Source: http://www.eba.europa.eu/regulation-and-policy/own-funds/draft-regulatory-technical-standards-on-own-funds;jsessionid=B3114DA3701791894ACEC65C6A803A99
Timestamp: 2018-04-20 16:38:22
Document Index: 424466379

Matched Legal Cases: ['art 4', 'art 4', 'art 1', 'art 2', 'art 1', 'art 2', 'art 3', 'art 4']

Draft Regulatory Technical Standards on Own Funds - European Banking Authority
*The RTS on Own Funds (Part 4) were submitted to the European Commission on 27 March 2014.
EBA final draft technical standards on own funds
RTS on Own Funds (part 4) [PDF, 545KB]
The European Banking Authority (EBA) published its final draft Regulatory Technical Standards (RTS) and final draft Implementing Technical Standards (ITS) on own funds. These final draft RTS and ITS will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector in Europe and namely at strengthening the quality of capital.
These draft final RTS and ITS cover different areas of own funds. In particular, the RTS on own funds part I specify the different elements of own funds, including: Common Equity Tier 1 (CET1) capital, Additional Tier 1 capital, Tier 2 capital, deductions from the different types of capital, and transitional provisions for own funds in terms of grandfathering. The RTS on Gain on Sale specify further the concept and the treatment of a gain on sale, defined as any increase (or part of an increase) in equity under the applicable accounting framework arising from future margin income in the context of a securitisation transaction. The RTS on own funds part II specify the conditions under which competent authorities may determine that a type of undertaking recognised under applicable national law qualifies as a mutual, cooperative society, savings institution or similar institution for the purpose of calculating own funds. The draft RTS on own funds part III set out criteria to deduct indirect and synthetic holdings, to define broad market indices and to calculate minority interest. The ITS on disclosure for own funds focus on disclosure requirements and aim at increasing transparency on regulatory capital held by European institutions. Finally, the RTS on own funds part IV settle harmonised criteria for instruments with multiple distributions that would create a disproportionate drag on capital, as well as clarifying the meaning of preferential distributions.
The final standards have been sent to the European Commission for their adoption as EU Regulations that will be directly applicable throughout the EU.
In this particular area of own funds, the EBA's mandate is twofold: one is related to multiple distributions and the other one to preferential distributions, which have been considered separately for joint-stock companies and non-joint stock companies. The provisions of these final draft RTS detail, in particular, whether and when multiple distributions would create a disproportionate drag on capital and clarify the meaning of preferential distributions – namely preferential rights to payments of distributions and order of payments of distribution. Furthermore, these RTS deal with the consequences of not meeting the criteria provided for in the regulation in terms of (dis)qualification of instruments as CET1 capital.
Instruments with multiple distributions
Capital instruments may include provisions that give rise to distributions that are a multiple of the distributions paid on voting Common Equity Tier 1 (CET1) instruments (multiple distributions). However, only a subset of those instruments would be considered not to create a disproportionate drag on capital, and could therefore be included in CET1.
The draft final RTS aim at specifying harmonised criteria which are to be met by those instruments that are to be included in CET1, so as to ensure that the future loss absorbency of CET1 instruments is in no way compromised by disproportionate distributions that would create a drag on capital. In this respect, quantitative limits are set. These limits are expressed (i) in terms of the amount of distribution on one non-voting instrument with a multiple dividend compared with the amount of distribution on one voting instrument and (ii) in terms of the total amount of distribution paid on CET1 instruments. These criteria are restricted to joint stock companies.
Instruments with preferential distributions
Preferential distributions exist when holders of CET1 instruments have an advantage compared with other holders of CET1 instruments of the same institution, particularly regarding the timing and order of distribution payments. In addition, also those instruments where the distributions exceed the limits set with respect to multiple distributions are considered as preferential. In clarifying the definition of preferential distributions, these RTS aim at ensuring equal treatment among CET1 holders.
For joint stock companies, the approach is the same as for multiple distributions. For non-joint stock companies, and in order to take into account the specific features of this type of institutions, the approach is based on a set of criteria not strictly based on hard quantitative limits but on a combination of different factors related to the general features of instruments issued by non-joint stock companies. These criteria reflect, in particular, the nature of the holders of the non-voting instruments, the existence of a legal cap on the voting instruments, the voting rights and the average level of distributions.
The proposed draft RTS have been developed on the basis of Regulation 575/2013 of the European Parliament and of the Council of 26 June 2013 (CRR) on prudential requirements for credit institutions and investment firms.
These draft final RTS and ITS cover different areas of own funds. In particular, the RTS on own funds part I specify the different elements of own funds, including: Common Equity Tier 1 (CET1) capital, Additional Tier 1 capital, Tier 2 capital, deductions from the different types of capital, and transitional provisions for own funds in terms of grandfathering. The RTS on Gain on Sale specify further the concept and the treatment of a gain on sale, defined as any increase (or part of an increase) in equity under the applicable accounting framework arising from future margin income in the context of a securitisation transaction. The RTS on own funds part II specify the conditions under which competent authorities may determine that a type of undertaking recognised under applicable national law qualifies as a mutual, cooperative society, savings institution or similar institution for the purpose of calculating own funds. The draft RTS on own funds part III set out criteria to deduct indirect and synthetic holdings, to define broad market indices and to calculate minority interest. Finally, the ITS on disclosure for own funds focus on disclosure requirements and aim at increasing transparency on regulatory capital held by European institutions.
Own Funds part I and II
Own Funds part III
Own Funds part IV
Final draft RTS on Own Funds (Part 1) [PDF, 1004.5KB]
Final draft RTS on Own Funds (Part 2) [PDF, 635.8KB]
Final draft RTS on Gain on Sale [PDF, 344KB]
Merged version of the RTS on Own Funds Part 1, Part 2 and Gain on Sale submitted to the European Commission [PDF, 220.2KB]
Final draft RTS on Own Funds (Part 3) [PDF, 945KB]
Final draft RTS on Own Funds (Part 4) [PDF, 545 KB]