Article 28 Monitoring by the Board
1. The Board shall closely monitor the execution of the resolution scheme by the national resolution authorities. For that purpose, the national resolution authorities shall: (a) cooperate with and assist the Board in the performance of its monitoring duty; (b) provide, at regular intervals established by the Board, accurate, reliable and complete information on the execution of the resolution scheme, the application of the resolution tools and the exercise of the resolution powers, that might be requested by the Board, including on the following: (i) the operation and financial situation of the institution under resolution, the bridge institution and the asset management vehicle; (ii) the treatment that shareholders and creditors would have received in the liquidation of the institution under normal insolvency proceedings; (iii) any ongoing court proceedings relating to the liquidation of the assets of the institution under resolution, to challenges to the resolution decision and to the valuation or relating to applications for compensation filed by the shareholders or creditors; (iv) the appointment, removal or replacement of evaluators, administrators, accountants, lawyers and other professionals that may be necessary to assist the national resolution authority, and on the performance of their duties; (v) any other matter that is relevant for the execution of the resolution scheme including any potential infringement of the safeguards provided for in Directive 2014/59/EU that may be referred to by the Board; (vi) the extent to which, and manner in which, the powers of the national resolution authorities referred to in Articles 63 to 72 of Directive 2014/59/EU are exercised by them; (vii) the economic viability, feasibility, and implementation of the business reorganisation plan provided for in Article 27(16). The national resolution authorities shall submit to the Board a final report on the execution of the resolution scheme. 2. On the basis of the information provided, the Board may give instructions to the national resolution authorities as to any aspect of the execution of the resolution scheme, and in particular the elements referred to in Article 23 and to the exercise of the resolution powers. 3. Where necessary in order to achieve the resolution objectives, the resolution scheme may be amended. The procedure laid down in Article 18 shall apply.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 28 Monitoring by the Board):
The national resolution authorities shall submit to the Board a final report on the execution of the resolution scheme. 2. On the basis of the information provided, the Board may give instructions to the national resolution authorities as to any aspect of the execution of the resolution scheme, and in particular the elements referred to in Article 23 and to the exercise of the resolution powers. 3. Where necessary in order to achieve the resolution objectives, the resolution scheme may be amended. The procedure laid down in Article 18 shall apply.
Article 29 Implementation of decisions under this Regulation
1. National resolution authorities shall take the necessary action to implement decisions referred to in this Regulation, in particular by exercising control over the entities and groups referred to in Article 7(2), and the entities and groups referred to in Article 7(4)(b) and (5) where the conditions for the application of those paragraphs are met, by taking the necessary measures in accordance with Article 35 or 72 of Directive 2014/59/EU and by ensuring that the safeguards provided for in that Directive are complied with. National resolution authorities shall implement all decisions addressed to them by the Board. For those purposes, subject to this Regulation, they shall exercise their powers under national law transposing Directive 2014/59/EU and in accordance with the conditions laid down in national law. National resolution authorities shall fully inform the Board of the exercise of those powers. Any action they take shall comply with the Board's decisions pursuant to this Regulation. When implementing those decisions, the national resolution authorities shall ensure that the applicable safeguards provided for in Directive 2014/59/EU are complied with. 2. Where a national resolution authority has not applied or has not complied with a decision by the Board pursuant to this Regulation or has applied it in a way which poses a threat to any of the resolution objectives under Article 14 or to the efficient implementation of the resolution scheme, the Board may order an institution under resolution: (a) in the event of action pursuant to Article 18, to transfer to another person specified rights, assets or liabilities of an institution under resolution; (b) in the event of action pursuant to Article 18, to require the conversion of any debt instruments which contain a contractual term for conversion in the circumstances provided for in Article 21; (c) to adopt any other necessary action to comply with the decision in question. The Board shall adopt a decision referred to in point (c) of the first subparagraph only if the measure significantly addresses the threat to the relevant resolution objective or to the efficient implementation of the resolution scheme. Before deciding to impose any measure the Board shall notify the national resolution authorities concerned and the Commission of the measure it intends to take. That notification shall include details of the envisaged measures, the reasons for those measures and details of when the measures are intended to take effect. The notification shall be made not less than 24 hours before the measures are to take effect. In exceptional circumstances where it is not possible to give 24 hours' notice, the Board may make the notification less than 24 hours before the measures are intended to take effect. 3. The institution under resolution shall comply with any decision taken referred to in paragraph 2. Those decisions shall prevail over any previous decision adopted by the national resolution authorities on the same matter. 4. When taking action in relation to issues which are subject to a decision taken pursuant to paragraph 2, national resolution authorities shall comply with that decision. 5. The Board shall publish on its official website either a copy of the resolution scheme or a notice summarising the effects of the resolution action, and in particular the effects on retail customers. The national resolution authorities shall comply with the applicable procedural obligations provided for in Article 83 of Directive 2014/59/EU.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 29 Implementation of decisions under this Regulation):
For those purposes, subject to this Regulation, they shall exercise their powers under national law transposing Directive 2014/59/EU and in accordance with the conditions laid down in national law. National resolution authorities shall fully inform the Board of the exercise of those powers. Any action they take shall comply with the Board's decisions pursuant to this Regulation. When implementing those decisions, the national resolution authorities shall ensure that the applicable safeguards provided for in Directive 2014/59/EU are complied with. 2. Where a national resolution authority has not applied or has not complied with a decision by the Board pursuant to this Regulation or has applied it in a way which poses a threat to any of the resolution objectives under Article 14 or to the efficient implementation of the resolution scheme, the Board may order an institution under resolution: (a) in the event of action pursuant to Article 18, to transfer to another person specified rights, assets or liabilities of an institution under resolution; (b) in the event of action pursuant to Article 18, to require the conversion of any debt instruments which contain a contractual term for conversion in the circumstances provided for in Article 21; (c) to adopt any other necessary action to comply with the decision in question. The Board shall adopt a decision referred to in point (c) of the first subparagraph only if the measure significantly addresses the threat to the relevant resolution objective or to the efficient implementation of the resolution scheme. Before deciding to impose any measure the Board shall notify the national resolution authorities concerned and the Commission of the measure it intends to take. That notification shall include details of the envisaged measures, the reasons for those measures and details of when the measures are intended to take effect. The notification shall be made not less than 24 hours before the measures are to take effect. In exceptional circumstances where it is not possible to give 24 hours' notice, the Board may make the notification less than 24 hours before the measures are intended to take effect. 3. The institution under resolution shall comply with any decision taken referred to in paragraph 2. Those decisions shall prevail over any previous decision adopted by the national resolution authorities on the same matter. 4. When taking action in relation to issues which are subject to a decision taken pursuant to paragraph 2, national resolution authorities shall comply with that decision. 5. The Board shall publish on its official website either a copy of the resolution scheme or a notice summarising the effects of the resolution action, and in particular the effects on retail customers. The national resolution authorities shall comply with the applicable procedural obligations provided for in Article 83 of Directive 2014/59/EU.
Article 30 Obligation to cooperate and information exchange within the SRM
1. The Board shall inform the Commission of any action it takes in order to prepare for resolution. With regard to any information received from the Board, the members of the Council, the Commission as well as the Council and the Commission staff shall be subject to the requirements of professional secrecy laid down in Article 88. 2. In the exercise of their respective responsibilities under this Regulation, the Board, the Council, the Commission, the ECB and the national resolution authorities and national competent authorities shall cooperate closely, in particular in the resolution planning, early intervention and resolution phases pursuant to Articles 8 to 29. They shall provide each other with all information necessary for the performance of their tasks. 3. The ECB or the national competent authorities shall transmit to the Board and the national resolution authorities the group financial support agreements authorised and any changes thereto. 4. For the purposes of this Regulation, the ECB may invite the Chair of the Board to participate as an observer in the Supervisory Board of the ECB established in accordance with Article 19 of Regulation (EU) No 1024/2013. Where deemed to be appropriate the Board may appoint another representative to replace the Chair for that purpose. 5. For the purposes of this Regulation, the Board shall appoint a representative which shall participate in the Resolution Committee of EBA established in accordance with Article 127 of Directive 2014/59/EU. 6. The Board shall endeavour to cooperate closely with any public financial assistance facility including the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), in particular in the extraordinary circumstances referred to in Article 27(9) and where such a facility has granted, or is likely to grant, direct or indirect financial assistance to entities established in a participating Member State. 7. Where necessary, the Board shall conclude a memorandum of understanding with the ECB and the national resolution authorities and the national competent authorities describing in general terms how they will cooperate under paragraphs 2 and 4 in the performance of their respective tasks under Union law. The memorandum shall be reviewed on a regular basis and shall be published subject to the requirements of professional secrecy.
