  increases  in 
capital requirements overall; 

to enhance the focus on ESG risks in the prudential framework; 

to further harmonise supervisory powers and tools; and 

to  reduce  banks’  administrative  costs  related  to  public  disclosures  and  to  improve 
access to banks’ prudential data. 

(1) 

To strengthen the risk-based capital framework 

The temporarily stressed economic conditions have not modified the need to deliver on this 
structural  reform.  Completing  the  reform  is  necessary  to  address  the  outstanding  issues,  to 
further strengthen EU banks’ financial soundness, putting them in a better position to support 
economic growth and withstand potential future crises, and to facilitate the comparability of 
capital  levels  across  banks.  The  implementation  of  the  final  Basel  III  elements  is  also 
necessary to provide institutions with the necessary regulatory certainty, completing a decade-
long reform of the prudential framework. 

Finally, completing the reform is in line with the EU’s commitment to international regulatory 
cooperation  and  the  concrete  actions  some  of  its  partners  have  announced  or  have  already 
taken to implement the reform timely and faithfully. 

(2) 

To enhance the focus on ESG risks in the prudential framework 

Another  equally  important  need  for  reform  stems  from  the  Commission’s  ongoing  work  on 
the  transition  to  a  sustainable  economy.  The  Commission  Communication  on  the  European 
Green Deal  (EGD)21  and Commission Communication on achieving the EU’s  2030 Climate 

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See https://www.bis.org/bcbs/publ/d424.htm 
See https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_19_6269.  
More  specifically  to  1  January  2023  for  the  starting  date  of  application  and  to  1  January  2028  for  the  full 
application of the final elements of the reform. 
See https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1588580774040&uri=CELEX:52019DC0640. 

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Target  (‘Fit  for  55’)22  clearly  set  out  the  Commission’s  commitment  to  transform  the  EU 
economy into a sustainable economy, while also dealing with the inevitable consequences of 
climate  change.  It  also  announced  a  Sustainable  Finance  Strategy23  that  builds  on  previous 
initiatives  and  reports,  such  as  the  action  plan  on  financing  sustainable  growth24  and  the 
reports  of  the  Technical  Expert  Group  on  Sustainable  Finance25,  but  reinforces  the 
Commission’s efforts in this area to bring them in line with the ambitious goals of the EGD. 

The  transition  towards  the  Commission’s  sustainability  goals  requires  unprecedented 
financing  efforts  to  mitigate  and  adapt  to  climate  change,  rebuild  natural  capital  and 
strengthen  resilience  and  wider  social  capital.  Public  finances  alone  will  not  be  enough. 
Private investment of the transition to a sustainable, carbon-neutral, circular and just economy 
needs  to  scale-up  to  meet  the  estimated  amount  of  resources  that  need  to  be  deployed  to 
achieve  these  goals.  Putting  green  and  sustainable  financing  at  the  heart  of  the  financial 
system  is  the  aim  of  the  Commission’s  strategy  for  green  financing.  Bank-based 
intermediation  will  therefore  play  a  crucial  role  in  financing  the  transition  to  a  more 
sustainable economy. At the same time, this transition is likely to entail risks for banks that 
they  will  need  to  properly  manage  to  ensure  that  risks  to  financial  stability  are  minimised. 
This is where prudential regulation is needed and where it can play a crucial role. EU strategy 
acknowledged this and highlighted the need to include a better integration of environmental, 
social  and  governance  (ESG)  risks  into  the  EU  prudential  framework.  The  present  legal 
requirements  alone  are  insufficient  to  provide  incentives  for  a  systematic  and  consistent 
management of ESG risks by banks. 

(3) 

To further harmonise supervisory powers and tools 

Another area of focus is the proper enforcement of prudential rules. Supervisors need to have 
at their disposal the necessary tools and powers to this effect (e.g. powers to authorise banks 
and their activities, assess the suitability of their management, or sanction them in case they 
break  the  rules).  While  the  EU  legislation  ensures  a  minimum  level  of  harmonisation,  the 
supervisory  toolkit  and  procedures  vary  greatly  across  Member  States.  This  fragmented 
regulatory landscape in the definition of certain powers and tools available to supervisors and 
their  application  across  Member  States  undermines  the  level  playing  field  in  the  internal 
market  and  raises  doubts  about  the  sound  and  prudent  management  of  EU  banks  and  their 
supervision.  This  problem  is  particularly  acute  in  the  context  of  the  Banking  Union. 
Differences  across  21  different  legal  systems  prevent  the  Single  Supervisory  Mechanism 
(SSM) from performing its supervisory functions effectively and efficiently. Moreover, cross-
border  banking  groups  have  to  deal  with  a  number  of  different  procedures  for  the  same 
prudential issue, unduly increasing their administrative costs. 

(4) 

To  reduce  banks’  administrative  costs  related  to  public  disclosures  and  improve 
access to banks’ prudential data. 

This proposal is also necessary to further enhance market discipline. This is another important 
tool in order for investors to exercise their role of monitoring the behaviour of banks. To do 
so, they need to access the necessary information. The current difficulties related to the access 
to  prudential  information  deprive  market  participants  from  the  information  they  need  about 
banks’  prudential  situations.  This  ultimately  reduces  the  effectiveness  of  the  prudential 

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See https://eur-lex.europa.eu/legal-content/ES/TXT/?uri=COM:2021:550:FIN  
See COM(2021) 390 final. 
See https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018DC0097. 
See https://ec.europa.eu/info/publications/sustainable-finance-high-level-expert-group_en. 

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framework for banks  and potentially raises doubt about the resilience of the banking sector, 
especially in periods of stress. For this reason, the proposal aims to centralise disclosures of 
prudential  information  with  a  view  to  increase  access  to  prudential  data  and  comparability 
across  industry.  The  centralisation  of  disclosures  in  a  single  access  point  established  by  the 
EBA is also aimed at reducing the administrative burden for institutions, especially small and 
non-complex ones. 

Another cross-sectoral objective, providing a robust EU framework for third country groups 
providing  banking  services  in  the  EU,  has  taken  a  new  dimension  after  Brexit.  The 
establishment  of  third  country  branches  (TCBs)  is  fundamentally  subject  only  to  national 
legislation  and  harmonised  to  a  very  limited  extent  by  the  CRD.  The  recent  report  by  the 
EBA26  to  the  Institutions  shows  that  the  current  patchy  regulatory  landscape  offers  TCBs 
significant  opportunities  for  regulatory  and  supervisory  arbitrage  to  conduct  their  banking 
activities  on  the  one  hand,  whilst  leading  to  a  lack  of  supervisory  oversight  and  increased 
financial stability risks for the EU on the other hand. 

Supervisors  often  lack  the  information  and  powers  that  they  need  to  properly  address  those 
risks.  The  absence  of  common  prudential,  governance  and  detailed  supervisory  reporting 
requirements,  as  well  as  the  insufficient  exchange  of  information  between  the  authorities  in 
charge of supervising different entities/activities of a third country group leaves blind spots. 
The EU is  the only major jurisdiction where the consolidating supervisor does not  have the 
full  picture  of  the  activities  of  third  country  groups  operating  via  both  subsidiaries  and 
branches. These shortcomings are not only creating risks for the financial stability and market 
integrity  of  the  EU,  but  also  impacting  the  level  playing  field  among  third  country  groups 
operating across different Member States, as well as vis-à-vis banks headquartered in the EU. 

• 

Consistency with existing policy provisions in the policy area 

Several  elements  of  the  CRD  and  CRR  proposals  follow  work  undertaken  at  international 
level,  or  by  the  EBA,  whilst  other  adaptations  of  the  prudential  framework  have  become 
necessary  due  to  the  practical  experience  gained  since  the  national  transposition  and 
application of the CRD, including in the context of the Single Supervisory Mechanism. 

The proposal introduces amendments to the existing legislation and renders it fully consistent 
with  the  existing  policy  provisions  in  the  area  of  prudential  regulation  and  supervision  of 
banks.  The  review  of  the  CRR  and  of  the  CRD  aims  at  finalising  the  Basel  III  reform 
implementation  in  the  EU  introducing  measures  that  are  needed  to  further  strengthen 
resilience of the banking sector. 

• 

Consistency with other Union policies 

Almost ten years passed since the European Heads of State and Governments agreed to create 
a Banking Union; two pillars of the Banking Union – single supervision and resolution – are 
in place, resting on the solid foundation of a single rulebook for all EU institutions. 

This  proposal  aims  at  ensuring  a  continued  single  rulebook  for  all  EU  institutions,  whether 
inside  or  outside  the  Banking  Union.  The  overall  objectives  of  the  initiative,  as  described 
above,  are  fully  consistent  and  coherent  with  the  EU’s  fundamental  goals  of  promoting 
financial  stability,  reducing  the  likelihood  and  the  extent  of  taxpayers'  support  in  case  an 

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EBA/REP/2021/20.  The  CRD  requires  the  EBA  to  report  on  the  regulatory  arbitrage  resulting  from  the  current 
different treatments of TCBs. This report takes stock of the national regimes for TCBs and confirms that significant 
differences  persist  in  the  national  treatment  of  these  branches  and  in  the  degree  of  involvement  of  the  host-
supervisor. 

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institution  is  resolved,  as  well  as  contributing  to  a  harmonious  and  sustainable  financing  of 
economic  activity,  which  is  conducive  to  a  high  level  of  competitiveness  and  consumer 
protection. 

Lastly, with the recognition of ESG-related risks and the incorporation of ESG elements in the 
prudential  framework,  this  initiative  complements  the  EU  broader  strategy  for  a  more 
sustainable and resilient financial system. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The proposal considers actions to frame the taking up, the pursuit and the supervision of the 
business of banks within the Union, with the objective of ensuring the stability of the internal 
market.  One  of  the  fundamental  components  of  the  Union’s  financial  system,  banking  is 
currently providing the largest part of financing within the internal market. The Union has a 
clear mandate to act in the area of the internal market and the appropriate legal basis consists 
of the relevant Treaty Articles27 underpinning Union competences in this area. 

The  proposed  amendments  are  built  on  the  same  legal  basis  as  the  legislative  acts  that  are 
being amended, i.e. Article 114 TFEU for the proposal  for a regulation  amending CRR and 
Article 53(1) TFEU for the proposal for a directive amending CRD. 

• 

Subsidiarity (for non-exclusive competence) 

The legal basis falls within the internal market area, which is considered a shared competence, 
as  defined  by  Article  4  TFEU.  Most  of  the  actions  considered  represent  updates  and 
amendments  to  existing  Union  law,  and  as  such,  they  concern  areas  where  the  Union  has 
already exercised its competence and does not intend to cease exercising such competence. A 
few actions (particularly those amending the CRD) aim to introduce an additional degree of 
harmonisation in order to achieve consistently the objectives defined by that Directive. 

Given  that  the  objectives  pursued  by  the  proposed  measures  aim  at  supplementing  already 
existing EU legislation, they can be best achieved at EU level rather than by different national 
initiatives. National measures aimed at, for example, implementing rules that have an inherent 
international  footprint  elements  –  such  as  a  global  standard  like  Basel  III  or  better  tackling 
ESG-related risks - into applicable legislation would not be as effective in ensuring financial 
stability  as  EU  rules.  In  terms  of  supervisory  measures,  disclosures  and  third  country 
branches, if the initiative is left at national level only, this may result in reduced transparency 
and  increased  arbitrage  costs,  leading  to  potential  distortion  of  competition  and  affecting 
capital flows. Moreover, adopting national measures would be legally challenging, given that 
the CRR already regulates banking matters, including risk weights, reporting and disclosures 
and other CRR-related requirements. 

The amendment of the CRR and the CRD is thus considered to be the best option. It strikes 
the  right  balance  between  harmonising  rules  and  maintaining  national  flexibility  where 
essential, without hampering the single rulebook. The amendments would further promote a 
uniform application of prudential requirements, the convergence of supervisory practices and 
ensure  a  level  playing  field  throughout  the  internal  market  for  banking  services.  This  is 

27 

The relevant Treaty Articles conferring the Union the right to adopt measures are those concerning the 
freedom of establishment (in particular Article 53 TFEU), the freedom to provide services (Article 59 
TFEU), and the approximation of rules which have as their object the establishment and functioning of 
the internal market (Article 114 TFEU). 

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particularly important in the banking sector where many credit institutions operate across the 
EU  internal  market.  Full  cooperation  and  trust  within  the  single  supervisory  mechanism 
(SSM)  and  within  the  colleges  of  supervisors  and  competent  authorities  outside  the  SSM  is 
essential  to  ensure  the  effective  supervision  of  credit  institutions  on  a  consolidated  basis. 
National rules would not achieve these objectives. 

• 

Proportionality 

Proportionality has been an integral part of the impact assessment accompanying the proposal. 
The  proposed  amendments  in  different  regulatory  fields  have  been  individually  assessed 
against  the  proportionality  objective.  In  addition,  the  lack  of  proportionality  of  the  existing 
rules has been assessed in several domains and specific options have been analysed aiming at 
reducing administrative burden and compliance costs for smaller institutions. 

For  instance,  the  amendments  introducing  ex-ante  notification  requirements  for  banks  on 
events  with  prudential  relevance  are  subject  to  materiality  thresholds,  below  which  events 
need  not  be  notified.  Under  the  new  third  country  branch  framework,  those  branches  that 
qualify as small and less risky (class 2 third country branches) are subject to comparably less 
stringent prudential and reporting requirements. Lastly, the new requirements for ex-ante fit-
and-proper assessment have been calibrated to target only large financial institutions. 

• 

Choice of the instrument 

The measures are proposed to be implemented by amending the CRR and the CRD through a 
Regulation  and  a  Directive,  respectively.  The  proposed  measures  indeed  refer  to  or  further 
develop already existing provisions inbuilt in those legal instruments (i.e. the framework for 
calculating  risk-based  capital  requirements,  powers  and  tools  made  available  to  supervisors 
across the Union). 

Some of the proposed CRD amendments affecting sanctioning powers would leave Member 
States  with  a  certain  degree  of  flexibility  to  maintain different  rules  at  the  stage  of  their 
transposition into national law. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

The Commission has taken several steps and carried out various initiatives in order to assess 
whether the current  banking prudential  framework in  the EU and the implementation  of the 
outstanding international standards are adequate to contribute to ensuring that the EU banking 
system is stable and resilient to economic shocks and remains a sustainable source of steady 
funding for the EU economy. 

The  Commission  gathered  stakeholders’  views  on  specific  topics  in  the  areas  of  credit  risk, 
operational risk, market risk, CVA risk, securities financing transactions, as well as in relation 
to the output floor. In addition to these elements related to the Basel III implementation, the 
Commission has also consulted on certain other subjects with a view to ensuring convergent 
and  consistent  supervisory  practices  across  the  Union  and  alleviating  the  institutions’ 
administrative burden. 

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A public consultation  carried out  between October 2019 and early January  202028 had been 
preceded by a first exploratory consultation conducted in spring 201829, seeking first views of 
a  targeted  group  of  stakeholders  on  the  international  agreement.  The  results  of  the  two 
consultations  have  fed  into  the  preparation  of  the  legislative  initiative  accompanying  the 
impact assessment. 

All  the  initiatives  mentioned  above  have  provided  clear  evidence  of  the  need  to  update  and 
complete the current rules in order to i) further reduce the risks in the banking sector, and ii) 
enhance the ability of institutions to channel adequate funding to the economy. 

Annex 2 of the impact assessment provides a summary of the consultation. 

• 

Collection and use of expertise 

The Commission made use of the expertise of the EBA, which prepared an impact analysis on 
the  implementation  of  Basel  III  reform  finalisation30.  In  addition,  the  Commission  services 
considered the ECB macroeconomic analysis. This is presented in the impact assessment and 
updates the previous macroeconomic analysis published in December 2019. 

• 

Impact assessment31 

The  impact  assessment  considered  a  range  of  policy  options  across  four  key  policy 
dimensions, in addition to the baseline situation where no Union action is taken. As shown by 
the  simulation  analysis  and  macroeconomic  modelling  developed  in  the  impact  assessment, 
implementing the preferred options and taking into account all the measures in the proposal is 
expected to lead to a weighted average increase in EU banks’ minimum capital requirements 
of +6.4% to +8.4% in the long term (by 2030), after the envisaged transitional period. In the 
medium term (in 2025), the increase is expected to range between +0.7% and +2.7%. 

According to estimates provided by the EBA, this impact could lead a limited number of large 
EU  banks  (10  out  of  99  banks  in  the  test  sample)  to  have  to  raise  collectively  additional 
capital  amounts  (less  than  EUR  27bn  for  the  10  banks)  in  order  to  meet  the  new  minimum 
capital  requirements  under the preferred option. To put  this amount into perspective, the 99 
banks  in  the  sample  (representing  75%  of  EU  banking  assets)  held  a  total  amount  of 
regulatory capital  worth  EUR 1414bn at  the end of 2019 and had combined profits of EUR 
99.8bn in 2019. 

While  banks  would  incur  one-off  administrative  and  operational  costs  to  implement  the 
changes  in  the  rules,  the  simplifications  implied  by  several  of  the  preferred  options  (e.g. 
removal  of  internally  modelled  approaches)  are  expected  to  reduce  the  recurring  costs 
compared to today. 

28 

29 
30 

31 

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12015-Alignment-EU-

See 
rules-on-capital-requirements-to-international-standards-prudential-requirements-and-market-
discipline-/public-consultation_en. 
See https://ec.europa.eu/info/consultations/finance-2018-basel-3-finalisation_en 
In  its  report  published  in  December  2020,  the  EBA  provided  the  impacts  on  the  same  sample  of  99 
banks but based on Q2 2018 data which was used in their previous impact analysis. From Q2 2018 to 
Q4 2019, the total increase in minimum capital requirements decreased by over 5 percentage points (i.e. 
from  +24.1%  to  +18.5%),  while  the  capital  shortfall  across  these  banks  has  more  than  halved  (from 
EUR 109.5 bn to EUR 52.2 bn).  
SWD(2021) 321 (RIA). The impact assessment did not include an assessment of the proposal on third 
country branches, as the EBA Report on which the analysis is based was released on 23 June 2021. An 
assessment  on  the  impact  of  the  proposal  based  on  the  EBA  Report  has  been  included  in  this 
Explanatory memorandum as part of the section on third country branches. 

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• 

Regulatory fitness and simplification 

This  initiative is  aimed at  completing the EU implementation  of the international  prudential 
standards for banks agreed by the BCBS between 2017 and 2020. It would complete the EU 
implementation of the Basel III reform that was launched by the Basel Committee in the wake 
of the  GFC. That  reform was in itself a comprehensive review of the prudential  framework 
that was in place before and during the GFC, namely the Basel II framework (in the EU that 
framework  was  implemented  through  Directive  2006/48/EC,  i.e.  the  original  CRD).  The 
Commission  used  the  results  of  the  comprehensive  review  by  the  BCBS  of  the  prudential 
framework,  together  with  input  provided  by  the  EBA,  the  ECB  and  other  stakeholders,  to 
inform its implementation work. Pending the implementation of the final Basel III reforms in 
the EU, a fitness check or refit exercise has not been carried out yet. 

• 

Fundamental rights 

The EU is committed to high standards of protection of fundamental rights and is signatory to 
a broad set of conventions on human rights. In this context, the proposal is not likely to have a 
direct  impact  on  these  rights,  as  listed  in  the  main  UN  conventions  on  human  rights,  the 
Charter  of  Fundamental  Rights  of  the  European  Union,  which  is  an  integral  part  of  the  EU 
Treaties and the European Convention on Human Rights (ECHR). 

4. 

BUDGETARY IMPLICATIONS 

The proposal does not have implications for the Union budget. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

It  is  expected  that  the  proposed  amendments  will  start  entering  into  force  in  2023  at  the 
earliest.  The  amendments  are  tightly  inter-linked  with  other  provisions  of  the  CRR  and  the 
CRD that are already in force and have been monitored since 2014 and, with  respect  to  the 
measures introduced by the risk reduction measures package, since 2019. 

The BCBS and the EBA will continue to collect the necessary data for the monitoring of the 
key metrics (capital rations, leverage ratio, liquidity measures). This will allow for the future 
impact  evaluation  of  the  new  policy  tools.  Regular  Supervisory  Review  and  Evaluation 
Process (SREP) and stress testing exercises will also help monitoring the impact of the new 
proposed measures  on affected institutions and assessing the adequacy of the flexibility and 
proportionality provided to cater for the specificities of smaller institutions. Additionally, the 
EBA,  together  with  the  SSM  and  the  national  competent  authorities,  are  developing  an 
integrated reporting tool (EUCLID) which is expected to be an useful instrument to monitor 
and evaluate the impact of the reforms. Finally, the Commission will continue to participate in 
the working groups of the BCBS and the joint task force established by the European Central 
Bank  (ECB)  and  by  the  EBA,  that  monitor  the  dynamics  of  institutions’  own  funds  and 
liquidity positions, globally and in the EU, respectively. 

• 

Explanatory documents (for directives) 

No explanatory documents are considered necessary. 

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• 

Detailed explanation of the specific provisions of the proposal 

Independence of competent authorities 

Recent  developments  showed  the  need  for  clearer  and  more  operational  provisions  on  the 
principle of independence of competent authorities. Therefore, Article 4 is amended to clarify 
how  Member  States  must  ensure  that  the  independence  of  competent  authorities,  including 
their  staff  and  governance  bodies,  is  preserved.  Minimum  requirements  are  introduced  to 
prevent conflicts of interests in the supervisory tasks of competent authorities,their staff and 
governance  bodies,  and  EBA  is  mandated  to  develop  guidelines  in  that  regard,  taking  into 
account international best practices. 

Supervisory powers 

For it to  be  efficient,  the Banking Union  relies  on the convergence of supervisory practices 
and, ultimately, on a sufficient degree of harmonisation of the various national rules framing 
the supervisory action. A certain number of discrepancies between Member States are, in this 
regard, considered as very detrimental to the proper functioning of the Banking Union. This 
is,  in  particular,  the  case  of  supervisory  powers.  While  the  CRD  lists  a  minimum  set  of 
supervisory powers that must be available to competent authorities across the Union, some of 
them are already in place in many Member States while missing in others. This situation leads 
to an uneven playing field and, potentially, to regulatory arbitrage. It also makes impossible 
for some competent authorities to intervene in certain transactions conducted by a supervised 
entity that may raise strong prudential and/or money laundering/terrorism financing concerns. 

To remedy this situation, the Commission’s proposal expands the list of supervisory powers 
available in  the CRD to  competent  authorities to  cover operations such as acquisitions by  a 
credit institution of a material holding in a financial or non-financial entity (new Chapter 3 in 
the current Title III), the material transfer of assets or liabilities (new Chapter 4) and merger 
or divisions (new Chapter 5). These supervisory powers will ensure that competent authorities 
are  notified  in  advance  (Articles  27a,  27f  and  27j),  have  at  their  disposal  all  the  necessary 
information to perform a prudential assessment of these operations, and can ultimately oppose 
to  the  completion  of  operations  (Articles  27b,  27g  and  27k)  detrimental  to  the  prudential 
profile of the supervised entities undertaking them. 

These new supervisory powers are framed in order stay proportionate, and more specifically 
to  avoid  undue  additional  administrative  burden  for  supervised  entities  and  competent 
authorities.  First  of  all,  powers  related  to  acquisition  by  credit  institutions  of  qualifying 
holdings  and  transfers  of  assets  and  liabilities  only  apply  in  case  of  transactions  deemed 
material.  A  tacit  approval  mechanism  is  provided  for,  similar  to  the  one  in  place  for  the 
acquisition  of  material  holdings  in  credit  institutions,  in  order  to  give  legal  certainty  to 
supervised  entities  and  to  prevent  that  competent  authorities  be  obliged  to  engage  in  a 
standard procedure of adoption of decisions where these are not necessary. Only in the case of 
mergers  and  divisions,  a  prior  approval  from  competent  authorities  is  imposed  in  all  cases 
(unless the operation is internal to a group), as long as it does not lead to a situation where the 
new entity stemming from the merger of the division would need to seek an authorisation as a 
credit institution or an approval as a financial holding company. 

In addition, in order to ensure a proper articulation between the various assessments (possibly 
involving  multiple  competent  authorities)  that  could  have  to  be  undertaken  for  one  single 
operation,  a  close  cooperation  between  the  competent  authorities  involved  is  expected,  and 
framed by requirements to cross notifications and information sharing (Articles 27c, 27h and 
27k). To facilitate this cooperation, but also to ensure a proper streamlining of the notification 
and  assessments  processes  and  to  avoid  undue  administrative  burden  for  both  supervised 

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entities  and  competent  authorities,  a  certain  number  of  EBA  mandates  are  proposed  to 
supplement  the  legal  framework  envisaged  in  the  CRD  for  these  new  supervisory  powers. 
These  mandates  concern  matters  such  as  the  information  to  be  sent  to  the  competent 
authorities,  the  assessment  process,  added  detail  on  the  relevant  assessment  criteria,  or  the 
cooperation between the various competent authorities which may be involved. 

These  amendments  were  subject  to  dedicated  discussions  within  the  Expert  Group  on 
Banking, Payments and Insurance. 

Fit & Proper 

The  fit-and-proper  framework  is  one  of  the  least  harmonised  areas  in  EU  bank  supervisory 
law  and,  accordingly,  amendments  to  the  CRD  are  deemed  necessary  to  ensure  a  more 
consistent, efficient and effective supervision of members of the management body and of key 
function  holders.  Despite  the  efforts  made  by  regulators  and  supervisors32  to  ensure  further 
supervisory  convergence,  legislative  modifications  are  necessary  to  improve  their  oversight. 
The current framework for board members, based on national laws implementing the CRD, is 
largely  principle-based  and  therefore  does  not  detail  how  and  when  supervisors  should 
conduct  fit-and-proper  assessments.  As  regards  key  function  holders,  the  absence  of  a 
definition and a framework in the CRD has led some supervisors to not properly identify them 
and therefore to not carry out an assessment of their suitability to perform their duties, while 
others do it in a variety of ways. This fragmented regulatory landscape is an acute problem, 
particularly  in  the  Banking  Union.  Therefore,  in  addition  to  the  fit-and-proper  criteria  in 
Article  91,  Articles  91a  and  91b  are  introduced  to  clarify  the  role  of  banks  and  competent 
authorities  for  checking  the  compliance  of  board  members,  including  the  timing  of  such 
assessment.  Articles  91c  and  91d  are  added  to  set  minimum  requirements  for  key  function 
holders. 

To ensure financial stability, in urgent situations of removal or replacement of members of the 
management  body  or  senior  management  in  the  context  of  application  of  early  intervention 
measures or implementation of resolution action by the competent authorities and resolution 
authorities, the fit-and-proper assessment should be carried out after those persons have taken 
up their duties. 

Clarification  of  the  interplay  between  the  failing  or  likely  to  fail  declaration  (FOLTF) 
and the withdrawal of authorisation 

Article 18 is amended in order to clarify that where a credit institution is declared failing or 
likely  to  fail  (FOLTF)  by  the  competent  authority  or  by  the  resolution  authority,  the 
competent authority is empowered to withdraw of the banking authorisation. 

Some  recent  cases  highlighted  a  suboptimal  alignment  between  the  prudential  and  the 
resolution frameworks. To make an example, under the Union’s bank resolution framework, 
not only actual insolvency or actual illiquidity, but also likely insolvency and likely illiquidity 
constitute  grounds  for  determining  that  a  credit  institution  is  FOLTF.  Instead,  national 
insolvency laws usually require actual insolvency and/or actual illiquidity to occur before an 
insolvency  proceeding  can  be  opened.  Some  of  the  elements  which  are  embedded  into  the 
national  legislative  framework  for  insolvency  cannot  be  addressed  via  changes  to  the  CRD. 
However,  it  is  proposed  to  clarify  in  Article  18,  point  (g)  that  in  case  a  credit  institution  is 

32 

See https://www.eba.europa.eu/regulation-and-policy/internal-governance/joint-esma-and-eba-
guidelines-on the-assessment-of-the-suitability-of-members-of-the-management-body. 
See https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.fap_guide_201705_rev_201805.en.pdf 

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FOLTF  and,  at  the  same  time,  it  does  not  meet  the  other  conditions  to  enter  resolution 
(presence  of  public  interest,  absence  of  a  market  driven  alternative  to  resolve  the  crisis),  it 
should discontinue the banking business and be liquidated under national laws. 

Environmental, social and governance (ESG) risks 

New provisions are introduced and adjustments made to several Articles in the CRD and in 
the  CRR  in  order  to  address  the  significant  risks  that  credit  institutions  will  face  due  to 
climate  change  and  the  profound  economic  transformations  that  are  needed  to  manage  this 
and  other  ESG  risks.  The  provisions  in  Article  133  on  the  systemic  risk  buffer  (SyRB) 
framework may already be used to address various kinds of systemic risks, which may include 
risks  related  to  climate  change.  The  relevant  competent  or  designated  authorities,  as 
applicable, may require credit institutions to maintain a systemic risk buffer to address risks 
with the potential to have serious negative consequences for the financial system and the real 
economy in Member States, where imposing a systemic risk buffer rate is  deemed effective 
and  proportionate  to  mitigate  the  risk.  According  to  Article  133(5),  measures  taken  by  the 
relevant competent or designated authorities under Article 133 can be applied across certain 
sets or subsets of exposures, for instance those subject to physical and transition risks related 
to  climate  change.  The  suitability  of  the  macroprudential  framework  for  dealing  with  such 
risks  will  be  assessed  in  a  comprehensive  and  structured  way  in  the  2022  review  of  the 
macroprudential framework. 

Article 73 and  Article 74 of the CRD are amended to  require that short, medium  and long-
term  horizons  of  ESG  risks  be  included  in  credit  institutions’  strategies  and  processes  for 
evaluating internal capital needs as well as adequate internal governance. 

A  reference  to  the  current  and  forward-looking  impacts  of  ESG  risks  and  a  request  for  the 
management  body  to  develop  concrete  plans  to  address  these  risks  are  also  introduced  in 
Article 76. 

Article 87a of the CRD introduces a sustainability dimension in the prudential framework to 
ensure a better management of ESG risks and incentivise a better allocation of bank funding 
across sustainable projects, thus helping the transition to a more sustainable economy. Article 
87a  also  enables  competent  authorities  to  review  banks’  alignment  with  the  relevant  Union 
policy objectives or broader transition trends relating to ESG factors and banks’ management 
of ESG risks over the short, medium and long term, leading to an improved understanding of 
these  risks  and  enabling  competent  authorities  to  address  financial  stability  concerns  that 
could  arise  from  credit  institutions’  continuing  to  misprice  ESG  risks.  To  ensure  the 
consistency  of  ESG  risk  assessments,  Article  87a  mandates  the  EBA  to  specify  further  the 
criteria for the assessment of ESG risks, including how they should be identified, measured, 
managed  and  monitored  as  well  as  how  credit  institutions  should  draw  concrete  plans  to 
address and internally stress test resilience and long-term negative impacts to the ESG risks. 

As  regards  the  supervisory  review  and  evaluation  process  (SREP),  the  EBA  is  given  the 
power in Article 98 to issue guidelines on the uniform inclusion of ESG risks in the SREP. 

In light of the relevance of future-looking stress tests for gauging environment-related as well 
as other ESG risks in the review and evaluation process (SREP) under Article 97, Article 100 
is amended to enable the EBA together with the other ESAs to develop consistent standards 
for  methodologies  to  stress  test  these  risks,  giving  priority  to  environment-related  risks  as 
ESG risk data and methodologies evolve to capture the other factors. 

To facilitate the SREP of the credit institutions’ exposures, governance  and management of 
ESG risks, Article 98 is amended to require competent authorities to assess the adequacy of 

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institutions’ exposures as well as of the arrangements, strategies, processes and mechanisms 
to manage these risks in their review and evaluation. 

In order to  facilitate the  possibility for  competent authorities to  address  ESG risks affecting 
the prudential situation of the bank over the short, medium and long term, and to reflect the 
specificities of these category of risks, a concrete supervisory power to address ESG risks is 
added in Article 104. 

Direct provision of banking services in the EU by third country undertakings 

Credit institutions are subject to prudential regulation and supervision to minimise the risk of 
failure and, when it occurs, to manage that failure to prevent that it may spread in a disorderly 
manner to other credit institutions and market players and lead to the collapse of the financial 
system  (contagion  risk).  Hence,  one  of  the  main  purposes  of  prudential  regulation  and 
supervision is to protect the financial stability of the Union and its Member States. 

Taking  into  account  this  objective,  it  is  essential  to  prevent  that  areas  or  segments  in  the 
markets  may  fall  outside  the  scope  or  reach  of  the  system  of  prudential  regulation  and 
supervision, as in this scenario risks could build up in those segments in an unchecked fashion 
and  spread  to  other  parts  of  the  financial  system  with  very  damaging  effects.  This  is 
particularly  important  for  those  parts  of  the  financial  markets  where  credit  institutions  are 
closely involved. 

The financial crisis of 2008-2009 is the latest historical precedent which underlines how small 
market segments may become the source of significant threats to the financial stability of the 
Union and its Member States if left outside the scope of prudential regulation and supervision. 

For  that  reason,  the  provision  of  banking  services  in  the  Union  requires  having  a  physical 
presence in a Member State through a branch or a legal person, as only through such physical 
presence credit institutions may be subject to effective prudential regulation and supervision 
in  the  Union.  A  sensu  contrario,  the  provision  of  banking  services  in  the  Union  without  a 
branch or  a legal  person established in  a Member State  contributes  to  creating such type of 
market segments that fall outside the scope and reach of the Union’s prudential regulation and 
supervision,  where  risks  may  build  up  unchecked  and  eventually  threaten  the  financial 
stability of the Union or its Member States. 

Hence,  undertakings  in  third  countries  must  set  up  a  branch  in  a  Member  State  and  seek 
authorisation under Title VI of the CRD for that branch as a condition for being allowed to 
start conducting banking activities in that Member State. Article 21c is inserted in the CRD to 
set this requirement explicitly. 

However,  this  requirement  need  not  apply  to  cases  where  such  third  country  undertakings 
engage in the provision of banking services with clients and counterparts in a Member State 
through reverse solicitation of services, as in such cases it is the relevant client or counterpart 
that approaches the undertaking in the third country to solicit the provision of the service. 

