6.4.2022
EN
Official Journal of the European Union
C 152/113
2.7.
In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups (‘internal MREL’).
According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity, i.e. typically the parent undertaking.
2.8.
Since early 2020, the European Banking Authority (EBA) has been working on a draft Regulatory Technical Standard (RTS) on the basis of a deduction regime, in line with the mandate set out in the BRRD and the recommendations in the relevant international standards (1).
The deduction regime developed by the EBA envisages that internal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own internal MREL capacity.
2.9.
The EBA concluded that the BRRD requirements could not be fulfilled without additional provisions that needed to rely on the Level 1 text to specify.
Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution-related issues have been identified since the revised TLAC/MREL framework became applicable in 2019.
Those issues mainly relate to the regulatory treatment of G-SII groups with an MPE resolution strategy, including those MPE groups that have subsidiaries in third countries.
For instance, the CRR currently does not specify whether the various adjustments to TLAC for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country.
2.10.
Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues.
In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard.
This would help to ensure that, in case of resolution, each resolution entity and group belonging to those GSIIs can continue to perform critical functions without the risk of contagion.
2.11.
The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL.
2.12.
These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability.
Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner.
The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024, with binding intermediate targets needing to be complied with by 1 January 2022.
2.13.
This proposal is not accompanied by a separate impact assessment, as this proposal does not alter the fundamental aspects of the CRR but mainly aims at clarifying the legal relationship between two existing EU law instruments, namely the CRR and the BRRD, by incorporating directly into the CRR a dedicated treatment for the indirect subscription of instruments eligible for internal MREL.
Such clarifications would ensure that the two highly interlinked frameworks remain largely aligned.
2.14.
This, in turn, would enable institutions to continue to calculate, report and disclose one set of total risk exposure amount and total exposure measure for the purpose of both the CRR and the BRRD, thereby avoiding an undue increase in complexity.
This includes the possible need to issue additional MREL eligible instruments to comply with internal MREL, as introduced by the co-legislators through the revised BRRD.
3.
Specific comments 3.1.
The resolution strategies that are being developed by Crisis Management Groups (CMGs) are broadly based on two stylised approaches: ‘single point of entry resolution’ (SPE), in which resolution powers are applied to the top of a group by
(1)
Financial Stability Board, Guiding Principles on the Internal Total Loss-absorbing Capacity of G-SIBs (‘Internal TLAC’), 6.7.2017.
Under that regime, instruments eligible for internal MREL issued by the subsidiary and subscribed by the intermediate parent would be fully deducted from the eligible instruments issued by the intermediate parent to comply with its own internal MREL.