Article 31 Cooperation within the SRM
1. The Board shall perform its tasks in close cooperation with national resolution authorities. The Board shall, in cooperation with national resolution authorities, approve and make public a framework to organise the practical arrangements for the implementation of this Article. In order to ensure effective and consistent application of this Article, the Board: (a) shall issue guidelines and general instructions to national resolution authorities according to which the tasks are performed and resolution decisions are adopted by national resolution authorities; (b) may at any time exercise the powers referred to in Articles 34 to 37; (c) may request, on an ad hoc or continuous basis, information from national resolution authorities on the performance of the tasks carried out by them under Article 7(3); (d) shall receive from national resolution authorities draft decisions on which it may express its views, and, in particular, indicate the elements of the draft decision that do not comply with this Regulation or with the Board's general instructions. For the purposes of evaluating resolution plans, the Board may request national resolution authorities to submit to the Board all information necessary, as obtained by them in accordance with Article 11 and Article 13(1) of Directive 2014/59/EU, without prejudice to Chapter 5 of this Title. 2. Article 13(4) to (10) and Articles 88 to 92 of Directive 2014/59/EU shall not apply to relations between national resolution authorities. The joint decision and any decision taken in the absence of a joint decision as referred to in Article 45(9) to (13) of Directive 2014/59/EU shall not apply. The relevant provisions of this Regulation shall apply instead.
Article 32 Consultation of, and cooperation with, non-participating Member States and third countries
1. Where a group includes entities established in participating Member States as well as in non-participating Member States or third countries, without prejudice to any approval by the Council or the Commission required under this Regulation, the Board shall represent the national resolution authorities of the participating Member States for the purposes of consultation and cooperation with non-participating Member States or third countries in accordance with Articles 7, 8, 12, 13, 16, 18, 55, and 88 to 92 of Directive 2014/59/EU. Where a group includes entities established in participating Member States and subsidiaries established, or significant branches located, in non-participating Member States, the Board shall communicate any plans, decisions or measures referred to in Articles 8, 10, 11, 12 and 13 relevant to the group to the competent authorities and/or the resolution authorities of the non-participating Member State, as appropriate. 2. The Board, the ECB and the resolution authorities and competent authorities of the non-participating Member States shall conclude memoranda of understanding describing in general terms how they will cooperate with one another in the performance of their tasks under Directive 2014/59/EU. Without prejudice to the first subparagraph, the Board shall conclude a memorandum of understanding with the resolution authority of each non-participating Member State that is home to at least one global systemically important institution, identified as such pursuant to Article 131 of Directive 2013/36/EU. 3. Each memorandum shall be reviewed on a regular basis and shall be published subject to the requirements of professional secrecy. 4. The Board shall conclude, on behalf of the national resolution authorities of participating Member States, non-binding cooperation arrangements in line with the EBA framework cooperation arrangements referred to in Article 97(2) of Directive 2014/59/EU. The Board shall notify EBA of any such cooperation arrangement.
Article 33 Recognition and enforcement of third-country resolution proceedings
1. This Article shall apply in respect of third-country resolution proceedings unless and until an international agreement as referred to in Article 93(1) of Directive 2014/59/EU enters into force with the relevant third country. It shall also apply following the entry into force of an international agreement as referred to in Article 93(1) of that Directive with the relevant third country to the extent that recognition and enforcement of third-country resolution proceedings is not governed by that agreement. 2. The Board shall assess and issue a recommendation addressed to the national resolution authorities on the recognition and enforcement of resolution proceedings conducted by third-country resolution authorities in relation to a third-country institution or a third-country parent undertaking that has: (a) one or more Union subsidiaries established in one or more participating Member States; or (b) assets, rights or liabilities located in one or more participating Member States or governed by the law of participating Member States. The Board shall conduct its assessment, after consulting the national resolution authorities and, where a European resolution college is established pursuant to Article 89 of Directive 2014/59/EU, with the resolution authorities of non-participating Member States. The assessment shall give due consideration to the interests of each individual participating Member State where a third-country institution or parent undertaking operates, and in particular to the potential impact of the recognition and enforcement of the third-country resolution proceedings on the other parts of the group and the financial stability in those Member States. 3. The Board shall recommend to refuse the recognition or enforcement of the resolution proceedings referred to in paragraph 1, if it considers that: (a) the third-country resolution proceedings would have an adverse effect on financial stability in a participating Member State; (b) creditors, including in particular depositors located or payable in a participating Member State, would not receive the same treatment as third-country creditors and depositors with similar legal rights under the third-country home resolution proceedings; (c) recognition or enforcement of the third-country resolution proceedings would have material fiscal implications for the participating Member State; or (d) the effects of such recognition or enforcement would be contrary to the national law of the participating Member State. 4. National resolution authorities shall implement the recommendation of the Board and ask for the recognition or enforcement of the resolution proceedings in their respective territories, or shall explain in a reasoned statement to the Board why they cannot implement the recommendation of the Board. 5. When exercising resolution powers in relation to third-country entities, national resolution authorities shall, where relevant, exercise the powers conferred on them on the basis of the provisions referred to in Article 94(4) of Directive 2014/59/EU.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 33 Recognition and enforcement of third-country resolution proceedings):
1. This Article shall apply in respect of third-country resolution proceedings unless and until an international agreement as referred to in Article 93(1) of Directive 2014/59/EU enters into force with the relevant third country. It shall also apply following the entry into force of an international agreement as referred to in Article 93(1) of that Directive with the relevant third country to the extent that recognition and enforcement of third-country resolution proceedings is not governed by that agreement. 2. The Board shall assess and issue a recommendation addressed to the national resolution authorities on the recognition and enforcement of resolution proceedings conducted by third-country resolution authorities in relation to a third-country institution or a third-country parent undertaking that has: (a) one or more Union subsidiaries established in one or more participating Member States; or (b) assets, rights or liabilities located in one or more participating Member States or governed by the law of participating Member States. The Board shall assess and issue a recommendation addressed to the national resolution authorities on the recognition and enforcement of resolution proceedings conducted by third-country resolution authorities in relation to a third-country institution or a third-country parent undertaking that has: (a) one or more Union subsidiaries established in one or more participating Member States; or (b) assets, rights or liabilities located in one or more participating Member States or governed by the law of participating Member States. The Board shall conduct its assessment, after consulting the national resolution authorities and, where a European resolution college is established pursuant to Article 89 of Directive 2014/59/EU, with the resolution authorities of non-participating Member States. The assessment shall give due consideration to the interests of each individual participating Member State where a third-country institution or parent undertaking operates, and in particular to the potential impact of the recognition and enforcement of the third-country resolution proceedings on the other parts of the group and the financial stability in those Member States. The Board shall recommend to refuse the recognition or enforcement of the resolution proceedings referred to in paragraph 1, if it considers that: (a) the third-country resolution proceedings would have an adverse effect on financial stability in a participating Member State; (b) creditors, including in particular depositors located or payable in a participating Member State, would not receive the same treatment as third-country creditors and depositors with similar legal rights under the third-country home resolution proceedings; (c) recognition or enforcement of the third-country resolution proceedings would have material fiscal implications for the participating Member State; or (d) the effects of such recognition or enforcement would be contrary to the national law of the participating Member State. 4. National resolution authorities shall implement the recommendation of the Board and ask for the recognition or enforcement of the resolution proceedings in their respective territories, or shall explain in a reasoned statement to the Board why they cannot implement the recommendation of the Board. 5. When exercising resolution powers in relation to third-country entities, national resolution authorities shall, where relevant, exercise the powers conferred on them on the basis of the provisions referred to in Article 94(4) of Directive 2014/59/EU.
Article 34 Requests for information
1. For the purpose of performing its tasks under this Regulation, the Board may, through the national resolution authorities or directly, after informing them, making full use of all of the information available to the ECB or to the national competent authorities, require the following legal or natural persons to provide all of the information necessary to perform the tasks conferred on it by this Regulation: (a) the entities referred to in Article 2; (b) employees of the entities referred to in Article 2; (c) third parties to whom the entities referred to in Article 2 have outsourced functions or activities. 2. The entities and persons referred to in paragraph 1 shall supply the information requested pursuant to that paragraph. The requirements of professional secrecy shall not exempt those entities and persons from the duty to supply that information. The supply of the information requested shall not be deemed to infringe the requirements of professional secrecy. 3. Where the Board obtains information directly from those entities and persons, it shall make that information available to the national resolution authorities concerned. 4. The Board shall be able to obtain, including on a continuous basis, any information necessary for the exercise of its functions under this Regulation, in particular on capital, liquidity, assets and liabilities concerning any institution subject to its resolution powers. 5. The Board, the ECB, the national competent authorities and the national resolution authorities may draw up memoranda of understanding with a procedure concerning the exchange of information. The exchange of information between the Board, the ECB, the national competent authorities and the national resolution authorities shall not be deemed to infringe the requirements of professional secrecy. 6. National competent authorities, the ECB where relevant, and national resolution authorities shall cooperate with the Board in order to verify whether some or all of the information requested is already available. Where such information is available, national competent authorities, the ECB where relevant, or national resolution authorities shall provide that information to the Board.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 34 Requests for information):
2. The entities and persons referred to in paragraph 1 shall supply the information requested pursuant to that paragraph. The requirements of professional secrecy shall not exempt those entities and persons from the duty to supply that information. The supply of the information requested shall not be deemed to infringe the requirements of professional secrecy. 3. Where the Board obtains information directly from those entities and persons, it shall make that information available to the national resolution authorities concerned. 4. The Board shall be able to obtain, including on a continuous basis, any information necessary for the exercise of its functions under this Regulation, in particular on capital, liquidity, assets and liabilities concerning any institution subject to its resolution powers. 5. The Board, the ECB, the national competent authorities and the national resolution authorities may draw up memoranda of understanding with a procedure concerning the exchange of information. The exchange of information between the Board, the ECB, the national competent authorities and the national resolution authorities shall not be deemed to infringe the requirements of professional secrecy. 6. National competent authorities, the ECB where relevant, and national resolution authorities shall cooperate with the Board in order to verify whether some or all of the information requested is already available. Where such information is available, national competent authorities, the ECB where relevant, or national resolution authorities shall provide that information to the Board.