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Third country branches (TCBs) 
Overview of TCBs in the EU33 

As  of  31  December  2020,  there  were  106  TCBs  in  the  EU  distributed  across  17  Member 
States. The aggregate amount of total assets held by them on that date was just over EUR 510 
billion,  86%  of  which  was  concentrated  in  only  four  Member  States  (Belgium,  France, 
Germany and Luxembourg). 

There  seems  to  be  a  trend  towards  an  increasing  use  of  TCBs  to  access  Member  States’ 
banking markets, insofar as the total number of TCBs went up by 14 and the amount of assets 
held by them by EUR 120.5 billion in 2020 relative to 2019. 

Source: EBA Report on Third Country Branches 

While a majority of TCBs (70 out of 106) held less than EUR 3 billion in assets, there were 
two individual TCBs holding assets in excess of EUR 30 billion, and another 14 TCBs held 
assets in an amount between EUR 10 billion and EUR 30 billion (compared to 6 on the same 
date of the previous year). 

As of 31 December 2020, TCBs established in the EU originated from 23 third countries, the 
most numerous being from China (18), UK (15), Iran (10), USA (9) and Lebanon (9). Several 
third country  groups  (23) have TCBs in  more than one Member State.  In addition,  some of 
those third country groups also have one or more subsidiaries in the EU. For instance, 14 third 
country groups have both a TCB and a subsidiary in the same Member State. Of these, 9 third 
country  groups  have  one  subsidiary  and  two  or  more  TCBs  in  the  EU.  Two  third  country 
groups have a double presence comprising a TCB and a subsidiary in more than one Member 
State. The largest 15 third country groups operating in the EU hold more than ¾ of their EU 
assets  via  TCBs.  As  regards  the  impact  of  TCBs’  presence  in  the  EU,  it  can  be  measured 
using the following two metrics: 

(a) 

33 

34 

the ratio of TCBs’ aggregate total asset amount per Member State as at 31 December 
2019 against the size of the national banking system34. This ratio is lower than 1% in 
7  Member  States,  between  1%  and  10%  in  6  Member  States  and  increases  to  over 
25% in 1 Member State. 

This section is based on the EBA Report on the treatment of incoming third country branches under the 
national law of Member States of 23 June 2021 (Report on third country branches.docx (europa.eu)) 
This  metric  is  determined  using  CBD2  data  which  refers  to  data  published  by  the  ECB  regarding 
‘Domestic banking groups and stand‐alone banks, foreign (EU and non‐EU) controlled subsidiaries and 
foreign (EU and non‐EU) controlled branches’ for December 2019. 

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(b) 

the ratio of TCBs’ aggregate total asset amount per Member State as at 31 December 
2019 against the size of the national GDP. This ratio is lower than 1% in 7 Member 
States,  between  1%  and  10%  in  6  Member  States  and  increases  to  over  25%  in  1 
Member State. 

As  for  business  models  and  based  on  available  information,  50  TCBs  operate  as  universal 
banks, while 48 operate only as wholesale banks. Only 4 TCBs operate as retail banks. 

Current challenges 

As  shown  in  the  preceding  section,  the  footprint  of  TCBs  in  the  EU  is  already  highly 
significant. In various cases, TCBs hold collectively a very material amount of assets relative 
to  the size of the GDP of their Member State of establishment and of the banking sector of 
that same Member State. For some TCBs, the individual asset size exceeds the threshold that 
would  make  them  qualify  as  significant  institutions  under  the  direct  supervision  of  the 
European  Central  Bank  (ECB)  in  the  context  of  the  Single  Supervisory  Mechanism  (SSM). 
However,  TCBs  remain  outside  the  scope  of  the  SSM  and  not  subject  to  the  supervisory 
requirements  laid  down  in  the  CRD  as  they  are  not  credit  institutions  authorised  under 
Chapter 1 of Title III of that Directive. 
In  contrast  to  such  background,  the  establishment  of  TCBs  to  provide  banking  services35 in 
the EU is essentially subject to national legislation, as only high level information obligations 
in  relation  to  them  have  recently  been  harmonised  as  part  of  CRDV.  This  creates  a  patchy 
regulatory landscape that gives rise to disparate requirements on TCBs in each Member State 
and to significant challenges for competent authorities to monitor properly the risks that result 
from the activities they conduct in the EU. For instance: 

(a) 

(b) 

(c) 

given  the  complete  absence  of  a  common  prudential  or  governance  regulatory 
framework  on  TCBs,  some  of  them  are  subject  to  only  limited  requirements  in 
certain Member States; 

current  EU-wide  supervisory  cooperation  mechanisms  do  not  capture  TCBs,  which 
creates blind spots insofar as TCBs generate risks that can spill over in an unfettered 
fashion  to  other  group  entities  or  to  the  market.  For  example,  as  there  is  no 
requirement  for  competent  authorities  to  exchange  comprehensive  information  on 
TCBs,  authorities  supervising  a  third  country  group  in  one  Member  State  lack 
sufficient information on the TCBs of the same group in another Member State and, 
by the same token, they also lack adequate tools to deal with such potential spill-over 
risks; 

several  third  country  groups  use  complex  legal  structures  through  a  mix  of 
subsidiaries  and  branches  or,  depending  on  the  services  provided,  cross-border 
operations,  to  conduct  their  activities  in  the  EU.  Such  complex  structures  can  be 
opaque  and  very  difficult  for  competent  authorities  to  properly  supervise  given  the 
different and disjointed set of requirements that apply to each of those. For example, 
double-hatting  of  board  members  can  lead  to  conflicts  of  interest,  while  flexible 
booking and accounting may lead to shifting risk from one entity to the other; 

35 

These  refer  to  any  activities  among  those  listed  in  Annex  I  of  the  CRD  when  performed  by  credit  institutions, 
provision of investment services at a large scale as defined in Article 4(1), point (1)(b), and the provision of core 
banking activities (those listed in points (1) to (3) and (6) by any third country undertaking. 

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(d) 

while  TCBs  should  provide  services  only  in  the  Member  States  where  they  are 
established36,  enforcing  compliance  with  this  requirement  is  not  only  difficult,  but 
made  almost  impossible  under  the  current  framework  due  to  the  growing  trend  of 
financial services’ digitalisation. 

TCBs  also  raise  regulatory  arbitrage  concerns.  Where  the  Member  State  of  establishment 
imposes  low  prudential  standards,  TCBs  may  effectively  allow  third  country  groups  to 
undercut  EU  banking  requirements  where  their  head  office  is  subject  to  less  stringent 
prudential or supervisory standards in the relevant third country.  

Harmonised TCBs framework 

Given the material footprint that TCBs already have in EU banking markets and the currently 
scattered and disjointed prudential and supervisory requirements that they are subject to, there 
are  obvious  risks  to  the  financial  stability  and  market  integrity  of  the  EU,  as  well  as 
opportunities  for regulatory arbitrage that need addressing through a new harmonised TCBs 
framework. 

While maintaining the status quo is not a desirable option, subjecting TCBs to the full set of 
prudential  and supervisory  requirements that apply to credit institutions under the CRR and 
the  CRD  might  be  disproportionate,  as  it  would  not  cater  appropriately  for  their  distinct 
features  relative  to  credit  institutions  with  their  head  office  in  the  EU,  and  would  have  a 
material detrimental effect on such TCBs. 

Instead,  a  more  appropriate  way  forward  would  be  to  create  an  ad  hoc  set  of  minimum-
harmonising  requirements  that  builds  on  existing  national  frameworks  of  Member  States 
currently in force and ensures minimum standards and consistent requirements throughout the 
Union . Such framework would provide the necessary clarity, predictability and transparency 
for third country undertakings wishing to conduct banking services through branches in one or 
various  Member  States.  It  would  also  align  the  EU  requirements  on  TCBs  with  prevailing 
international  practices,  insofar  as  numerous  third  countries  apply  similar  or  equivalent 
requirements to branches of foreign banks active in their territories. 

Title VI of the CRD is, therefore, amended to include provisions on the following: 

(a) 

authorisation:  the  establishment  of  TCBs  is  subject  to  an  explicit  authorisation 
procedure and minimum requirements. Those requirements must include cooperation 
and information arrangements whereby the competent authorities of the TCBs i) have 
access  to  enough  information  on  the  undertaking  in  the  third  country  that  is  the 
branch’s  head  office  (the  TCB’s  “head  undertaking”)  and  ii)  are  able  to  cooperate 
with  the  supervisory  authorities  of  the  head  undertaking  insofar  as  necessary  or 
relevant to effectively supervise the TCB in the Member State; 

(b) 

minimum regulatory requirements: these comprise obligations on TCBs to: 

(i)  maintain  a  minimum  capital  endowment,  calculated  as  a  percentage  of  the 
branch’s liabilities for larger and riskier TCBs (class 1) or a fixed amount for 
smaller TCBs (class 2); 

36 

According to Recital 19 of the CRD: “The branches of credit institutions authorised in third countries should not 
enjoy  the  freedom  to  provide  services  under  the  second  paragraph  of  Article  49  of  the  Treaty  or  the  freedom  of 
establishment in Member States  other than those in which they  are established”. A  TCB can only provide cross-
border  investment  services  to  professional  clients  and  eligible  counterparties  if  the  services  are  provided  by 
branches authorised under MiFID and in case of an equivalence decision pursuant to Article 47(3) of MIFIR (see 
Annex 3). However, no equivalence decision has been taken or is envisaged in the near future. 

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(c) 

(d) 

(ii) 

comply with a liquidity requirement, which for class 1 TCBs must be the same 
as  the  liquidity  coverage  requirement  that  applies  to  credit  institutions  in 
accordance with Commission Delegated Regulation (EU) 2015/61; 

(iii)  meet  internal  governance  and  risk  control  requirements,  and  to  implement 
booking  arrangements  in  order  to  track  the  assets  and  liabilities  linked  to  the 
business conducted by the TCB in the Member State. 

reporting  requirements:  TCBs  are  required  to  report  regularly  to  their  competent 
authorities  i)  information  on  their  compliance  with  the  requirements  laid  out  in  the 
CRD  and  in  national  law  and  ii)  financial  information  in  relation  to  the  assets  and 
liabilities on their books; 

supervision: competent authorities are required to conduct regular reviews of TCBs’ 
compliance  with  their  regulatory  requirements,  including  for  AML  purposes,  and 
take supervisory measures to ensure or restore compliance with those requirements. 
Competent authorities of class 1 TCBs are required to include them in the colleges of 
supervisors of the relevant group, where one already exists, or otherwise set up an ad 
hoc college for class 1 TCBs of the same group operating in more than one Member 
State. 

For  reasons  of  proportionality,  and  in  particular  to  avoid  any  unnecessary  additional 
administrative  burden  for  small(er)  TCBs,  the  scope  and  level  of  prudential  requirements  is 
modulated to differentiate between class 1 and class 2 TCBs. The former class comprises the 
larger TCBs (i.e. those holding assets equal to or in excess of EUR 5 billion), as well as TCBs 
authorised to take deposits from retails customers and TCBs considered “non-qualifying”, the 
latter two regardless of their size. Class 2 comprises all TCBs not classified as class 1. 

A TCB is considered ‘qualifying’ where its head office is established in a country i) that has 
in  place  a supervisory  and regulatory  framework for banks and  confidentiality requirements 
that have been assessed as equivalent to those in the Union and ii) that is not listed as a high-
risk third country that  has strategic deficiencies  in  its regime on  anti-money  laundering and 
counter terrorist financing. 

Member  States  must  ensure  that  their  competent  authorities  have  the  necessary  powers  to 
require  TCBs  established  in  their  territory  to  apply  for  authoritisation  as  subsidiary 
institutions under the CRD in specific cases (power to subsidiarise). For instance, this power 
must  be  capable  of  being  used  on  a  TCB  that  engages  in  transactions  or  business  with 
counterparts in other Member States in contravention of the internal market rules. Moreover, 
the  same  power  must  also  be  available  for  using  in  cases  where  a  TCB  poses  risks  to  the 
financial  stability  of  the  relevant  Member  State  or  of  the  EU,  taking  into  account  certain 
systemic  risk  indicators  laid  down  in  the  CRD  and  further  detailed  in  regulatory  technical 
standards. 

Where TCBs have assets on their books in an amount equal to or higher than EUR 30 billion, 
competent authorities must assess on a regular basis whether such TCBs pose a level of risk to 
the  financial  stability  of  the  respective  Member  State  and  of  the  EU  that  is  analogous  to 
institutions  defined  as  “systemic”  under  the  CRR  and  the  CRD  (assessment  of  systemic 
importance). The EUR 30 billion threshold must be calculated taking into account the assets 
booked by  all the TCBs belonging to  the same third country  group in  the EU, whether in  a 
single or in various Member States, and measured either as an average over a period of three 
consecutive  years  or  as  a  minimum  absolute  threshold  reached  for  at  least  3  years  over  a 
period  of  5  consecutive  years.  For  the  purposes  of  carrying  out  the  systemic  importance 
assessment, competent authorities must have regard to the systemic risk indicators referred to 

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17 

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in  the  preceding  paragraph.  Where,  in  the  light  of  those  indicators,  competent  authorities 
conclude  that  the  relevant  TCBs  are  systemic,  they  may  require  such  TCBs  to  apply  for 
authoritisation  as  subsidiary  institutions  under  the  CRD  in  order  to  continue  conducting 
banking  activities  in  the  Member  State  and  the  EU  (requirement  to  subsidiarise). 
Alternatively, competent authorities may decide either (i) to require the TCBs to restructure 
their activities or assets so that that they cease to meet the criteria of systemic importance or 
the EUR 30bn threshold (requirement  to restructure); or  (ii) to  impose additional Pillar 2 
requirements  on  the  third  country  group’s  TCBs  and  subsidiary  institutions  in  the  EU  (e.g. 
additional  capital,  liquidity,  reporting  or  disclosure  requirements),  where  those  Pillar  2 
requirements  are  appropriate  and  sufficient  to  mitigate  potential  risks  to  financial  stability 
(Pillar  2  requirements).  Competent  authorities  may  only  decide  not  to  impose  any  of  the 
above requirements on the TCBs where they can justify that the risks that such TCBs pose to 
financial stability and market integrity would not significantly increase in the absence of those 
requirements (decision to defer). Competent authorities must reassess their decision to defer 
within one year from the date the decision was made. 

The  assessment  of  systemic  importance  of  TCBs  belonging  to  a  third  country  group  with 
branches and subsidiaries across the EU must be led by (i) the consolidating supervisor of the 
relevant  group  in  the  Union,  where  Article  111  of  the  CRD  applies;  (ii)  the  competent 
authority that would become the consolidated of the group in the EU in accordance with that 
Article  if  the  TCBs  were  treated  as  subsidiary  institutions;  or  (iii)  EBA,  where  the  lead 
competent  authority  has  not  commenced  the  assessment  or  the  hypothetical  consolidated 
supervisor has not been determined within a period of three months. The decision whether to 
impose  any  of  the  above-referred  requirements  or  to  defer  imposing  such  requirements  on 
TCBs assessed as systemic, must be taken as a joint decision by the lead competent authority 
and  the  competent  authorities  responsible  for  supervising  the  TCBs  and  subsidiaries  of  the 
same third country group. 

Furthermore,  the  new  TCB  framework  does  not  supersede  or  prevent  any  discretion  that 
Member  States  may  currently  have  to  impose  a  requirement  of  general  application  on 
undertakings  established  in  certain  third  countries  to  conduct  banking  activities  in  their 
territory through subsidiaries authorised in accordance with Chapter 1 of Title III of the CRD. 

Impact of the new framework 

Under the proposed new framework, TCBs currently operating in the EU will need to be re-
authorised. However, the compliance and transitional costs associated with this authorisation 
and on-going operation would be significantly mitigated by the following circumstances: 

(a) 

(b) 

(c) 

TCBs  will  have  a  transitional  period  of  12  months  following  the  18  months 
transposition  period  of  the  Directive  to  obtain  the  authorisation  and,  therefore,  will 
be able to spread out the transitional costs over that period; 

the authorisation  and prudential requirements are largely based on existing national 
requirements  in  various  Member  States  and,  since  the  new  framework  contains 
requirements very similar to those, TCBs would only need to incur limited costs to 
adapt; 

based on 31 December 2020 data, up to 40 out of 106 TCBs authorised to operate in 
various Member States  would have qualified as  class 2 and, hence, those 40 would 
be  subject  to  comparatively  less  stringent  prudential  and  reporting  requirements 
under the new framework; 

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18 

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(d) 

based on the same data and as of that date, only 3 TCBs had assets on their books in 
excess of EUR 30 billion and, thus, would be subject to the assessment of systemic 
importance. 

While  TCBs  may  be  subject  to  additional  costs  to  comply  with  the  new  reporting 
requirements,  these  would  be  justified  in  order  to  meet  the  objective  of  enhancing  the 
protection of financial stability and market integrity. 

Review of the administrative sanctioning regime 

Periodic penalty payments  are introduced  as  a new enforcement  tool aimed at  ensuring that 
credit institutions swiftly comply with the prudential rules. In addition, a clear distinction is 
made  between  periodic  penalty  payments  and  administrative  penalties.  The  list  of  breaches 
is  supplemented  with  prudential 
subject 
requirements  currently  missing  on  the  list  of  sanctionable  breaches  under  article  67  of  the 
CRD. Articles 66 and 67 of CRD are amended  to  clarify the definition of “total  annual  net 
turnover”  and  define  it  by  reference  to  the  business  indicator  in  the  new  Article  314  of  the 
CRR. 

to  administrative  penalties  and  sanctions 

To ensure a level playing field in the field of sanctioning powers, Member States are required 
to  provide  for  administrative  penalties,  periodic  penalty  payments  and  other  administrative 
measures in relation to breaches of national provisions transposing the CRD and the CRR. In 
addition,  procedural  safeguards  are  introduced  for  the  effective  application  of  penalties 
especially  in  the  case  of  accumulation  of  administrative  and  criminal  penalties  on  the  same 
breach.  To  this  end,  Article  70  of  CRD  is  amended  to  require  Member  States  to  lay  down 
rules  on  the  cooperation  between  competent  authorities  and  judicial  authorities  in  cases  of 
duplication  of  criminal  and  administrative  proceedings  and  penalties  on  the  same  breach. 
These  rules  are  intended  to  provide  for  a  sufficient  level  protection  for  the  natural  or  legal 
person  subject  to  this  duplication  of  proceedings  in  accordance  with  the  “ne  bis  in  idem 
principle”. 

Review of the composition of Pillar 2 requirements 

In order to enhance the internal coherence of the regulatory framework, CRD V aligned the 
nature of regulatory capital that banks must hold to meet the Pillar 2 capital requirement with 
the minimal  capital  composition of the Pillar 1 capital  requirement.  By derogation from  the 
general rule set out in Article 104a(4) of the CRD, supervisors have the discretion to decide, 
on a case by case basis, to impose Pillar 2 capital requirements with a higher share of Tier 1 
capital or CET 1 capital. This new treatment has been implemented only recently during the 
COVID-19  crisis.  While  it  is  still  too  early  for  comprehensive  conclusions  on  the  recent 
alignment, a first review has confirmed the usefulness of a consistent standard composition of 
minimum (Pillar 1) and additional (Pillar 2) capital requirements. 

Adjustments accompanying the introduction of the output floor 

The introduction of the output floor (OF) in the calculation of the total risk exposure amount 
(TREA)  as  set  out  in  Article  92  of  the  CRR  will  have  an  impact  on  those  own  funds 
requirements  set  out  in  the  CRD  the  calculation  of  which  depends  on  TREA.  Those 
requirements  are  the  capital  conservation  buffer  (CCB)  requirement,  the  countercyclical 
capital buffer (CCyB) requirement, the buffer requirements for global systemically-important 
and  other  systemically-important  institutions  (G-/O-SIIs),  the  systemic  risk  buffer  (SyRB) 

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19 

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requirement,  and  –  to  the  extent  a  competent  authority  uses  an  approach  that  sets  it  as  a 
percentage of TREA from the outset37 – the institution-specific Pillar 2 requirement (P2R). 

Two of those requirements, namely the P2R and the SyRB, can be used to address risks that 
are  similar  in  nature  to  those  addressed  by  the  OF.  Consequently,  there  is  a  possibility  that 
certain  risks  (e.g.  model  risk38)  could  be  double-counted  once  the  OF  starts  to  apply.  This 
needs  to  be  avoided.  The  EBA's  advice  on  the  Basel  III  finalisation  includes  a  specific 
recommendation  on  this  issue  and  calls,  more  generally,  on  competent  and  designated 
authorities to reconsider the appropriate level of P2R and the SyRB, respectively, once the OF 
will start to apply. 

In view of the above, the proposal amends Articles 104a and 133 of the CRD - setting out the 
rules on the P2R and the SyRB, respectively - by introducing safeguards aimed at preventing 
unjustified increases in the P2R and the SyRB requirement following an institution becoming 
bound by the OF39: 

 

 

 

the P2R and the SyRB requirement will be “frozen” to avoid automatic (also referred 
to as “arithmetic”) increases in the amount of regulatory capital required under those 
two requirements. This safeguard is justified by the fact that the increase in RWAs 
due  to  the  institution  becoming  bound  by  the  OF  is,  all  else  being  equal,  purely 
arithmetic  and  is  not  reflective  of  an  actual  increase  in  risks  that  would  justify 
requiring additional capital from the institution; 

the institution’s competent authority will be required to review the calibration of the 
P2R  and  the  competent  or  designated  authority,  as  applicable,  will  be  required  to 
review  the  calibration  of  the  the  SyRB  requirement,  respectively,  to  establish 
whether  double-counting  of  risk  is  present,  and  if  so,  to  re-calibrate  those 
requirements to avoid such double-counting; 

the  two  requirements  will  remain  frozen  until  the  respective  reviews  will  be 
concluded  and  the  relevant  decisions  on  the  appropriate  calibration  of  the 
requirements will be announced40. 

Articles  104a  and  133  of  the  CRD  are  also  amended  to  clarify  that  the  P2R  and  the  SyRB 
requirement cannot be used to cover risks that are already fully covered by the OF. 

Finally, Article 131 is amended to require competent or designated authorities, as applicable, 
to  review  the  calibration  of  the  O-SII  buffer  requirement  of  an  O-SII  when  that  O-SII 
becomes bound by the OF, to make sure that the calibration remains appropriate. 

Disclosure 

37 

38 

39 

40 

Instead of first setting P2R as a nominal amount,  which is  subsequently expressed as a percentage of 
TREA to fit in the overall capital stack. 
In this context, model risk should be understood as the risk that the own funds requirement calculated 
using  internal  models  would  not  be  commensurate  to  the  risk  inherent  in  the  exposure  for  which  the 
requirement is calculated. 
An  institution  becomes  bound  by  the  OF  when  the  institution’s  “floored”  TREA  (i.e.  the  TREA 
calculated  by  taking  into  account  the  OF)  is  higher  than  its  “un-floored”  TREA  (i.e.  the  TREA 
calculated by not taking into account the OF). For further details on the functioning of the OF, please 
see the explanatory memorandum of the Regulation amending the CRR.  
In the case of the P2R, the announcement will take the form of a letter from the competent authority to 
the supervised institution containing the results of the SREP and the institution’s new P2R (of course, in 
case no double-counting will be identified, the P2R will remain unchanged). In the case of the P2R, the 
announcement  will  take  the  form  of  a  new  decision  by  the  competent  or  designated  authority,  as 
applicable, on the appropriate calibration of the SyRB rate or rates. 

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Article  106  is  amended  to  allow  Member  States  to  grant  supervisors  the  power  to  require 
institutions  to  submit  information  to  the  EBA  within  a  deadline.  This  follows  the  changes 
made to Articles 433 and 434 of the CRR, which require EBA to centralise the publication of 
institutions’ disclosures. In addition, the proposal enables supervisors to allow institutions to 
use specific media and locations for publications other than the EBA website. This is in line 
with the proposed change to the CRR according to which, in addition to the centralised EBA’s 
publication, institutions remain free to publish their own disclosures via other means. 

Supervisory benchmarking of approaches for calculating own funds requirements 

Article 78 is amended to add two types of approaches to calculate own funds requirements to 
the approaches included in the scope of the supervisory benchmarking, namely: 

(a) 

(b) 

modelling  approaches  used  to  calculate  expected  credit  risk  losses  both  under 
International  Financial  Reporting  Standard  (IFRS)  9  and  under  national  accounting 
standards; and 

the alternative standardised approach for market risk set out in Part Three, Title IV, 
Chapter  1a  of  the  CRR  given  that  institutions  can  model  certain  parameters  under 
that approach. 

Since  the  approaches  used  to  calculate  expected  credit  risk  losses  can  also  be  used  by 
institutions  using  the  standardised  approach  for  credit  risk  set  out  in  Part  Three,  Title  II, 
Chapter  2  of  the  CRR,  those  institutions  are  also  included  in  the  scope  of  the  supervisory 
benchmarking exercise.  However, the EBA is  required to  decide  which  of those institutions 
must be included, taking into account the principle of proportionality. 

Article  78  is  also  amended  to  allow  for  the  possibility  of  reducing  the  frequency  of  the 
benchmarking exercises from annual to biennial in recognition of the fact that after a certain 
number  of  exercises  are  been  carried  out,  a  lower  frequency  is  likely  to  be  sufficient  to 
monitor  the  outcomes  of  institutions’  approaches.  This  will  also  reduce  the  administrative 
burden for institutions using the benchmarked approaches. 

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2021/0341 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country 
branches, and environmental, social and governance risks, and amending Directive 
2014/59/EU  

(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 53(1) 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 Bank41, 
Having regard to the opinion of the European Economic and Social Committee42, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

41 
42 
43 

Competent authorities, their staff and members of their governance bodies  should be 
independent  of  political  and  economic  influence.  Risks  of  conflicts  of  interest 
undermine  the  integrity  of  the  Union  financial  system  and  harm  the  goal  of  an 
integrated  banking  and  capital  markets  union.  Directive  2013/36/EU  should  provide 
more detailed provisions for Member States to ensure that the competent authorities, 
including  their  staff  and  management,  act  independently  and  objectively.  In  this 
context, minimum requirements should be laid down to prevent conflicts of interests. 
The  European  Banking  Authority  (EBA)  should  issue  guidelines  addressed  to 
competent authorities on the prevention of conflicts of interests, based on international 
best practices. 

Competent authorities should have the necessary power to withdraw the authorisation 
granted to a credit institution where such a credit institution has been declared failing 
or likely to fail and, at the same time, has not met the other conditions for resolution 
set out by Directive 2014/59/EU of the European Parliament and of the Council43 or 

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

EN 

22 

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by Regulation (EU) No 806/2014 of the European Parliament and of the Council44. In 
such  a  situation,  a  credit  institution  should  be  wound  up  in  accordance  with  the 
applicable national insolvency proceedings, or in other types of proceedings laid down 
for those institutions under national law, and should therefore discontinue the activities 
for which the authorisation had been granted. 

The  provision  of  banking  services  in  the  Union  is  conditional  upon  the  credit 
institution’s  having  previous  authorisation  and  a  physical  presence  through  a  legal 
person or a branch in its territory. Only in that way credit institutions may be subject 
to  effective  prudential  regulation  and  supervision  that  are  necessary  to  minimise  the 
risk of failure and, when it occurs, to  manage that failure in order to prevent it from 
spreading  in  a  disorderly  manner  and  leading  to  the  collapse  of  the  financial  system 
(contagion risk by e.g. a bank run or a bank failure triggered by imprudent lending). 
The provision of banking services in the Union without such physical presence would 
increase the presence and prevalence in the financial markets where credit institutions 
are closely involved of risk segments not subject to Union’s prudential regulation and 
supervision, that may eventually threaten the financial stability of the Union or of its 
individual  Member  States.  The  financial  crisis  of  2008-2009  is  the  latest  historical 
precedent,  which  underlines  how  small  market  segments  may  become  the  source  of 
significant threats to the financial stability of the Union and its Member States if left 
outside the scope of prudential regulation and supervision. Hence, it is necessary to lay 
down  an  explicit  requirement  in  Union  law  that  undertakings  established  in  a  third 
country and seeking to provide banking services in the Union should at least establish 
a  branch  in  a  Member  State  and  that  such  branch  be  authorised  in  accordance  with 
Union  legislation,  unless  the  undertaking  wishes  to  provide  banking  services  in  the 
Union  through  a  subsidiary.  However,  that  requirement  to  establish  a  branch  should 
not apply to cases of reverse solicitation of services, as in this case it is the customer 
that  approaches  the  undertaking  in  the  third  country  to  solicit  the  provision  of  the 
service. 

Supervisors  of  credit  institutions  should  have  all  the  necessary  powers  that  enable 
them  to  perform  their  duties  and  that  cover  the  various  operations  conducted  by  the 
supervised  entities.  To  that  end  and  to  increase  the  level  playing  field,  supervisors 
must have at their disposal all the supervisory powers enabling them to cover material 
operations  that  can  be  undertaken  by  the  supervised  entities.  The  European  Central 
Bank and national competent authorities should therefore be notified in case a material 
operation,  including  acquisitions  by  supervised  entities  of  material  holdings  in 
financial or non-financial entities, material transfers of assets and liabilities from or to 
a  supervised  entities,  and  mergers  and  divisions  involving  a  supervised  entities, 
undertaken  by  a  supervised  entity  raises  concerns  over  its  prudential  profile,  or  over 
possible  money  laundering  and  terrorist  financing  activities.  Furthermore,  the  ECB 
and national competent authorities should have the power to intervene in such cases. 

Concerning  mergers  and  divisions,  the  Directive  (EU)  2017/1132  lays  down 
harmonised rules and procedures, in particular for cross-border mergers and divisions 
of limited liability companies. Therefore, the assessment procedure by the competent 
authorities stipulated in this directive should be complementary to the Directive (EU) 

Regulation  (EU)  No  806/2014  of  the  European  Parliament  and  of  the  Council  of  15  July  2014 
establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain 
investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and 
amending Regulation (EU) No 1093/2010 (OJ L 225, 30.7.2014, p. 1). 

(3) 

(4) 

(5) 

44 

EN 

23 

  EN 

                                                 
2017/1132  and  should  not  contradict  any  of  its  provisions.  In  case  of  those  cross-
border mergers and divisions which fall under the scope of Directive 2017/1132, the 
motivated opinion issued by the competent supervisory authority should be part of the 
assessment of the compliance with  all relevant  conditions  and the proper completion 
of all procedures and formalities required for the pre-merger or pre-division certificate. 
The  motivated  opinion  should  therefore  be  transferred  to  the  designated  national 
authority  responsible  for  issuing  the  pre-merger  or  pre-division  certificate  under 
Directive 2017/1132.  

In order to ensure that competent authorities can intervene before one of these material 
operations is undertaken, they should be notified ex ante. That notification should be 
accompanied  by  information  necessary  for  the  competent  authorities  to  assess  the 
planned  operation  from  a  prudential  and  anti-money  laundering  and  counter-terrorist 
financing perspective. That assessment by competent authorities should commence at 
the  moment  of  the  receipt  of  the  notification  including  all  the  requested  information 
and,  in  the  case  of  the  acquisition  of  a  material  holding  or  the  material  transfer  of 
assets and liabilities, should be limited in time. 

In the case of the acquisition of a qualifying holding, or the material transfer of assets 
or  liabilities,  the  conclusion  of  the  assessment  could  lead  the  competent  authority  to 
decide  to  oppose  to  the  operation.  In  the  absence  of  opposition  from  the  competent 
authorities within a given period, the operation should be deemed approved.  

In  order  to  ensure  proportionality  and  avoid  undue  administrative  burden,  those 
additional  powers  of  competent  authorities  should  be  applicable  only  to  operations 
deemed material. Only operations consisting in mergers or divisions should be treated 
automatically  as  material  operations,  as  the  newly  created  entity  can  be  expected  to 
present a significantly different prudential profile from the entities initially involved in 
the merger or division. Also, mergers or division should not be concluded by entities 
undertaking  them  before  a  prior  positive  opinion  is  received  from  the  competent 
authorities. Other operations (including  acquisition of holding and transfers of assets 
and  liabilities),  when  considered  material,  should  be  assessed  by  the  competent 
authorities based on a tacit approval procedure. 

In some situations (for instance when entities established in various Member States are 
involved),  operations  might  require  multiple  notifications  and  assessments  from 
different  competent  authorities,  requiring  an  efficient  cooperation  among  those 
authorities.  It  is  therefore  necessary  to  precise  cooperation  obligations,  in  particular 
early  cross  notifications,  smooth  exchange  of  information  and  coordination  in  the 
assessment. 

It is necessary to align provisions related to the acquisition of a qualifying holding in a 
credit  institution  with  provisions  on  the  acquisition  of  a  qualifying  holding  by  an 
institution,  in  case  both  assessments  have  to  be  undertaken  for  the  same  operation. 
Indeed,  without  proper  articulation  these  provisions  could  lead  to  inconsistencies  in 
the  assessment  undertaken  by  competent  authorities,  and  ultimately  the  decisions 
taken by them. It is therefore necessary to provide for similar additional time provided 
to competent authorities to acknowledge receipt of the notification when the operation 
is considered complex). 

(6) 

(7) 

(8) 

(9) 

(10) 

(11)  EBA should be mandated to develop regulatory technical standards and implementing 
technical  standards  to  ensure  an  appropriate  framing  of  the  use  of  those  additional 
supervisory powers. Those regulatory technical standards and implementing technical 
standards  should,  in  particular,  specify  the  information  to  be  received  by  the 

EN 

24 

  EN 

(12) 

competent  authorities,  the  elements  to  be  assessed,  and  cooperation  when  more  than 
one competent authorities are involved.  Those various elements  are crucial to ensure 
that  a  sufficiently  harmonised  supervisory  methodology  allows  provisions  on  the 
additional  powers  to  be  implemented  efficiently,  with  the  minimum  possible 
additional administrative burden. 

It  is  crucial  that  credit  institutions,  financial  holding  companies  and  mixed  financial 
holding companies comply with the prudential requirements to ensure their safety and 
soundness  and  preserve  the  stability  of  the  financial  system,  both  at  the  level  of  the 
Union  as  a  whole  and  in  each  Member  State.  Therefore,  the  ECB  and  national 
competent  authorities  should  have  the  power  to  take  timely  and  decisive  measures 
where  those  credit  institutions,  financial  holding  companies  and  mixed  financial 
holding  companies  and  their  effective  managers  fail  to  comply  with  the  prudential 
requirements or supervisory decisions. 