Article 35 General investigations
1. For the purpose of performing its tasks under this Regulation, and subject to any other conditions laid down in relevant Union law, the Board may, through the national resolution authorities or directly, after informing them, conduct all necessary investigations of any legal or natural person referred to in Article 34(1) established or located in a participating Member State. To that end, the Board may: (a) require the submission of documents; (b) examine the books and records of any legal or natural person referred to in Article 34(1) and take copies or extracts from such books and records; (c) obtain written or oral explanations from any legal or natural person referred to in Article 34(1) or their representatives or staff; (d) interview any other natural or legal person who consents to be interviewed for the purpose of collecting information relating to the subject matter of an investigation. 2. The natural or legal persons referred to in Article 34(1) shall be subject to investigations launched on the basis of a decision of the Board. Where a person obstructs the conduct of the investigation, the national resolution authorities of the participating Member State where the relevant premises are located shall afford, in accordance with national law, the necessary assistance including facilitating the access by the Board to the business premises of the natural or legal persons referred to in Article 34(1), so that those rights can be exercised.
Article 36 On-site inspections
1. For the purpose of performing its tasks under this Regulation, and subject to other conditions laid down in relevant Union law, the Board may, in accordance with Article 37 and subject to prior notification to the national resolution authorities and the relevant national competent authorities concerned, and, where appropriate, in cooperation with them, conduct all necessary on-site inspections at the business premises of the natural or legal persons referred to in Article 34(1). Where the proper conduct and efficiency of the inspection so require, the Board may carry out the on-site inspection without prior announcement to those legal persons. 2. The officials of and other persons authorised by the Board to conduct an on-site inspection may enter any business premises and land of the legal persons subject to an investigation decision adopted by the Board pursuant to Article 35(2) and shall have all of the powers referred to in Article 35(1). 3. The legal persons referred to in Article 34(1) shall be subject to on-site inspections on the basis of a decision of the Board. 4. Officials of, and other accompanying persons authorised or appointed by, the national resolution authorities of the Member States where the inspection is to be conducted shall, under the supervision and coordination of the Board, actively assist the officials of, and other persons authorised by, the Board. To that end, they shall enjoy the powers referred to in paragraph 2. Officials of, and other accompanying persons authorised or appointed by, the national resolution authorities of the participating Member States concerned shall also have the right to participate in the on-site inspections. 5. Where the officials of and other accompanying persons authorised or appointed by the Board find that a person opposes an inspection ordered pursuant to paragraph 1, the national resolution authorities of the participating Member States concerned shall afford them the necessary assistance in accordance with national law. To the extent necessary for the inspection, that assistance shall include the sealing of any business premises and books or records. Where that power is not available to the national resolution authorities concerned, it shall exercise its powers to request the necessary assistance of other national authorities.
Article 37 Authorisation by a judicial authority
1. If an on-site inspection provided for in Article 36(1) and (2) or the assistance provided for in Article 36(5) requires authorisation by a judicial authority in accordance with national rules, such authorisation shall be applied for. 2. Where authorisation as referred to in paragraph 1 of this Article is applied for, the national judicial authority shall control that the decision of the Board is authentic and that the coercive measures envisaged are neither arbitrary nor excessive, taking into account the subject matter of the inspection. In its control of the proportionality of the coercive measures, the national judicial authority may ask the Board for detailed explanations, in particular relating to the grounds the Board has for suspecting that an infringement of the decisions referred to in Article 29 has taken place, the seriousness of the suspected infringement and the nature of the involvement of the person subject to the coercive measures. However, the national judicial authority shall not review the necessity for the inspection or demand to be provided with the information on the Board's file. The lawfulness of the Board's decision shall be subject to review only by the Court of Justice.
Article 38 Fines
1. Where the Board finds that an entity referred to in Article 2 has intentionally or negligently committed one of the infringements listed in paragraph 2, the Board shall take a decision imposing a fine in accordance with paragraph 3. An infringement by such an entity shall be considered to have been committed intentionally if there are objective factors which demonstrate that the entity or its management body or senior management acted deliberately to commit the infringement. 2. The fines shall be imposed on entities referred to in Article 2 for the following infringements: (a) where they do not supply the information requested in accordance with Article 34; (b) where they do not submit to a general investigation in accordance with Article 35 or an on-site inspection in accordance with Article 36; (c) where they do not comply with a decision addressed to them by the Board pursuant to Article 29. 3. The basic amount of the fines referred to in paragraph 1 of this Article shall be a percentage of the total annual net turnover including the gross income consisting of interest receivable and similar income, income from shares and other variable or fixed-yield securities, and commissions or fees receivable in accordance with Article 316 of Regulation (EU) No 575/2013 of the undertaking in the preceding business year, or, in the Member States whose currency is not the euro, the corresponding value in the national currency on 19 August 2014, and included within the following limits: (a) for the infringements referred to in paragraph 2(a) and (b), the basic amount shall amount to at least 0,05 % and shall not exceed 0,15 %; (b) for the infringements referred to in paragraph 2(c), the basic amount shall amount to at least 0,25 % and shall not exceed 0,5 %. In order to decide whether the basic amount of the fines should be set at the lower, the middle or the higher end of the limits referred to in the first subparagraph, the Board shall take into account the annual turnover in the preceding business year of the entity concerned. The basic amount shall be at the lower end of the limit for entities whose annual turnover is below EUR 1 000 000 000, the middle of the limit for the entities whose annual turnover is between EUR 1 000 000 000 and 5 000 000 000 and the higher end of the limit for the entities whose annual turnover is higher than EUR 5 000 000 000. 4. The basic amounts referred to in paragraph 3 shall be adjusted, if necessary, by taking into account the aggravating or mitigating factors referred to in paragraphs 5 and 6, in accordance with the relevant coefficients referred to in paragraph 9. The relevant mitigating coefficient shall be applied one by one to the basic amount. If more than one mitigating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual mitigating coefficient shall be subtracted from the basic amount. The relevant aggravating coefficient shall be applied one by one to the basic amount. If more than one aggravating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual aggravating coefficient shall be added to the basic amount. 5. The following aggravating factors shall apply in respect of the fines referred to in paragraph 1: (a) the infringement has been committed intentionally; (b) the infringement has been committed repeatedly; (c) the infringement has been committed over a period exceeding three months; (d) the infringement has revealed systemic weaknesses in the organisation of the entity, in particular in its procedures, management systems or internal controls; (e) no remedial action has been taken since the infringement was identified; (f) the entity's senior management has not cooperated with the Board in carrying out its investigations. 6. The following mitigating factors shall apply in respect of the fines referred to in paragraph 1: (a) the infringement has been committed over a period of less than 10 working days; (b) the entity's senior management can demonstrate that they have taken all measures necessary to prevent the infringement; (c) the entity has brought quickly, effectively and completely the infringement to the Board's attention; (d) the entity has voluntarily taken measures to ensure that a similar infringement cannot be committed in the future. 7. Notwithstanding paragraphs 2 to 6, the fines applied shall not exceed 1 % of the annual turnover of the entity referred to in paragraph 1 concerned in the preceding business year. By way of derogation from the first subparagraph, where the entity has directly or indirectly benefited financially from that infringement and where profits gained or losses avoided because of the infringement can be determined, the fine shall be at least equal to that financial benefit. Where an act or omission of an entity referred to in paragraph 1 constitutes more than one infringement listed in paragraph 2, only the higher fine calculated in accordance with this Article and relating to one of those infringements shall apply. 8. In the cases not covered by paragraph 2, the Board may recommend to national resolution authorities to take action in order to ensure that appropriate penalties are imposed in accordance with Articles 110 to 114 of Directive 2014/59/EU and with any relevant national legislation. 9. The Board shall apply the following adjustment coefficients linked to aggravating factors when calculating the fines: (a) if the infringement has been committed repeatedly, for every time it has been repeated, an additional coefficient of 1,1 shall apply; (b) if the infringement has been committed over a period exceeding three months, a coefficient of 1,5 shall apply; (c) if the infringement has revealed systemic weaknesses in the organisation of the entity, in particular in its procedures, management systems or internal controls, a coefficient of 2,2 shall apply; (d) if the infringement has been committed intentionally, a coefficient of 2 shall apply; (e) if no remedial action has been taken since the infringement was identified, a coefficient of 1,7 shall apply; (f) if the entity's senior management has not cooperated with the Board in carrying out its investigations, a coefficient of 1,5 shall apply. The Board shall apply the following adjustment coefficients linked to mitigating factors when calculating the fines: (a) if the infringement has been committed over a period of less than 10 working days, a coefficient of 0,9 shall apply; (b) if the entity's senior management can demonstrate that they have taken all measures necessary to prevent the infringement, a coefficient of 0,7 shall apply; (c) if the entity has brought quickly, effectively and completely the infringement to the Board's attention, a coefficient of 0,4 shall apply; (d) if the entity has voluntarily taken measures to ensure that a similar infringement cannot be committed in the future, a coefficient of 0,6 shall apply.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 38 Fines):