(13)  To  ensure  a  level  playing  field  in  the  area  of  sanctioning  powers,  Member  States 
should  be  required 
to  provide  for  effective,  proportionate  and  dissuasive 
administrative penalties, periodic penalty payments and other administrative measures 
in  relation  to  breaches of national  provisions transposing this Directive and breaches 
of Regulation (EU) No 575/2013 of the European Parliament and of the Council45. In 
particular,  Member  States  can  impose  administrative  penalties  where  the  relevant 
breach is also subject to national criminal law. Those administrative penalties, periodic 
penalty  payments  and  other  administrative  measures  should  meet  certain  minimum 
requirements,  including  the  minimum  powers  that  should  be  vested  on  competent 
authorities  to  be  able  to  impose  them,  the  criteria  that  competent  authorities  should 
take  into  account  in  their  application,  publication  requirements  or  the  levels  of 
administrative  penalties  and  periodic  penalty  payments.  Member  States  should  lay 
down  specific  rules  and  effective  mechanisms  regarding  the  application  of  periodic 
penalty payments. 

(14)  Administrative  pecuniary  penalties should have  a deterrent  effect  in  order to  prevent 
the  natural  or  legal  person  in  breach  of  national  provisions  transposing  Directive 
2013/36/EU or in breach of Regulation (EU) No 575/2013 from engaging in the same 
or  similar  conduct  in  the  future.  Member  States  should  be  required  to  provide  for 
administrative  penalties,  which  are  effective,  proportionate  and  dissuasive. 
Furthermore,  competent  authorities  should  have  regard  to  any  previous  criminal 
penalties that may have been imposed on the same natural or legal person responsible 
for  the  same  breach  when  determining  the  type  of  administrative  penalties  or  other 
administrative measures and the level of administrative pecuniary penalties. This is to 
ensure that the severity of all the penalties and other administrative measures imposed 
for  punitive  purposes  in  case  of  accumulation  of  administrative  and  criminal 
proceedings is limited to what is necessary in the view of the seriousness of the breach 
concerned. To that end, it is essential to enhance the cooperation between competent 
authorities  and  judicial  authorities  in  the  case  of  accumulation  of  administrative  and 
criminal  proceedings  against  the  same  persons  responsible  for  the  same  breach. 
Member  States  should  lay  down  specific  rules  and  mechanisms  to  facilitate  such 
cooperation. 

45 

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). 

EN 

25 

  EN 

                                                 
(15)  Competent authorities should be able to impose administrative penalties on the same 
natural  or  legal  person  responsible  for  the  same  acts  or  omissions.  However,  such 
accumulation of proceedings and penalties on the same breach should pursue different 
objectives of general interest. Member States should lay down rules to provide for an 
appropriate coordination between administrative and criminal proceedings. Such rules 
should limit the imposition of accumulative penalties in relation to the same breach on 
the natural  or legal  person concerned to  the strictly necessary in  order to meet  those 
different objectives. Furthermore, Member States should lay down rules to ensure that 
the  severity  of  all  the  administrative  and  criminal  penalties  and  other  measures 
imposed in  cases of  accumulation  of proceedings are limited to  what  is  necessary in 
view  of  the  seriousness  of  the  breach  concerned.  Member  States  should  also  ensure 
that such duplication of proceedings and subsequent penalties comply with the ne bis 
in idem principle and that the rights of the natural or legal person concerned are duly 
protected. 

(16)  Administrative pecuniary penalties on legal persons should be applied consistently, in 
particular  as  regards  the  determination  of  the  maximum  amount  of  administrative 
penalties, which should take into account the total annual net turnover of the relevant 
undertaking.  However,  the  current  definition  of  the  total  annual  net  turnover  in 
Directive 2013/36/EU is neither exhaustive enough nor sufficiently clear and complete 
to ensure a level playing field in the application of administrative pecuniary penalties. 
Therefore, it is necessary to clarify several elements of the current definition of total 
annual net turnover in order to avoid an inconsistent interpretation. 

(17) 

In addition to administrative penalties, competent authorities should be empowered to 
impose periodic penalty payments on credit institutions, financial holding companies, 
mixed financial holding companies and their effective managers for failure to comply 
with their obligations under Directive 2013/36/EU, Regulation (EU) No 575/2013 or a 
decision  issued  by  a  competent  authority.  Those  enforcement  measures  should  be 
imposed  where  a  breach  of  a  requirement  or  supervisory  decision  of  the  competent 
authority  is  continuing.  Competent  authorities  should  be  able  to  impose  those 
enforcement measures without having to address a prior request, order or warning to 
the party in breach. Since the purpose of the periodic penalty payments is to compel 
natural  or  legal  persons  to  terminate  an  ongoing  breach,  the  application  of  periodic 
penalty payments should not prevent competent authorities from imposing subsequent 
administrative penalties for the same breach. 

(18) 

It  is  necessary  to  lay  down  administrative  penalties,  periodic  penalty  payments  and 
other administrative measures in order to ensure the greatest possible scope for action 
following  a  breach  and  to  help  prevent  further  breaches,  irrespective  of  their 
qualification  as  an  administrative  penalty  or  other  administrative  measure  under 
national  law.  Member  States  should  therefore  be  able  to  provide  for  additional 
penalties and higher level of administrative pecuniary penalties. 

(19)  Competent authorities should impose periodic penalty payments that are proportionate 
and  effective.  Accordingly,  the  competent  authority  should  take  into  account  the 
potential impact of the periodic penalty payment on the financial situation of the legal 
or natural person in breach, and seek to avoid that the penalty would cause the legal or 
natural  person  in  breach  to  become  insolvent,  lead  it  to  serious  financial  distress  or 
represent a disproportionate percentage of its total annual turnover. 

(20)  Where  the  legal  system  of  the  Member  State  does  not  allow  the  administrative 
penalties  provided  for  in  this  Directive,  the  rules  on  administrative  penalties  may  be 

EN 

26 

  EN 

applied in such  a manner that the penalty is initiated by the competent authority and 
imposed  by  judicial  authorities.  Therefore,  it  is  necessary  that  those  Member  States 
ensure  that  the  application  of  the  rules  and  penalties  has  an  effect  equivalent  to  the 
administrative  penalties  imposed  by  the  competent  authorities.  When  imposing  such 
penalties,  judicial  authorities  should  take  into  account  the  recommendation  by  the 
competent authority initiating the penalty. The penalties imposed should be effective, 
proportionate and dissuasive. 

(21) 

In  order  to  provide  for  appropriate  sanctions  for  breaches  of  national  provisions 
transposing  Directive  2013/36/EU  and  Regulation  (EU)  No  575/2013,  the  list  of 
breaches  subject  to  administrative  penalties,  periodic  penalty  payments  and  other 
administrative measures should be supplemented. Therefore, the list of breaches under 
Article 67 of Directive 2013/36/EU should be amended. 

(22)  The regulation  of  branches established by  undertakings in  a third country to  provide 
banking services in a Member State is subject to national law and only harmonised to 
a very limited extent by Directive 2013/36/EU.  While third country branches  have a 
significant presence in Union banking markets, they are currently subject only to very 
high  level  information  requirements,  but  not  to any  Union-level  prudential  standards 
or  supervisory  cooperation  arrangements.  The  complete  absence  of  a  common 
prudential  framework  leads  to  third  country  branches’  being  subject  to  disparate 
national requirements of varying level of prudence and reach. Furthermore, competent 
authorities  lack  comprehensive  information  and  the  necessary  supervisory  tools  to 
properly monitor the specific risks created by third country groups operating in one or 
various Member States through both branches and subsidiaries There are currently no 
integrated  supervisory  arrangements  in  relation  to  them  and  the  competent  authority 
responsible for the supervision of each branch of a third country group is not obliged 
to  exchanging  information  with  the  competent  authorities  supervising  the  other 
branches  and  subsidiaries  of  the  same  group.  Such  fragmented  regulatory  landscape 
creates risks to the financial stability and market integrity of the Union which should 
be  properly  addressed  through  a  harmonised  framework  on  third  country  branches. 
Such a framework should comprise minimum common requirements on authorisation, 
prudential  standards,  internal  governance,  supervision  and  reporting.  This  set  of 
requirements should build on those that Member States already apply to third countries 
branches  in  their  territories  and  should  take  into  account  similar  or  equivalent 
requirements that third countries apply to foreign branches, with the aim of ensuring 
consistency  between  Member  States  and  aligning  the  Union  third  country  branches 
framework with the prevailing international practices in this field. 

(23)  For reasons  of proportionality, the requirements on third country branches should be 
catered relative to the risk that they pose to the financial stability and market integrity 
of  the  Union  and  the  Member  States.  Third  country  branches  should,  therefore,  be 
categorised as either class 1, where they are deemed riskier, or, otherwise, as class 2, 
where they are small and non-complex and do not pose a significant financial stability 
risk  (consistently  with  the  definition  of  “small  and  non-complex  institution”  in 
Regulation  (EU)  No  575/2013).  Accordingly,  third  country  branches  with  booked 
assets in the Member State in an amount equal to or in excess of EUR 5 000 000 000 
should  be  regarded  as  posing  such  a  greater  risk  due  to  their  larger  size  and 
complexity, because their failure could lead to a significant disruption of the Member 
State’s market for banking services or of its banking system. Third country branches 
authorised  to  accept  retail  deposits  should  also  be  regarded  similarly  as  riskier 
regardless  of  their  size,  insofar  as  their  failure  would  affect  highly  vulnerable 

EN 

27 

  EN 

depositors  and  could  lead  to  a  loss  of  confidence  in  the  safety  and  soundness  of  the 
Member  State’s  banking  system  to  protect  citizens’  savings.  Both  of  those  types  of 
third country branches should, therefore, be categorised as class 1. 

(24)  Third country branches  should also  be classified as class 1 where the undertaking in 
the  third  country  that  is  their  head  office  (the  “head  undertaking”)  is  subject  to 
regulation, oversight and implementation of such regulation that are not determined to 
be at least  equivalent to Directive 2013/36/EU and Regulation  (EU) No 575/2013 or 
where the relevant third country is listed as a high-risk third country that has strategic 
deficiencies in its regime on anti-money laundering and counter terrorist financing in 
accordance  with  Directive  (EU)  2015/849  of  the  European  Parliament  and  of  the 
Council46. Those third country branches pose a significant risk to the financial stability 
of the Union and of the Member State of establishment because the banking regulatory 
or  anti-money  laundering  frameworks  that  apply  to  their  head  undertaking  fail  to 
adequately capture or permit a proper monitoring of the specific risks that arise from 
the  activities  conducted  by  the  branch  in  the  Member  State  or  of  the  risks  to 
counterparties  in  the  Member  State  that  arise  from  the  third  country  group.  For  the 
purposes of determining the equivalence of the third country’s banking prudential and 
supervisory  standards  to  the  Union’s  standards,  the  Commission  should  be  able  to 
instruct  EBA  to  conduct  an  assessment  in  accordance  with  Article  33  of  Regulation 
(EU) No 575/2013. EBA should ensure that the assessment is conducted in a rigorous 
and  transparent  manner  and  in  accordance  with  a  sound  methodology.  Furthermore, 
EBA  should  also  consult  and  cooperate  closely  with  the  third  countries’  supervisory 
authorities  and  government  departments  in  charge  of  banking  regulation  and,  where 
appropriate, private sector parties, endeavouring to treat those parties fairly and to give 
them  the  opportunity  to  submit  documentation  and  make  representations  within 
reasonable  timeframes.  Furthermore,  EBA  should  ensure  that  the  report  issued  in 
accordance with Article 33 of Regulation  (EU) No 575/2013 is adequately reasoned, 
sets  out  a  detailed  description  of  the  assessed  matters  and  is  delivered  within  a 
reasonable timeframe. 

(25)  Competent authorities should have an explicit power to require on a case-by-case basis 
that  third  country  branches  apply  for  authorisation  in  accordance  with  Title  III, 
Chapter  1  of  Directive  2013/36/EU,  at  a  minimum  where  those  branches  engage  in 
activities  with  counterparts  in  other  Member  States  in  contravention  of  the  internal 
market rules or where they pose a significant risk to the financial stability of the Union 
or  of  the  Member  State  where  they  are  established.  Moreover,  competent  authorities 
should be required to periodically assess whether third country branches holding assets 
on  their  books  in  an  amount  equal  to  or  higher  than  EUR  30 000  000 000  have 
systemic  importance.  All  the  third  country  branches  that  belong  to  the  same  third 
country group established in one Member State or across the Union should be jointly 
subject  to  such  periodic  assessment.  That  assessment  should  examine,  in  accordance 
with  specific  criteria,  whether  those  branches  pose  an  analogous  level  of  risk  to  the 
financial  stability  of  the  Union  or  its  Member  States  as  institutions  defined  as 
“systemically  important”  under  Directive  2013/36/EU  and  Regulation  EU  No 

46 

Directive  (EU)  2015/849  of  the  European  Parliament  and  of  the  Council  of  20  May  2015  on  the 
prevention  of  the  use  of  the  financial  system  for  the  purposes  of  money  laundering  or  terrorist 
financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and 
repealing  Directive  2005/60/EC  of  the  European  Parliament  and  of  the  Council  and  Commission 
Directive 2006/70/EC (OJ L 141, 5.6.2015, p. 73). 

EN 

28 

  EN 

                                                 
575/2013.  Where  competent  authorities  conclude  that  the  third  country  branches  are 
systemically  important,  they  should  impose  requirements  on  those  branches  that  are 
appropriate  to  mitigate  the  risks  to  financial  stability.  For  those  purposes,  competent 
authorities  should  be  able  to  require  the  third  country  branches  to  apply  for 
authoritisation  as  subsidiary  institutions  under  Directive  2013/36/EU  in  order  to 
continue  conducting  banking  activities  in  the  Member  State  or  across  the  Union. 
Moreover,  competent  authorities  should  be  able  to  impose  other  requirements,  in 
particular an obligation to restructure the third country branches’ assets or activities in 
the Union so that those branches stop being systemic, or a requirement to comply with 
additional capital, liquidity, reporting or disclosure requirements, where that would be 
sufficient to address the risks to financial stability. Competent authorities should have 
the  possibility  not  to  impose  any  of  those  requirements  on  third  country  branches 
assessed  as  systemic  only  where  the  competent  authorities  can  justify  that  the  risks 
that those branches pose to the financial stability and market integrity of the Union and 
the  Member  States  would  not  significantly  increase  in  the  absence  of  such 
requirements for a period not exceeding one year. 

(26)  To  ensure  the  consistency  of  supervisory  decisions  on  a  third  country  group  with 
branches  and  subsidiaries  across  the  Union,  a  lead  competent  authority  should  be 
designated  to  conduct  the  assessment  of  systemic  importance.  That  role  should 
correspond  to  the  consolidated  supervisor  of  the  third  country  group  in  the  Union, 
where Article 111 of Directive 2013/36/EU applies, or to the competent authority that 
would become the consolidated supervisor in accordance with that Article, should the 
third country branches of that group be treated as its subsidiaries. Where the relevant 
consolidated  supervisor  has  not  been  determined  or  where  the  lead  competent 
authority has not started the assessment of systemic importance within three months. 
EBA  should,  instead,  perform  that  assessment.  The  lead  competent  authority,  or, 
where  applicable,  EBA,  should  consult  and  cooperate  fully  with  the  competent 
authorities responsible for supervising the relevant  third country  group’s  subsidiaries 
and  branches  across  the  Union.  The  lead  competent  authority  and  those  competent 
authorities should take a joint decision on whether to impose requirements on the third 
country branches assessed as systemic. For reasons of due process, the lead competent 
authority  or,  where  applicable,  EBA  should  ensure  that  the  third  country  branches’ 
right to be heard and to  make representations are respected during the assessment of 
systemic importance. 

(27)  Competent  authorities  should  conduct  regular  reviews  of  third  country  branches’ 
compliance  with  relevant  requirements  under  Directive  2013/36/EU,  and  take 
supervisory  measures  on  those  branches  to  ensure  or  restore  compliance  with  those 
requirements.  To  facilitate  the  effective  supervision  of  the  requirements  on  third 
country  branches  and  allow  for  a  comprehensive  overview  of  third  country  groups’ 
activities  within  the  Union,  common  supervisory  and  financial  reporting  should  be 
made  available  to  competent  authorities  in  accordance  with  standardised  templates. 
EBA  should  be  mandated  to  develop  draft  implementing  technical  standards  setting 
out  those  templates  and  the  Commission  should  be  empowered  to  adopt  those  draft 
implementing  technical  standards.  Furthermore,  it  is  necessary  to  implement 
appropriate cooperation arrangements between competent authorities to ensure that all 
the  activities  of  third  country  groups  operating  in  the  Union  through  third  country 
branches  are  subject  to  comprehensive  supervision,  to  prevent  the  requirements 
applicable to those groups under Union law from being circumvented and to minimise 
the  potential  risks  to  the  financial  stability  of  the  Union.  In  particular,  class  1  third 
country branches should be included within the scope of the colleges of supervisors of 

EN 

29 

  EN 

third  country  groups  in  the  Union.  Where  such  a  college  does  not  exist  already, 
competent  authorities  should  set  up  an  ad  hoc  college  for  all  class  1  third  country 
branches of the same group where it operates in more than one Member State. 

(28)  The Union’s third country branches framework should be applied without prejudice to 
the discretion that Member States may currently have to require on a general basis that 
third  country  undertakings  from  certain  third  countries  conduct  banking  activities  in 
their territory solely through subsidiary institutions authorised in accordance with Title 
III, Chapter 1 of Directive 2013/36/EU. That requirement may refer to third countries 
that apply banking prudential and supervisory standards that are not equivalent to the 
standards  under  the  Member  State’s  national  law  or  to  third  countries  that  have 
strategic  deficiencies  in  its  regime  on  anti-money  laundering  and  counter  terrorist 
financing. 

(29)  Following the introduction of IFRS 9 on 1 January 2018, the outcome of the expected 
credit losses  calculations, which is  based on a modelling approaches, directly affects 
the amount of own funds and the regulatory ratios of institutions. The same modelling 
approaches  are  also  the  basis  for  the  expected  credit  losses  calculation  where 
institutions  apply  national  accounting  frameworks.  As  a  result,  it  is  important  that 
competent authorities and EBA have a clear view of the impact that those calculations 
have on the range of values for risk-weighted assets and own funds requirements that 
arise for similar exposures. To that end, the benchmarking exercise should cover also 
those modelling approaches. Given that institutions calculating capital requirements in 
accordance with the standardised approach for credit risk may also use models for the 
calculation of expected  credit losses within the  IFRS 9 framework, those institutions 
should  also  be  included  in  the  benchmarking  exercise,  taking  into  account  the 
principle of proportionality. 

(30)  Regulation (EU) 2019/87647 amended Regulation (EU) No 575/2013 by introducing a 
revised  market  risk  framework  developed  by  the  Basel  Committee  for  Banking 
Supervision. The alternative standardised approach that is part of that new framework 
allows institutions to model certain parameters used in the calculation of risk-weighted 
assets  and  own  funds  requirements  for  market  risk.  It  is  therefore  important  that 
competent  authorities  and  EBA  have  a  clear  view  of  the  range  of  values  for  risk-
weighted assets and own funds requirements that arise for similar exposures not only 
under  the  alternative  internal  model  approach,  but  also  under  the  alternative 
standardised  approach.  As  a  result,  the  market  risk  benchmarking  exercise  should 
cover the revised standardised and internal model approaches. 

(31)  The  global  transition  towards  a  sustainable  economy  as  enshrined  in  the  Paris 
Agreement48,  as  concluded  by  the  Union,  and  the  United  Nations  2030  Agenda  for 
Sustainable Development will require a profound socio-economic transformation and 
will depend on the mobilisation of significant financial resources from the public and 

47 

48 

Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements 
for  own  funds  and  eligible  liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central 
counterparties,  exposures  to  collective  investment  undertakings,  large  exposures,  reporting  and 
disclosure requirements, and Regulation (EU) No 648/2012 (OJ L 150, 7.6.2019, p. 1). 
Council  Decision  (EU)  2016/1841  of  5  October  2016  on  the  conclusion,  on  behalf  of  the  European 
Union,  of  the  Paris  Agreement  adopted  under  the  United  Nations  Framework  Convention  on  Climate 
Change (OJ L 282, 19.10.2016, p. 4). 

EN 

30 

  EN 

                                                 
private sectors. The European Green Deal49 commits the Union to becoming climate-
neutral  by  2050.  The  financial  system  has  a  relevant  role  to  play  in  supporting  that 
transition,  which  relates  not  only  to  capturing  and  supporting  the  opportunities  that 
will arise but also to properly managing the risks that it may entail. 

(32)  The  unprecedented  scale  of  transition  towards  a  sustainable,  climate-neutral  and 
circular economy will have considerable impacts on the financial system. In 2018, the 
Network  of  Central  Banks  and  Supervisors  for  Greening  the  Financial  System50 
acknowledged  that  climate-related  risks  are  a  source  of  financial  risk.  The 
Commission’s  Renewed  Sustainable  Finance  Strategy51 
that 
environmental,  social  and  governance  (ESG)  risks,  and  risks  steaming  from  the 
physical  impact  of  climate  change,  biodiversity  loss  and  the  broader  environmental 
degradation  of  ecosystems  in  particular,  pose  an  unprecedented  challenge  to  our 
economies and to the stability of the financial system. Those risks present specificities 
such as their forward-looking nature and their distinctive impacts over short, medium 
and long-term time horizons. 

emphasises 

(33)  The  long-term  nature  and  the  profoundness  of  the  transition  towards  a  sustainable, 
climate-neutral  and  circular  economy  will  entail  significant  changes  in  the  business 
models of institutions. The adequate adjustment of the financial sector, and of credit 
institutions in particular, is necessary to achieve the objective of net-zero greenhouse 
gas emissions in the Union’s economy by 2050, while maintaining the inherent risks 
under  control.  Competent  authorities  should,  therefore,  be  enabled  to  assess  this 
process  and  intervene  in  cases  where  institutions’  manage  climate  risks,  as  well  as 
risks  stemming  from  environmental  degradation  and  biodiversity  loss,  in  a  way  that 
endangers the stability of the individual institutions, or the financial stability overall. 
Competent authorities should also monitor and be empowered to act, when there is a 
misalignment  of  institutions’  business  models  and  strategies  with  the  relevant  Union 
policy  objectives  and  broader  transition  trends  towards  a  sustainable  economy, 
resulting in  risks to  their business  models  and strategies, or to  the financial  stability. 
Climate  and,  more  broadly,  environmental  risks,  should  be  considered  together  with 
social  risks  and  governance  risks  under  one  category  of  risks  to  enable  a 
comprehensive  and  coordinated  integration  of  these  factors,  as  they  are  often 
intertwined.  ESG  risks  are  closely  linked  with  the  concept  of  sustainability,  as  ESG 
factors represent the main three pillars of sustainability. 

(34)  To  maintain  adequate  resilience  to  the  negative  impacts  of  ESG  factors,  institutions 
established  in  the  Union  need  to  be  able  to  systematically  identify,  measure  and 
manage  ESG  risks,  and  their  supervisors  need  to  assess  the  risks  at  the  level  of  the 
individual institution as well as at the systemic level, giving priority to environmental 
factors  and  progressing  to  the  other  sustainability  factors  as  the  methodologies  and 
tools  for  the  assessment  evolve.  Institutions  should  assess  the  alignment  of  their 
portfolios with the ambition of the Union to become climate-neutral by 2050 as well as 
avert  environmental  degradation  and  biodiversity  loss.  Institutions  should  set  out 
specific plans to address the risks arising, in the short, medium and long term, from the 

49 
50 

51 

COM(2019) 640 final. 
Launched  at  the  Paris  One  Planet  Summit  on  12  December  2017,  is  a  group  of  Central  Banks  and 
Supervisors willing, on a voluntary basis, to share best practices and contribute to the development of 
environment and climate risk management in the financial sector and to mobilise mainstream finance to 
support the transition toward a sustainable economy. 
COM(2021) 390 final, 06.07.2021. 

EN 

31 

  EN 

                                                 
misalignment of their business  model and strategy  with  relevant  policy objectives of 
the  Union,  included  in  the  Paris  Agreement,  the  Fit  for  55  package52  [and  the  post-
2020 Global Biodiversity Framework]. Institutions should be required to have robust 
governance arrangements and internal processes for the management of ESG risks and 
to  have  in  place  strategies  approved  by  their  management  bodies  that  take  into 
consideration not only the current but also the forward-looking impact of ESG factors. 
The collective knowledge and awareness of ESG factors by the management body and 
institutions’ internal capital allocation to  address  ESG risks will also be key to drive 
the change within each and single institution. The specificities of ESG risks as well as 
their  relative  novelty  means  that  understandings,  measurements  and  management 
practices can differ significantly across institutions. To ensure convergence across the 
Union  and  a  uniform  understanding  of  ESG  risks,  appropriate  definitions  and 
minimum standards for the assessment of those risks should be provided in prudential 
regulation. To achieve this objective, definitions are laid down in Regulation (EU) No 
575/2013  and  the  EBA  is  empowered  to  specify  a  minimum  set  of  reference 
methodologies for the assessment of the impact of ESG risks on the financial stability 
of  institutions,  giving  priority  to  the  impact  of  environmental  factors.  Since  the 
forward-looking  nature  of  ESG  risks  means  that  scenario  analysis  and  stress  testing, 
together with plans for addressing those risks, are particularly informative assessment 
tools, EBA should be  also empowered to develop uniform  criteria for the content of 
the plans to address those risks and for the setting of scenarios and applying the stress 
testing  methods.  Environment-related 
from 
environmental degradation and biodiversity loss, and climate-related risks in particular 
should take priority in  light  of their urgency and the particular relevance of scenario 
analysis and stress testing for their assessment. 

risks  stemming 

including 

risks, 

(35)  ESG  risks  can  have  far-reaching  implications  for  the  stability  of  both  individual 
institutions  and  the  financial  system  as  whole.  Hence,  competent  authorities  should 
consistently  factor  those  risks  into  their  relevant  supervisory  activities,  including  the 
supervisory  evaluation  and  review  process  and  the  stress  testing  of  those  risks.  The 
European  Commission,  via  its  Technical  Support  Instrument,  has  been  providing 
support  to  national  competent  authorities  in  developing  and  implementing  stress 
testing methodologies and stands ready to continue to provide technical support in this 
respect. However,  the  stress  testing methodologies for ESG risks have so far mainly 
been applied in an exploratory manner. To firmly and consistently embed stress testing 
of  ESG  in  supervision,  the  EBA,  European  Insurance  and  Occupational  Pensions 
Authority  (EIOPA)  and  the  European  Securities  and  Markets  Authority  (ESMA) 
should  jointly  develop  guidelines  to  ensure  consistent  considerations  and  common 
methodologies  for  stress  testing  ESG  risks.  Stress  testing  of  those  risks  should  start 
with  climate  and  environment-related  factors,  and  as  more  ESG  risk  data  and 
methodologies  become  available  to  support  the  development  of  additional  tools  to 
assess  their  quantitative  impact  on  financial  risks,  competent  authorities  should 
increasingly  assess  the  impact  of  those  risks  in  their  adequacy  assessments  of  credit 
institutions. In order to ensure convergence of supervisory practices, EBA should issue 
guidelines regarding the uniform inclusion of ESG risks in the supervisory review and 
evaluation process (SREP). 

52 

EN 

Communication  of  the  Commission  COM(2021)568  final,  14.07.2021,  comprising  the  following 
final, 
Commission  proposals:  COM(2021)562 
final, 
final,  COM(2021)556 
COM(2021)563 
COM(2021)557 final, COM(2021)554 final, COM(2021)555 final, COM(2021)552 final.  

final,  COM(2021)561 
final,  COM(2021)559 

final,  COM(2021)564 
final,  COM(2021)558 

32 

  EN 

                                                 
(36)  The  provisions  in  Article  133  of  Directive  2013/36/EU  on  the  systemic  risk  buffer 
framework may already be used to address various kinds of systemic risks, including 
risks related to climate change. To the extent that the relevant competent or designated 
authorities,  as  applicable,  consider  that  risks  related  to  climate  change  have  the 
potential to  have serious negative consequences  for the financial system  and the real 
economy in Member States, they should introduce a systemic risk buffer rate for those 
risks where they consider the introduction of such rate effective and proportionate to 
mitigate those risks. 

(37)  Members of the management body may undergo the suitability assessment only after a 
significant time after their appointment or, in the case of key function holders, not at 
all. Thus, members of the management body who do not  meet  the suitability criteria 
may  have  exercised  their  duties  for  a  long  time,  which  is  problematic  especially  for 
large  institutions.  Moreover,  cross-border  institutions  must  navigate  through  a  wide 
diversity  of  national  rules  and  processes,  which  does  not  make  the  current  system 
efficient. The existence of different requirements as regards the suitability assessment 
across the Union is a particularly acute issue in the context of the Banking Union. As a 
result, it is important to provide a set of rules at Union level to put in place a consistent 
and predictable “fit-and-proper” framework. This will foster supervisory convergence, 
enabling further trust between competent authorities and give more legal  certainty to 
institutions.  Having  a  robust  “fit-and-proper”  framework  for  assessing  the  suitability 
of  members  of  the  management  body  and  key  function  holders  is  a  crucial  factor  to 
ensure that institutions are adequately run and their risks appropriately managed. 

(38)  The  purpose  of  assessing  the  suitability  of  members  of  management  bodies  is  to 
ensure that those members are qualified for their role and are of good repute. Having 
the  primary  responsibility  for  assessing  the  suitability  of  each  member  of  the 
management body, institutions should carry out the suitability assessment, followed by 
a  verification  by  the  competent  authorities  that  may  perform  it  before  or  after  the 
member  of  the  management  body  takes  up  the  position.  However,  due  to  the  risks 
posed  by  large  institutions  resulting  in  particular  from  potential  contagion  effects, 
unsuitable  members  of  management  body  should  be  prevented  from  influencing  the 
running  of  such  large  institutions  with  potential  serious  detrimental  effects.  It  is 
therefore appropriate that, safe in exceptional circumstances, the competent authorities 
assess the suitability of members of the management body of large institutions before 
those members exercise their duties. 

(39)  Not  only  members  of  the  management  body,  but  also  key  function  holders  have  a 
significant influence in ensuring the sound and prudent management of an institution 
on  a  day-to-day  basis.  Because  Directive  2013/36/EU  does  not  currently  define  key 
function  holders,  Member  States  have  diverging  practices  across  the  Union,  which 
impedes an effective and efficient supervision and prevents a level playing field. It is 
therefore  necessary  to  define  key  function  holders.  In  addition,  the  responsibility  for 
assessing the suitability of key function holders should primarily belong to institutions. 
However, due to the risks posed by the activities of large institutions, the suitability of 
the  heads  of  internal  control  functions  and  the  chief  financial  officer  in  such  large 
institutions should be assessed by competent authorities before those persons take up 
their positions. 

(40) 

In order to ensure legal certainty and predictability for the institutions, it is necessary 
to establish an efficient and timely process for verifying the suitability of members of 
the  management  body  and  key  function  holders  by  competent  authorities.  Such 
process  should  enable  competent  authorities  to  request  any  additional  information 

EN 

33 

  EN 

(41) 

(42) 

where  necessary,  but  also  ensure  that  those  competent  authorities  are  able  to  handle 
the  suitability  assessments  within  the  prescribed  timeframe.  Institutions,  from  their 
side, should provide the competent authorities with correct and complete information 
within  the  allocated  time  and  respond  quickly  and  in  good  faith  to  requests  for 
additional information from the competent authorities. 

the  work  of  competent  authorities  when  reviewing 

In light of the role of the suitability assessment for the prudent and sound management 
of institutions, it is necessary to provide competent authorities with new tools, such as 
statements  of  responsibilities  and  a  mapping  of  duties,  to  assess  the  suitability  of 
members of the management body and key function holders. Those new tools will also 
support 
the  governance 
arrangements of institutions as part of the supervisory review and evaluation process. 
Notwithstanding  the  overall  responsibility  of  the  management  body  as  a  collegial 
body, institutions should be required to draw up individual statements and a mapping 
that clarify the duties held by members of the management body, senior management 
and key function holders. Their individual duties are not always clearly or consistently 
laid down and there may be situations where two or more roles overlap or where areas 
of  duties  are  overlooked  because  they  do  not  fall  neatly  under  the  remit  of  a  single 
person. The scope of each individual’s duties should be well defined and no areas of 
duties  should  be  left  without  ownership.  Those  tools  should  ensure  further 
accountability of the members of the management body, senior management and key 
function holders. 

In order to  safeguard financial stability, competent  authorities  should be able to take 
and  implement  decisions  swiftly.  In  the  context  of  early  intervention  measures  or 
resolution  action,  competent  authorities  and  resolution  authorities  may  consider  it 
appropriate  to  remove  or  replace  members  of  the  management  body  or  senior 
management.  To  take  into  account  such  situations,  competent  authorities  should 
perform  the  suitability  assessment  of  members  of  the  management  body  or  key 
function holders after those members of the management body or key function holders 
have taken up their position. 

(43)  Upon becoming bound by the output floor laid down in Regulation (EU) No 575/2013, 
the  nominal  amount  of  an  institution’s  additional  own  funds  requirement  set  by  the 
institution’s  competent  authority  in  accordance  with  Article  104(1),  point  (a),  of 
Directive 2013/36/EU to address risks other than the risk of excessive leverage should 
not  immediately increase as a result,  all else being equal.  Furthermore, in such case, 
the  competent  authority  should  review  the  institution’s  additional  own  funds 
requirement  and  assess,  in  particular,  whether  and  to  what  extent  such  requirement 
captures model risk from  the use of internal  models  by the institution. Where that  is 
the  case,  the  institution’s  additional  own  funds  requirement  should  be  regarded  as 
overlapping with the risks captured by the output floor in the own funds requirement 
of  the  institution  and,  consequently,  the  competent  authority  should  reduce  that 
requirement  to  the  extent  necessary  to  remove  any  such  overlap  for  as  long  as  the 
institution remains bound by the output floor. 

(44)  Similarly,  upon  becoming  bound  by  the  output  floor,  the  nominal  amount  of  an 
institution’s CET1 capital required under the systemic risk buffer should not increase 
where there has been no increase in the macroprudential or systemic risks associated 
with the institution. In such cases, the institution’s competent or designated authority, 
as applicable, should review the calibration of the systemic risk buffer rates and make 
sure  that  they  remain  appropriate  and  do  not  double-count  the  risks  that  are  already 
covered by virtue of the fact that the institution is bound by the output floor. More in 

EN 

34 

  EN 

general,  competent  and  designated  authorities,  as  applicable,  should  not  impose 
systemic  risk  buffer  requirements  for  risks  which  are  already  fully  covered  by  the 
output floor. 

(45)  Furthermore,  when  an  institution  designated  as  an  ‘other  systemically  important 
institution’ becomes bound by the output floor, its competent or designated authority, 
as  applicable,  should  review  the  calibration  of  the  institution’s  O-SII  buffer 
requirement and make sure that it remains appropriate. 

(46)  To enable the timely and effective activation of the systemic risk buffer it is necessary 
to  clarify  the  application  of  the  relevant  provisions  and  simplify  and  align  the 
applicable procedures. Setting a systemic risk buffer should be possible for designated 
authorities in all Member States to enable the recognition of systemic risk buffer rates 
set by authorities in other Member States and to ensure that authorities are empowered 
to address systemic risks in a timely and effective manner. Recognition of a systemic 
risk  buffer  rate  set  by  another  Member  State  should  require  only  a  notification  from 
the  authority  recognising  the  rate.  To  avoid  unnecessary  authorisation  procedures 
where the decision to set a buffer rate results in a decrease or no change from any of 
the  previously  set  rates,  the  procedure  laid  down  in  Article  131(15)  of  Directive 
2013/36/EU needs to be aligned with the procedure laid down in Article 133(9) of that 
Directive.  The  procedures  laid  down  in  Article  133(11)  of  that  Directive  should  be 
clarified  and  made  more  consistent  with  the  procedures  applying  for  other  systemic 
risk buffer rates, where relevant. 

HAVE ADOPTED THIS DIRECTIVE: 

Article 1 
Amendments to Directive 2013/36/EU 

Directive 2013/36/EU is amended as follows: 

(1) 

in Article 3, paragraph 1 is amended as follows: 

(a) 

the following point (8a) is inserted: 

‘(8a)  ‘management body in its management function’ means the management 
body acting in its role of directing effectively the institution and includes 
the persons who direct the business of the institution;’; 

(b)  point (9) is replaced by the following: 

‘(9)  ‘senior  management’  means 

those  natural  persons  who  exercise 
executive functions within an institution and are  directly  accountable to 
the institution’s management body but are not members of that body, and 
who  are  responsible  for  the  day-to-day  management  of  the  institution 
under the direction of the management body of the institution;’; 

(c) 

the following points (9a) to (9d) are inserted: 

‘(9a)  ‘key  function  holders’  means  persons  who  have  significant  influence 
over  the  direction  of  the  institution  but  are  not  members  of  the 
management body, including the heads of internal control functions and 
the  chief  financial  officer,  where  those  heads  or  that  officer  are  not 
members of the management body; 

EN 

35 

  EN 

(9b)  ‘chief  financial  officer’  means  the  person  responsible  for  the  financial 
resources management, financial planning and financial reporting of the 
institution; 

(9c)  ‘heads  of  internal  control  functions’  means  the  persons  at  the  highest 
hierarchical  level  responsible  for  effectively  managing  the  day-to-day 
operation  of  the  independent  risk  management,  compliance  and  internal 
audit functions of the institution; 

(9d)  ‘internal  control  functions’  means  risk  management,  compliance  and 

internal audit functions;’; 

(d)  point (11) is replaced by the following: 

‘(11)  ‘model risk’ means model risk as defined in Article 4(1), point (52b), of 

Regulation (EU) No 575/2013;’; 

(e) 

the following point (29a) is inserted: 

‘(29a)  ‘stand-alone institution in the EU’ means stand-alone institution in the 
EU  as  defined  in  Article  4(1),  point  (33a),  of  Regulation  (EU)  No 
575/2013;’; 

(f) 

the following point (47a) is inserted: 

‘(47a)  ‘eligible  capital’  means  the  eligible  capital  as  defined  in  Article  4(1), 

point (71), of Regulation (EU) No 575/2013;’; 

(g) 

the following points (66) to (69) are added: 

‘(66)  ‘large  institution’  means  an  institution  as  defined  in  Article  4(1),  point 

(146), of Regulation (EU) No 575/2013; 

(67)  ‘relevant  subsidiary’  means  a  material  subsidiary  as  defined 

in 
Article 4(1),  point  (135),  of  Regulation  (EU)  No 575/2013  or  a  large 
subsidiary as defined in Article 4(1), point (147), of that Regulation; 

(68)  ‘periodic  penalty  payments’  means  daily  penalties,  aimed  at  ending 
ongoing  breaches  and  compelling  legal  or  natural  person  to  return  to 
compliance  with  their  obligations  under  this  Directive  and  Regulation 
(EU) No 575/2013; 

(69)  ‘environmental, social and governance risk’ means environmental, social 
and governance risk as defined in Article 4(1), point (52d), or Regulation 
(EU) No 575/2013;’; 

(2) 

in Article 4, paragraph 4 is replaced by the following: 

‘4.  Member  States  shall  ensure  that  competent  authorities  have  the  expertise, 
resources, operational capacity, powers and independence necessary to carry out the 
functions relating to prudential supervision, investigations and the powers to impose 
periodic  penalty  payments  and  penalties  set  out  in  this  Directive  and  in  Regulation 
(EU) No 575/2013. 

For  the  purposes  of  preserving  the  independence  of  competent  authorities  in  the 
exercise of their powers, Member State shall provide all the necessary arrangements 
to ensure that those competent authorities, including their staff and members of their 
governance bodies, can act independently and objectively, without seeking or taking 
instructions,  or  being  subject  to  influence  from  supervised  institutions,  from  any 
government  of  a  Member  State  or  body  of  the  Union  or  from  any  other  public  or 

EN 

36 

  EN 

private  body.  These  arrangements  shall  be  without  prejudice  to  the  rights  and 
obligations  of  the  competent  authorities  as  stemming  from  being  part  of  the 
European  system  of  financial  supervision  as  stemming  from  Regulation  (EU)  No 
1093/2010 of the European Parliament and of the Council of 24 November 2010*1, 
the Single Supervisory  Mechanism  as  stemming from  Council Regulation (EU) No 
1024/2013 of 15 October 2013*2 and Regulation (EU) No 468/2014 of the European 
Central Bank of 16 April 2014*3, for the Single Resolution Board as stemming from 
stemming from Regulation (EU) No 806/2014 of the European Parliament and of the 
Council of 15 July 2014*4. 

Member States shall, in particular, ensure that competent authorities have in place all 
the  necessary  arrangements  to  prevent  conflicts  of  interests  of  their  staff  and 
members  of  their  governance  bodies.  For  those  purposes,  Member  States  shall  lay 
down rules proportionate to the role and responsibilities of those staff and members 
of the governance bodies, and at a minimum prohibiting them from: 

(a) 

(b) 

trading  in  financial  instruments  issued  by  or  referenced  to  the  institutions 
supervised  by  the  competent  authorities,  their  direct  or  indirect  parent 
undertakings, subsidiaries or affiliates; 

following the end of their employment at the competent authority, being hired 
by  or  accepting  any  kind  of  contractual  agreement  for  the  provision  of 
professional services with any of the following: 

(i) 

(ii) 

institutions  they  have  directly  supervised,  including  their  direct  or 
indirect  parent  undertakings,  subsidiaries  or  affiliates,  over  at  least  the 
two preceding years from the date when taking up any new role; 

firms that provide services to any of the undertakings referred to in point 
(i)  that  were  directly  supervised  over  at  least  the  two  preceding  years 
from  the  date  when  taking  up  any  new  role,  unless  they  are  strictly 
precluded  from  taking  part  in  any  provision  of  those  services  while  the 
prohibition referred to herein remains in force. 

Members of staff and of governance bodies subject to the prohibitions provided for 
in the third subparagraph, point (b), shall be entitled to an appropriate compensation 
for the inability to take up a prohibited role. 

EBA  shall  issue  guidelines  addressed  to  the  competent  authorities,  in  accordance 
with Article 16 of Regulation (EU) No 1093/2010, on the prevention of conflicts of 
interests  in  and  independence  of  competent  authorities,  taking  into  account 
international best practices, for a proportionate application of this Article.’; 

______ 
*1 
Regulation (EU) No 1093/2010 of the European Parliament and of the Council 
of  24  November  2010  establishing  a  European  Supervisory  Authority  (European 
Banking Authority), amending Decision No 716/2009/EC and repealing Commission 
Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12). 

*2 

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). 

*3 

Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 
establishing 
the  Single  Supervisory 
Mechanism between the European  Central  Bank and national  competent authorities 

the  framework  for  cooperation  within 

EN 

37 

  EN 

(SSM  Framework  Regulation) 

and  with  national  designated  authorities 
(ECB/2014/17) (OJ L 141, 14.5.2014, p. 1). 
*4 
Regulation (EU) No 806/2014 of the European Parliament and of the Council 
of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution 
of  credit  institutions  and  certain  investment  firms  in  the  framework  of  a  Single 
Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) 
No 1093/2010 (OJ L 225, 30.7.2014, p. 1). 

(3) 

In Article 18 the following point (g) is added: 

‘(g)  meets all of the following conditions: 

(i) 

(ii) 

(iii) 

it  has  been  determined  to  be  failing  or  likely  to  fail  in  accordance  with 
Article  32(1),  point  (a)  of  Directive  2014/59/EU  or  in  accordance  with 
Article 18(1), point (a), of Regulation (EU) No 806/2014; 

the  resolution  authority  considers  that  the  condition  in  Article  32(1), 
point  (b)  of  Directive  2014/59/EU  or  in  Article  18(1),  point  (b),  of 
Regulation  (EU)  No  806/2014  is  met  with  respect  to  that  credit 
institution; 

the  resolution  authority  considers  that  the  condition  in  Article  32(1), 
point  (c)  of  Directive  2014/59/EU  or  in  Article  18(1),  point  (c),  of 
Regulation  (EU)  No  806/2014  is  not  met  with  respect  to  that  credit 
institution.’; 

(4) 

Article 21a is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

‘1.  Parent  financial  holding  companies  in  a  Member  State,  parent  mixed 
financial  holding  companies  in  a  Member  State,  EU  parent  financial  holding 
companies  and  EU  parent  mixed  financial  holding  companies  shall  seek 
approval in accordance with this Article. Other financial holding companies or 
mixed financial holding companies shall seek approval in accordance with this 
Article  where  they  are  required  to  comply  with  this  Directive  or  Regulation 
(EU) No 575/2013 on a sub-consolidated basis. 

Competent authorities shall perform a review of the parent undertakings of an 
institution,  or  of  the  parent  undertakings  of  an  entity  requesting  an 
authorisation pursuant to Article 8, in order to detect the presence or not of an 
undertaking complying with the criteria to be considered as a  parent financial 
holding  company  in  a  Member  State,  a  parent  mixed  financial  holding 
company in a Member State, an EU parent financial holding company or an EU 
parent mixed financial holding company. 

For the purposes of the second sub-paragraph, where the parent companies are 
located in other Member States than the Member State in which the institution, 
or  the  entity  requesting  an  authorisation  pursuant  to  Article  8,  is  established, 
competent  authorities  of  those  two  Member  States  shall  cooperate  closely  to 
perform the review. 

Competent authorities shall publish the outcome of the review referred to in the 
second sub-paragraph.’; 

(b)  paragraph 2 is amended as follows: 

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(i) 

in the first subparagraph, point (b) is replaced by the following: 

‘(b)  information  regarding  the  nomination  of  at  least  two  persons 
effectively  directing  the  financial  holding  company  or  mixed  financial 
holding company and compliance with the requirements set out in Article 
91(1);’; 

(ii) 

the second subparagraph is replaced by the following: 

‘Where the approval  of  a financial holding company or mixed financial 
holding  company  takes  place  concurrently  with  the  assessment  referred 
to in Article 22 and Article 27a, the competent authority for the purposes 
of  that  Article  shall  coordinate,  as  appropriate,  with  the  consolidating 
supervisor and, where different,  the competent  authority in  the Member 
State  where  the  financial  holding  company  or  mixed  financial  holding 
company is established. In that case, the assessment period referred to in 
Article  22(3),  second  subparagraph,  and  Article  27a(6)  shall  be 
suspended for a period exceeding 20 working day until the procedure set 
out in this Article is complete.’; 

(5) 

in Article 21b(6), the following second and third subparagraphs are added: 

‘EBA  shall  develop  draft  implementing  technical  standards  to  specify  the  uniform 
formats, definitions and the IT solutions to be applied in the Union for the reporting 
of the information referred to in the first subparagraph. 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by  [OP  please  insert  the  date  =  12  months  from  date  of  entry  into  force  of  this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the second subparagraph in  accordance with Article 15 of Regulation 
(EU) No 1093/2010.’; 

(6) 

the following new Article 21c is inserted: 

Article 21c 
Requirement to establish a branch for the provision of banking services by third 
country undertakings and exception for the reverse solicitation of services 

1. Member States shall require undertakings established in a third country as referred 
to  in  Article  47(1)  and  (2)  to  establish  a  branch  in  their  territory  and  apply  for 
authorisation  in  accordance  with  Title  VI  to  commence  or  continue  conducting  the 
activities referred to in paragraph (1) of that Article in the relevant Member State. 

2.  Where  a  retail  client,  an  eligible  counterparty  or  a  professional  client  within  the 
meaning  of  Sections  I  and  II  of  Annex  II  to  Directive  2014/65/EU  established  or 
situated in the Union approaches an undertaking established in a third country at its 
own  exclusive  initiative  for  the  provision  of  any  service  or  activity  referred  to  in 
Article 47(1), the requirement laid down in paragraph 1 of this Article shall not apply 
to  the  provision  to  that  person  of  the  relevant  service  or  activity,  including  a 
relationship  specifically  related  to  the  provision  of  that  service  or  activity.  Without 
prejudice  to  intragroup  relationships,  where  a  third  country  undertaking,  including 
through an  entity  acting  on its behalf or having  close links with  such third-country 
undertaking or any other person acting on behalf of such undertaking, solicits clients 

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or potential clients in the Union, it shall not be deemed to be a service provided at the 
own exclusive initiative of the client. 

3.  An  initiative  by  a  client  or  counterparty  as  referred  to  in  paragraph  2  shall  not 
entitle the third-country undertaking to market other categories of products, activities 
or services than those that the client or counterparty had solicited, other than through 
a third country branch established in a Member State.’; 

(7) 

In Title III, the following Chapters 3, 4 and 5 are added: 

‘CHAPTER 3 

Acquisition or divesture of a qualifying holding 

Article 27a 
Notification and assessment of the acquisition 

1. Member States shall require any institution, parent financial holding companies in 
a Member State,  parent  mixed financial holding companies in  a Member State, EU 
parent  financial  holding  companies  and  EU  parent  mixed  financial  holding 
companies,  or  other  financial  holding  companies  or  mixed  financial  holding 
companies required to seek for approval in accordance with Article 21a(1) on a sub-
consolidated  basis  (the  “acquirer”)  to  notify  their  competent  authority  where  they 
intend to acquire, directly or indirectly, a qualifying holding which exceeds 15% of 
the eligible capital of the acquirer (the “proposed acquisition”), indicating the size of 
the intended holding and the relevant information, as specified in Article 27b(5). 

2.  The  competent  authorities  shall  acknowledge  receipt  of  the  notification  under 
paragraph 1 or of any additional information under paragraph 5 promptly and in any 
event within two working days following receipt of that notification. 

By  way  of  derogation  from  the  paragraph  2  of  this  Article,  and  of  Article  22(2), 
when the proposed acquisition referred to in paragraph 1 of this Article or in Article 
22(1)  is  deemed  complex  by  the  competent  authorities,  acknowledgment  of  the 
receipt of the notification of any  additional information shall be done promptly and 
in any event within ten working days following the receipt of that notification. 

3. The competent authorities shall have 60 working days from the date of the written 
acknowledgement of receipt of the notification and from the receipt of all documents, 
including  those  required  by  the  Member  State  to  be  attached  to  the  notification  in 
accordance  with  Article  27b(4)  (the  “assessment  period”),  to  carry  out  the 
assessment provided for in Article 27b(1) (the “assessment”). 

If the proposed acquisition consists in a qualifying holding in a credit  institution as 
referred  in  Article  22(1),  the  acquirer  shall  also  still  be  subject  to  the  notification 
requirement and the assessment under that Article. 

4.  The  competent  authorities  shall  inform  the  proposed  acquirer  of  the  date  of  the 
expiry of the assessment period at  the time of acknowledging  receipt referred to  in 
paragraph 3. 

5.  The  competent  authorities  may,  during  the  assessment  period  where  necessary, 
and no later than on the 50th working day of the assessment period, request additional 
information  that  is  necessary  to  complete  the  assessment.  Such  a  request  shall  be 
made in writing and shall specify the additional information needed. 

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6.  The  assessment  period  shall  be  suspended  between  the  date  of  request  for 
additional  information  by  the  competent  authorities  and  the  date  of  receipt  of  a 
response  thereto  by  the  acquirer,  providing  all  the  requested  information.  The 
suspension shall not exceed 20 working days. Any further requests by the competent 
authorities  for  completion  or  clarification  of  the  information  shall  be  at  their 
discretion but shall not result in a suspension of the assessment period. 

7.  The  competent  authorities  may  extend  the  suspension  referred  to  in  the  second 
subparagraph of paragraph 6 up to 30 working days in the following situations: 

(a) 

(b) 

the entity acquired is situated or regulated in a third country; 

exchange  of  information  with  authorities  responsible  for  supervising  the 
obliged  entities  listed  in  Article  2(1)  points  (1)  and  (2)  of  Directive  (EU) 
2015/849  of  the  European  Parliament  and  of  the  Council*5  is  necessary  to 
perform the assessment referred to in Article 27b(1) of this Directive. 

8.  Where  the  approval  of  a  financial  holding  company  or  mixed  financial  holding 
company  pursuant  to  Article  21a  takes  place  concurrently  with  the  assessment 
referred in this Article, the competent authority for the purposes of that Article shall 
coordinate, as appropriate, with the consolidating supervisor and, where different, the 
competent  authority  in  the  Member  State  where  the  financial  holding  company  or 
mixed financial holding company is established. In that case, the assessment period 
shall be suspended for a period not  exceeding 20 working days until  the procedure 
set out in Article 21a is complete. 

9. Where competent authorities decide to oppose the proposed acquisition, they shall, 
within  two  working  days  of  completion  of  the  assessment,  and  not  exceeding  the 
assessment  period,  inform  the  acquirer  in  writing,  providing  the  reasons  for  their 
objection.  Subject  to  national  law,  an  appropriate  statement  of  the  reasons  for  the 
decision opposing the proposed acquisition may be made accessible to the public  at 
the request of the acquirer. The absence of provisions in the national law regarding 
an  appropriate  statement  of  the  reasons  for  the  decision  opposing  the  proposed 
acquisition  shall not  prevent  Member States from  allowing the competent  authority 
to publish such information in the absence of a request by the acquirer. 

10. Where  the competent  authorities do not  oppose the proposed acquisition within 
the assessment period in writing, it shall be deemed approved. 

11.  Competent  authorities  may  set  a  maximum  period  for  completing  the  proposed 
acquisition and extend it where appropriate. 

12. Member States may not impose requirements for notification to, or approval by, 
competent  authorities  of  direct  or  indirect  acquisitions  or  capital  that  are  more 
stringent than those set out in Article 89 of Regulation (EU) No 575/2013. 

________ 

*5 

Directive (EU) 2015/849 of the European Parliament and of the Council of 20 
May  2015  on  the  prevention  of  the  use  of  the  financial  system  for  the  purposes  of 
money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of 
the European Parliament and of the Council, and repealing Directive 2005/60/EC of 
the European Parliament and of the Council and Commission Directive 2006/70/EC 
(OJ L 141, 5.6.2015, p. 73). 

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Article 27b 
Assessment criteria 

1. In dealing with the notification of the proposed acquisition provided for in Article 
27a(1)  and  the  information  referred  to  in  Article  27a(5),  the  competent  authorities 
shall assess the sound and prudent management of the acquirer after the acquisition 
and  in  particular  of  the  risks  to  which  the  acquirer  is  or  might  be  exposed,  in 
accordance with the following criteria: 

(a) 

the sufficiently good repute and sufficient knowledge, skills and experience, as 
set  out  in  Article  91(1),  of  any  new  member  of  the  management  body  of  the 
acquirer to be appointed as a result of the proposed acquisition. 

(b)  whether the acquirer  will be able to  comply  and  continue to  comply with the 
prudential  requirements  set  out  in  this  Directive  and  Regulation  (EU)  No 
575/2013, and where applicable, other acts of Union law. 

(c)  whether  there  are  reasonable  grounds  to  suspect  that,  in  connection  with  the 
proposed  acquisition,  money  laundering  or  terrorist  financing  within  the 
meaning  of  Article  1  of  Directive  (EU)  2015/849  is  being  or  has  been 
committed or attempted, or that the proposed acquisition could increase the risk 
thereof. 

2. For the purposes of assessing the criterion laid down in paragraph 1, point (c), and 
criterion laid down in Article 23(1), point (e), competent authorities shall consult, in 
the context of their verifications, the authorities competent for the supervision of the 
undertakings in line with Directive (EU) 2015/849. 

3. The competent  authorities may oppose the proposed acquisition only if there are 
reasonable grounds for doing so on the basis of the criteria set out in paragraph 1 or 
if the information provided by the acquirer is incomplete, despite a request made in 
accordance with Article 27a. 

For the purposes of this paragraph and Article 23(2), and with regard to the criterion 
laid  down  in  paragraph  1,  point  (c),  an  objection  in  writing  by  the  authorities 
competent  for  the  supervision  of  the  undertakings  under  Directive  (EU)  2015/849 
shall constitute a reasonable ground for opposition. 

4. Member States shall neither impose any prior conditions in respect of the level of 
holding that must be acquired nor allow their competent  authorities to  examine the 
proposed acquisition in terms of the economic needs of the market. 

5. Member States shall publish a list specifying the information required to carry out 
the assessment. That information shall be provided to the competent authorities at the 
time  of  the  notification  referred  to  in  Article  27a(1).  The  information  shall  be 
proportionate  and  appropriate  to  the  nature  of  the  entity  to  be  acquired.  Member 
States shall not require information that is not relevant for the prudential assessment 
under this Article. 

6. Notwithstanding Article 27a,  paragraphs 2 to  7, where two or more proposals  to 
acquire  qualifying  holdings  in  the  same  entity  have  been  notified,  the  competent 
authority shall treat the acquirers in a non-discriminatory manner. 

7. EBA shall develop draft regulatory technical standards specifying: 

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(a) 

(b) 

(c) 

the minimum list of information to be provided to the competent authorities at 
the time of the notification referred to in Article 23(1), Article 27a(1), Article 
27f(1) and Article 27k(1); 

a  common  assessment  methodology  of  the  criteria  set  out  in  this  Article, 
Article 27g and Article 27l; 

the  process  applicable  to  notification  and  the  prudential  assessment  required 
under Article 27a, Article 27f and Article 27k. 

For the purpose of the first sub-paragraph, the EBA shall take into consideration the 
Directive (EU) 2017/1132 of the European Parliament and of the Council*6. 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by [OP  please insert  the date =  18 months  from  the date of  entry into force of this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010. 

__________ 
*6 
June 2017 relating to certain aspects of company law (codification). 

Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 

Article 27c 
Cooperation between competent authorities 

1. The relevant competent authorities shall consult each other when carrying out the 
assessment  referred  to  in  Article  27b  where  the  entity  acquired  is  one  of  the 
following: 

(a) 

(b) 

(c) 

a credit institution, insurance undertaking, reinsurance undertaking, investment 
firm or a management company within the meaning of Article 2(1) point (b) of 
Directive 2009/65/EC (“UCITS management company”) authorised in another 
Member State or in a sector other than that of the proposed acquirer; 

a parent undertaking of a credit institution, insurance undertaking, reinsurance 
undertaking, investment firm or a management company within the meaning of 
Article  2(1),  point  (b)  of  Directive  2009/65/EC  (“UCITS  management 
company”) authorised in another Member State or in a sector other than that of 
the proposed acquirer; 

legal  person  controlling  a  credit 

insurance  undertaking, 
a 
reinsurance  undertaking,  investment  firm  or  UCITS  management  company 
authorised in another Member State or in a sector other than that in which the 
acquisition is proposed. 

institution, 

The  competent  authorities  shall,  without  undue  delay,  provide  each  other  with  any 
information which is essential or relevant for the assessment. For those purposes, the 
competent authorities shall communicate to each other upon request or on their own 
initiative all relevant information for the assessment. 

2.  The  competent  authorities  shall  seek  to  coordinate  their  assessments  and  ensure 
the  consistency  of  their  decisions.  To  this  end,  the  decision  by  the  competent 
authority  of  the  acquirer  shall  indicate  any  views  or  reservations  made  by  the 

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competent authority that has authorised the credit institution controlled by the parent 
undertaking in which the acquisition is proposed. 

3.  EBA  shall  develop  draft  implementing  technical  standards  to  establish  common 
procedures,  forms  and  templates  for  the  consultation  process  between  the  relevant 
competent authorities as referred to in this Article. 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by [OP  please insert  the date =  18 months  from  the date of  entry into force of this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010. 

Article 27d 
Notification in the case of divestiture 

Member  States  shall  require  institutions,  parent  mixed  financial  holding  companies 
in  a  Member  State,  EU  parent  financial  holding  companies  and  EU  parent  mixed 
financial  holding  companies,  as  well  as  financial  holding  companies  and  mixed 
financial holding companies, to notify the competent authorities where they intend to 
dispose,  directly  or  indirectly,  of  a  qualifying  holding  that  exceeds  15%  of  the 
eligible  capital  of  the  acquirer.  That  notification  shall  be  made  in  writing  and  in 
advance of the divestiture, indicating the size of the holding concerned. 

Article 27e 
Information obligations and penalties 

Where the acquirer fails to notify the proposed acquisition in advance in accordance 
with  Article  27a(1)  or  has  acquired  a  qualifying  holding  as  referred  to  that  Article 
despite  the  competent  authorities’  opposition,  Member  States  shall  require  those 
competent  authorities  to  take  appropriate  measures.  Such  measures  may  include 
injunctions, periodic penalty payments and penalties, in accordance with Articles 65 
to  72, against members  of the management body and  senior management. Where a 
qualifying  holding  is  acquired  despite  opposition  by  the  competent  authorities, 
Member  States  shall,  without  prejudice  to  potential  penalties,  provide  either  for 
exercise  of  the  corresponding  voting  rights  to  be  suspended  or  for  votes  cast  to  be 
declared null and void. 

CHAPTER 4 

Material transfers of assets and liabilities 

Article 27f 
Notification and assessment of material transfers of assets and liabilities 

1. Member States shall require institutions, parent  financial holding companies in a 
Member  State,  parent  mixed  financial  holding  companies  in  a  Member  State,  EU 
parent  financial  holding  companies,  EU  parent  mixed  financial  holding  companies, 
or  other  financial  holding  companies  and  mixed  financial  holding  companies 
required to seek for approval in accordance with Article 21a(1) on a sub-consolidated 
basis  to  notify  their  competent  authority  of  any  material  transfer  of  assets  or 
liabilities  which  they  intend  to  execute  either  through  a  sale  or  any  other  type  of 

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transaction (the “intended operation”). The notification shall indicate the size of the 
intended operation and provide the information specified in Article 27g(5). 

When  the  intended  operation  involves  only  institutions  from  the  same  group,  these 
institutions shall also be subject to the first sub-paragraph. 

For  the  purposes  of  the  first  and  second  sub-paragraphs,  each  of  the  institutions 
involved  in  the  same  intended  operation  shall  be  subject  individually  to  the 
obligation to notify set out in those subparagraphs. 

2. For the purposes of paragraph 1: 

(a) 

(b) 

the intended operation shall be deemed material for an institution where it is at 
least equal to 10 % of its total assets or liabilities, where the intended operation 
is  performed  between  entities  of  the  same  group,  the  intended  operation  is 
deemed material for an institution where it is at least equal to 15 % of its total 
assets or liabilities; 

transfers  of  non-performing  assets,  or  of  assets  for  the  purpose  of  being 
included in a cover pool, within the meaning of Article 3(3) of Directive (EU) 
2019/2162  of  the  European  Parliament  and  of  the  Council*7,  or  to  be 
securitised,  shall  not  be  taken  into  account  for  calculating  the  percentage  in 
point (a); 

(c) 

transfers  of  assets  or  liabilities  in  the  context  of  the  use  of  resolution  tools, 
powers and mechanisms provided for in Title IV of Directive 2014/59/EU shall 
not be taken into account for calculating the percentage referred to in point (a). 

3.  Competent  authorities  shall  acknowledge  receipt  of  the  notification  under 
paragraph  1  or  of  additional  information  under  paragraph  6  promptly  and  in  any 
event within two working days following receipt of the notification. 

4. From the date of the written acknowledgement of receipt of the notification and of 
the documents, including those required by the  Member State to  be attached to  the 
notification  in  accordance  with  Article  27g(5),  competent  authorities  shall  have  a 
maximum  of  60  working  days  to  carry  out  the  assessment  provided  for  in  Article 
27g(1) (the “assessment period”). 

5. Competent authorities shall inform the institution of the date of the expiry of the 
assessment period at the time of acknowledging receipt. 

6. Competent authorities may request further necessary information to complete the 
assessment  at  any  time  during  the  assessment  period  and  no  later  than  the  50th 
working day of the assessment period. Such a request shall be made in writing and 
specify the additional information needed. 

7.  For  the  period  between  the  date  of  request  for  information  by  the  competent 
authorities  and  the  receipt  of  a  response  thereto  by  the  institution  providing  all  the 
requested  information,  the  assessment  period  shall  be  suspended.  The  suspension 
shall not exceed 20 working days. Any further requests by the competent authorities 
for the completion or clarification of the information shall be at their discretion but 
shall not result in a suspension of the assessment period. 

8.  Where  competent  authorities  decide  to  oppose  the  intended  operation,  they  shall 
inform the institution in writing and provide the reasons thereto within two working 
days of completion of the assessment and not later than the date of the expiry of the 
assessment  period.  Subject  to  national  law,  an  appropriate  statement  of  the  reasons 

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for the decision may be made accessible to the public at the request of the institution. 
The absence of provisions in the national law regarding an appropriate statement of 
the  reasons  for  the  decision  opposing  the  proposed  acquisition  shall  not  prevent  a 
Member State from allowing the competent authority to publish such information in 
the absence of a request by the institution. 

9. Where the competent authorities do not oppose the intended operation in writing 
within the assessment period, it shall be deemed approved. 

10.  The  competent  authorities  may  set  a  maximum  period  for  completing  the 
intended operation and extend it where appropriate. 

11. Member States may not impose requirements for notification on, or approval by, 
the competent authorities that are more stringent than those set out in Article 27f. 

________ 

*7 

Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 
November 2019 on the issue of covered bonds and covered bond public supervision 
and  amending  Directives  2009/65/EC  and  2014/59/EU  (OJ  L  328,  18.12.2019,  p. 
29). 

Article 27g 
Assessment criteria 

1. In dealing with the notification provided for in Article 27f(1) and the information 
referred to in Article 27f(6), competent authorities shall assess the intended operation 
in accordance with the following criteria: 

(a)  whether the institution will be able to comply and continue to comply with the 
prudential  requirements  set  out  in  this  Directive  and  Regulation  (EU)  No 
575/2013, and where applicable, other acts of Union law. 

(b)  whether  there  are  reasonable  grounds  to  suspect  that,  in  connection  with  the 
intended operation, money laundering or terrorist financing within the meaning 
of  Article  1  of  Directive  (EU)  2015/849  is  being  or  has  been  committed  or 
attempted, or that the proposed acquisition could increase the risk thereof. 

2.  For  the  purposes  of  assessing  the  criterion  laid  down  in  paragraph  1,  point  (b), 
competent  authorities  shall  consult,  in  the  context  of  their  verifications,  the 
authorities  competent  for  the  supervision  of  the  undertakings  under  Directive  (EU) 
2015/849. 

3.  The  competent  authorities  may  oppose  the  intended  operation  only  where  the 
criteria set out in paragraph 1 are not met or where the information provided by the 
institution is incomplete despite a request made in accordance with Article 27f. 

With  regard  to  the  criterion  laid  down  in  paragraph  1,  point  (b),  an  objection  in 
writing by the competent authorities under Directive (EU) 2015/849 shall constitute a 
reasonable ground for opposition. 

4. Member States may neither subject the intended operation to meeting a specified 
level  or  amount,  nor  allow  their  competent  authorities  to  examine  the  intended 
operation in terms of the economic needs of the market. 

5. Member States shall publish a list of information items that are necessary to carry 
out the assessment referred to in paragraph 1. That information shall be provided to 
the competent authorities at the time of the notification referred to in Article 27f(1). 

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Member  States  shall  not  require  information  that  is  not  relevant  for  a  prudential 
assessment of the intended operation. 

Article 27h 
Cooperation between competent authorities 

1. The relevant competent authorities shall consult each other when carrying out the 
assessment  referred  to  in  Article  27g  where  the  parties  involved  in  the  intended 
operation are one of the following: 

(a) 

(b) 

(c) 

a credit institution, insurance undertaking, reinsurance undertaking, investment 
firm or a management company within the meaning of Article 2(1), point (b) of 
Directive 2009/65/EC (“UCITS management company”) authorised in another 
Member  State  or  in  a  sector  other  than  that  in  which  the  acquisition  is 
proposed; 

a parent undertaking of a credit institution, insurance undertaking, reinsurance 
undertaking, investment firm or a management company within the meaning of 
Article  2(1),  point  (b)  of  Directive  2009/65/EC  (“UCITS  management 
company”) authorised in another Member State or in a sector other than that in 
which the acquisition is proposed; 

legal  person  controlling  a  credit 

insurance  undertaking, 
a 
reinsurance  undertaking,  investment  firm  or  UCITS  management  company 
authorised in another Member State or in a sector other than that in which the 
acquisition is proposed. 

institution, 

2.  Competent  authorities  shall,  without  undue  delay,  provide  each  other  with  any 
information  which  is  essential  or  relevant  for  the  assessment.  For  these  purposes, 
competent authorities shall communicate to each other upon request or on their own 
initiative all relevant information for the assessment. 