1. Where the Board finds that an entity referred to in Article 2 has intentionally or negligently committed one of the infringements listed in paragraph 2, the Board shall take a decision imposing a fine in accordance with paragraph 3. An infringement by such an entity shall be considered to have been committed intentionally if there are objective factors which demonstrate that the entity or its management body or senior management acted deliberately to commit the infringement. In order to decide whether the basic amount of the fines should be set at the lower, the middle or the higher end of the limits referred to in the first subparagraph, the Board shall take into account the annual turnover in the preceding business year of the entity concerned. The basic amount shall be at the lower end of the limit for entities whose annual turnover is below EUR 1 000 000 000 , the middle of the limit for the entities whose annual turnover is between EUR 1 000 000 000 and 5 000 000 000 and the higher end of the limit for the entities whose annual turnover is higher than EUR 5 000 000 000 . 4. The basic amounts referred to in paragraph 3 shall be adjusted, if necessary, by taking into account the aggravating or mitigating factors referred to in paragraphs 5 and 6, in accordance with the relevant coefficients referred to in paragraph 9. The relevant mitigating coefficient shall be applied one by one to the basic amount. If more than one mitigating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual mitigating coefficient shall be subtracted from the basic amount. The relevant aggravating coefficient shall be applied one by one to the basic amount. If more than one aggravating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual aggravating coefficient shall be added to the basic amount. 7. Notwithstanding paragraphs 2 to 6, the fines applied shall not exceed 1 % of the annual turnover of the entity referred to in paragraph 1 concerned in the preceding business year. By way of derogation from the first subparagraph, where the entity has directly or indirectly benefited financially from that infringement and where profits gained or losses avoided because of the infringement can be determined, the fine shall be at least equal to that financial benefit. Where an act or omission of an entity referred to in paragraph 1 constitutes more than one infringement listed in paragraph 2, only the higher fine calculated in accordance with this Article and relating to one of those infringements shall apply. 8. In the cases not covered by paragraph 2, the Board may recommend to national resolution authorities to take action in order to ensure that appropriate penalties are imposed in accordance with Articles 110 to 114 of Directive 2014/59/EU and with any relevant national legislation. The Board shall apply the following adjustment coefficients linked to mitigating factors when calculating the fines: (a) if the infringement has been committed over a period of less than 10 working days, a coefficient of 0,9 shall apply; (b) if the entity's senior management can demonstrate that they have taken all measures necessary to prevent the infringement, a coefficient of 0,7 shall apply; (c) if the entity has brought quickly, effectively and completely the infringement to the Board's attention, a coefficient of 0,4 shall apply; (d) if the entity has voluntarily taken measures to ensure that a similar infringement cannot be committed in the future, a coefficient of 0,6 shall apply.
Article 39 Periodic penalty payments
1. The Board shall, by a decision, impose a periodic penalty payment in respect of an entity referred to in Article 2 in order to compel: (a) that entity to comply with a decision adopted under Article 34; (b) a person referred to in Article 34(1) to supply complete information which has been required by a decision pursuant to that Article; (c) a person referred to in Article 35(1) to submit to an investigation and, in particular, to produce complete records, data, procedures or any other material required and to complete and correct other information provided in an investigation launched by a decision taken pursuant to that Article; (d) a person referred to in Article 36(1) to submit to an on-site inspection ordered by a decision taken pursuant to that Article. 2. A periodic penalty payment shall be effective and proportionate. A periodic penalty payment shall be imposed on a daily basis until the entity referred to in Article 2 or person concerned complies with the relevant decisions referred to in points (a) to (d) of paragraph 1 of this Article. 3. Notwithstanding paragraph 2, the amount of a periodic penalty payment shall be 0,1 % of the average daily turnover in the preceding business year. A periodic penalty payment shall be calculated from the date stipulated in the decision imposing the periodic penalty payment. 4. A periodic penalty payment may be imposed for a period of no more than six months following the notification of the Board's decision.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 39 Periodic penalty payments):
2. A periodic penalty payment shall be effective and proportionate. A periodic penalty payment shall be imposed on a daily basis until the entity referred to in Article 2 or person concerned complies with the relevant decisions referred to in points (a) to (d) of paragraph 1 of this Article. 3. Notwithstanding paragraph 2, the amount of a periodic penalty payment shall be 0,1 % of the average daily turnover in the preceding business year. A periodic penalty payment shall be calculated from the date stipulated in the decision imposing the periodic penalty payment. 4. A periodic penalty payment may be imposed for a period of no more than six months following the notification of the Board's decision.
Article 40 Hearing of the persons subject to the proceedings
1. Before taking any decision imposing a fine and/or periodic penalty payment under Article 38 or 39, the Board shall give the natural or legal persons subject to the proceedings the opportunity to be heard on its findings. The Board shall base its decisions only on findings on which the natural or legal persons subject to the proceedings have had the opportunity to comment. 2. The rights of defence of the natural or legal persons subject to the proceedings shall be fully complied with during the proceedings. They shall be entitled to have access to the Board's file, subject to the legitimate interest of other persons in the protection of their business secrets. The right of access to the file shall not extend to confidential information or internal preparatory documents of the Board.
Article 41 Disclosure, nature, enforcement and allocation of fines and periodic penalty payments
1. The Board shall publish the decisions imposing penalties referred to in Article 38(1) and Article 39(1), unless such disclosure could endanger the resolution of the entity concerned. The publication shall be on an anonymous basis, in any of the following circumstances: (a) where the information published contains personal data and following an obligatory prior assessment, such publication of personal data is found to be disproportionate; (b) where publication would jeopardise the stability of financial markets or an ongoing criminal investigation; (c) where publication would cause, insofar as it can be determined, disproportionate damage to the natural or legal persons involved. Alternatively, in such cases, the publication of the data in question may be postponed for a reasonable period if it is foreseeable that the reasons for anonymous publication will cease to exist within that period. The Board shall inform EBA of all fines and periodic penalty payments imposed by it under Articles 38 and 39 and shall provide information on the appeal status and outcome thereof. 2. Fines and periodic penalty payments imposed pursuant to Articles 38 and 39 shall be of an administrative nature. 3. Fines and periodic penalty payments imposed pursuant to Articles 38 and 39 shall be enforceable. Enforcement shall be governed by the applicable procedural rules in force in the participating Member State in the territory of which it is carried out. The order for its enforcement shall be appended to the decision without any other formality than verification of the authenticity of the decision by the authority which the government of each participating Member State shall designate for that purpose and which it shall make known to the Board and to the Court of Justice. When those formalities have been completed on application by the party concerned, the latter may proceed to enforcement in accordance with the national law, by bringing the matter directly before the competent body. Enforcement may be suspended only by a decision of the Court of Justice. However, the courts of the participating Member State concerned shall have jurisdiction over complaints that enforcement is being carried out in an irregular manner. 4. The amounts of the fines and periodic penalty payments shall be allocated to the Fund.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 41 Disclosure, nature, enforcement and allocation of fines and periodic penalty payments):
1. Alternatively, in such cases, the publication of the data in question may be postponed for a reasonable period if it is foreseeable that the reasons for anonymous publication will cease to exist within that period. The Board shall inform EBA of all fines and periodic penalty payments imposed by it under Articles 38 and 39 and shall provide information on the appeal status and outcome thereof. 2. Fines and periodic penalty payments imposed pursuant to Articles 38 and 39 shall be of an administrative nature. 3. Fines and periodic penalty payments imposed pursuant to Articles 38 and 39 shall be enforceable. Enforcement shall be governed by the applicable procedural rules in force in the participating Member State in the territory of which it is carried out. The order for its enforcement shall be appended to the decision without any other formality than verification of the authenticity of the decision by the authority which the government of each participating Member State shall designate for that purpose and which it shall make known to the Board and to the Court of Justice. When those formalities have been completed on application by the party concerned, the latter may proceed to enforcement in accordance with the national law, by bringing the matter directly before the competent body. Enforcement may be suspended only by a decision of the Court of Justice. However, the courts of the participating Member State concerned shall have jurisdiction over complaints that enforcement is being carried out in an irregular manner. 4. The amounts of the fines and periodic penalty payments shall be allocated to the Fund.