3.  The  competent  authorities  shall  seek  to  coordinate  their  assessments,  ensure  the 
consistency  of  their  decisions,  and  shall  indicate  in  their  decisions  any  views  or 
reservations made by the competent authority supervising other entities involved in 
the intended operation. 

4.  EBA  shall  develop  draft  implementing  technical  standards  to  establish  common 
procedures,  forms  and  templates  for  the  consultation  process  between  the  relevant 
competent authorities as referred to in this Article. 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by [OP  please insert  the date =  18 months  from  the date of  entry into force of this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010. 

Article 27i 
Information obligations and penalties 

Member  States  shall  require  that,  where  the  institutions  fail  to  notify  the  intended 
operation  in  advance  in  accordance  with  Article  27f(1),  or  has  performed  the 
intended  operation  as  referred  to  that  Article  despite  opposition  by  the  competent 
authorities, the competent authorities take appropriate measures. Such measures may 

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consist in injunctions, periodic penalty payments, penalties, subject to Articles 65 to 
72, against members of the management body and managers. 

CHAPTER 5 

Mergers and divisions 

Article 27j 
Definitions 

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

(a) 

‘merger’ means any of the following operations whereby: 

(i) 

one  or  more  companies,  on  being  dissolved  without  going  into 
liquidation,  transfer  all  or  parts  of  their  assets  and  liabilities  to  another 
existing  company,  in  exchange  for  the  issue  to  their  members  of 
securities  or  shares  representing  the  capital  of  that  other  company  and, 
where  applicable,  a  cash  payment  not  exceeding  10  %  of  the  nominal 
value (unless stated otherwise by the applicable national law), or, in the 
absence  of  a  nominal  value,  of  the  accounting  par  value  of  those 
securities or shares; 

(ii)  one  or  more  companies,  on  being  dissolved  without  going  into 
liquidation,  transfer  all  or  parts  their  assets  and  liabilities  to  another 
existing company, the acquiring company, without the issue of any new 
shares by the acquiring company, provided that one person holds directly 
or indirectly all the shares in the merging companies or the members of 
the  merging  companies  hold  their  securities  and  shares  in  the  same 
proportion in all merging companies; 

(iii) 

two  or  more  companies,  on  being  dissolved  without  going  into 
liquidation, transfer all or parts of their assets and liabilities to a company 
that they form in exchange for the issue to their members of securities or 
shares  representing  the  capital  of  that  new  company  and,  where 
applicable,  a  cash  payment  not  exceeding  10  %  of  the  nominal  value 
(unless  stated  otherwise  by  the  applicable  national  law),  or,  in  the 
absence  of  a  nominal  value,  of  the  accounting  par  value  of  those 
securities or shares; 

(iv)  a  company,  on  being  dissolved  without  going  into  liquidation,  transfers 
all  or  parts  of  its  assets  and  liabilities  to  the  company  holding  all  the 
securities or shares representing its capital. 

(b) 

‘division’ means any of the following operations: 

(i) 

an  operation  whereby,  after  being  wound  up  without  going  into 
liquidation, a company transfers to more than one company all its assets 
and  liabilities  in  exchange  for  the  allocation  to  the  shareholders  of  the 
company  being  divided  of  shares 
receiving 
contributions  as  a  result  of  the  division  and,  where  applicable,  a  cash 
payment  not  exceeding  10  %  of  the  nominal  value  (unless  stated 
otherwise by the applicable national law), or, in the absence of a nominal 
value, of the accounting par value of those securities or shares; 

the  companies 

in 

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(ii) 

an  operation  whereby,  after  being  wound  up  without  going  into 
liquidation,  a  company  transfers  to  more  than  one  newly-formed 
company all its assets and liabilities in exchange for the allocation to the 
shareholders  of  the  company  being  divided  of  shares  in  the  recipient 
companies, and, where applicable, a cash payment not exceeding 10 % of 
the  nominal  value  (unless  stated  otherwise  by  the  applicable  national 
law), or, in the absence of a nominal value, of the accounting par value of 
those securities or shares; 

(iii)  an  operation  consisting  in  a  combination  of  operations  described  under 

points (i) and (ii); 

(iv)  an operation whereby a company being divided transfers part of its assets 
and  liabilities  to  one  or  more  recipient  companies,  in  exchange  for  the 
issue to  the shareholders of the company being divided of shares in  the 
recipient  companies,  in  the  company  being  divided  or  in  both  the 
recipient  companies  and  the  company  being  divided,  and,  where 
applicable,  a  cash  payment  not  exceeding  10  %  of  the  nominal  value 
(unless  stated  otherwise  by  the  applicable  national  law),  or,  in  the 
absence  of  a  nominal  value,  of  the  accounting  par  value  of  those 
securities or shares; 

(v) 

an operation whereby a company being divided transfers part of its assets 
and  liabilities  to  one  or  more  recipient  companies,  in  exchange  for  the 
issue to the company being divided of securities or shares in the recipient 
companies. 

Article 27k 
Notification and assessment of the merger or division 

1. Member States shall require institutions, parent financial holding companies in a 
Member  State,  parent  mixed  financial  holding  companies  in  a  Member  State,  EU 
parent  financial  holding  companies,  EU  parent  mixed  financial  holding  companies, 
or  financial  holding  companies  and  mixed  financial  holding  companies  required  to 
seek for approval in accordance with Article 21a(1) on a sub-consolidated basis (the 
‘financial  stakeholders’)  carrying  out  a  merger  or  division  (the  “proposed 
operation”),  to  notify  in  advance  of  the  completion  of  the  proposed  operation  the 
competent  authorities  which  will  be  responsible  for  the  supervision  of  the  entities 
resulting  from  such  proposed  operation,  indicating  the  relevant  information,  as 
specified in accordance with Article 27l(4). 

For  the  purpose  of  the  first  sub-paragraph,  the  ECB  shall  considered  as  the 
competent  authority  to  be  notified  and  in  charge  the  assessment  when  the  entities 
resulting from the proposed operation would meet on a consolidated bases any of the 
following conditions: 

(a) 

(b) 

the total value of its assets exceeds EUR 30 billion; 

the ratio of its total assets over the GDP of the participating Member State of 
establishment exceeds 20%, unless the total value of its assets is below EUR 5 
billion. 

For the purpose of the first sub-paragraph, in case the proposed operation consists in 
a division, the competent authority in charge of the supervision of the entity carrying 

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out  the  proposed  operation  shall  be  the  competent  authority  to  be  notified  and  in 
charge of the assessment. 

2. The competent authorities shall acknowledge receipt of the notification referred to 
in  paragraph  1  or  of  the  additional  information  submitted  in  accordance  with 
paragraph 3 promptly and in any event within 10 working days following receipt of 
the notification or of the additional information. 

Where  the  proposed  operation  involves  only  financial  stakeholders  from  the  same 
group, the competent authorities shall have a maximum of 60 working days as from 
the  date  of  the  written  acknowledgement  of  receipt  of  the  notification  and  all 
documents  required  by  the  Member  State  to  be  attached  to  the  notification  in 
accordance with Article 27l(5) (“the assessment period”), to carry out the assessment 
provided for in Article 27l(1). 

The  competent  authority  shall  inform  the  financial  stakeholder  of  the  date  of  the 
expiry of the assessment period at the time of acknowledging receipt. 

3.  Competent  authorities  may  request  further  information  that  is  necessary  to 
complete the assessment. Such a request shall be made in  writing  and shall specify 
the additional information needed. 

Where  the  proposed  operation  involves  only  financial  stakeholders  from  the  same 
group, competent authorities may request additional information by no later than the 
fiftieth working day of the assessment period. 

For  the  period  between  the  date  of  request  of  additional  information  by  the 
competent  authorities  and  the  receipt  of  a  response  thereto  by  the  financial 
stakeholders providing all the requested information, the assessment period shall be 
suspended. The suspension shall not  exceed 20 working days. Any  further requests 
by  the  competent  authorities  for  completion  or  clarification  of  the  provided 
information  shall  be  at  their  discretion  but  shall  not  result  in  a  suspension  of  the 
assessment period. 

4. By way of derogation from paragraph 3, third subparagraph, competent authorities 
may extend the suspension referred to therein to a maximum of 30 working days in 
the following cases: 

(a) 

(b) 

the entity acquired is situated or regulated in a third country; 

an  exchange  of  information  with  authorities  responsible  for  supervising  the 
obliged entities referred to in Article 2(1), points (1) and (2), of Directive (EU) 
2015/849 is necessary to perform the assessment foreseen under Article 27l(1) 
of this Directive. 

5. The proposed operations shall not be completed before the issuance of a positive 
opinion by the competent authorities. 

6. The competent authorities shall, within two working days from the completion of 
their  assessment,  issue  in  writing  a  motivated  positive  or  negative  opinion  to  the 
financial  stakeholders.  Subject  to  national  law,  an  appropriate  statement  of  the 
reasons  for  the  opinion  may  be  made  accessible  to  the  public  at  the  request  of  the 
financial  stakeholders.  This  shall  not  prevent  a  Member  State  from  allowing  the 
competent  authority  to  publish  such  information  in  the  absence  of  a  request  by  the 
financial stakeholder. 

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The  financial  stakeholders  shall  transmit  the  motivated  opinion  issued  by  their 
competent authorities under the first subparagraph to the authorities in charge, under 
the national law, of the scrutiny of the proposed operation. 

7. When the proposed operation involves only financial stakeholders from the same 
group, and the competent authorities do not oppose the proposed operation within the 
assessment period in writing, the opinion shall be deemed to be positive. 

8. The positive opinion issued by the competent authority may be limited in time. 

9. Member States shall not impose requirements related to notification and approval 
as described in this Chapter that are more stringent than those set out herein. 

10.  This  Chapter  is  without  prejudice  to  the  application  of  the  Council  Regulation 
(EC) No 139/2004*8 and Directive (EU) 2017/1132 of the European Parliament and 
of the Council. 

11. The assessment under Article 27k(1) shall not be performed where the proposed 
operation  requires  an  authorisation  in  accordance  with  Article  8,  or  an  approval  in 
accordance with Article 21a. 

______ 
*8 
concentrations between undertakings (the EC Merger Regulation). 

Council  Regulation  (EC)  No  139/2004  of  20  January  2004  on  the  control  of 

Article 27l 
Assessment criteria 

1.  In  assessing  the  notification  provided  for  in  Article  27k(1)  and  the  information 
referred  to  in  Article  27k(3),  competent  authorities  shall,  in  order  to  ensure  the 
soundness of the prudential profile of the financial stakeholders after the completion 
of  the  proposed  operation  and  in  particular  the  risks  to  which  the  financial 
stakeholder is or might  be exposed in the course of the proposed operation and the 
risks to which the financial stakeholder resulting from the proposed operation might 
be exposed, assess the proposed operation in accordance with the following criteria: 

(a) 

(b) 

(c) 

the reputation of entities involved in the proposed operation; 

the sufficiently good repute and sufficient knowledge, skills and experience, as 
set  out  in  Article  91(1),  of  any  member  of  the  management  body  who  will 
direct  the  business  of  the  financial  stakeholder  resulting  from  the  proposed 
operation; 

the  financial  soundness  of  entities  involved  in  the  proposed  operation,  in 
particular  in  relation  to  the  type  of  business  pursued  and  envisaged  for  the 
financial stakeholder resulting from the proposed operation; 

(d)  whether the entity resulting from the proposed operation will be able to comply 
and  continue  to  comply  with  the  prudential  laid  down  in  this  Directive  and 
Regulation (EU) No 575/2013, and where applicable, other acts of Union law, 
in particular Directives 2002/87/EC and 2009/110/EC; 

(e)  whether the  implementation  plan of the  proposed operation is  realistic, sound 

and efficient from a prudential perspective; 

(f)  whether  there  are  reasonable  grounds  to  suspect  that,  in  connection  with  the 
proposed  operation,  money  laundering  or  terrorist  financing  within  the 
meaning  of  Article  1  of  Directive  (EU)  2015/849  is  being  or  has  been 

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committed or attempted, or that the proposed operation could increase the risk 
thereof. 

The  implementation  plan  referred  to  in  point  (d)  shall  be  subject  to  appropriate 
monitoring by the competent authority until completion of the proposed operation. 

2.  For  the  purposes  of  assessing  the  criterion  laid  down  in  paragraph  1,  point  (f), 
competent  authorities  shall  consult,  in  the  context  of  their  verifications,  the 
authorities  competent  for  the  supervision  of  the  undertakings  under  Directive  (EU) 
2015/849. 

3. The competent authorities may issue a negative opinion to the proposed operation 
only  if  the  criteria  set  out  in  paragraph  1  are  not  met  or  where  the  information 
provided  by  the  financial  stakeholder  is  incomplete  despite  a  request  made  in 
accordance with Article 27k. 

With  regard  to  the  criterion  laid  down  in  paragraph  1,  point  (f),  an  objection  in 
writing  by  the  authorities  competent  for  the  supervision  of  the  undertakings  in  line 
with  Directive  (EU)  2015/849  shall  constitute  a  reasonable  ground  for  negative 
opinion. 

4. Member States shall not allow their competent authorities to examine the proposed 
operation in terms of the economic needs of the market. 

5. Member States shall publish a list of information items that are necessary to carry 
out  the  assessment  referred  to  in  Article  27k(1)  and  that  must  be  provided  to  the 
competent  authorities  at  the  time  of  notification  referred  to  that  Article.  The 
information  required  shall  be  proportionate  and  appropriate  to  the  proposed 
operation.  Member  States  shall  not  require  information  that  is  not  relevant  for  a 
prudential assessment. 

Article 27m 
Cooperation between competent authorities 

1. The relevant competent authorities shall consult each other when carrying out the 
assessment  referred  to  in  Article  27l  where  the  proposed  operation  involves,  in 
addition to the financial stakeholder, entities that are one of the following: 

(a) 

(b) 

(c) 

a credit institution, insurance undertaking, reinsurance undertaking, investment 
firm or a management company within the meaning of Article 2(1), point (b) of 
Directive 2009/65/EC (“UCITS management company”) authorised in another 
Member  State  or  in  a  sector  other  than  that  in  which  the  acquisition  is 
proposed; 

a parent undertaking of a credit institution, insurance undertaking, reinsurance 
undertaking, investment firm or a UCITS management company authorised in 
another Member State or in a sector other than that in which the acquisition is 
proposed; 

legal  person  controlling  a  credit 

a 
insurance  undertaking, 
reinsurance  undertaking,  investment  firm  or  UCITS  management  company 
authorised in another Member State or in a sector other than that in which the 
acquisition is proposed. 

institution, 

2. The competent authorities shall, without undue delay, provide each other with any 
information  which  is  relevant  for  the  assessment.  In  that  regard,  the  competent 
authorities shall communicate to each other upon request all relevant information and 

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shall communicate on their own initiative all essential information. A decision by the 
competent  authority  of  the  financial  stakeholder  shall  indicate  any  views  or 
reservations expressed by the competent authority that supervise one or several of the 
entities listed above and involved in the proposed operation. 

3.  The  competent  authorities  shall  seek  to  coordinate  their  assessments,  ensure  the 
consistency  of  their  opinions,  and  shall  indicate  in  their  opinions  any  views  or 
reservations  made  by 
the  competent  authority  supervising  other  financial 
stakeholders. 

4.  EBA  shall  develop  draft  implementing  technical  standards  to  establish  common 
procedures,  forms  and  templates  for  the  consultation  process  between  the  relevant 
competent authorities as referred to in this Article. 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by [OP  please insert  the date =  18 months  from  the date of  entry into force of this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010. 

Article 27n 
Information obligations and penalties 

Member  States  shall  require  that,  where  the  financial  stakeholders  fail  to  provide 
prior  notification  of  the  proposed  operation  in  accordance  with  Article  27k(1)  or 
have  carried  out  the  proposed  operation  as  referred  to  that  Article  without  prior 
positive  opinion  by  the  competent  authorities,  the  competent  authorities  shall  take 
appropriate  measures.  Such  measures  may  consist  in  injunctions,  periodic  penalty 
payments,  penalties,  subject  to  Articles  65  to  72,  against  members  of  the 
management  body  and  managers  of  the  financial  stakeholders  or  of  the  entity 
resulting from the proposed operation.’; 

(8) 

Title VI is replaced by the following: 

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‘Title VI 
PRUDENTIAL SUPERVISION OF THIRD COUNTRY 
BRANCHES AND RELATIONS WITH THIRD COUNTRIES’ 

CHAPTER 1 

Prudential supervision of third-country branches 

SECTION I 

GENERAL PROVISIONS 

Article 47 
Scope and definition 

1. This Chapter lays down the rules concerning the carrying out in a Member State 
of: 

(a) 

(b) 

any  of  the  activities  listed  in  Annex  I  to  this  Directive  by  an  undertaking 
established in a third country; 

the  activities  referred  to  in  Article  4(1),  point  (b),  of  Regulation  (EU) 
575/2013,  by  an  undertaking  established  in  a  third  country  that  fulfils  any  of 
the criteria laid down in points (i) to (iii) of that point. 

2. By derogation from paragraph 1, where the undertaking in the third country is not 
a credit institution or an undertaking that meets the criteria of paragraph 1, point (b), 
the carrying out of any of the activities listed in  Annex I, points (4), (5), and (7) to 
(15), to this Directive by that undertaking in a Member State shall be subject to Title 
II, Chapter IV, of Directive 2014/65/EU. 

3. For the purposes of this Title, the following definitions shall apply: 

(a) 

‘third  country  branch’  shall  mean  branches  established  in  a  Member  State  by 
either: 

(i) 

an  undertaking  which  has  its  head  office  in  a  third  country,  for  the 
purpose of carrying out any of the activities referred to in paragraph 1; 

(ii) 

a credit institution which has its head office in a third country; 

(b) 

‘head undertaking’ shall mean the undertaking with its head office in the third 
country that has established the third country branch in the Member State, and 
the  undertaking’s  intermediate  and  ultimate  parent  undertakings,  as  the  case 
may be. 

Article 48  
Prohibition of discrimination 

Member  States  shall  not  apply  to  third  country  branches,  when  commencing  or 
continuing to carry out their business, provisions which result in a more favourable 

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treatment  than  that  accorded  to  branches  of  institutions  having  their  head  office  in 
another Member State of the European Union. 

Article 48a 
Classification of third country branches 

1.  Member  States  shall  classify  third  country  branches  as  class  1  where  those 
branches meet any of the following conditions: 

(a) 

(b) 

(c) 

the total value of the assets booked by the third country branch in the Member 
State is equal to or higher than EUR 5 billion, as reported for the immediately 
preceding annual reporting period in accordance with Section II, Sub-section 4; 

the  third  country  branch’s  authorised  activities  include  taking  deposits  and 
other repayable funds from retail customers; 

the third country branch is not a qualifying third country branch in accordance 
with Article 48b. 

2.  Member  States  shall  classify  third  country  branches  that  do  not  meet  any  of  the 
conditions laid out in paragraph 1 as class 2. 

3. Competent authorities shall update the classification of third country branches  as 
follows: 

(a)  where a class 1 third country branch ceases to meet the conditions laid down in 

paragraph 1, it shall immediately be considered as class 2; 

(b)  where  a class 2 third  country branch starts to  meet  one of the conditions  laid 
down  in  paragraph  1,  it  shall  be  considered  as  class  1  only  after  a  period  of 
three months from the date on which it started to meet those conditions. 

Article 48b  
Conditions for ‘qualifying third country branches’ 

1. Where the following conditions are met in relation to a third country branch, that 
branch  shall  be  regarded  as  a  ‘qualifying  third  country  branch’  for  the  purposes  of 
this Title: 

(a) 

(b) 

(c) 

the head undertaking of the third country branch is established in a country that 
applies prudential standards and a supervisory oversight in accordance with the 
third country’s banking regulatory framework that are at least equivalent to this 
Directive and Regulation (EU) No 575/2013; 

the supervisory  authorities of the third country branch’s head undertaking are 
subject  to  confidentiality  requirements  that  are  at  least  equivalent  to  the 
requirements laid down in Title VII, Chapter 1, Section II of this Directive; 

the country where the third country branch’s head undertaking is established is 
not  listed  as  a  high-risk  third  country  that  has  strategic  deficiencies  in  its 
regime on anti-money laundering and counter terrorist financing, in accordance 
with Article 9 of Directive (EU) 2015/849; 

2.  The  Commission  may  adopt,  by  means  of  implementing  acts,  decisions  as  to 
whether the conditions laid down in paragraph 1, points (a) and (b) of this Article are 
met  in  relation  to  a  third  country’s  banking  regulatory  framework.  For  those 

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purposes, the Commission shall comply with the examination procedure referred to 
in Article 464(2) of Regulation (EU) No 575/2013. 

3.  Before  adopting  the  decision  referred  to  in  paragraph  2,  the  Commission  may 
request  the EBA’s assistance in  accordance with  Article 33 of Regulation (EU) No 
1093/2010  to  conduct  an  assessment  of  the  relevant  third  country’s  banking 
regulatory framework and confidentiality requirements and to issue a report on that 
framework’s compliance with the conditions laid down in paragraph 1, points (a) and 
(b), of this Article. EBA shall publish the outcome of its assessment on its website. 

4. EBA shall keep a public register of the third countries and third country authorities 
that meet the conditions laid down in paragraph 1. 

5.  Upon  receiving  an  application  for  authorisation  in  accordance  with  Article  48c, 
competent  authorities  shall  assess  the  conditions  laid  down  in  paragraph  1  of  this 
Article  and  in Article 48a to  classify the third country branch as  class 1 or class 2. 
Where  the  relevant  third  country  is  not  recorded  on  the  register  referred  to  in 
paragraph 4 of this Article, the competent authority shall request the Commission to 
assess  the  third  country’s  banking  regulatory  framework  and  confidentiality 
requirements  for  the  purposes  of  paragraph  2  of  this  Article,  provided  that  the 
condition  referred  to  paragraph  1,  point  (c),  of  this  Article  is  met.  The  competent 
authority shall classify the third country branch as class 1 pending the Commission’s 
adoption of a decision in accordance with paragraph 2 of this Article. 

SECTION II 

AUTHORISATION AND REGULATORY REQUIREMENTS 

SUB-SECTION 1 
AUTHORISATION REQUIREMENTS 

Article 48c  
Conditions for the authorisation of third country branches 

1. Member States shall require that third country undertakings establish a branch in 
their  territory  before  commencing  the  activities  referred  to  in  Article  47(1).  The 
establishment  of  a  third  country  branch  shall  be  subject  to  prior  authorisation  in 
accordance with this Chapter. 

2. Member States shall require that the applications for authorisation of third country 
branches  be  accompanied  by  a  programme  of  operations  setting  out  the  envisaged 
business, the activities to be carried out among those referred to in Article 47(1) and 
the  structural  organisation  and  risk  controls  of  the  branch  in  the  relevant  Member 
State in accordance with Article 48h. 

3.  Third  country  branches  shall  only  be  authorised  where  all  of  the  following 
conditions are fulfilled: 

(a) 

(b) 

the third country branch meets the minimum regulatory requirements laid down 
in Sub-section 2; 

the activities that the head undertaking seeks authorisation for in the Member 
State are covered by the authorisation that such head undertaking holds in the 
third country where it is established and subject to supervision therein; 

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(c) 

(d) 

(e) 

(f) 

the supervisory authority of the head undertaking in the third country has been 
notified  of  the  application  to  establish  a  branch  in  the  Member  State  and  the 
accompanying documents referred to in paragraph 2; 

the authorisation provides that the third country  branch may only conduct the 
authorised  activities  within  the  Member  State  where  it  is  established  and 
expressly prohibits the third country branch from offering or conducting those 
same activities in other Member States on a cross-border basis; 

for  the  purpose  of  performing  its  supervisory  functions,  the  competent 
authority  is  able  to  access  all  the  necessary  information  on  the  third  country 
branch’s  head  undertaking  from  its  supervisory  authorities  and  to  effectively 
coordinate its supervisory activities with those of the third country supervisory 
authorities,  in  particular  in  periods  of  crisis  or  financial  distress  affecting  the 
head undertaking, its group or the third country’s financial system; 

there are no reasonable grounds to suspect that the third country branch would 
be used to commit or facilitate the commission of money laundering within the 
meaning  of  Article  1,  point  3  of  Directive  (EU)  2015/849  of  the  European 
Parliament and of the Council of 20 May 2015 on the prevention of the use of 
the financial system for the purposes of money laundering or terrorist financing 
or terrorist financing as defined in Article 1, point 5 of that Directive. 

For  the  purposes  of  point  (e)  of  this  paragraph,  the  competent  authorities  shall 
endeavor  to  use  the  model  administrative  agreements  developed  by  EBA  in 
accordance with Article 33(5) of Regulation (EU) No 1093/2010. 

4.  For  the  purposes  of  assessing  whether  the  condition  laid  down  in  paragraph  3, 
point  (f),  is  met,  competent  authorities  shall  consult  the  authority  responsible  for 
supervision  of  anti-money  laundering  in  the  Member  State  in  accordance  with 
Directive  (EU)  2015/849  and  obtain  written  confirmation  that  the  condition  is 
fulfilled before proceeding to authorising the third country branch. 

5. EBA shall develop draft regulatory technical standards to further specify: 

(a) 

(b) 

the  information  to  be  provided  to  the  competent  authorities  upon  application 
for  authorisation  of  a  third  country  branch,  including  the  programme  of 
operations  and  the  structural  organisation  and  governance  arrangements 
referred to in paragraph 2; 

the  procedure  for  authorisation  of  the  third  country  branch,  as  well  as  the 
standard forms and templates for the provision of the information referred to in 
point (a) of this paragraph; 

(c) 

the conditions for authorisation referred to in paragraph 3. 

EBA  shall  submit  these  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  6  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

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 1093/2010. 

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Article 48d 
Conditions for the refusal or withdrawal of a third country branch’s authorisation 

1.  Member  States  shall,  at  a  minimum,  provide  for  the  following  conditions  for 
refusing or withdrawing the authorisation of a third country branch: 

(a) 

(b) 

the third country branch does not meet the requirements for authorisation laid 
down in Article 48c or in national law; 

the  third  country  branch’s  head  undertaking  or  its  group  do  not  meet  the 
prudential requirements that apply to them under the third country law or there 
are reasonable grounds to suspect that they do not meet or that they will breach 
those requirements within the following 12 months. 

For the purposes of point (b) of this paragraph, third country branches shall promptly 
notify  their  competent  authorities  where  the  circumstances  referred  to  in  that  point 
have taken place. 

2.  Without  prejudice  to  paragraph  1,  competent  authorities  may  withdraw  the 
authorisation granted to a third country branch where any of the following conditions 
is met:  

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

the  third  country  branch  does  not  make  use  of  the  authorisation  within  12 
months,  expressly  renounces  the  authorisation  or  has  ceased  to  engage  in 
business  for  more  than  six  months,  unless  the  Member  State  concerned  has 
made provision for the authorisation to lapse in such cases; 

the third country branch has obtained the authorisation through false statements 
or any other irregular means; 

the  third  country  branch  no  longer  fulfils  any  additional  conditions  or 
requirements under which the authorisation was granted; 

the  third  country  branch  can  no  longer  be  relied  on  to  fulfil  its  obligations 
towards  its  creditors,  and,  in  particular,  no  longer  provides  security  for  the 
assets entrusted to it by its depositors; 

the third country branch falls within one of the other cases where national law 
provides for withdrawal of authorisation; 

the  third  country  branch  commits  one  of  the  breaches  referred  to  in  Article 
67(1); 

there  are  reasonable  grounds  to  suspect  that  money  laundering  or  terrorist 
financing is being or has been committed or attempted in connection with the 
third country branch, its head undertaking or its group, or there is a heightened 
risk of money laundering or terrorist  financing being  committed or attempted 
in relation to the third country branch, its head undertaking or its group. 

3. For the purposes of assessing whether the condition laid down in paragraph 2(g) is 
met, the competent authorities shall consult the authority responsible for supervision 
of  anti-money  laundering  in  the  Member  State  in  accordance  with  Directive  (EU) 
2015/849. 

4. The EBA shall develop draft regulatory technical standards to specify: 

(a) 

the conditions laid down in paragraphs 1 and 2 for refusing or withdrawing a 
third country branch’s authorisation; 

(b) 

the procedure to withdraw the third country branch’s authorisation; 

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(c) 

the content and process of the notification to the competent authorities referred 
to in the last subparagraph of paragraph 1 of this Article. 

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  12  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

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 1093/2010. 

SUB-SECTION 2 
MINIMUM REGULATORY REQUIREMENTS 

Article 48e 
Capital endowment requirement 

1.  Without  prejudice  to  other  applicable  capital  requirements  in  accordance  with 
national law, Member States shall require that third country branches maintain at all 
times a minimum capital endowment that is at least equal to: 

(a) 

for  class  1  third  country  branches,  1%  of  the  branch’s  average  liabilities  as 
reported  for  the  three  immediately  preceding  annual  reporting  periods  in 
accordance with Sub-section 4, subject to a minimum of EUR 10 million; 

(b) 

for class 2 third country branches, EUR 5 million. 

2. Third country branches  shall fulfil the minimum  capital  endowment  requirement 
referred to in paragraph 1 with assets in the form of any of the following: 

(a) 

cash or cash assimilated instruments; 

(b)  debt  securities  issued  by  central  governments  or  central  banks  of  Union 

Member States; or 

(c) 

any  other  instrument  that  is  available  to  the  third  country  branch  for 
unrestricted and immediate use to cover risks or losses as soon as those occur. 

3.  Member  States  shall  require  third  country  branches  to  deposit  the  capital 
endowment instruments referred to in paragraph 2 in an escrow account with a credit 
institution in  the Member State where the branch is  authorised or, where  permitted 
under  national  law,  with  the  central  bank  of  the  Member  State.  The  capital 
endowment instruments deposited in the escrow account shall be pledged or assigned 
by  way  of  security  in  favour  of  the  resolution  authority  to  secure  the  claims  of  the 
third  country  branch’s  creditors.  Member  States  shall  lay  down  rules  to  grant  the 
resolution authority the power to act in a fiduciary capacity for the benefit of those 
creditors for the purposes of this Article and Article 48g. 

4. The EBA shall issue guidelines in accordance with Article 16 of Regulation (EU) 
No 1093/2010, to specify the requirement laid down in paragraph 2, point (c) of this 
Article  in  relation  to  instruments  that  are  available  for  unrestricted  and  immediate 
use  to  cover  risks  or  losses  as  soon  as  those  occur.  The  EBA  shall  issue  those 
guidelines by [OP please insert the date = 12 months from date of entry into force of 
this amending Directive]. 

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Article 48f 
Liquidity requirements 

1.  Without  prejudice  to  other  applicable  liquidity  requirements  in  accordance  with 
national  law,  Member  States  shall  at  a  minimum  require  third  country  branches  to 
maintain at all times a volume of unencumbered and liquid assets sufficient to cover 
liquidity outflows over a minimum period of 30 days. 

2. For the purposes of paragraph 1, Member States shall require class 1 third country 
branches  to  comply  with  the  liquidity  coverage  requirement  laid  down  in  Part  Six, 
Title I of Regulation (EU) No 575/2013 and Commission Delegated Regulation (EU) 
2015/61*9. 

3.  Member  States  shall  require  third  country  branches  to  deposit  the  liquid  assets 
held to comply with this Article in an escrow account with a credit institution in the 
Member State where the branch is authorised or, where permitted under national law, 
with the central bank of the Member State. The liquid assets deposited in the escrow 
account  shall  be  pledged  or  assigned  by  way  of  security  in  favor  of  the  resolution 
authority to secure the claims of the third country branch’s creditors. Member States 
shall lay down rules to grant the resolution authority the power to act in a fiduciary 
capacity for the benefit of those creditors for the purposes of this Article and Article 
48g. 

4.  Competent  authorities  may  waive  the  liquidity  requirement  laid  down  in  this 
Article for qualifying third country branches. 

________ 

*9 

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). 

Article 48g 
Insolvency and resolution of third country branches 

1. Member States shall ensure that, in the event of insolvency or resolution of a third 
country branch pursuant to Article 96 of Directive 2014/59/EU, resolution authorities 
are  vested  with  legal  power  and  authority  to  enforce  the  security  created  over  the 
liquid assets and capital endowment instruments held in the escrow account pursuant 
to Articles 48e(3) and 48f(3) of this Directive. When dealing with those liquid assets 
and capital endowment instruments following the enforcement of security, resolution 
authorities shall take into account the existing national rules, as well as supervisory 
and 
the  national 
administrative or judicial authorities, in accordance with national insolvency law and 
the principles set out in Article 96 of Directive 2014/59/EU, as appropriate. 

judicial  powers,  and  ensure  adequate  coordination  with 

2. Any surplus of liquid assets or capital endowment instruments held in the escrow 
account  and  not  used  in  accordance  with  paragraph  1  shall  be  dealt  with  in 
accordance with the applicable national law. 

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Article 48h  
Internal governance and risk controls 

1.  Member  States  shall  require  third  country  branches  to  have  at  least  two  persons 
effectively directing their business in the Member State subject to prior approval by 
the  competent  authorities.  Those  persons  shall  be  of  good  repute  and  possess 
sufficient  knowledge,  skills  and  experience  and  commit  sufficient  time  to  the 
performance of their duties. 

2. Member States shall require class 1 third country branches to comply with Articles 
74  and  75  and  Article  76(5).  Competent  authorities  may  require  third  country 
branches  to  establish  a  local  management  committee  to  ensure  an  adequate 
governance of the branch. 

3. Member States shall require class 2 third country branches to comply with Articles 
74, and 75 and to have internal control functions as provided for under Article 76(5), 
first, second and third subparagraphs. 

Depending of their size, internal organisation and the nature, scope and complexity 
of their activities, competent authorities may require class 2 third country branches to 
appoint  heads  of  internal  control  functions  as  provided  under  Article  76(5),  fourth 
and fifth subparagraphs. 

4. Member States shall require third country branches to establish reporting lines to 
the management body of the head undertaking that cover all material risks and risk 
management  policies  and  changes  thereof  and  have  in  place  adequate  ICT  systems 
and controls to ensure that policies are duly complied with. 

5. Member States  shall require third country branches  to  monitor and manage their 
outsourcing  arrangements,  and  to  ensure  that  their  competent  authorities  have  full 
access to all information they need to fulfil their supervisory function. 

6. Member States shall require third country branches that engage in back-to-back or 
intragroup  operations  to  have  adequate  resources  to  identify  and  properly  manage 
their counterparty  credit  risk where material  risks associated with  assets booked by 
the third country branch are transferred to the counterparty. 

7.  Where  critical  or  important  functions  are  delegated  to  the  head  undertaking, 
competent  authorities  in  charge  of  the  supervision  of  third  country  branches  shall 
have access to all information they need to fulfil their supervisory function. 

8.  Competent  authorities  shall  periodically  require  that  an  independent  third  party 
assesses the implementation of and on-going compliance with the requirements laid 
down  in  this  Article  and  addresses  a  report  to  the  competent  authority  with  its 
findings and conclusions. 

9. EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 
1093/2010,  on  the  application  to  third  country  branches  of  the  arrangements, 
processes  and  mechanisms  referred  to  in  Article  74(1),  taking  into  account  Article 
74(2),  and  on  the  application  to  third  country  branches  of  Article  75  and  Article 
76(5), by [OP please insert the date = 6 months from date of entry into force of this 
amending Directive]. 

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Article 48i 
Booking requirements 

1.  Member  States  shall  require  third  country  branches  to  maintain  a  registry  book 
enabling those branches to track and keep a comprehensive and precise record of all 
the assets and liabilities associated with the activities of the third country branch in 
the Member State and to manage those assets and liabilities autonomously within the 
branch. The registry book shall provide sufficient information on the risks generated 
by the third country branch and on how they are managed. 

2. Member States shall require third country branches to develop policies on booking 
arrangements for the management of the registry book referred to in paragraph 1 for 
the purposes laid down therein. Those policies shall be documented and validated by 
the  relevant  governing  body  of  the  third  country  branch’s  head  undertaking.  The 
policy document referred to  in this paragraph shall provide a clear rationale for the 
booking  arrangements  and  set  out  how  those  arrangements  align  with  the  third 
country branch’s business strategy. 

3.  Competent  authorities  shall  require  that  an  independent  written  and  reasoned 
opinion  on  the  implementation  of  and  on-going  compliance  with  the  requirements 
laid  down  in  this  Article  be  regularly  prepared  and  addressed  to  the  competent 
authority with its findings and conclusions. 

4.  EBA  shall  develop  draft  regulatory  technical  standards  to  specify  the  booking 
arrangements that third country branches shall apply for the purposes of this Article, 
in particular as regards: 

(a) 

(b) 

the methodology to be used by the third country branch to identify and keep a 
comprehensive and precise track record of the assets and liabilities associated 
with the third country branch’s activities in the Member State; and 

the specific treatment to identify and keep a record of the assets and liabilities 
originated  by  the  third  country  branch  and  booked  or  held  remotely  in  other 
branches or subsidiaries of the same group on behalf of or for the benefit of the 
originating third country branch. 

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  6  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

SUB-SECTION 3 
POWER TO REQUIRE AUTHORISATION UNDER TITLE III AND REQUIREMENTS ON 
SYSTEMIC BRANCHES 

Article 48j 
Power to require establishing a subsidiary 

1. Member States shall ensure that competent authorities have the power to require 
third country branches  to  apply  for authorisation under Title  III, Chapter 1, at  least 
where: 

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(a) 

the  third  country  branch  has  engaged  in  the  past  or  currently  engages  in 
interconnected  activities  with  other  third  country  branches  or  subsidiary 
institutions of the same group or in one of the activities referred to in Article 
47(1) with customers or counterparts in other Member States in  contravention 
of the internal market rules; or 

(b) 

the third country branch meets the systemic importance indicators referred to in 
Article 131(3) and poses a significant risk to the financial stability of the Union 
or the Member State where it is established. 

2. Before making the decision referred to in paragraph 1, competent authorities shall 
consult  the  competent  authorities  of  the  Member  States  where  the  relevant  third 
country group has other third country branches and subsidiary institutions. 

Where  they  disagree,  the  competent  authorities  of  the  third  country  group  in  other 
Member  States  may  refer  the  matter  to  the  EBA  for  mediation  in  accordance  with 
Article 19 of Regulation (EU) No 1093/2010. EBA shall take its decision within one 
month  of  matter  being  referred  and  the  competent  authority  of  the  relevant  third 
country branch shall refrain from taking its decision during that time. 

The competent authority of the relevant third country branch shall adopt the decision 
referred to in paragraph 1 in conformity with the decision of EBA. 

3.  Before  imposing  the  requirement  laid  down  in  this  Article  on  a  third  country 
branch  in  accordance  with  paragraph  1,  point  (a),  the  competent  authority  shall 
request EBA to issue a recommendation in accordance with Article 16 of Regulation 
(EU) No 1093/2010 on the interpretation of that point in relation to that third country 
branch. 

4.  EBA  shall  develop  draft  regulatory  technical  standards  to  specify  the  systemic 
importance indicators referred to in Article 131(3) as regards third country branches 
for the purposes of paragraph 1, point (b), of this Article and Article 48k. EBA shall 
have regard to the following items: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the  types  of  activities  and  services  provided  and  the  operations  being 
conducted  by  the  third  country  branch  and,  in  particular,  whether  the  third 
country  branch  provides  those  activities  and  services  and  conducts  those 
operations with a very narrow set of customers or counterparts; 

the  complexity  of  the  third  country  branch’s  structure,  organisation  and 
business model; 

the degree of interconnectedness of the third country branch with the financial 
system of the Union and of the Member State where it is established; 

the substitutability of the activities, services or operations conducted or of the 
financial infrastructure provided by the third country branch; 

the market share of the third country branch in the Union and in the Member 
States where it is established as regards total banking assets and in relation the 
activities and services it provides and the operations that it conducts; 

the  likely  impact  that  a  suspension  or  closure  of  the  third  country  branch’s 
operations  or  business  could  have  on  systemic  liquidity  or  the  payment, 
clearing and settlement systems in the Union and in the Member State where it 
is established; 

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(g) 

(h) 

(i) 

(j) 

the  likely  impact  that  a  suspension  or  closure  of  the  third  country  branch’s 
operations  could  have  on  intragroup  financing  agreements  or  intragroup 
services  covering  critical  functions  in  the  Union  and  in  the  Member  States 
where it is established; 

the cross-border activity of the third country branch with its head undertaking 
and with counterparts in other third countries; 

the role and importance of the third country branch for the activities, services 
and operations of the third country group in the Union and in the Member State 
where it is established; 

the volume of the third country group’s business being conducted through third 
country  branches,  relative  to  the  business  of  that  same  group  conducted 
through  subsidiary  institutions  authorised  in  the  Union  and  in  the  Member 
State where the third country branches are established; 

(k)  whether  the  third  country  branch  is  a  qualifying  third  country  branch  in 

accordance with Article 48b. 

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  12  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

Article 48k 
Assessment of systemic importance and requirements on systemic third country 
branches 

1. The third country branch or branches in  the  Union that belong to  the same third 
country  group  shall  be  subject  to  the  assessment  laid  down  in  paragraph  2  of  this 
Article  where  the  aggregate  amount  of  assets  that  they  hold  on  their  books  in  the 
Union as reported in accordance with Sub-section 4 is equal to or higher than EUR 
30 billion, either: 

(a) 

(b) 

on average for the immediately preceding three annual reporting periods; or 

in  absolute  terms  for  at  least  three  annual  reporting  periods  during  the 
immediately preceding five annual reporting periods. 

2. Competent authorities shall assess whether the third country branches referred to 
in  paragraph 1 have systemic importance for the Union and for  the Member States 
where  they  are  stablished.  For  those  purposes,  competent  authorities  shall  assess 
whether  those  third  country  branches  meet  the  indicators  of  systemic  importance 
referred to in Article 48j(4) and Article 131(3). 

3. The assessment of systemic importance referred to in paragraph 2 of this Article 
shall be performed by one of the following: 

(a)  where Article 111 applies to the relevant third country group, the consolidated 
supervisor  of  that  third  country  group  in  the  Union  in  accordance  with  that 
Article; 

(b)  where  Article  111  does  not  apply  to  the  relevant  third  country  group,  the 
competent  authority  that  would  become  the  consolidated  supervisor  of  that 

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third  country  group  in  the  Union  in  accordance  with  that  Article,  should  the 
third country branches be treated as subsidiary institutions; 

(c)  where  the  third  country  group  has  third  country  branches  and  subsidiary 
institutions in only one Member State, the competent authority of that Member 
State; or 

(d)  EBA where, after three  months from  the starting date of the annual  reporting 
period immediately following the last annual reporting period that triggered the 
obligation  to  conduct  the  assessment  in  accordance  with  paragraph  1  of  this 
Article: 

(i) 

(ii) 

the  assessment  has  not  been  commenced  by  either  of  the  competent 
authorities referred to in points (a), (b) or (c); or 

the  competent  authority  that  would  be  the  consolidated  supervisor  in 
accordance with point (b) has not been determined. 

The competent authorities referred to in points (a) and (b), acting as “lead competent 
authority”,  or,  where  applicable,  EBA  shall  conduct  the  assessment  in  full 
cooperation with all the competent authorities concerned. The competent authorities 
concerned  shall  assist  and  provide  all  the  necessary  documentation  to  the  lead 
competent  authority  or,  where  applicable,  EBA.  For  those  purposes,  ‘competent 
authorities  concerned’  shall  mean  all  the  authorities  responsible  for  the  supervision 
of the third country branches and subsidiary institutions of the relevant third country 
group in the Union. 

Before  the  assessment  of  systemic  importance  is  concluded,  the  lead  competent 
authority, the competent authority referred to in point (c) or, where applicable, EBA 
shall  hear  the  third  country  group  and  shall  set  reasonable  timeframes  for  the  third 
country group to submit documentation and make its views known in writing. 

4.  The  lead  competent  authority  shall  conclude  the  assessment  referred  to  in 
paragraph 2 and issue a report by no later than six months from the starting date of 
the  annual  reporting  period  immediately  following  the  last  reporting  period  that 
triggered  the  obligation  to  conduct  the  assessment  in  accordance  with  paragraph  1. 
Where,  in  accordance  with  paragraph  3,  EBA  is  conducting  the  assessment,  that 
period  shall  start  to  count  from  the  date  on  which  EBA  became  responsible  for 
conducting the assessment. The report shall lay down the following: 

(a) 

the assessment of systemic importance, which shall set out a clear and detailed 
analysis  of  the  systemic  importance  indicators  referred  to  in  paragraph  2  in 
relation  to  the  relevant  third  country  branches  and  the  lead  competent 
authority’s or, where applicable, EBA’s conclusion; 

(b)  where the lead competent authority or, where applicable, EBA concludes that 
the third country branches are systemic, a proposed draft decision either: 

(i) 

(ii) 

to  require  the  third  country  branches  to  apply  for  authoritisation  under 
Title III, Chapter 1; 

to  require  the  third  country  branches  to  restructure  their  assets  or 
activities  in  the  Union  in  such  a  manner  that  they  cease  to  qualify  as 
systemic in accordance with paragraph 2 of this Article; 

(iii) 

to  impose  additional  requirements  on  the  third  country  branches  or  the 
subsidiary  institutions  of  the  third  country  group  in  the  Union  in 

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accordance  with  Article  48p  or  Title  VII,  Chapter  2,  Section  IV, 
respectively; 

(iv)  not to impose any of the requirements referred to in points (i) to (iii) for a 
deferral period not exceeding 12 months and subject to conducting a new 
assessment  of  the  third  country  branches  before  the  expiry  date  of  that 
period. 

(c) 

the rationale of the proposed draft decision referred to in point (b), which shall 
set  out  a  detailed  explanation  of  how  the  decision  relates  back  to  the 
assessment referred to in point (a). 

The  lead  competent  authority  or,  where  applicable,  EBA  shall  only  propose  the 
decision  referred  to  in  point  (b)(iv)  where  it  can  justify  that  the  absence  of 
requirements  on  the  third  country  branches  under  this  Article  would  not  lead  to  a 
significant  increase  in  the  risk  that  those  branches  pose  to  financial  stability  and 
market  integrity  of  the  Union  or  the  Member  States  during  the  deferral  period 
referred to in that point. 

Where applicable, the references to ‘lead competent authority” in this Article shall be 
understood as references to the competent authority referred to in paragraph 3, point 
(c). Where that competent authority is responsible for issuing the report laid down in 
this  paragraph,  the  decision  set  out  therein  shall  enter  into  force  on  the  date  of  its 
notification to the third country branches. The competent authority shall also  notify 
the decision to EBA. 

5.  The  lead  competent  authority  or,  where  applicable,  EBA  shall  submit  the  report 
referred  to  in  paragraph  5  to  the  competent  authorities  concerned.  The  lead 
competent  authority  and  the  competent  authorities  concerned  shall  do  their  best 
endeavours  to  reach  a  joint  decision  by  consensus  on  the  report  and,  where 
applicable, the draft decision within three months from the date on which the report 
was transmitted. 

Where the competent authorities fail to reach a consensus after the end of the three-
month period referred to in  the first  subparagraph, the joint  decision shall  be made 
within the month immediately following the end of the preceding three month period 
by a majority of votes cast. For those purposes, the voting stakes shall be allocated to 
the competent authorities in accordance with the following: 

(a) 

subject  to  point  (b),  each  competent  authority,  including  the  lead  competent 
authority, shall be entitled to a voting stake equal to the percentage of assets of 
the third country group under its supervision relative to the total assets of that 
group in the Union; 

(b) 

the voting stake of the lead competent authority shall be increased up to 25 % 
where it did not reach that percentage in accordance with point (a); 

(c)  where  the  voting  stake  of  the  lead  competent  authority  has  been  increased  to 
25 %  in  accordance  with  point  (b),  the  voting  stakes  of  the  remaining 
competent authorities that result from point (a) shall be adjusted as appropriate 
as stakes on the remaining 75 % of the voting rights. 

For the purposes of point (a), the assets held in both the third country branches and 
subsidiary institutions of the third country group shall be included in the calculation. 

After its adoption, the joint decision shall enter into force on the date it is notified to 
the third country branches. The joint decision shall also be notified to the EBA. 

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6. The third country branches shall have a period of three months from the date of the 
decision’s entering into force in  accordance with  paragraphs 5 or 6 to  comply with 
the requirements laid down in that decision. 

Where  the  third  country  branches  are  required  to  apply  for  authorisation  as 
institutions in accordance with Title III, Chapter 1, their authorisation under this Title 
shall remain valid on an interim basis until the expiry of the deadline referred to in 
the first subparagraph of this paragraph is reached or, as the case may be, until the 
completion  of  the  authorisation  process  as  institutions.  The  third  country  branches 
may request the competent authority to extend the three-month deadline referred to 
in  the  first  subparagraph  where  they  can  justify  the  need  for  such  an  extended 
deadline to comply with the relevant requirement imposed on them. 

Where  the  threshold  referred  to  in  paragraph  1  is  met  by  aggregation  of  assets  of 
various branches, the competent authorities may impose the requirement referred to 
in this subparagraph in decreasing asset size order up to the point in which the total 
assets remaining on the books of the third country branches in the Union is less than 
EUR 30 billion. 

7.  EBA  shall  develop  draft  regulatory  technical  standards  to  specify  the  rules  of 
construction for the interpretation of Article 111 of this Directive for the purposes of 
determining  the  hypothetical  consolidated  supervisor  as  referred  to  in  paragraph  3, 
point (b), of this Article. 

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  12  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

SUB-SECTION 4 
REPORTING REQUIREMENTS 

Article 48l 
Regulatory, financial and head undertaking information 

1. Member States shall require third country branches to periodically report to their 
competent authorities information on: 

(a) 

the  assets  and  liabilities  held  on  their  books  in  accordance  with  Article  48i, 
with a breakdown that singles out: 

(i) 

(ii) 

the  largest  recorded  assets  and  liabilities  classified  by  sector  and 
counterparty type (including, in particular, financial sector exposures); 

significant exposure and funding source concentrations to specified types 
of counterparties; 

(iii)  significant  internal  transactions  with  the  head  undertaking  and  with 

members of the head undertaking’s group; 

(b) 

the third country branch’s compliance with the requirements that apply to them 
under this Directive; 

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(c) 

on an ad hoc basis, the deposit protection arrangements available to depositors 
in  the  third  country  branch  in  accordance  with  Article  15(2)  and  (3)  of 
Directive 2014/49; 

(d) 

additional  regulatory  requirements  imposed  on  the  third  country  branch  by 
Member States under national law. 

For  the  purposes  of  reporting  the  information  on  the  assets  and  liabilities  held  on 
their  books  in  accordance  with  point  (a),  third  country  branches  shall  apply  the 
international  accounting  standards  adopted  in  accordance  with  the  procedure  laid 
down in Article 6(2) of Regulation (EC) No 1606/2002*10 or the applicable GAAP in 
the Member State. 

2.  Member  States  shall  require  third  country  branches  to  report  to  their  competent 
authorities the following information on their head undertaking: 

(a) 

on a periodic basis, aggregated information on the assets and liabilities held or 
booked,  respectively,  by  the  subsidiaries  and  other  third  country  branches  of 
that head undertaking’s group in the Union; 

(b)  on  a  periodic  basis,  the  head  undertaking’s  compliance  with  its  applicable 

prudential requirements on an individual and consolidated basis; 

(c) 

(d) 

(e) 

(f) 

on  an  ad  hoc  basis,  significant  supervisory  reviews  and  assessments  when 
those  are  conducted  on  the  head  undertaking  and  the  consequent  supervisory 
decisions; 

the recovery plans of the head undertaking and the specific measures that could 
be taken on the third country branch in  accordance with  those plans, and any 
subsequent updates and amendments to those plans; 

the head undertaking’s business strategy in relation to the third country branch, 
and any subsequent changes to that strategy; 

the  services  provided  by  the  head  undertaking  to  eligible  counterparties  or 
professional  clients  within the meaning of Section 1 of Annex  II to  Directive 
2014/65/EU  established  or  situated  in  the  Union  on  the  basis  of  reverse 
solicitation of services in accordance with Article 21c of this Directive. 

3.  The  reporting  obligations  laid  down  in  this  Article  shall  not  prevent  competent 
authorities from imposing additional ad hoc reporting requirements on third country 
branches where the competent authority deems the additional information necessary 
to  gain  a  comprehensive  view  of  the  branch’s  or  its  head  undertaking’s  business, 
activities  or  financial  soundness,  verify  the  branch’s  and  its  head  undertaking’s 
compliance  with  applicable  laws  and  ensure  the  branch’s  compliance  with  those 
laws. 

_______ 
*10  Regulation (EC) No 1606/2002 of the European Parliament and of the Council 
of 19 July 2002 on the application of international accounting standards (OJ L 243, 
11.9.2002, p. 1).’ 

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Article 48m 
Standard forms and templates and frequency of reporting 

1. EBA shall develop draft implementing technical standards to specify the uniform 
formats, definitions, the IT solutions and the frequency of reporting to be applied for 
the purposes of Article 48l. 

The  reporting  requirements  referred 
the  first  subparagraph  shall  be 
to 
proportionate to the classification of third country branches as either class 1 or class 
2. 

in 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by  [OP  please  insert  the  date  =  6  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010. 

2.  The  regulatory  and  financial  information  referred  to  in  this  Article  shall  be 
reported at least biannually by class 1 third country branches and at least annually by 
class 2 third country branches. 

3.  Competent  authorities  may  waive  all  or  part  of  the  requirements  to  report 
information on the head undertaking laid out in paragraph 48l(3) for qualifying third 
country branches, provided that the competent authority is able to obtain the relevant 
information directly from the supervisory authorities of the relevant third country. 

SECTION III 

SUPERVISION 

Article 48n 
Third country branches supervision and supervisory examination programme 

1.  Member  States  shall  require  that  competent  authorities  comply  with  this  Section 
and,  mutatis  mutandis,  with  Title  VII  for  the  purposes  of  supervising  third  country 
branches. 

2.  Competent  authorities  shall  include  third  country  branches  in  the  supervisory 
examination programme referred to in Article 99. 

Article 48o 
Supervisory review and evaluation 

1.  Member  States  shall  require  that  competent  authorities  review  the  arrangements, 
strategies,  processes  and  mechanisms  implemented  by  third  country  branches  to 
comply  with  the  provisions  that  apply  to  them  under  this  Directive  and,  where 
applicable, any additional regulatory requirements under national law. 

2.  On  the  basis  of  the  review  conducted  in  accordance  with  paragraph  1,  the 
competent authorities shall evaluate whether the arrangements, strategies, processes 
and  mechanisms  implemented  by  the  third  country  branches  and  the  capital 
endowment and liquidity held by them ensure a sound management and coverage of 
their material risks and the viability of the branch. 

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3.  Competent  authorities  shall  conduct  the  review  and  evaluation  referred  to  in 
paragraphs 1 and 2 in accordance with the principle of proportionality, as published 
in accordance with Article 143(1), point (c). In particular, competent authorities shall 
establish a frequency and intensity for the  review referred to  in  paragraph 1 that is 
proportionate  to  the  classification  as  class  1  and  2  third  country  branches  and  that 
takes into account other relevant criteria, such as the nature, scale and complexity of 
the third country branches’ activities. 

4. Where a review, in particular the evaluation of the governance arrangements, the 
business  model,  or  the  activities  of  a  third  country  branch,  gives  competent 
authorities reasonable grounds to suspect that, in connection with that third country 
branch,  money  laundering  or  terrorist  financing  is  being  or  has  been  committed  or 
attempted,  or  there  is  increased  risk  thereof,  the  competent  authority  shall 
immediately notify EBA and the authority that supervises the third country branch in 
accordance with Directive (EU) 2015/849. Where there is an increased risk of money 
laundering  or  terrorist  financing,  the  competent  authority  and  the  authority  that 
supervises the third country branch in accordance with Directive (EU) 2015/849 shall 
liaise  and  notify  their  common  assessment  immediately  to  EBA.  The  competent 
authority  shall  take,  as  appropriate,  measures  in  accordance  with  this  Directive, 
which may include withdrawing the third country branch’s permission in accordance 
with Article 48d(2), point (g). 

5.  Competent  authorities,  financial  intelligence  units  and  authorities  that  supervise 
third country branches shall cooperate closely with each other within their respective 
competences and shall exchange information relevant to this Directive, provided that 
such cooperation and information exchange do not impinge on an on-going inquiry, 
investigation or proceedings in accordance with the criminal or administrative law of 
the  Member  State  where  the  competent  authority,  financial  intelligence  unit  or 
authority  entrusted  with  the  public  duty  of  supervising  third  country  branches  are 
located.  EBA  may  assist  the  competent  authorities  and  the  authorities  in  charge  of 
supervising the third country branch in accordance with Directive (EU) 2015/849 in 
the  event  of  a  disagreement  concerning  the  coordination  of  supervisory  activities 
under this Article on its own initiative. In such an event, EBA shall act in accordance 
with Article 19(1), second subparagraph, of Regulation (EU) No 1093/2010. 

6. EBA shall develop draft regulatory technical standards to further specify: 

(a) 

(b) 

the  common  procedures  and  methodologies  for  the  supervisory  review  and 
evaluation  process  referred  to  in  this  Article  and  for  the  assessment  of  the 
treatment of material risks; 

the  mechanisms  for  cooperation  and  information  exchange  between  the 
authorities  referred  to  in  paragraph  5  of  this  Article,  in  the  context  of 
identifying serious breaches of anti-money laundering rules. 

For the purposes  of point (a), the procedures  and methodologies referred  to  therein 
shall be laid down in a manner that is proportionate to the classification of the third 
country  branches as  class 1 or  class 2,  and to  other appropriate criteria such as the 
nature, scale and complexity of their activities. 

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  12  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

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Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

Article 48p 
Supervisory measures and powers 

1.  Competent  authorities  shall  require  third  country  branches  to  take  the  necessary 
measures at an early stage in order to: 

(a) 

(b) 

ensure that the third country branches comply with the requirements that apply 
to  them  under  this  Directive  and  under  national  law  or  to  restore  compliance 
with those requirements; and 

to ensure that the material risks that the third country branches are exposed to 
are  covered  and  managed  in  a  sound  and  sufficient  manner  and  that  those 
branches remain viable. 

2.  Competent  authorities’  powers  for  the  purposes  of  paragraph  1  shall  include,  at 
least, the power to require third country branches to: 

(a) 

hold an amount of capital endowment in excess of the minimum requirements 
laid  down  in  Article  48e  or  to  comply  with  other  additional  capital 
requirements. Any additional capital endowment amount to be held by the third 
country branch in accordance with this point shall comply with the requirement 
laid down in Article 48e; 

(b)  meet  other  specific  liquidity  requirements  in  addition  to  the  requirement  laid 
down in Article 48f. Any additional liquid assets to be held by the third country 
branch  in  accordance  with  this  point  shall  comply  with  the  requirements  laid 
down in Article 48f; 

(c) 

(d) 

(e) 

(f) 

reinforce their governance, risk control or booking arrangements; 

restrict or limit the scope of their business or of the activities they conduct, as 
well as the counterparties to those activities; 

reduce  the  risk  inherent  in  their  activities,  products  and  systems,  including 
outsourced activities, and stop engaging or offering such activities or products; 

comply  with  additional  reporting  requirements  in  accordance  with  Article 
48l(3) or increase the frequency of the regular reporting; 

(g)  make public disclosures. 

Article 48q 
Cooperation between competent authorities and colleges of supervisors 

1.  Competent  authorities  supervising  third  country  branches  and  subsidiary 
institutions  of  the  same  third-country  group  shall  cooperate  closely  and  share 
information  with  each  other.  The  competent  authorities  shall  have  written 
coordination and cooperation arrangements in place in accordance with article 115. 

2. For the purposes of paragraph 1, class 1 third country branches shall be subject to 
the comprehensive supervision of a college of supervisors in accordance with Article 
116, subject to the following requirements: 

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(a)  where a college of supervisors has been established in relation to the subsidiary 
institutions of a third country group, the class 1 third country branches of the 
same group shall be included within the scope of that college of supervisors; 

(b)  where the third country group has class 1 third country branches in more than 
one Member State but no subsidiary institutions in the Union subject to Article 
116,  a  college  of  supervisors  shall  be  established  in  relation  to  those  class  1 
third country branches; 

(c)  where the third country group has class 1 third country branches in more than 
one Member State or at least one class 1 third country branch, and one or more 
subsidiary institutions in the Union that are not subject to Article 116, a college 
of  supervisors  shall  be  established  in  relation  to  those  third  country  branches 
and subsidiary institutions. 

3. For the purposes of paragraph 2, points (b) and (c), there shall be a lead competent 
authority that performs the same role as the consolidating supervisor in  accordance 
with  Article  116.  The  lead  competent  authority  shall  be  that  of  the  Member  State 
with the largest third country branch in terms of total value of booked assets. 

4. In addition to the tasks set out in Article 116, the colleges of supervisors shall: 

(a) 

(b) 

(c) 

prepare a report on the structure and activities of the third country group in the 
Union and update this report on an annual basis; 

exchange information  on the results of the supervisory  review and  evaluation 
process referred to in Article 48o; 

endeavour  to  align  the  application  of  the  supervisory  measures  and  powers 
referred to in Article 48p. 

5. The college of supervisors shall ensure appropriate coordination and cooperation 
with relevant third country supervisory authorities where appropriate. 

6.  EBA  shall  contribute  to  promoting  and  monitoring  the  efficient,  effective  and 
consistent  functioning  of  the  colleges  of  supervisors  referred  to  in  this  Article  in 
accordance with Article 21 of Regulation (EU) No 1093/2010. 

7. EBA shall develop draft regulatory technical standards to specify: 

(a) 

(b) 

the  mechanisms  of  cooperation  and  the  draft  model  agreements  between 
competent authorities for the purposes of paragraph 1 of this Article; and 

the conditions for the functioning of colleges of supervisors for the purposes of 
Articles 2 to 6 of this Article. 

EBA shall submit those draft technical standards to the Commission by [OP please 
insert  the  date  =  12  months  from  the  date  of  entry  into  force  of  this  amending 
Directive]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

Article 48r 
Reporting to the EBA 

Competent authorities shall notify EBA the following: 

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(a) 

(b) 

(c) 

all  the  authorisations  granted  to  third  country  branches  and  any  subsequent 
changes to such authorisations; 

total assets and liabilities booked by the authorised third country branches, as 
periodically reported; 

the  name  of  the  third  country  group  to  which  an  authorised  third  country 
branch belongs. 

EBA  shall  publish  on  its  website  a  list  of  all  third  country  branches  authorised  to 
operate  in  the  Union  in  accordance  with  this  Title,  indicating  the  Member  State  in 
which they are authorised to operate. 

CHAPTER 2 

Relations with third countries 

Article 48s  
Cooperation with supervisory authorities of third countries regarding supervision on a 
consolidated basis 

1. The Union may conclude agreements with one or more third countries regarding 
the means of exercising supervision on a consolidated basis over the following: 

(a) 

(b) 

institutions the parent undertakings of which have their head offices in a third 
country; 

institutions  situated  in  third  countries  the  parent  undertakings  of  which, 
whether  institutions,  financial  holding  companies  or  mixed  financial  holding 
companies, have their head offices in the Union. 

2. The agreements referred to in paragraph 1 shall, in particular, seek to ensure that: 

(a) 

(b) 

the competent authorities of Member States are able to obtain the information 
necessary  for  the  supervision,  on  the  basis  of  their  consolidated  financial 
situations,  of  institutions,  financial  holding  companies  and  mixed  financial 
holding companies situated in the Union which have as subsidiaries institutions 
or  financial  institutions  situated  in  a  third  country,  or  holding  participation 
therein; 

the supervisory authorities of third countries are able to obtain the information 
necessary for the supervision of parent undertakings the head offices of which 
are situated within their  territories and which have as subsidiaries institutions 
or  financial  institutions  situated  in  one  or  more  Member  States  or  holding 
participation therein; and 

(c) 

the EBA is able to obtain from the competent authorities of the Member States 
the  information  received  from  national  authorities  of  third  countries  in 
accordance with Article 35 of Regulation (EU) No 1093/2010. 

3. Without prejudice to Article 218 TFEU, the Commission shall, with the assistance 
of  the  European  Banking  Committee,  examine  the  outcome  of  the  negotiations 
referred to in paragraph 1 and the resulting situation. 

4.  EBA  shall  assist  the  Commission  for  the  purposes  of  this  Article  in  accordance 
with Article 33 of Regulation (EU) No 1093/2010.; 

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(9) 

Articles 65 and 66 are replaced by the following: 

‘Article 65 
Administrative penalties, periodic penalty payments and other administrative measures 

1. Without prejudice to the supervisory powers of competent authorities referred to in 
Article  64  and  the  right  of  Member  States  to  provide  for  and  impose  criminal 
penalties,  Member  States  shall  lay  down  rules  on  administrative  penalties,  periodic 
penalty  payments  and  other  administrative  measures  in  respect  of  breaches  of 
national provisions transposing this Directive and of Regulation (EU) No 575/2013, 
and  shall  take  all  measures  necessary  to  ensure  that  they  are  implemented.  The 
administrative  penalties,  periodic  penalty  payments  and  other  administrative 
measures shall be effective, proportionate and dissuasive.. 

2. Member States shall ensure that where the obligations referred to in paragraph 1 
apply  to  institutions,  financial  holding  companies  and  mixed  financial  holding 
companies in the event of a breach of national provisions transposing this Directive 
or  of  Regulation  (EU)  No  575/2013,  administrative  penalties,  periodic  penalty 
payments  and  other  administrative  measures  may  be  applied,  subject  to  the 
conditions laid down in national law, to the members of the management body and to 
other natural persons who under national law are responsible for the breach. 

3.  The  application  of  periodic  penalty  payments  shall  not  prevent  competent 
authorities from imposing administrative penalties for the same breach. 

4.  Competent  authorities  shall  have  all  information  gathering  and  investigatory 
powers  that  are  necessary  for  the  exercise  of  their  functions.  Those  powers  shall 
include: 

(a) 

the  power  to  require  the  following  natural  or  legal  persons  to  provide  all 
information  that  is  necessary  in  order  to  carry  out  the  tasks  of  the  competent 
authorities,  including  information  to  be  provided  at  recurring  intervals  and  in 
specified formats for supervisory and related statistical purposes: 

(i) 

institutions established in the Member State concerned; 

(ii) 

financial holding companies established in the Member State concerned; 

(iii)  mixed  financial  holding  companies  established  in  the  Member  State 

concerned; 

(iv)  mixed-activity  holding  companies  established  in  the  Member  State 

concerned; 

(v)  persons belonging to the entities referred to in points (i) to (iv); 

(vi)  parties  to  whom  the  entities  referred  to  in  points  (i)  to  (iv)  have 

outsourced operational functions or activities; 

(b) 

the power to  conduct  all necessary investigations of any person referred to in 
points (a)(i) to (vi) established or located in the Member State concerned where 
necessary  to  carry  out  the  tasks  of  the  competent  authorities,  including  the 
power to: 

(i) 

require the submission of documents; 

(ii) 

examine the books and records of the persons referred to in points (a)(i) 
to (vi) and take copies or extracts from such books and records; 

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(iii)  obtain written or oral explanations from any person referred to in points 

(a)(i) to (vi) or their representatives or staff; 

(iv) 

(v) 

interview  any  other  person  who  consents  to  be  interviewed  for  the 
purpose  of  collecting  information  relating  to  the  subject  matter  of  an 
investigation; and 

the power, subject to other conditions set out in Union law, to conduct all 
necessary  inspections  at  the  business  premises  of  the  legal  persons 
referred to  in  points (a)(i) to  (vi) and any other undertaking included in 
consolidated 
the 
consolidating  supervisor,  subject  to  the  prior  notification  of  the 
competent  authorities  concerned.  If  an  inspection  requires  authorisation 
by  a  judicial  authority  under  national  law,  such  authorisation  shall  be 
applied for.’; 

supervision  where  a  competent  authority 

is 

5.  By  way  of  derogation  from  paragraph  1,  where  the  legal  system  of  the  Member 
State  does  not  provide  for  administrative  penalties,  this  Article  may  be  applied  in 
such a manner that the penalty is initiated by the competent authority and imposed by 
judicial  authorities,  while  ensuring  that  those  legal  remedies  are  effective  and  have 
an equivalent effect to the administrative penalties imposed by competent authorities. 
In any event, the penalties imposed shall be effective, proportionate and dissuasive. 
Those  Member  States  shall  notify  to  the  Commission  the  provisions  of  their  laws 
which  they  adopt  pursuant  to  this  paragraph  by  [OP  please  insert  date  =  date  of 
transposition  of  this  amending  Directive]  and,  without  delay,  any  subsequent 
amendment law or amendment affecting them. 