Article 42 Legal status
1. The Board is hereby established. The Board shall be a Union agency with a specific structure corresponding to its tasks. It shall have legal personality. 2. In each Member State, the Board shall enjoy the most extensive legal capacity accorded to legal persons under national law. It may, in particular, acquire or dispose of movable and immovable property and be a party to legal proceedings. 3. The Board shall be represented by its Chair.
Article 43 Composition
1. The Board shall be composed of: (a) the Chair appointed in accordance with Article 56; (b) four further full-time members appointed in accordance with Article 56; (c) a member appointed by each participating Member State, representing their national resolution authorities. 2. Each member, including the Chair, shall have one vote. 3. The Commission and the ECB shall each designate a representative entitled to participate in the meetings of executive sessions and plenary sessions as a permanent observer. The representatives of the Commission and the ECB shall be entitled to participate in the debates and shall have access to all documents. 4. In the event of more than one national resolution authority in a participating Member State, a second representative shall be allowed to participate as observer without voting rights. 5. The Board's administrative and management structure shall comprise: (a) a plenary session of the Board, which shall perform the tasks referred to in Article 50; (b) an executive session of the Board, which shall perform the tasks referred to in Article 54; (c) a Chair, which shall perform the tasks referred to in Article 56; (d) a Secretariat, which shall provide the necessary administrative and technical support on the performing of all the tasks assigned to the Board.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 43 Composition):
2. Each member, including the Chair, shall have one vote. 3. The Commission and the ECB shall each designate a representative entitled to participate in the meetings of executive sessions and plenary sessions as a permanent observer. The representatives of the Commission and the ECB shall be entitled to participate in the debates and shall have access to all documents. 4. In the event of more than one national resolution authority in a participating Member State, a second representative shall be allowed to participate as observer without voting rights.
Article 44 Compliance with Union law
The Board shall act in compliance with Union law, in particular with the Council and the Commission decisions pursuant to this Regulation.
Article 45 Accountability
1. The Board shall be accountable to the European Parliament, the Council and the Commission for the implementation of this Regulation, in accordance with paragraphs 2 to 8. 2. The Board shall submit an annual report to the European Parliament, the national parliaments of participating Member States in accordance with Article 46, the Council, the Commission and the European Court of Auditors on the performance of the tasks conferred on it by this Regulation. Subject to the requirements of professional secrecy, that report shall be published on the Board's website. 3. The Chair shall present that report in public to the European Parliament, and to the Council. 4. At the request of the European Parliament, the Chair shall participate in a hearing by the competent committee of the European Parliament on the performance of the resolution tasks by the Board. A hearing shall take place at least annually. 5. The Chair may be heard by the Council, at the Council's request, on the performance of the resolution tasks by the Board. 6. The Board shall reply orally or in writing to questions addressed to it by the European Parliament or by the Council, in accordance with its own procedures and in any event within five weeks of receipt of a question. 7. Upon request, the Chair shall hold confidential oral discussions behind closed doors with the Chair and Vice-Chairs of the competent committee of the European Parliament where such discussions are required for the exercise of the European Parliament's powers under the TFEU. An agreement shall be concluded between the European Parliament and the Board on the detailed modalities of organising such discussions, with a view to ensuring full confidentiality in accordance with the requirements of professional secrecy imposed on the Board by this Regulation and when the Board is acting as a national resolution authority under the relevant Union law. 8. During any investigations by the European Parliament, the Board shall cooperate with the European Parliament, subject to the TFEU and regulations referred to in Article 226 thereof. Within six months of the appointment of the Chair, the Board and the European Parliament shall conclude appropriate arrangements on the practical modalities of the exercise of democratic accountability and oversight over the exercise of the tasks conferred on the Board by this Regulation. Subject to the power of the European Parliament pursuant to Article 226 TFEU, those arrangements shall cover, inter alia, access to information, including rules on the handling and protection of classified or otherwise confidential information, cooperation in hearings, as referred to in Article 45(4) of this Regulation, confidential oral discussions, reports, responding to questions, investigations and information on the selection procedure of the Chair, the Vice-Chair, and the four members referred to in Article 43(1)(b) of this Regulation.
Article 46 National parliaments
1. Due to the specific tasks that are conferred on the Board by this Regulation, national parliaments of the participating Member States, by means of their own procedures, may request the Board to reply and the Board is obliged to reply in writing to any observations or questions submitted by them to the Board in respect of the functions of the Board under this Regulation. 2. When submitting the report provided for in Article 45(2), the Board shall simultaneously submit that report directly to the national parliaments of the participating Member States. National parliaments may address to the Board their reasoned observations on that report. The Board shall reply orally or in writing to any observations or questions addressed to it by the national parliaments of the participating Member States, in accordance with its own procedures. 3. The national parliament of a participating Member State may invite the Chair to participate in an exchange of views in relation to the resolution of entities referred to in Article 2 in that Member State together with a representative of the national resolution authority. The Chair is obliged to follow such invitation. 4. This Regulation shall be without prejudice to the accountability of national resolution authorities to national parliaments in accordance with national law for the performance of tasks not conferred on the Board, the Council or the Commission by this Regulation and for the performance of activities carried out by them in accordance with Article 7(3).
Article 47 Independence
1. When performing the tasks conferred on them by this Regulation, the Board and the national resolution authorities shall act independently and in the general interest. 2. The Chair, the Vice-Chair and the members referred to in Article 43(1)(b) shall perform their tasks in conformity with the decisions of the Board, the Council and the Commission. They shall act independently and objectively in the interest of the Union as a whole and shall neither seek nor take instructions from the Union's institutions or bodies, from any government of a Member State or from any other public or private body. In the deliberations and decision-making processes within the Board, they shall express their own views and vote independently. 3. Neither the Member States, the Union's institutions or bodies, nor any other public or private body shall seek to influence the Chair, the Vice-Chair or the members of the Board. 4. In accordance with the Staff Regulations of Officials as laid down by Council Regulation (EEC, Euratom, ECSC) No 259/68 ( 19 ) (the ‘Staff Regulations’) referred to in Article 87(6) of this Regulation, the Chair, the Vice-Chair and the members referred to in Article 43(1)(b) of this Regulation shall, after leaving service, continue to be bound by the duty to behave with integrity and discretion as regards the acceptance of certain appointments or benefits.
Article 48 Seat
The Board shall have its seat in Brussels, Belgium.
Article 49 Participation in plenary sessions
All members of the Board referred to in Article 43(1) shall participate in its plenary sessions.