Article 66 
Administrative penalties, periodic penalty payments and other administrative measures 
for breaches of authorisation and requirements for acquisitions or divesture of 
qualifying holdings, material transfers of assets and liabilities, mergers or divisions 

1.  Member  States  shall  ensure  that  their  laws,  regulations  and  administrative 
provisions provide for administrative penalties, periodic penalty payments and other 
administrative measures at least where: 

(a) 

(b) 

(c) 

the  business  of  taking  deposits  or  other  repayable  funds  from  the  public  is 
conducted without being authorised as a credit institution in breach of Article 
9; 

activities  as  a  credit  institution  are  commenced  without  obtaining  prior 
authorisation in breach of Article 9; 

a qualifying holding in a credit institution is acquired, directly or indirectly, or 
further increased, directly  or indirectly, such that the proportion of the voting 
rights or of the capital held would reach or exceed the thresholds referred to in 
Article  22(1)  or  the  credit  institution  would  become  the  subsidiary  of  the 
acquirer,  without  notifying  in  writing  the  competent  authorities  of  the  credit 
institution  in  relation  to  which  the  acquirer  seeks  to  acquire  or  increase  the 
qualifying holding, during the assessment period, or against the opposition of 
the competent authorities, in breach of that Article; 

(d) 

a qualifying holding in a credit institution is disposed of, directly or indirectly 
or  reduced  as  a  result  of  which  the  proportion  of  the  voting  rights  or  of  the 
capital  held  would  fall  below  the  thresholds  referred  to  in  Article  25  or  the 

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(e) 

(f) 

(g) 

(h) 

credit  institution  would  cease  to  be  a  subsidiary  of  the  acquirer,  without 
notifying in writing the competent authorities in breach of that Article ; 

a financial holding company or mixed financial holding company as defined in 
article 21a(1) fail to apply for approval in breach of Article 21a or breaches any 
other requirement set out in that Article; 

an  acquirer  as  defined  in  Article  27a(1)  acquires  directly  or  indirectly,  a 
qualifying  holding  in  an  institution,  or  increases  an  already  held  qualifying 
holding, such that the proportion of voting rights or capital held by the acquirer 
in the institution would exceed 15% of the institution’s eligible capital without 
the acquirer’s notifying the competent authorities in breach of that Article; 

any of the parties referred to in Article 27d of this Directive disposes directly 
or  indirectly  of  a  qualifying  holding  that  exceeds  the  threshold  referred  to  in 
Article  89  of  Regulation  (EU)  575/2013  without  notifying  the  competent 
authorities in breach of Article 27d of this Directive; 

any  of  the  parties  referred  to  in  Article  27f(1)  executes  a  material  transfer  of 
assets  and  liabilities  without  notifying  the  competent  authorities  in  breach  of 
that Article; 

(i) 

any of the parties referred to in Article 27k(l) engages in a process of merger or 
division in breach of that Article. 

2.  Member  States  shall  ensure  that  in  the  cases  referred  to  in  paragraph  1,  the 
measures that can be applied include the following: 

(a) 

administrative penalties: 

(i) 

(ii) 

in the case of a legal person, administrative pecuniary penalties of up to 
10 % of the total annual net turnover of the undertaking; 

in the case of a natural person, administrative pecuniary penalties of up to 
EUR 5 000 000, or in the Member States whose currency is not the euro, 
the corresponding value in the national currency on 17 July 2013; 

(iii)  administrative  pecuniary  penalties  of  up  to  twice  the  profits  gained  or 
losses avoided because of the breach where those can be determined; 

(b)  periodic penalty payments: 

(i) 

(ii) 

in the case of a legal person, periodic penalty payments of up to 5 % of 
the average daily turnover which, in  the case of  an ongoing breach, the 
legal  person  shall  be  obliged  to  pay  per  day  of  infringement  until 
compliance with an obligation is restored, and which may be imposed for 
a  period  of  up  to  six  months  from  the  date  stipulated  in  the  decision 
requiring the termination of a  breach and imposing the periodic penalty 
payment; 

in the case of a natural person, periodic penalty payments of up to EUR 
500 000 which, in the case of an ongoing breach, the natural person shall 
be  obliged  to  pay  per  day  of  infringement  until  compliance  with  an 
obligation is restored, and which may be imposed for a period up to six 
months from the date stipulated in the decision requiring the termination 
of a breach and imposing the periodic penalty payment; 

(c) 

other administrative measures: 

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(i) 

a  public  statement  which  identifies  the  natural  person,  institution, 
financial  holding  company  or  mixed  financial  holding  company, 
intermediate parent undertaking responsible and the nature of the breach; 

(ii) 

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

(iii)  suspension  of  the  voting  rights  of  the  shareholder  or  shareholders  held 

responsible for the breaches referred to in paragraph 1; 

(iv)  subject to Article 65(2), a temporary or a definitive ban of a member of 
the  institution's  management  body  or  any  other  natural  person  who  is 
held  responsible  for  the  infringement  from  exercising  functions  in  the 
institution. 

3. The total annual net turnover referred to in paragraph 2, points (a)(i) and (b)(i), of 
this  Article  shall  be  equal  to  the  business  indicator  set  out  in  Article  314  of 
Regulation  (EU)  No  575/2013.  For  the  purposes  of  this  Article,  the  business 
indicator  shall  be  calculated  on  the  basis  of  the  most  recent  available  yearly 
supervisory financial information, unless the result is zero or negative. If the result is 
zero or negative, the basis for the calculation shall be the most recent earlier yearly 
supervisory financial information which produces an indicator above zero. Where the 
undertaking concerned is part of a group the relevant total annual net turnover shall 
be  the  total  annual  net  turnover  resulting  from  the  consolidated  account  of  the 
ultimate parent undertaking. 

4. The average daily turnover referred to  in paragraph (2), point  (b)(i), shall be the 
total annual net turnover referred to in paragraph 3 divided by 365.’; 

(10) 

Article 67 is amended as follows: 

(a) 

paragraph 1 is amended as follows: 

(i) 

points (d) and (e) are replaced by the following: 

‘(d)  an  institution  fails  to  have  in  place  governance  arrangements  and 
gender  neutral  remuneration  policies  required  by 
the  competent 
authorities in accordance with Article 74; 

(e)  an  institution  fails  to  report  information  or  provides  incomplete  or 
inaccurate information regarding compliance with the obligation to meet 
own  funds  requirements  set  out  in  Article  92  of  Regulation  (EU)  No 
575/2013 to the competent authorities in breach of Article 430(1) of that 
Regulation;’; 

(ii)  point (j) is replaced by the following: 

‘(j) an institution fails to maintain a net stable funding ratio in breach of 
Article 413 or 428b of Regulation (EU) No 575/2013 or repeatedly and 
persistently  fails  to  hold  liquid  assets  in  breach  of  Article  412  of  that 
Regulation;’; 

(iii) 

the following points (r) to (ab) are added: 

‘(r)  an  institution  fails  to  meet  the  own  fund  requirements  set  out  in 

Article 92(1) of Regulation (EU) No 575/2013; 

(s) 

an institution or a natural person fails to comply with an obligation 
arising  from  a  decision  issued  by  the  competent  authority  or  an 

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(t) 

(u) 

obligation  arising  from  national  provisions  transposing  Directive 
2013/36/EU or from Regulation (EU) No 575/2013; 

institution 

that  fails 

an 
the  remuneration 
requirements  in  accordance  with  Articles  92,  94  and  95  of  this 
Directive; 

to  comply  with 

an  institution  acts  without  the  prior  permission  of  the  competent 
transposing  Directive 
authority  where  national  provisions 
the 
2013/36/EU  or  Regulation  (EU)  No  575/2013  require 
institution  to  obtain  such  prior  permission  or  obtained  such 
permission  on  the  basis  of  its  own  false  statement  or  does  not 
comply  with  the  conditions  under  which  such  permission  was 
granted; 

(v) 

an  institution  fails  to  meet  the  requirements  in  relation  to 
composition, conditions, adjustments and deductions related to own 
funds as set out in Part Two of Regulation (EU) No 575/2013; 

(w)  an institution fails to meet the requirements in relation to its large 
exposures  to  a  client  or group  of  connected  clients  set  out  in  Part 
Four of Regulation (EU) No 575/2013; 

(x) 

(y) 

(z) 

an  institution  fails  to  meet  the  requirements  in  relation  to  the 
calculation  of  the  leverage  ratio,  including  the  application  of 
derogations set out in Part Seven of Regulation (EU) No 575/2013; 

an institution fails to report information or provides incomplete or 
inaccurate  information  to  the  competent  authorities  in  relation  to 
the  data  referred  to  in  Articles  430(1),  (2)  and  (3)  and  in 
Articles430a and 430b of Regulation (EU) No 575/2013; 

an  institution  fails  to  comply  with  the  data  collection  and 
governance requirements set out in Part Three, Title III, Chapter 2 
of Regulation (EU) No 575/2013. 

(aa)  an  institution  fails  to  meet  the  requirements  in  relation  to  the 
calculation  of  the  risk-weighted  exposure  amounts  or  own  funds 
requirements or fails to have in place the governance arrangements 
set  out  in  Part  Three,  Title  II  to  VI  of  Regulation  (EU)  No 
575/2013; 

(ab)  an  institution  fails  to  meet  the  requirements  in  relation  to  the 
calculation of the liquidity coverage ratio or the net stable funding 
ratio as set out in Part Six, Title I and Title IV of Regulation (EU) 
No 575/2013 and the delegated act referred to in Article 460(1) of 
that Regulation.’; 

(b)  paragraph 2 is replaced by the following: 

‘2. Member States shall ensure that in the cases referred to in paragraph 1, the 
measures than can be applied include at least the following: 

(a) 

administrative penalties: 

(i) 

in the case of a legal person, administrative pecuniary penalties of 
up to 10 % of the total annual net turnover of the undertaking; 

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(ii) 

in  the  case  of  a  natural  person,  administrative  pecuniary  penalties 
of up to EUR 5 000 000, or in the Member States whose currency 
is not the euro, the corresponding value in the national currency on 
17 July 2013; 

(iii)  administrative pecuniary penalties of up to twice the profits gained 
or  losses  avoided  because  of  the  breach  where  those  can  be 
determined; 

(b)  periodic penalty payments: 

(i) 

(ii) 

in the case of a legal person, periodic penalty payments of up to 5 
%  of  the  average  daily  turnover  which,  in  the  case  of  an  ongoing 
infringement,  the  legal  person  shall  be  obliged  to  pay  per  day  of 
infringement  until  compliance  with  an  obligation  is  restored,  and 
which  may  be  imposed  for  a  period  of  up  to  six  months  from  the 
date stipulated in the decision requiring the termination of a breach 
and  imposing  the  periodic  penalty  payment.  The  average  daily 
turnover  referred  to  in  this  paragraph  shall  be  the  total  annual  net 
turnover divided by 365. 

in the case of a natural person, periodic penalty payments of up to 
EUR  500  000  which,  in  the  case  of  an  ongoing  infringement,  the 
natural person shall be obliged to pay per day of infringement until 
compliance  with  an  obligation  is  restored,  and  which  may  be 
imposed for a period up to  six months from  the date stipulated in 
the decision requiring the termination of a breach and imposing the 
periodic penalty payment; 

(c) 

other administrative measures: 

(i) 

a  public  statement  which  identifies  the  natural  person,  institution, 
financial  holding  company  or  mixed  financial  holding  company, 
intermediate  parent  undertaking  responsible  and  the  nature  of  the 
breach; 

(ii) 

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

(iii) 

in the case of an institution, withdrawal of the authorisation of the 
institution in accordance with Article 18; 

(iv)  subject  to  Article  65(2),  a  temporary  or  a  definitive  ban  of  a 
member of the institution's management body or any other natural 
person  who  is  held  responsible  for  the  infringement  from 
exercising functions in the institution; 

(v) 

suspension  of  the  voting  rights  of  the  shareholder  or  shareholders 
held responsible for the breaches referred to in paragraph 1.’; 

(c) 

the following paragraphs 3 and 4 are added: 

‘3.  The  total  annual  net  turnover  referred  to  in  paragraph  2,  points  (a)(i)  and 
(b)(i), of this Article shall be equal to the business indicator set out in Article 
314  of  Regulation  (EU)  No  575/2013.  For  the  purpose  of  this  Article,  the 
business indicator shall be calculated on the basis of the most recent available 
yearly supervisory financial information, unless the result is zero or negative. If 

EN 

79 

  EN 

the  result  is  zero  or  negative,  the  basis  for  the  calculation  shall  be  the  most 
recent  earlier  yearly  supervisory  financial  information,  which  produces  an 
indicator above zero. Where the undertaking concerned is  part of a  group the 
relevant total annual net turnover shall be the total annual net turnover resulting 
from the consolidated account of the ultimate parent undertaking. 

4. The average daily turnover referred to in paragraph (2), point (b)(i), shall be 
the total annual net turnover referred to in paragraph 3 divided by 365.’ 

(11) 

Article 70 is replaced by the following: 

‘Article 70 
Effective application of administrative penalties and exercise of powers to impose 
penalties by competent authorities 

1.  Member  States  shall  ensure  that,  when  determining  the  type  and  level  of 
administrative penalties  or other administrative  measures, the  competent authorities 
shall take into account all relevant circumstances, including where appropriate: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the gravity and the duration of the breach; 

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

the financial strength of the natural or legal person responsible for the breach, 
as  indicated,  including  by  the  total  turnover  of  a  legal  person  or  the  annual 
income of a natural person; 

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

the  losses  for  third  parties  caused  by  the  breach,  insofar  as  they  can  be 
determined; 

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

(g)  previous breaches by the natural or legal person responsible for the breach; 

(h) 

any potential systemic consequences of the breach. 

(i) 

previous  application  of  criminal  penalties  to  the  same  natural  or  legal  person 
responsible for the same breach. 

2.  In  the  exercise  of  their  powers  to  impose  penalties,  competent  authorities  shall 
cooperate  closely  to  ensure  that  penalties  produce  the  results  pursued  by  this 
Directive.  They  shall  also  coordinate  their  actions  to  prevent  accumulation  and 
overlap when applying penalties and administrative measures to cross-border cases. 
Competent authorities shall cooperate closely with judicial authorities when dealing 
with same cases. 

3. Competent authorities may apply penalties in relation to the same natural or legal 
person responsible for the same acts or omissions in the case of an accumulation of 
administrative and criminal proceedings and penalties is punishing the same breach. 
However, such accumulation of proceedings and penalties shall be strictly necessary 
and  proportionate  to  pursue  different  and  complementary  objectives  of  general 
interest. The severity of all the penalties and other administrative measures imposed 
in case of accumulation of administrative and criminal proceedings shall be limited 
to what is necessary in the view of the seriousness of the breach concerned. Member 

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States  shall  lay  down  clear  and  precise  rules  regarding  the  circumstances  in  which 
acts  or  and  omissions  may  be  subject  to  such  accumulation  of  administrative  and 
criminal proceedings and penalties. 

4.  Member  States  shall  lay  down  rules  providing  for  full  cooperation  between 
competent  authorities  and  judicial  authorities  to  ensure  a  sufficiently  close 
connection in substance and time between administrative and criminal proceedings. 

5. By 18 July 2029, EBA shall submit a report to the Commission on the cooperation 
between competent authorities and judicial authorities in the context of application of 
administrative  penalties.  In  addition,  EBA  shall  assess  any  divergences  in  the 
application of penalties  between  competent  authorities in  this respect.  In particular, 
EBA shall assess: 

(a) 

(b) 

(c) 

(d) 

(e) 

the level of cooperation between competent authorities and judicial authorities 
in the context of application of penalties; 

the  level  of  cooperation  between  competent  authorities  in  the  context  of 
penalties  applicable  to  cross-border  cases  or  in  case  of  accumulation  of 
administrative and criminal proceedings; 

the  application  and  the  level  of  protection  of  ne  bis  in  idem  principle  with 
regards to administrative and criminal penalties by Member States; 

the  application  of  the  principle  of  proportionality  when  both  penalties  are 
imposed in case of accumulation of administrative and criminal proceedings; 

the exchange of information between competent authorities when dealing with 
cross border cases.’; 

(12) 

in Article 73, the first subparagraph is replaced by the following: 

‘Institutions  shall  have  in  place  sound,  effective  and  comprehensive  strategies  and 
processes  to  assess  and  maintain  on  an  ongoing  basis  the  amounts,  types  and 
distribution  of  internal  capital  that  they  consider  adequate  to  cover  the  nature  and 
level  of  the  risks  to  which  they  are  or  might  be  exposed  in  the  short,  medium  and 
long term time horizon, including environmental, social and governance risks.’;” 

(13) 

in Article 74, paragraph 1 is replaced by the following: 

‘1. Institutions shall have robust governance arrangements, which include: 

(a) 

(b) 

(c) 

(d) 

a  clear  organisational  structure  with  well-defined,  transparent  and  consistent 
lines of responsibility; 

effective processes to identify, manage, monitor and report the risks they are or 
might  be  exposed  to  in  the  short,  medium  and  long  term  time  horizon, 
including environmental, social and governance risks; 

adequate  internal  control  mechanisms,  including  sound  administration  and 
accounting procedures; 

remuneration policies and practices that are consistent with and promote sound 
and effective risk management. 

The remuneration policies and practices referred to in the first subparagraph shall be 
gender neutral.’; 

(14) 

Article 76 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

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‘1. Member States shall ensure that the management body approves and at least 
every  two  years  reviews  the  strategies  and  policies  for  taking  up,  managing, 
monitoring  and  mitigating  the  risks  the  institution  is  or  might  be  exposed  to, 
including those posed by the macroeconomic environment in which it operates 
in  relation  to  the  status  of  the  business  cycle,  and  those  resulting  from  the 
current,  short,  medium  and  long-term  impacts  of  environmental,  social  and 
governance factors.’; 

(b) 

in paragraph 2 the following subparagraph is added: 

‘Member States shall ensure that the management body develops specific plans 
and  quantifiable  targets  to  monitor  and  address  the  risks  arising  in  the  short, 
medium  and  long-term  from  the  misalignment  of  the  business  model  and 
strategy of the institutions, with the relevant Union policy objectives or broader 
transition  trends  towards  a  sustainable  economy  in  relation  to  environmental, 
social and governance factors.’; 

(c) 

paragraph 5 is replaced by the following: 

‘5.  Member  States  shall,  in  accordance  with  the  proportionality  requirement 
laid down in Article 7(2) of Commission Directive 2006/73/EC*11, ensure that 
institutions  have  internal  control  functions  independent  from  the  operational 
functions  and  which  shall  have  sufficient  authority,  stature,  resources  and 
access to the management body. 

Member  States  shall  ensure  that  the  internal  control  functions  ensure  that  all 
material risks are identified, measured and properly reported. They shall ensure 
that  the  internal  control  functions  are  actively  involved  in  elaborating  the 
institution's risk strategy and in all material risk management decisions and that 
the internal control functions can deliver a complete view of the whole range of 
risks of the institution. 

Member States shall ensure that the internal control function can report directly 
to  the  management  body  in  its  supervisory  function,  independent  from 
members  of  the  management  body  in  its  management  function  or  senior 
management,  and  can  raise  concerns  and  warn  that  body,  where  appropriate, 
where  specific  risk  developments  affect  or  may  affect  the  institution,  without 
prejudice  to  the  responsibilities  of  the  management  body  pursuant  to  this 
Directive and Regulation (EU) No 575/2013. 

The  heads  of  internal  control  functions  shall  be  independent  senior  managers 
with  distinct  responsibility  for  the  risk  management,  compliance  and  internal 
audit functions. Where the nature, scale and complexity of the activities of the 
institution do not justify to appoint a specific person for each internal control 
functions,  another  senior  person  within  the  institution  may  combine  the 
responsibilities for those functions, provided there is no conflict of interest. 

The heads of the internal control functions shall not be removed without prior 
approval of the management body in its supervisory function and shall be able 
to have direct access to the management body in its supervisory function where 
necessary. 

________ 

*11 

Commission  Directive  2006/73/EC  of  10  August  2006  implementing 
Directive  2004/39/EC  of  the  European  Parliament  and  of  the  Council  as 

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regards  organisational  requirements  and  operating  conditions  for  investment 
firms and defined terms for the purposes of that Directive (OJ L 241, 2.9.2006, 
p. 26).’; 

(15) 

Article 78 is amended as follows: 

(a) 

the title is replaced by the following: 

‘Supervisory benchmarking of approaches for calculating own funds requirements’; 

(b)  paragraph 1 is replaced by the following: 

‘1. Competent authorities shall ensure all of the following: 

(a) 

(b) 

(c) 

that  institutions  permitted  to  use  internal  approaches  for  the  calculation 
of risk weighted exposure amounts or own funds requirements report the 
results  of  their  calculations  for  their  exposures  or  positions  that  are 
included in the benchmark portfolios; 

that institutions using the alternative standardised approach set out in Part 
Three, Title  IV, Chapter 1a of Regulation  (EU) No 575/2013  report the 
results  of  their  calculations  for  their  exposures  or  positions  that  are 
included in the benchmark templates; 

that  institutions  permitted  to  use  internal  approaches  under  Part  Three, 
Title  II,  Chapter  3  of  Regulation  (EU)  No  575/2013,  as  well  as 
significant  institutions  that  apply  the  standardised  approach  under  Part 
Three,  Title  II,  Chapter  2  of  that  Regulation,  report  the  results  of  the 
calculations  of  the  approaches  used  for  the  purpose  of  determining  the 
amount of expected credit losses for their exposures or positions that are 
included  in  the  benchmark  templates,  where  any  of  the  following 
conditions is met: 

(i) 

(ii) 

(iii) 

institutions  prepare 
the 
international  accounting  standards  adopted  in  accordance  with 
Article 6(2) of Regulation (EC) No 1606/2002; 

in  conformity  with 

their  accounts 

institutions  perform  the  valuation  of  assets  and  off-balance  sheet 
items and the determination of their own funds in conformity with 
the international accounting standards pursuant to Article 24(2) of 
Regulation (EU) No 575/2013; 

institutions  perform  the  valuation  of  assets  and  off-balance  sheet 
items  in  conformity  with  accounting  standards  under  Directive 
86/635/EEC*12  and  they  use  an  expected  credit  loss  model  that  is 
the  same  as  the  one  used  in  international  accounting  standards 
adopted  in  accordance  with  Article  6(2)  of  Regulation  (EC)  No 
1606/2002. 

Institutions shall submit the results of their calculations referred to in the first 
subparagraph  together  with  an  explanation  of  the  methodologies  used  to 
produce them and any qualitative information,  as requested by EBA, that can 
explain  the  impact  of  these  calculations  on  own  funds  requirements,  to  the 
competent  authorities  at  least  annually,  but  with  the  possibility  for  EBA  to 
conduct the exercise biennially after the exercise has run five times. 

(c) 

paragraph 3 is amended as follows: 

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(i) 

the introductory wording is replaced by the following: 

‘Competent authorities shall, on the basis of the information submitted by 
institutions  in  accordance  with  paragraph  1,  monitor  the  range  of  risk 
weighted exposure amounts or own funds requirements, as applicable, for 
the  exposures  or  transactions  in  the  benchmark  portfolio  resulting  from 
the approaches of those institutions. Competent authorities shall make an 
assessment of the quality of those approaches with the frequency referred 
to in paragraph 1, second subparagraph, paying particular attention to:’; 

(ii) 

the second subparagraph is replaced by the following: 

‘EBA  shall  produce  a  report  to  assist  the  competent  authorities  in  the 
assessment  of  the  quality  of  the  approaches  based  on  the  information 
referred to in paragraph 2.’; 

(d) 

in paragraph 5, the introductory sentence is replaced by the following: 

the 
‘The  competent  authorities  shall  ensure 
appropriateness of corrective actions as referred to in paragraph 4, comply with 
the principle that such actions must maintain the objectives of the approaches 
within the scope of this Article and therefore do not:’; 

their  decisions  on 

that 

(e) 

paragraph 6 is replaced by the following: 

‘6.  EBA may issue guidelines and recommendations in accordance with Article 16 
of Regulation (EU) No 1093/2010 where it considers them necessary on the basis of 
the information and assessments referred to in paragraphs 2 and 3 of this Article in 
order to improve supervisory practices or practices of institutions with regard to the 
approaches within the scope of the supervisory benchmarking.’; 

(f) 

paragraph 8 is amended as follows: 

(i) 

in the first subparagraph, the following point (c) is added: 

‘(c)  the  list  of  significant  institutions  referred  to  in  paragraph  1,  point 
(c).’; 

(ii) 

the following second subparagraph is inserted: 

‘For  the  purposes  of  point  (c),  when  determining  the  list  of  significant 
institutions EBA shall take into account proportionality considerations.’; 

_______ 
*12  Council  Directive  86/635/EEC  of  8  December  1986  on  the  annual  accounts 
and  consolidated  accounts  of  banks  and  other  financial  institutions  (OJ  L  372, 
31.12.1986, p. 1). 

(16) 

paragraph 1 of Article 85 is amended as follows: 

“1.  Competent  authorities  shall  ensure  that  institutions  implement  policies  and 
processes to  evaluate  and manage the  exposures to  operational  risk, including risks 
resulting  from  outsourcing,  and  to  cover  low-frequency  high-severity  events. 
Institutions shall articulate what constitutes operational risk for the purposes of those 
policies and procedures.” 

(17) 

a new Article 87a is inserted: 

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‘Article 87a 
Environmental, social and governance risks 

1.  Competent  authorities  shall  ensure  that  institutions  have,  as  part  of  their  robust 
governance  arrangements  including  risk  management  framework  required  under 
Article 74(1), robust strategies, policies, processes and systems for the identification, 
measurement, management and monitoring of environmental, social and governance 
risks over an appropriate set of time horizons. 

2. The strategies, policies, processes and systems referred to in paragraph 1 shall be 
proportionate  to  the  scale,  nature  and  complexity  of  the  environmental,  social  and 
governance risks of the business model and scope of the institution’s activities, and 
consider short, medium and a long-term horizon of at least 10 years. 

3.  Competent  authorities  shall  ensure  that  institutions  test  their  resilience  to  long-
term  negative  impacts  of  environmental,  social  and  governance  factors,  both  under 
baseline  and  adverse  scenarios  within  a  given  timeframe,  starting  with  climate-
related  factors.  For  the  testing,  competent  authorities  shall  ensure  that  institutions 
include  a  number  of  environmental, and  social  and  governance  scenarios  reflecting 
potential impacts of environmental and social changes and associated public policies 
on the long-term business environment. 

4.  Competent  authorities  shall  assess  and  monitor  developments  of  institutions’ 
practices  concerning  their  environmental,  social  and  governance  strategy  and  risk 
management,  including  the  plans  to  be  prepared  in  accordance  with  Article  76,  as 
well as the progress made and the risks to adapt their business models to the relevant 
policy  objectives  of  the  Union  or  broader  transition  trends  towards  a  sustainable 
economy,  taking  into  account  sustainability  related  product  offering,  transition 
finance  policies,  related  loan  origination  policies,  and  environmental,  social  and 
governance related targets and limits. 

5. EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 
1093/2010, to specify: 

(a)  minimum  standards  and  reference  methodologies  for  the  identification, 
measurement,  management  and  monitoring  of  environmental,  social  and 
governance risks; 

(b) 

(c) 

(d) 

the content of plans to be prepared in accordance with Article 76, which shall 
include specific timelines and intermediate quantifiable targets and milestones, 
in  order  to  address  the  risks  from  misalignment  of  the  business  model  and 
strategy  of  institutions  with  the  relevant  policy  objectives  of  the  Union,  or 
broader  transition  trends  towards  a  sustainable  economy  in  relation  to 
environmental, social and governance factors; 

qualitative  and  quantitative  criteria  for  the  assessment  of  the  impact  of 
environmental,  social  and  governance  risks  on  the  financial  stability  of 
institutions in the short, medium and long term; 

criteria  for  setting  the  scenarios  and  methods  referred  to  in  paragraph  3, 
including the parameters and assumptions  to  be used in  each of the scenarios 
and specific risks. 

EBA shall publish those guidelines by [OP please insert the date = 18 months from 
date  of  entry  into  force  of  this  amending  Directive].  EBA  shall  update  those 
guidelines  on  a  regular  basis,  to  reflect  the  progress  made  in  measuring  and 

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managing environmental, social and governance factors as well as the developments 
of policy objectives of the Union on sustainability.’; 

(18) 

Article 88 is amended as follows: 

(a) 

in paragraph 1, point (e) is replaced by the following: 

‘(e) 

the  chairman  of  the  management  body  in  its  supervisory  function  of  an 
institution  may  not  exercise  simultaneously  the  functions  of  a  chief 
executive officer within the same institution.’; 

(b) 

in Article 88, the following paragraph 3 is added: 

‘3. Member States shall ensure that institutions draw up, maintain and update 
individual  statements  setting  out  the  roles  and  duties  of  each  member  of  the 
management  body,  senior  management  and  key  function  holders  and  a 
mapping  of  duties,  including  details  of  the  reporting  lines  and  the  lines  of 
responsibility, and the persons who are part of the governance arrangements as 
referred to in Article 74 (1) and their duties approved by the management body. 

Member  States  shall  ensure  that  the  statements  of  duties  and  the  mapping  of 
the duties are made available and communicated in due time, upon request, to 
the competent authorities. 

EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) 
No 1093/2010, ensuring the implementation of this paragraph and its consistent 
application. EBA shall issue those guidelines by [OP please insert the date = 12 
months from date of entry into force of this amending Directive].’ 

(19) 

Article 91 is replaced by the following: 

‘Article 91 
Suitability criteria for members of the management body of the entities 

1.  Institutions  and  financial  holding  companies  and  mixed  financial  holding 
companies,  as  approved  pursuant  to  Article  21a(1),(“the  entities”),  shall  have  the 
primary responsibility for ensuring that members of the management body are at all 
times  of  good  repute  and  possess  sufficient  knowledge,  skills  and  experience  to 
perform  their  duties  and  fulfil  the  requirements set  out  in  paragraphs  2  to  8  of  this 
Article. 

Competent authorities shall in particular verify whether the criteria and requirements 
set  out  in  the  first  subparagraph  of  this  Article  are  still  fulfilled  where  they  have 
reasonable grounds to suspect that money laundering or terrorist financing within the 
meaning of Article 1 of Directive (EU) 2015/849 is being or has been committed or 
attempted, or there is increased risk thereof in connection with that institution. 

2. Each member of the management body shall commit sufficient time to perform his 
or her functions in the entities. 

3.  Each  member  of  the  management  body  shall  act  with  honesty,  integrity  and 
independence of mind to effectively assess and challenge the decisions of the senior 
management  where  necessary  and  to  effectively  oversee  and  monitor  management 
decision-making.  Being  a  member  of  the  management  body  of  a  credit  institution 
permanently  affiliated to a central  body shall not  in  itself constitute an obstacle for 
acting with independence of mind. 

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4. The management body shall possess collective knowledge, skills and experience to 
be able to adequately understand the institution's activities, as well as the associated 
risks  it  is  exposed  to,  in  the  short,  medium  and  long  term,  taking  into  account  the 
environmental,  social  and  governance  factors.  The  overall  composition  of  the 
management body shall reflect an adequately broad range of experience. 

5. The number of directorships which a member of the management body may hold 
simultaneously shall take into account individual circumstances and the nature, scale 
and  complexity  of  the  institution's  activities.  Unless  where  members  of  the 
management  body  represent  the  interests  of  a  Member  State,  members  of  the 
management  body  of  an  institution  that  is  significant  in  terms  of  its  size,  internal 
organisation and the nature, the scope and the complexity of its activities shall, from 
1 July 2014, not hold more than one of the following combinations of directorships 
simultaneously: 

(a) 

one executive directorship with two non-executive directorships; 

(b) 

four non-executive directorships. 

6. For the purposes of paragraph 5, the following shall count as a single directorship: 

(a) 

executive or non-executive directorships held within the same group. 

(b) 

executive or non-executive directorships held within either of the following: 

(i) 

institutions  which  are  members  of  the  same  institutional  protection 
scheme  provided  that  the  conditions  set  out  in  Article  113(7)  of 
Regulation (EU) No 575/2013 are fulfilled; 

(ii)  undertakings,  including  non-financial  entities,  in  which  the  institution 

holds a qualifying holding. 

For  the  purposes  of  point (a)  of  this  paragraph,  a  group  shall  mean  a  group  of 
undertakings  that  are  related  to  each  other  as  set  out  in  Article  22  of  Directive 
2013/34/EU of the European Parliament and of the Council*13. 

7.  Directorships  in  organisations  which  do  not  pursue  predominantly  commercial 
objectives shall not count for the purposes of paragraph 5. 

8.  Competent  authorities  may  authorise  members  of  the  management  body  to  hold 
one non-executive directorship on top of the directorships referred to in paragraph 5, 
points (a) and (b). 

9. The entities shall devote adequate human and financial resources to the induction 
and training of members of the management body. 

10. Member States or competent authorities shall require entities and their respective 
nomination  committees,  where  established,  to  engage  a  broad  set  of  qualities  and 
competences when recruiting members to the management body and for that purpose 
to put in place a policy promoting diversity in the management body. 

11. Competent authorities shall collect the information disclosed in accordance with 
Article  435(2),  point  (c),  of  Regulation  (EU)  No  575/2013  and  shall  use  that 
information  to  benchmark  diversity  practices.  Competent  authorities  shall  provide 
EBA with  that information. EBA shall use that information  to  benchmark diversity 
practices at Union level. 

12. EBA shall issue guidelines on the following: 

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(a) 

(b) 

(c) 

(d) 

(e) 

the  notion  of  sufficient  time  commitment  of  a  member  of  the  management 
body to perform his or her functions, in relation to the individual circumstances 
and the nature, scale and complexity of activities of the institution; 

the notions of honesty, integrity and independence of mind of a member of the 
management body as referred to in paragraph 3; 

the  notion  of  adequate  collective  knowledge,  skills  and  experience  of  the 
management body as referred to in paragraph 4; 

the notion of adequate human and financial resources devoted to the induction 
and training of members of the management body as referred to in paragraph 9; 

the notion of diversity to be taken into account for the selection of members of 
the management body as referred to in paragraph 10; 

EBA shall issue those guidelines by [OP please insert the date = 12 months from date 
of entry into force of this amending Directive]. 

13. This Article and Articles 91a to 91d shall be without prejudice to provisions of 
the Member States on the representation of employees in the management body.’; 

_______ 
*13  Directive  2013/34/EU  of  the  European  Parliament  and  of  the  Council  of  26 
June 2013 on the annual financial statements, consolidated financial statements and 
related  reports of certain types of undertakings, amending Directive 2006/43/EC  of 
the European Parliament and of the Council (OJ L 182, 29.6.2013) 

(20) 

the following Articles 91a to 91d are inserted: 

‘Article 91a 
Suitability assessment of members of the management body by the entities 

1.  The  entities  as  referred  to  in  Article  91(1)  shall  ensure  that  members  of  the 
management body fulfil the criteria and requirements set out in Article 91(1) to (8) at 
all times. 

2. The entities shall assess the suitability of members of the management body before 
those  members  take  up  their  positions.  Where  the  entities  conclude,  based  on  the 
suitability  assessment,  that  the  member  concerned  does  not  fulfil  the  criteria  and 
requirements  set  out  in  paragraph  1,  the  entities  shall  ensure  that  the  member 
concerned does not take up the position considered. 

However, where it is strictly necessary to replace a member of the management body 
immediately,  the  entities  may  assess  the  suitability  of  such  replacement  members 
after they have taken up their positions. The entities shall be able to duly justify such 
immediate replacement. 

3. The entities shall ensure that information about the suitability of the members of 
the  management  body  remains  up-to-date.  Where  requested,  the  entities  shall 
communicate that information to the competent authorities. 

4.  The  entities  that  renew  the  mandate  of  members  of  the  management  body  shall 
inform  in  writing  the  competent  authorities  within  15  working  days  of  the  date  of 
that renewal of the mandate. 

Article 91b 
Suitability assessment of members of the management body of the entities by competent 
authorities 

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1. Member States shall ensure that competent authorities assess whether members of 
the management body of the entities as referred to in Article 91(1) fulfil the criteria 
and requirements set out in Article 91(1) to (8) at all times. 

2. For the assessment referred to in paragraph 1, the entities shall submit the  initial 
application  of  the  relevant  member  of  the  management  body  to  the  competent 
authorities without undue delay after the internal suitability assessment is completed. 
That  application  shall  be  accompanied  by  all  the  information  and  documentation 
necessary for competent authorities to carry out the suitability assessment effectively. 

3. Competent authorities shall acknowledge in writing the receipt of the application 
and the documentation required in accordance with paragraph 2 within two working 
days. 

Competent  authorities  shall  complete  the  assessment  referred  to  in  paragraph  1 
within  80  working  days  (‘assessment  period’)  as  from  the  date  of  the  written 
acknowledgement referred to in the first subparagraph of this paragraph. 

4.  Competent  authorities  that  request  from  the  entities  additional  information  or 
documentation, including interviews or hearings, may extend the assessment period 
for a maximum of 40 working days. However, the assessment period shall not exceed 
120  working  days.  Request  for  additional  information  or  documentation  shall  be 
made  in  writing  and  shall  be  specific.  The  entities  shall  acknowledge  receipt  of 
request  for  additional  information  or  documentation  within  two  working  days  and 
provide  the  requested  additional  information  or  documentation  within  10  working 
days  as  of  the  date  of  the  written  acknowledgement  of  the  request  from  competent 
authorities. 

5.  As  soon  as  any  new  facts  or  other  issues  that  may  affect  the  suitability  of  the 
member of the management body are known to the entities or the relevant member of 
the  management  body,  the  entities  shall  inform  without  undue  delay  the  relevant 
competent authorities thereof. 

6.  Competent  authorities  shall  not  reassess  the  suitability  of  members  of  the 
management body when their mandate is renewed, unless relevant information that is 
known  to  competent  authorities  has  changed  and  such  change  may  affect  the 
suitability of the member concerned. 

7. Where members of the management body do not fulfil the requirements set out in 
Article  91(1)  to  (8)  at  all  times  or  where  the  entities  do  not  comply  with  the 
obligations  and  deadlines  laid  down  in  paragraphs  2  or  4  of  this  Article,  Member 
States shall ensure that competent authorities have the necessary powers to: 

(a) 

prevent such members to be part of the management body; 

(b) 

remove such members from the management body; 

(c) 

require  the  entities  concerned  to  take  the  measures  necessary  to  ensure  that 
such member is suitable for the position concerned. 

8.  In  accordance  with  paragraphs  1  to  7,  competent  authorities  shall  carry  out  the 
suitability  assessment  before  members  of  the  management  body  take  up  their 
positions in the following entities: 

(a) 

the EU parent institution that qualifies as large institution; 

(b) 

the parent institution in a Member State that qualifies as large institution; 

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(c) 

central  body  that  qualifies  as  large  institution  or  that  supervises  large 
institutions affiliated to it; 

(d) 

stand-alone institution in the EU that qualifies as large institution; 

(e) 

(f) 

relevant subsidiary; 

the  parent  financial  holding  companies  in  a  Member  State,  parent  mixed 
financial  holding  companies  in  a  Member  State,  EU  parent  financial  holding 
companies  and  EU  parent  mixed  financial  holding  companies,  having  large 
institutions or relevant subsidiaries within their group. 

However, where it is strictly necessary to replace a member of the management body 
immediately,  competent  authorities  may  carry  out  the  suitability  assessment  of 
members  of  the  management  body  after  they  take  up  their  positions.  The  entities 
shall be able to duly justify such immediate replacement. 

9.  For  the  purposes  of  paragraph  2,  EBA  shall  develop  draft  regulatory  technical 
standards  specifying  information  or  accompanying  documents  required  to  be 
submitted to the competent authorities for performing the suitability assessment. 

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  12  months  from  the  date  of  entry  into  force  of  this 
amending Directive]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

10.  EBA  shall  develop  draft  implementing  technical  standards  on  standard  forms, 
templates  and  procedures  for  the  provision  of  the  information  referred  to  in 
paragraph 2. 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by [OP  please insert  the date = 12 months  from  the date of entry into force of this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010. 

Article 91c  
Suitability criteria and assessment by the entities of key function holders 

1. The entities as referred to in Article 91(1) shall have the primary responsibility for 
ensuring that key function holders are of good repute, have honesty and integrity and 
possess the knowledge, skills and experience necessary to perform their duties at all 
times. 

2. Where the entities conclude, based on the  assessment referred to in paragraph 1, 
that the person does not  fulfil the requirements set out in  that paragraph, they shall 
not appoint that person as a key function holder. The entities shall take all measures 
necessary to ensure the appropriate functioning of that position. 

3. The entities shall ensure that information about the suitability of the key function 
holders  remains  up-to-date.  Where  requested,  the  entities  shall  communicate  that 
information to competent authorities. 

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Article 91d  
Suitability assessment by competent authorities of the heads of internal control 
functions and chief financial officer 

1. Member States shall ensure that competent authorities assess before the heads of 
internal  control  functions  and  the  chief  financial  officer take  up  their  positions 
whether they fulfil the suitability criteria set out in Article 91c(1), where those heads 
or officer are to be appointed for roles in the following entities: 

(a) 

the EU parent institution that qualifies as large institution; 

(b) 

the parent institution in a Member State that qualifies as large institution; 

(c) 

central  body  that  qualifies  as  large  institution  or  that  supervises  large 
institutions affiliated to it; 

(d) 

stand-alone institution in the EU that qualifies as a large institution; 

(e) 

relevant subsidiary. 

2. For the assessment of the suitability of the heads of internal control functions and 
chief  financial  officer  as  referred  to  in  paragraph  1,  the  entities  referred  to  in  that 
paragraph  shall  submit  the  initial  application  of  the  person  concerned  to  the 
competent authorities without undue delay after the internal suitability assessment is 
completed.  That  application  shall  be  accompanied  by  all  the  information  and 
documentation  necessary  to  competent  authorities  to  carry  out  the  suitability 
assessment effectively. 

3. Competent authorities shall acknowledge in writing the receipt of the application 
and the documentation required in accordance with paragraph 2 within two working 
days. 

Competent  authorities  shall  assess  the  suitability  of  the  heads  of  internal  control 
functions and chief financial officer within 80 working days (‘assessment period’) as 
from the date of the written acknowledgement referred to in the first subparagraph. 

4.  Competent  authorities  that  request  from  the  entities  referred  to  paragraph  1 
additional  information  or  documentation,  including  interviews  or  hearings,  may 
extend  the  assessment  period  for  maximum  40  working  days.  However,  the 
assessment  period  shall  not  exceed  120  working  days.  Request  for  additional 
information  or  documentation  shall  be  made  in  writing  and  shall  be  specific.  The 
entities  referred  to  paragraph  1  shall  acknowledge  receipt  of  request  for  additional 
information  or  documentation  within  two  working  days  and  provide  the  requested 
additional information or documentation within 10 working days as of the date of the 
written acknowledgement of the request from competent authorities. 

5.  As  soon  as  any  new  facts  or  other  issues  that  may  affect  the  suitability  of  the 
member of the management body are known to the entities referred to in paragraph 1 
or  the  relevant  member  of  the  management  body,  the  entities  referred  to  in  that 
paragraph  shall  inform  without  undue  delay  the  relevant  competent  authorities 
thereof. 

6.  Where  the  heads  of  internal  control  functions  and  chief  financial  officer  do  not 
fulfil  the  requirements  set  out  in  Article  91c(1),  or  where  the  entities  referred  to 
paragraph  1  of  this  Article  do  not  comply  with  the  obligations  and  deadlines  in 
paragraphs  2  and  4  of  this  Article,  Member  States  shall  ensure  that  competent 
authorities have the necessary powers to: 

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(a) 

prevent such heads or officer to exercise their functions; 

(b) 

remove such heads or officer; 

(c) 

require the entities referred to paragraph 1 to take the appropriate measures to 
ensure  that  such  heads  or  officer  concerned  are  suitable  for  the  position 
considered. 

7.  For  the  purposes  of  this  Article,  EBA  shall  develop  draft  regulatory  technical 
standards  specifying  information  or  accompanying  documents  required  to  be 
submitted to the competent authorities for performing the suitability assessment. 

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[OP  please  insert  the  date  =  12  months  after  the  date  of  entry  into  force  of  this 
amending Directive]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

8.  EBA  shall  develop  draft  implementing  technical  standards  on  standard  forms, 
templates  and  procedures  for  the  provision  of  the  information  referred  to  in 
paragraph 2. 

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by  [OP  please  insert  the  date  =  12  months  from  date  of  entry  into  force  of  this 
amending Directive]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010. 

9. EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 
1093/2010,  facilitating  the  implementation  and  consistent  application  of  procedural 
requirements laid down in Articles 91a to 91d of this Directive and the application of 
powers  and  actions  to  be  taken  by  the  competent  authorities  referred  to  in  Article 
91b(7) and 91d(6) of this Directive. EBA shall issue those guidelines by [OP-please 
insert the date = 12 months from date of entry into force of this Directive].’; 

(22) 

Article 92 is amended as follows: 

(a) 

in paragraph 2, points (e) and (f) are replaced by the following: 

‘(e)  staff  engaged  in  internal  control  functions  are  independent  from  the 
business  units  they  oversee,  have  appropriate  authority,  and  are 
remunerated in accordance with the achievement of the objectives linked 
to  their functions, independent  of the performance of the business  areas 
they control; 

(f) 

the  remuneration  of  the  senior  staff  in  the  internal  control  functions  is 
directly overseen by the remuneration committee referred to in Article 95 
or,  if  such  a  committee  has  not  been  established,  by  the  management 
body in its supervisory function;’; 

(b) 

in paragraph 3, point (b) is replaced by the following: 

‘(b)  staff  members  with  managerial  responsibility  over  the  institution's 

internal control functions or material business units;’; 

(23) 

Article 94 is amended as follows: 

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(a) 

in paragraph 1, point (g)(ii), the fifth indent is replaced by the following: 

‘- 

the institution shall, without delay, inform the competent authority of the 
decisions taken by its shareholders or owners or members, including any 
approved higher maximum ratio pursuant to the first subparagraph of this 
point, and the competent authorities shall use the information received to 
benchmark  the  practices  of  institutions  in  that  regard.  The  competent 
authorities  shall  provide  EBA  with  the  benchmarks  and  EBA  shall 
publish  them  on  an  aggregate  home  Member  State  basis  in  a  common 
reporting  format.  EBA  may  elaborate  guidelines  to  facilitate  the 
implementation  of  this  indent  and  to  ensure  the  consistency  of  the 
information collected;’; 

(b) 

in paragraph 2, third subparagraph, point (a) is replaced by the following: 

‘(a)  managerial responsibility and internal control functions;’; 

(c) 

in paragraph 3, point (a) is replaced by the following: 

‘(a)  an institution that is not a large institution and the value of the assets of 
which  is  on  average  and  on  an  individual  basis  in  accordance  with  this 
Directive and Regulation (EU) No 575/2013 equal to or less than EUR 5 
billion  over  the  four-year  period  immediately  preceding  the  current 
financial year;’; 

(24) 

in Article 98, the following paragraph 9 is added: 

‘9. The review and evaluation performed by competent authorities shall include the 
assessment  of  institutions’  governance  and  risk  management  processes  for  dealing 
with  environmental,  social  and  governance  risks,  as  well  as  of  the  institutions’ 
exposures  to  environmental,  social  and  governance  risks.  In  determining  the 
adequacy  of  institutions’  processes  and  exposures,  competent  authorities  shall  take 
into account the business models of those institutions.’; 

(25) 

in Article 100 the following paragraphs 3 and 4 are added: 

‘3.  Institutions  and  any  third  parties  acting  in  a  consulting  capacity  to  institutions 
shall  refrain  from  activities  that  can  impair  a  stress  test,  such  as  benchmarking, 
exchange  of  information  among  themselves,  agreements  on  common  behaviour,  or 
optimisation of their submissions in stress tests. Without prejudice to other relevant 
provisions  laid  down  in  this  Directive  and  in  Regulation  (EU)  No  575/2013, 
competent authorities shall have all information gathering and investigatory powers 
that are necessary to detect those actions. 

4. EBA, EIOPA and ESMA shall, through the Joint Committee referred to in Article 
54 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010, 
develop guidelines to ensure that consistency, long-term considerations and common 
standards  for  assessment  methodologies  are  integrated  into  the  stress  testing  of 
environmental,  social  and  governance  risks. Stress  testing  of  environmental,  social 
and  governance  risks  by  competent  authorities  should  start  with  climate-related 
factors.  EBA,  EIOPA  and  ESMA  shall,  through  the  Joint  Committee  referred  to  in 
Article  54  of  Regulations  (EU)  No  1093/2010,  (EU)  No  1094/2010  and  (EU)  No 
1095/2010,  explore  how  social  and  governance  related  risks  can  be  integrated  into 
stress testing.’; 

(26) 

Article 104 is amended as follows: 

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(a) 

paragraph 1 is amended as follows: 

(i) 

the introductory sentence is replaced by the following: 

‘For  the  purposes  of  Article  97,  Article  98(4)  and  (5)  and  (9),  Article 
101(4)  and  Article  102  of  this  Directive  and  of  the  application  of 
Regulation  (EU) No 575/2013,  competent authorities shall have at  least 
the power to:’ 

(ii) 

the following point (m) is added: 

‘(m)  require institutions to reduce the risks arising from the institutions’ 
misalignment  with  relevant  policy  objectives  of  the  Union  and 
broader  transition  trends  relating  to  environmental,  social  and 
governance  factors  over  the  short,  medium  and  long  term, 
including through adjustments to their business models, governance 
strategies and risk management.’; 

(b) 

the following paragraph 3 is added: 

‘3.  EBA  shall  issue  guidelines,  in  accordance  with  Article  16  of  Regulation 
(EU) No 1093/2010, to specify how competent authorities may identify that the 
credit  valuation  adjustment  (CVA)  risks  of  institutions,  referred  to  in  Article 
381 of Regulation (EU) No 575/2013, pose excessive risks to the soundness of 
those institutions.’; 

(27) 

Article 104a is amended as follows: 

(a) 

in paragraph 3, the second subparagraph is replaced by the following: 

‘Where  additional  own  funds  are  required  to  address  the  risk  of  excessive 
leverage  not  sufficiently  covered  by  Article  92(1),  point  (d),  of  Regulation 
(EU)  No  575/2013,  competent  authorities  shall  determine  the  level  of  the 
additional  own  funds  required  under  paragraph  1,  point  (a),  of  this  Article  as 
the difference between the capital considered adequate pursuant to paragraph 2 
of this Article, except for the fifth subparagraph thereof, and the relevant own 
funds  requirements  set  out  in  Parts  Three  and  Seven  of  Regulation  (EU)  No 
575/2013.’; 

(b) 

the following paragraphs 6 and 7 are added: 

‘6. Where an institution becomes bound by the output floor, the following shall 
apply: 

(a) 

(b) 

the nominal amount of additional own funds required by the institution’s 
competent  authority  in  accordance  with  Article  104(1),  point  (a),  to 
address risks other than the risk of excessive leverage shall not increase 
as a result of the institutions’ becoming bound by the output floor; 

the  institution’s  competent  authority  shall,  without  undue  delay,  and  no 
later  than  by  the  end  date  of  the  next  review  and  evaluation  process, 
review  the  additional  own  funds  it  required  from  the  institution  in 
accordance with  Article  104(1), point  (a), and  remove any parts thereof 
that  would  double-count  the  risks  that  are  already  fully  covered  by  the 
fact that the institution is bound by the output floor. 

For the purposes of this Article and Articles 131 and 133 of this Directive, an 
institution  shall  be  considered  as  bound  by  the  output  floor  when  the 

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institution’s  total  risk  exposure  amount  calculated  in  accordance  with  Article 
92(3), point (a), of Regulation (EU) No 575/2013 exceeds its un-floored total 
risk  exposure  amount  calculated  in  accordance  with  Article  92(4)  of  that 
Regulation. 

7.  For  the  purposes  of  paragraph  2,  as  long  as  an  institution  is  bound  by  the 
output  floor,  the  institution’s  competent  authority  shall  not  impose  an 
additional  own  funds  requirement  that  would  double-count  the  risks  that  are 
already  fully  covered  by  the  fact  that  the  institution  is  bound  by  the  output 
floor.’; 

(28) 

in Article 106, paragraph 1 is replaced by the following: 

‘1. Member States shall empower the competent authorities to require institutions: 

(a) 

to  publish  information  referred  to  in  Part  Eight  of  Regulation  (EU)  No 
575/2013 more than once per year, and to set deadlines for the submission of 
disclosure information by large and other institutions to EBA for its publication 
on a centralised EBA website; 

(b) 

to use specific media and locations for publications other than the EBA website 
for centralised disclosures or the financial statements of institutions.’; 

(29) 

Article 121 is replaced by the following: 

‘Without  prejudice to  provisions applicable to financial holding  company  or mixed 
financial  holding  approved  in  accordance  with  Article  21a(1),  Member  States  shall 
require that the members of the management body of a financial holding company or 
mixed  financial  holding,  be  of  sufficiently  good  repute  and  possess  sufficient 
knowledge,  skills  and  experience  as  referred  to  in  Article  91(1)  to  perform  those 
duties, taking into account the specific role of a financial holding company or mixed 
financial holding company’. 

(30) 

In Title VII, Chapter 3, the following Section 0 is inserted: 

‘SECTION 0 

APPLICATION OF THIS CHAPTER TO INVESTMENT FIRM GROUPS 

Article 110a 

Scope of application to investment firm groups 

This Chapter applies to investment firm groups, as defined in Article 4(1), point (25) 
of  Regulation  (EU)  2019/2033  of  the  European  Parliament  and  of  the  Council*, 
where  at  least  one  investment  firm  in  that  group  is  subject  to  Regulation  (EU)  No 
575/2013 pursuant to Article 1(2) of Regulation (EU) 2019/2033*14. 

This Chapter does not apply to investment firm groups where no investment firm in 
that  group  is  subject  to  Regulation  (EU)  No  575/2013  pursuant  to  Article  1(2)  of 
Regulation (EU) 2019/2033.’; 

______ 
*14  Regulation (EU) 2019/2033 of the European Parliament and of the Council of 
27 November 2019 on the prudential requirements of investment firms and amending 

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Regulations  (EU)  No  1093/2010,  (EU)  No  575/2013,  (EU)  No  600/2014  and  (EU) 
No 806/2014 (OJ L 314, 5.12.2019, p. 1).’; 

(31) 

Article 131 is amended as follows: 

(a) 

in paragraph 5, the following subparagraph is added: 

‘Where  an  O-SII  becomes  bound  by  the  output  floor,  its  competent  or 
designated  authority,  as  applicable,  shall  review  the  institutions  O-SII  buffer 
requirement to make sure that its calibration remains appropriate.’; 

(b) 

in paragraph 5a, the second sub-paragraph is replaced by the following: 

‘Within  six  weeks  of  receipt  of  the  notification  referred  to  in  paragraph  7  of 
this  Article,  the  ESRB  shall  provide  the  Commission  with  an  opinion  as  to 
whether  the  O-SII  buffer  is  deemed  appropriate.  EBA  may  also  provide  the 
Commission with its opinion on the buffer in accordance with Article 16a(1) of 
Regulation (EU) No 1093/2010.’; 

(c) 

in paragraph 15, the first subparagraph is replaced by the following: 

‘Where the sum of the systemic risk buffer rate as calculated for the purposes 
of paragraph 10, 11 or 12 of Article 133 and the O-SII buffer rate or the G-SII 
buffer rate to which the same institution is subject to would be higher than 5 %, 
the  procedure  set  out  in  paragraph  5a  of  this  Article  shall  apply.  For  the 
purposes of this paragraph, where the decision to set a systemic risk buffer, O-
SII  buffer or G-SII  buffer results in  a decrease  or no change from  any  of the 
previously set rates, the procedure set out in paragraph 5a of this Article shall 
not apply.’; 

(32) 

Article 133 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

‘1.  Each  Member  State  shall  ensure  that  it  is  possible  to  set  a  systemic  risk 
buffer of Common Equity Tier 1 capital for the financial sector or one or more 
subsets of that sector on all or a subset of exposures as referred to in paragraph 
5 of this Article, in order to prevent and mitigate macroprudential or systemic 
risks  not  covered  by  Regulation  (EU)  No  575/2013  and  by  Articles  130  and 
131  of  this  Directive,  in  the  meaning  of  a  risk  of  disruption  in  the  financial 
system  with  the  potential  to  have  serious  negative  consequences  to  the 
financial system and the real economy in a specific Member State.’; 

(b) 

the following paragraph 2a is inserted: 

‘2a.  Where  an  institution  is  bound  by  the  output  floor,  both  of  the  following 
shall apply: 

(a) 

the amount of CET1 capital it is required to have in accordance with the 
first subparagraph shall be capped by the following amount: 

𝑟𝑇 ∙ 𝐸𝑇

∗
∗ + ∑ 𝑟𝑖 ∙ 𝐸𝑖
𝑖

where: 

ET  =  the  un-floored  total  risk  exposure  amount  of  the  institution 
calculated  in  accordance  with  Article  92(4)  of  Regulation  (EU)  No 
575/2013’; 

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Ei = the un-floored risk exposure amount of the institution for the subset 
of exposures i calculated in accordance with Article 92(4) of Regulation 
(EU) No 575/2013; 

rT, ri = rT and ri as defined in the first subparagraph. 

(b) 

the competent or designated authority, as applicable, shall review without 
undue  delay  the  calibration  of  the  systemic  risk  buffer  rate  or  rates,  as 
applicable, to ensure they remain appropriate and do not double-count the 
risks that are already covered by the fact that the institution is bound by 
the output floor. 

The  calculation  in  point  (a)  shall  apply  until  the  designated  authority  has 
completed the revision set out in point (b) and has published a new decision on 
the calibration of the systemic risk buffer rate or rates in accordance with the 
procedure set out in this Article. As of that moment, the cap in point (a) shall 
no longer apply.’; 

(c) 

in paragraph 8, point (c) is replaced by the following: 

‘(c) 

the systemic risk buffer is not to be used to address any of the following: 

(i) 

risks that are covered by Articles 130 and 131; 

(ii) 

risks  that  are  fully  covered  by  the  calculation  set  out  in  Article 
92(3) of Regulation (EU) No 575/2013.’; 

(d) 

in paragraph 9, the following point (g) is added: 

‘(g)  how  the  calculation  set  out  in  Article  92(3)  of  Regulation  (EU)  No 
575/2013 affects the calibration of the systemic risk buffer rate or rates, 
as applicable, that the competent authority or the designated authority, as 
applicable, intends to impose.’; 

(e) 

paragraphs 11 and 12 are replaced by the following: 

‘11. Where the setting or resetting of a systemic risk buffer rate or rates on any 
set  or  subset  of  exposures  referred  to  in  paragraph  5  subject  to  one  or  more 
systemic risk buffers results in a combined systemic risk buffer rate at a level 
higher  than  3  %  and  up  to  5  %  for  any  of  those  exposures,  the  competent 
authority or the designated authority of the Member State that sets that buffer 
shall request  in  the notification submitted in  accordance with  paragraph  9 the 
opinions of the Commission and the ESRB. 

Within  a  month  of  receipt  of  the  notification  referred  to  in  paragraph  9,  the 
ESRB  shall  provide  the  Commission  with  an  opinion  as  to  whether  the 
systemic risk buffer rate or rates is deemed appropriate. Within two months of 
receipt of the notification, the Commission, taking into account the assessment 
of  the  ESRB,  shall  provide  its  opinion  as  to  whether  it  considers  that  the 
systemic risk buffer rate or rates do not entail disproportionate adverse effects 
on the whole or parts of the financial system of other Member States or of the 
Union as a whole forming or creating an obstacle to the proper functioning of 
the internal market. 

Where the opinion of the Commission is negative, the competent authority or 
the  designated  authority,  as  applicable,  of  the  Member  State  that  sets  that 
systemic  risk  buffer  shall  comply  with  that  opinion  or  give  reasons  for  not 
doing so. 

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Where one or more institutions to which one or more systemic risk buffer rates 
apply  is  a  subsidiary  the  parent  of  which  is  established  in  another  Member 
State,  the  ESRB  and  the  Commission  shall  also  consider  in  their  opinions 
whether  applying  the  systemic  risk  buffer  rate  or  rates  to  those  institutions  is 
deemed appropriate. 

Where  the  authorities  of  the  subsidiary  and  of  the  parent  disagree  on  the 
systemic risk buffer rate or rates applicable to that institution and in the case of 
a  negative  opinion  of  both  the  Commission  and  the  ESRB,  the  competent 
authority  or  the  designated  authority,  as  applicable,  may  refer  the  matter  to 
EBA  and  request  its  assistance  in  accordance  with  Article  19  of  Regulation 
(EU) No 1093/2010.  The decision to  set  the systemic risk buffer rate or  rates 
for those exposures shall be suspended until EBA has taken a decision. 

For  the  purposes  of  this  paragraph,  the  recognition  of  a  systemic  risk  buffer 
rate  set  by  another  Member  State  in  accordance  with  Article  134  shall  not 
count  towards  the  thresholds  referred  to  in  the  first  subparagraph  of  this 
paragraph. 

12. Where the setting or resetting of a systemic risk buffer rate or rates on any 
set  or  subset  of  exposures  referred  to  in  paragraph  5  subject  to  one  or  more 
systemic risk buffers results in a combined systemic risk buffer rate higher than 
5  %  for  any  of  those  exposures,  the  competent  authority  or  the  designated 
authority, as applicable, shall seek the authorisation of the Commission before 
implementing a systemic risk buffer. 

Within six weeks of receipt of the notification referred to in paragraph 9 of this 
Article, the ESRB shall provide the Commission with an opinion as to whether 
the  systemic  risk  buffer  is  deemed  appropriate.  EBA  may  also  provide  the 
Commission  with  its  opinion  on  that  systemic  risk  buffer  in  accordance  with 
Article 16a(1) of Regulation (EU) No 1093/2010, within six weeks of receipt 
of the notification. 

Within three months of receipt of the notification referred to in paragraph 9, the 
Commission, taking into account the assessment of the ESRB and EBA, where 
relevant, and where it is satisfied that the systemic risk buffer rate or rates do 
not entail disproportionate adverse effects on the whole or parts of the financial 
system of other Member States or of the Union as a whole forming or creating 
an obstacle to the proper functioning of the internal market, shall adopt an act 
authorising the competent authority or the designated authority, as applicable, 
to adopt the proposed measure. 

For  the  purposes  of  this  paragraph,  the  recognition  of  a  systemic  risk  buffer 
rate  set  by  another  Member  State  in  accordance  with  Article  134  shall  not 
count  towards  the  threshold  referred  to  in  the  first  subparagraph  of  this 
paragraph.’; 

(33) 

Article 142 is amended as follows: 

(a) 

in paragraph 2, point (c) is replaced by the following: 

‘(c)  a plan and timeframe for the increase of own funds with the objective of 
meeting fully the combined buffer requirement or, where applicable, the 
leverage ratio buffer requirement;’; 

(b)  paragraph 3 is replaced by the following: 

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‘3. The competent authority shall assess the capital conservation plan, and shall 
approve  the  plan  only  if  it  considers  that  the  plan,  if  implemented,  would  be 
reasonably likely to conserve or raise sufficient capital to enable the institution 
to meet its combined buffer requirement or, where applicable, its leverage ratio 
buffer  requirement  within  a  period  which  the  competent  authority  considers 
appropriate.’; 

(c) 

in paragraph 4, point (b) is replaced by the following: 

‘(b)  exercise  its  powers  under  Article  102  to  impose  more  stringent 
restrictions on distributions than those required by Articles 141 and 141b, 
as applicable.’; 

(34) 

in Article 161, paragraph 3 is deleted. 

Article 2 

Amendments to Directive 2014/59/EU 

Directive 2014/59/EU*15 is amended as follows: 

(1) 

in Article 27, the following paragraphs 6, 7 and 8 are added: 

‘6.  When  new  members  of  the  management  body  or  senior  management  are 
appointed  under  this  Article  and  Article  28  of  this  Directive,  Member  States  shall 
ensure  that  competent  authorities  carry  out  the  assessment  of  the  members  of  the 
management body as required by Article 91b(1) of Directive 2013/36/EU and of the 
key  function holders  as required by Article 91d(1) of that Directive only after they 
take up their position. 

Article  91a(2)  and  Article  91c(2)  of  Directive  2013/36/EU  shall  not  apply  to  the 
appointment  of  new  members  of  the  management  body  or  senior  management 
referred to in the first subparagraph. 

7. Competent authorities shall ensure that they perform the assessments referred to in 
paragraph 6 without undue delay. They shall complete the assessments at the latest 
20 working days from the date they receive the notification of appointment. 

8.  Competent  authorities  shall  inform  the  resolution  authority  without  undue  delay 
about the outcome of the assessments referred to in paragraph 6.’; 

(2) 

in Article 34, the following paragraphs 7, 8 and 9 are added: 

‘7.  When  new  members  of  the  management  body  or  senior  management  are 
appointed  under  this  Article  and  Article  63  of  this  Directive,  Member  States  shall 
ensure  that  competent  authorities  carry  out  the  assessment  of  the  members  of  the 
management body as required by Article 91b(1) of Directive 2013/36/EU and of the 
key  function holders  as required by Article 91d(1) of that Directive only after they 
take up their position. 

Article  91a(2)  and  Article  91c(2)  of  Directive  2013/36/EU  shall  not  apply  to  the 
appointment  of  new  members  of  the  management  body  or  senior  management 
referred to in the first subparagraph. 

The  first  and  second  subparagraphs  shall  also  apply  to  the  assessment  of  the 
members of the management body of the bridge institution appointed under Article 
41 immediately after taking resolution action. 

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8. Competent authorities shall ensure that they perform the assessments referred to in 
paragraph 7 without undue delay. They shall complete the assessments at the latest 
20 working days from the date they receive the notification of appointment. 

9.  Competent  authorities  shall  inform  the  resolution  authority  without  undue  delay 
about the outcome of the assessments referred to in paragraph 7.’; 

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

Article 3 

Transposition 

1. 

Member  States  shall  adopt  and  publish  by  [OP  please  insert  the  date  =  18  months 
from the date of entry into force of this amending Directive] at the latest, the laws, 
regulations  and  administrative  provisions  necessary  to  comply  with  this  Directive. 
They shall forthwith communicate to the Commission the text of those provisions. 

They shall apply those provisions from [OP please insert the date =  1 day after the 
transposition date of this amending Directive]. 

However, the provisions necessary to comply with the amendments set out in Article 
1, point (8), on the prudential supervision of third country branches shall apply from 
[OP  please  insert  the  date  =  12  months  from  date  of  application  of  this  amending 
Directive].  

By  derogation  from  the  preceding  subparagraph,  Member  States  shall  apply  the 
provisions on reporting on third country branches in Title VI, Chapter 1, Section II, 
Sub-section 4 of Directive 2013/36/EU, as inserted by this Directive, from the date of 
application laid down in the second subparagraph of this Article.  

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 4 

Entry into force 

This  Directive  shall  enter  into  force  on  the  twentieth  day  following  that  of  its 
publication in the Official Journal of the European Union. 

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Article 5 

Addressees 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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