Article 50 Tasks
1. In its plenary session, the Board shall: (a) adopt, by 30 November each year, the Board's annual work programme for the following year, based on a draft put forward by the Chair and shall transmit it for information to the European Parliament, the Council, the Commission, and the ECB; (b) adopt and monitor the annual budget of the Board in accordance with Article 61(2), and approve the Board's final accounts and give discharge to the Chair in accordance with Article 63(4) and (8); (c) subject to the procedure referred to in paragraph 2, decide on the use of the Fund, if the support of the Fund in that specific resolution action is required above the threshold of EUR 5 000 000 000 for which the weighting of liquidity support is 0,5; (d) once the net accumulated use of the Fund in the last consecutive 12 months reaches the threshold of EUR 5 000 000 000, evaluate the application of the resolution tools, in particular the use of the Fund, and provide guidance which the executive session shall follow in subsequent resolution decisions, in particular, if appropriate, differentiating between liquidity and other forms of support; (e) decide on the necessity to raise extraordinary ex-post contributions in accordance with Article 71, on the voluntary borrowing between financing arrangements in accordance with Article 72, on alternative financing means in accordance with Articles 73 and 74, and on the mutualisation of national financing arrangements in accordance with Article 78, involving support of the Fund above the threshold referred to in point (c) of this paragraph; (f) decide on the investments in accordance with Article 75; (g) adopt the annual activity report on the Board's activities referred to in Article 45, which shall present detailed explanations on the implementation of the budget; (h) adopt the financial rules applicable to the Board in accordance with Article 64; (i) adopt an anti-fraud strategy, proportionate to fraud risks taking into account the costs and benefits of the measures to be implemented; (j) adopt rules for the prevention and management of conflicts of interest in respect of its members; (k) adopt its rules of procedure and those of the Board in its executive session; (l) in accordance with paragraph 3 of this Article, exercise, with respect to the staff of the Board, the powers conferred by the Staff Regulations on the Appointing Authority and by the Conditions of Employment of Other Servants of the European Union as laid down by Council Regulation (EEC, Euratom, ECSC) No 259/68 (‘Conditions of Employment’) on the Authority Empowered to Conclude a Contract of Employment (‘the appointing authority powers’); (m) adopt appropriate implementing rules for giving effect to the Staff Regulations and the Conditions of Employment in accordance with Article 110 of the Staff Regulations; (n) appoint an Accounting Officer, subject to the Staff Regulations and the Conditions of Employment, who shall be functionally independent in the performance of his or her duties; (o) ensure adequate follow-up to findings and recommendations stemming from the internal or external audit reports and evaluations, as well as from investigations of the European Anti-Fraud Office (OLAF); (p) take all decisions on the establishment of the Board's internal structures and, where necessary, their modification; (q) approve the framework referred to in Article 31(1) to organise the practical arrangements for the cooperation with the national resolution authorities. 2. When taking decisions, the plenary session of the Board shall act in accordance with the objectives as specified in Articles 6 and 14. For the purposes of point (c) of paragraph 1, the resolution scheme prepared by the executive session is deemed to be adopted unless, within three hours from the submission of the draft by the executive session to the plenary session, at least one member of the plenary session has called a meeting of the plenary session. In the latter case, a decision on the resolution scheme shall be taken by the plenary session. 3. In its plenary session, the Board shall adopt, in accordance with Article 110 of the Staff Regulations, a decision based on Article 2(1) of the Staff Regulations and on Article 6 of the Conditions of Employment, delegating relevant appointing authority powers to the Chair and establishing the conditions under which the delegation of powers can be suspended. The Chair shall be authorised to sub-delegate those powers. In exceptional circumstances, the Board in its plenary session may by way of a decision temporarily suspend the delegation of the appointing authority powers to the Chair and any sub-delegation by the latter and exercise them itself or delegate them to one of its members or to a staff member other than the Chair.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 50 Tasks):
In its plenary session, the Board shall: (a) adopt, by 30 November each year, the Board's annual work programme for the following year, based on a draft put forward by the Chair and shall transmit it for information to the European Parliament, the Council, the Commission, and the ECB; (c) subject to the procedure referred to in paragraph 2, decide on the use of the Fund, if the support of the Fund in that specific resolution action is required above the threshold of EUR 5 000 000 000 for which the weighting of liquidity support is 0,5; (d) once the net accumulated use of the Fund in the last consecutive 12 months reaches the threshold of EUR 5 000 000 000 , evaluate the application of the resolution tools, in particular the use of the Fund, and provide guidance which the executive session shall follow in subsequent resolution decisions, in particular, if appropriate, differentiating between liquidity and other forms of support; (e) decide on the necessity to raise extraordinary ex-post contributions in accordance with Article 71, on the voluntary borrowing between financing arrangements in accordance with Article 72, on alternative financing means in accordance with Articles 73 and 74, and on the mutualisation of national financing arrangements in accordance with Article 78, involving support of the Fund above the threshold referred to in point (c) of this paragraph; (f) decide on the investments in accordance with Article 75; (g) adopt the annual activity report on the Board's activities referred to in Article 45, which shall present detailed explanations on the implementation of the budget; (h) adopt the financial rules applicable to the Board in accordance with Article 64; (i) adopt an anti-fraud strategy, proportionate to fraud risks taking into account the costs and benefits of the measures to be implemented; (j) adopt rules for the prevention and management of conflicts of interest in respect of its members; (k) adopt its rules of procedure and those of the Board in its executive session; (l) in accordance with paragraph 3 of this Article, exercise, with respect to the staff of the Board, the powers conferred by the Staff Regulations on the Appointing Authority and by the Conditions of Employment of Other Servants of the European Union as laid down by Council Regulation (EEC, Euratom, ECSC) No 259/68 (‘Conditions of Employment’) on the Authority Empowered to Conclude a Contract of Employment (‘the appointing authority powers’); (m) adopt appropriate implementing rules for giving effect to the Staff Regulations and the Conditions of Employment in accordance with Article 110 of the Staff Regulations; (n) appoint an Accounting Officer, subject to the Staff Regulations and the Conditions of Employment, who shall be functionally independent in the performance of his or her duties; (o) ensure adequate follow-up to findings and recommendations stemming from the internal or external audit reports and evaluations, as well as from investigations of the European Anti-Fraud Office (OLAF); (p) take all decisions on the establishment of the Board's internal structures and, where necessary, their modification; (q) approve the framework referred to in Article 31(1) to organise the practical arrangements for the cooperation with the national resolution authorities. 2. When taking decisions, the plenary session of the Board shall act in accordance with the objectives as specified in Articles 6 and 14. For the purposes of point (c) of paragraph 1, the resolution scheme prepared by the executive session is deemed to be adopted unless, within three hours from the submission of the draft by the executive session to the plenary session, at least one member of the plenary session has called a meeting of the plenary session. In the latter case, a decision on the resolution scheme shall be taken by the plenary session. 3. In its plenary session, the Board shall adopt, in accordance with Article 110 of the Staff Regulations, a decision based on Article 2(1) of the Staff Regulations and on Article 6 of the Conditions of Employment, delegating relevant appointing authority powers to the Chair and establishing the conditions under which the delegation of powers can be suspended. The Chair shall be authorised to sub-delegate those powers. In exceptional circumstances, the Board in its plenary session may by way of a decision temporarily suspend the delegation of the appointing authority powers to the Chair and any sub-delegation by the latter and exercise them itself or delegate them to one of its members or to a staff member other than the Chair.
Article 51 Meeting of the plenary session of the Board
1. The Chair shall convene and chair meetings of the plenary session of the Board in accordance with Article 56(2)(a). 2. The Board in its plenary session shall hold at least two ordinary meetings per year. In addition, it shall meet on the initiative of the Chair, or at the request of at least one-third of its members. The representative of the Commission may request the Chair to convene a meeting of the Board in its plenary session. The Chair shall provide reasons in writing if he or she does not convene a meeting in due time. 3. Where relevant, the Board may invite observers in addition to those referred in Article 43(3) to participate in the meetings of its plenary session on an ad hoc basis, including a representative of EBA. 4. The Board shall provide for the secretariat of the plenary session of the Board.
Article 52 General provisions on the decision-making process
1. The Board, in its plenary session, shall take its decisions by a simple majority of its members, unless otherwise provided for in this Regulation. Each voting member shall have one vote. In the event of a tie, the Chair shall have a casting vote. 2. By way of derogation from paragraph 1, decisions referred to in Article 50(1)(c) and (d) as well as on the mutualisation of national financing arrangements in accordance with Article 78, limited to the use of the financial means available in the Fund, shall be taken by a simple majority of the Board members, representing at least 30 % of contributions. Each voting member shall have one vote. In the event of a tie, the Chair shall have a casting vote. 3. By way of derogation from paragraph 1 of this Article, decisions referred to in Article 50(1), which involve the raising of ex-post contributions in accordance with Article 71, on voluntary borrowing between financing arrangements in accordance with Article 72, on alternative financing means in accordance with Article 73 and Article 74, as well as on the mutualisation of national financing arrangements in accordance with Article 78, exceeding the use of the financial means available in the Fund, shall be taken by a majority of two thirds of the Board members, representing at least 50 % of contributions during the eight-year transitional period until the Fund is fully mutualised and by a majority of two thirds of the Board members, representing at least 30 % of contributions from then on. Each voting member shall have one vote. In the event of a tie, the Chair shall have a casting vote. 4. The Board shall adopt and make public its rules of procedure. The rules of procedure shall establish more detailed voting arrangements, in particular the circumstances in which a member may act on behalf of another member and including, where appropriate, the rules governing quorums.
Article 53 Participation in the executive sessions
1. The Board in its executive session is composed of the Chair and the four members referred to in Article 43(1)(b). The Board, in its executive session, shall meet as often as necessary. Meetings of the Board in its executive session shall be convened by the Chair on his or her own initiative or at the request of any of the members, and shall be chaired by the Chair. Where relevant, the Board in its executive session may invite observers in addition to those referred to in Article 43(3), including a representative of EBA, and shall invite national resolution authorities of non-participating Member States, when deliberating on a group that has subsidiaries or significant branches in those non-participating Member States, to participate at its meetings. The participation shall be on an ad hoc basis. 2. In accordance with paragraphs 3 and 4, the members of the Board referred to in Article 43(1)(c) shall participate in the executive sessions of the Board. 3. When deliberating on an entity referred to in Article 2 or a group of entities established only in one participating Member State, the member appointed by that Member State shall also participate in the deliberations and in the decision-making process, and the rules laid down in Article 55(1) shall apply. 4. When deliberating on a cross-border group, the member appointed by the Member State in which the group-level resolution authority is situated, as well as the members appointed by the Member States in which a subsidiary or entity covered by consolidated supervision is established, shall also participate in the decision-making process, and the rules laid down in Article 55(2) shall apply. 5. The members of the Board referred to in Article 43(1)(a) and (b) shall ensure that the resolution decisions and actions, in particular with regard to the use of the Fund, across the different formations of the executive sessions of the Board are coherent, appropriate and proportionate.
Article 54 Tasks
1. The Board, in its executive session, shall: (a) prepare all of the decisions to be adopted by the Board in its plenary session; (b) take all of the decisions to implement this Regulation, unless this Regulation provides otherwise. 2. In exercising its duties pursuant to paragraph 1 of this Article, the Board shall: (a) prepare, assess and approve resolution plans for entities and groups referred to in Article 7(2), and for the entities and groups referred to in Article 7(4)(b) and (5), where the conditions for the application of those paragraphs are met, in accordance with Articles 8, 10 and 11; (b) apply simplified obligations to certain entities and groups referred to in Article 7(2), and entities and groups referred to in Article 7(4)(b) and (5), where the conditions for the application of those paragraphs are met, in accordance with Article 11; (c) determine the minimum requirement for own funds and eligible liabilities that entities and groups referred to in Article 7(2), and entities and groups referred to in Article 7(4)(b) and (5), where the conditions for the application of those paragraphs are met, need to meet at all times in accordance with Article 12; (d) provide the Commission, as early as possible, with a resolution scheme in accordance with Article 18 accompanied by all relevant information allowing in due time the Commission to assess and decide or, where appropriate, propose a decision to the Council, pursuant to Article 18(7); (e) decide upon the Board's part II of the budget on the Fund, in accordance with Article 60. 3. Where necessary because of urgency, the Board in its executive session may take certain provisional decisions on behalf of the Board in its plenary session, in particular on administrative management matters, including budgetary matters. 4. The Board in its executive session shall keep the Board in its plenary session informed of the decisions it takes on resolution.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 54 Tasks):
1. The Board, in its executive session, shall: (a) prepare all of the decisions to be adopted by the Board in its plenary session; (b) take all of the decisions to implement this Regulation, unless this Regulation provides otherwise. The Board, in its executive session, shall: (a) prepare all of the decisions to be adopted by the Board in its plenary session; (b) take all of the decisions to implement this Regulation, unless this Regulation provides otherwise. In exercising its duties pursuant to paragraph 1 of this Article, the Board shall: (d) provide the Commission, as early as possible, with a resolution scheme in accordance with Article 18 accompanied by all relevant information allowing in due time the Commission to assess and decide or, where appropriate, propose a decision to the Council, pursuant to Article 18(7); (e) decide upon the Board's part II of the budget on the Fund, in accordance with Article 60. 3. Where necessary because of urgency, the Board in its executive session may take certain provisional decisions on behalf of the Board in its plenary session, in particular on administrative management matters, including budgetary matters. 4. The Board in its executive session shall keep the Board in its plenary session informed of the decisions it takes on resolution.
Article 55 Decision-making
1. When deliberating on an individual entity or a group established only in one participating Member State, if all members referred to in Article 53(1) and (3) are not able to reach a joint agreement by consensus within a deadline set by the Chair, the Chair and the members referred to in Article 43(1)(b) shall take a decision by a simple majority. 2. When deliberating on a cross-border group, if all members referred to in Article 53(1) and (4) are not able to reach a joint agreement by consensus within a deadline set by the Chair, the Chair and the members referred to in Article 43(1)(b) shall take a decision by a simple majority. 3. In the event of a tie, the Chair shall have a casting vote.
Article 56 Appointment and tasks
1. The Board shall be chaired by a full-time Chair. 2. The Chair shall be responsible for: (a) preparing the work of the Board, in its plenary and executive sessions, and convening and chairing its meetings; (b) all staff matters; (c) matters of day-to-day administration; (d) the establishment of a draft budget of the Board in accordance with Article 61(1) and the implementation of the budget of the Board, in accordance with Article 63; (e) the management of the Board; (f) the implementation of the annual work programme of the Board; (g) the preparation, each year, of a draft of the annual report referred to in Article 45 with a section on the resolution activities of the Board and a section on financial and administrative matters. In the performance of the tasks referred to in this Article, the Chair shall be assisted by a dedicated staff. 3. The Chair shall be assisted by a Vice-Chair. The Vice-Chair shall carry out the functions of the Chair in his or her absence or reasonable impediment, in accordance with this Regulation. 4. The Chair, the Vice-Chair and the members referred to in Article 43(1)(b) shall be appointed on the basis of merit, skills, knowledge of banking and financial matters, and of experience relevant to financial supervision, regulation as well as bank resolution. The Chair, the Vice-Chair and the members referred to in Article 43(1)(b) shall be chosen on the basis of an open selection procedure, which shall respect the principles of gender balance, experience and qualification. The European Parliament and the Council shall be kept duly informed at every stage of that procedure in a timely manner. 5. The term of office of the Chair, of the Vice-Chair and of the members referred to in Article 43(1)(b) shall be five years. Subject to paragraph 7 of this Article, that term shall not be renewable. The Chair, the Vice-Chair and the members referred to in Article 43(1)(b) shall not hold office at national, Union, or international level. 6. After hearing the Board, in its plenary session, the Commission shall provide to the European Parliament a shortlist of candidates for the positions of Chair, Vice-Chair and members referred to in Article 43(1)(b) and inform the Council of the shortlist. By way of derogation from the first subparagraph, for the appointment of the first members of the Board following the entry into force of this Regulation, the Commission shall provide the shortlist of candidates without hearing the Board. The Commission shall submit a proposal for the appointment of the Chair, the Vice-Chair and the members referred to in Article 43(1)(b) to the European Parliament for approval. Following the approval of that proposal, the Council shall adopt an implementing decision to appoint the Chair, the Vice-Chair and the members referred to in Article 43(1)(b). The Council shall act by qualified majority. 7. By way of derogation from paragraph 5, the term of office of the first Chair appointed after the entry into force of this Regulation shall be three years. That term shall be renewable once for a period of five years. The Chair, the Vice-Chair, and the members referred to in Article 43(1)(b) shall remain in office until their successors are appointed. 8. A Chair whose term of office has been extended shall not participate in another selection procedure for the same post at the end of the overall period. 9. If the Chair or the Vice-Chair or a member referred to in Article 43(1)(b) no longer fulfil the conditions required for the performance of his or her duties or has been guilty of serious misconduct, the Council may, on a proposal from the Commission which has been approved by the European Parliament, adopt an implementing decision to remove him or her from office. The Council shall act by qualified majority. For those purposes, the European Parliament or the Council may inform the Commission that it considers the conditions for the removal of the Chair, the Vice-Chair or the members referred to in Article 43(1)(b) from office to be fulfilled, to which the Commission shall respond.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 56 Appointment and tasks):
1. The Board shall be chaired by a full-time Chair. In the performance of the tasks referred to in this Article, the Chair shall be assisted by a dedicated staff. 3. The Chair shall be assisted by a Vice-Chair. The Vice-Chair shall carry out the functions of the Chair in his or her absence or reasonable impediment, in accordance with this Regulation. 4. The Chair, the Vice-Chair and the members referred to in Article 43(1)(b) shall be appointed on the basis of merit, skills, knowledge of banking and financial matters, and of experience relevant to financial supervision, regulation as well as bank resolution. The Chair, the Vice-Chair and the members referred to in Article 43(1)(b) shall be chosen on the basis of an open selection procedure, which shall respect the principles of gender balance, experience and qualification. The European Parliament and the Council shall be kept duly informed at every stage of that procedure in a timely manner. 5. The term of office of the Chair, of the Vice-Chair and of the members referred to in Article 43(1)(b) shall be five years. Subject to paragraph 7 of this Article, that term shall not be renewable. The Chair, the Vice-Chair and the members referred to in Article 43(1)(b) shall not hold office at national, Union, or international level. 6. After hearing the Board, in its plenary session, the Commission shall provide to the European Parliament a shortlist of candidates for the positions of Chair, Vice-Chair and members referred to in Article 43(1)(b) and inform the Council of the shortlist. By way of derogation from the first subparagraph, for the appointment of the first members of the Board following the entry into force of this Regulation, the Commission shall provide the shortlist of candidates without hearing the Board. The Commission shall submit a proposal for the appointment of the Chair, the Vice-Chair and the members referred to in Article 43(1)(b) to the European Parliament for approval. Following the approval of that proposal, the Council shall adopt an implementing decision to appoint the Chair, the Vice-Chair and the members referred to in Article 43(1)(b). The Council shall act by qualified majority. 7. By way of derogation from paragraph 5, the term of office of the first Chair appointed after the entry into force of this Regulation shall be three years. That term shall be renewable once for a period of five years. The Chair, the Vice-Chair, and the members referred to in Article 43(1)(b) shall remain in office until their successors are appointed. 8. A Chair whose term of office has been extended shall not participate in another selection procedure for the same post at the end of the overall period. 9. If the Chair or the Vice-Chair or a member referred to in Article 43(1)(b) no longer fulfil the conditions required for the performance of his or her duties or has been guilty of serious misconduct, the Council may, on a proposal from the Commission which has been approved by the European Parliament, adopt an implementing decision to remove him or her from office. The Council shall act by qualified majority. For those purposes, the European Parliament or the Council may inform the Commission that it considers the conditions for the removal of the Chair, the Vice-Chair or the members referred to in Article 43(1)(b) from office to be fulfilled, to which the Commission shall respond.
Article 57 Resources
1. The Board shall be responsible for devoting the necessary financial and human resources to the performance of the tasks conferred on it by this Regulation. 2. The funding of the Board's budget or its resolution activities under this Regulation may under no circumstances engage the budgetary liability of the Member States.
Article 58 Budget
1. The Board shall have an autonomous budget which is not part of the Union budget. Estimates of all of the Board's revenue and expenditure shall be prepared for each financial year, corresponding to the calendar year, and shall be shown in the Board's budget. 2. The Board's budget shall be balanced in terms of revenue and expenditure. 3. The budget shall comprise two parts: Part I for the administration of the Board and Part II for the Fund.
Article 59 Part I of the budget on the administration of the Board
1. The revenues of Part I of the budget shall consist of the annual contributions necessary to cover the annual estimated administrative expenditure. 2. The expenditure of Part I of the budget shall include at least staff, remuneration, administrative, infrastructure, professional training and operational expenses. 3. This Article is without prejudice to the right of the national resolution authorities to levy fees in accordance with national law, in respect of their administrative expenditures of the types referred to in paragraphs 1 and 2, including expenditures for cooperating with and assisting the Board.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Article 60 Part II of the budget on the Fund
1. The revenues of Part II of the budget shall consist, in particular, of the following: (a) contributions paid by institutions established in the participating Member States in accordance with Article 67(4) and Articles 69, 70 and 71; (b) loans received from other resolution financing arrangements in non-participating Member States in accordance with Article 72(1); (c) loans received from financial institutions or other third parties in accordance with Articles 73 and 74; (d) returns on the investments of the amounts held in the Fund in accordance with Article 75; (e) any part of the expenses incurred for the purposes indicated in Article 76 which are recovered in the resolution proceedings. 2. The expenditure of Part II of the budget shall consist of the following: (a) expenses for the purposes indicated in Article 76; (b) investments in accordance with Article 75; (c) interest paid on loans received from other resolution financing arrangements in non-participating Member States in accordance with Article 72(1); (d) interest paid on loans received from financial institutions or other third parties in accordance with Articles 73 and 74.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Article 61 Establishment and implementation of the budget
1. By 15 February each year, the Chair shall draw up a draft budget of the Board, including a statement of estimates of the Board's revenue and expenditure for the following year together with the establishment plan and shall submit it to the Board for adoption. 2. By 31 March each year, the Board in its plenary session shall, where necessary, adjust the draft submitted by the Chair and adopt the final budget of the Board together with the establishment plan.
Article 62 Internal audit and control
1. An internal audit function shall be set up within the Board, to be performed in compliance with the relevant international standards. The internal auditor, appointed by the Board, shall be responsible to it for verifying the proper operation of budget implementation systems and budgetary procedures of the Board. 2. The internal auditor shall advise the Board on dealing with risks, by issuing independent opinions on the quality of management and control systems and by issuing recommendations for improving the conditions of implementation of operations and promoting sound financial management. 3. The responsibility for putting in place internal control systems and procedures suitable for performing the tasks of the internal auditor shall lie with the Board.
Article 63 Implementation of the budget, presentation of accounts and discharge
1. The Chair shall act as authorising officer and shall implement the Board's budget. 2. By 1 March of the following financial year, the Board's Accounting Officer shall send the provisional accounts, accompanied by the report on budgetary and financial management during the financial year, to the Court of Auditors for observations. By 31 March of the following financial year, the Board's Accounting Officer shall submit the report on budgetary and financial management to the members of the Board, and to the European Parliament, the Council and the Commission. 3. By 31 March each year, the Chair shall transmit to the European Parliament, the Council and the Commission the Board's provisional accounts for the preceding financial year. 4. On receipt of the Court of Auditors' observations on the Board's provisional accounts, the Chair, acting on his or her own responsibility, shall draw up the Board's final accounts and shall send them to the Board in its plenary session, for approval. 5. The Chair shall, following the approval by the Board, by 1 July each year, send the final accounts for the preceding financial year to the European Parliament, the Council, the Commission, and the Court of Auditors. 6. Where observations are received from the Court of Auditors, the Chair shall send a reply by 30 September. 7. By 15 November each year, the final accounts for the preceding financial year shall be published in the Official Journal of the European Union . 8. The Board, in its plenary session, shall give discharge to the Chair in respect of the implementation of the budget. 9. The Chair shall submit at the request of either the European Parliament or the Council, any information referred to in the Board's accounts to the requesting Union institution, subject to the requirements of professional secrecy laid down in this Regulation.
Article 64 Financial rules
The Board shall, after consulting the Court of Auditors and the Commission, adopt internal financial provisions specifying, in particular, the detailed procedure for establishing and implementing its budget in accordance with Articles 61 and 63. As far as is compatible with the particular nature of the Board, the financial provisions shall be based on the framework financial Regulation adopted for bodies set up under the TFEU in accordance with Article 208 of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council ( 20 ) .
Article 65 Contributions to the administrative expenditures of the Board
1. Entities referred to in Article 2 shall contribute to part I of the budget of the Board in accordance with this Regulation and the delegated acts on contributions adopted pursuant to paragraph 5 of this Article. 2. The amounts of the contributions shall be fixed at such a level as to ensure that the revenue in respect thereof is in principle sufficient for part I of the budget of the Board to be balanced each year. 3. The Board shall determine and raise, in accordance with the delegated acts referred to in paragraph 5 of this Article, the contributions due by each entity referred to in Article 2 in a decision addressed to the entity concerned. The Board shall apply procedural, reporting and other rules ensuring that contributions are paid fully and in a timely manner. 4. The amounts raised in accordance with paragraphs 1, 2, 3 shall be used only for the purposes of this Regulation. 5. The Commission shall be empowered to adopt delegated acts on contributions in accordance with Article 93 in order to: (a) determine the type of contributions and the matters for which contributions are due, the manner in which the amount of the contributions is calculated, and the way in which they are to be paid; (b) specify registration, accounting, reporting and other rules referred to in paragraph 3 necessary to ensure that the contributions are paid fully and in a timely manner; (c) determine the annual contributions necessary to cover the administrative expenditure of the Board before it becomes fully operational.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (the Single Resolution Mechanism Regulation or SRMR) are part of the crisis management and deposit insurance legislative package that also includes additional amendments to those acts and to Directive 2014/49/EU 3 (the Deposit Guarantee Schemes Directive or DGSD). The EU crisis management framework is well-established, however, recent episodes of bank failures have shown that there is need for improvements. The aim of the CMDI reform is to build on the objectives of the crisis management framework and to ensure a more consistent approach to resolution, so that any bank in crisis can exit the market in an orderly manner, while preserving financial stability, taxpayer money and ensuring depositor confidence. In particular, the existing resolution framework for smaller and medium-sized banks needs to be strengthened with respect to its design, implementation and, most importantly, incentives for its application, so that it can be more credibly applied to those banks. In the aftermath of the global financial and sovereign debt crises, the EU took decisive actions, in line with international calls for reform, to create a safer financial sector for the EU single market. This included providing authorities with the tools and powers to handle the failure of any bank in an orderly manner while preserving financial stability, public finances and depositor protection. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s of four main EU legislative texts adopted in 2013 and 2014 acting together with relevant national legislation : a regulation and a directive on prudential requirements for and supervision of institutions ( the Capital Requirements Regulation ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s concerned (i) the implementation in the EU of the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet ’ , published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’) 7 , for global systemically important banks, referred to in the EU legislation as global systemically important institutions ; and (ii) the amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out in BRRD and SRMR . The objective of these reforms was to ensure that the loss absorption and recapitalisation of banks, when those banks become financially unviable and are subsequently placed in resolution, would occur through private means. The revision also clarified the application of MREL at the level of subsidiaries within banking groups by introducing the concept of ‘internal MREL’ in line with a similar concept included in the TLAC standard. These requirements aim to ensure that internal arrangements are in place between group entities to transfer losses from group entities to the resolution entity, i.e. typically the parent undertaking, without placing the group entities into formal resolution, which could potentially have disruptive effects on the market. To implement this mechanism, group entities are required, based on the decision of the resolution authorities, to issue eligible liabilities that should be subscribed directly or indirectly by the resolution entity. The EU MREL framework was further amended by Regulation (EU) 2022/2036 of the European Parliament and of the Council 8 , which established methods for the indirect subscription of instruments eligible for meeting the internal MREL. On the basis of a technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD , t he regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and the resolution entity) to ensure the effective application of internal loss transfer s in the MREL framework. Under this mechanism, referred to as a full holdings-based deduction approach, intermediate entities are required to deduct from their own internal MREL capacity the holdings of internal MREL eligible instruments issued by other entities tha t are part of the same resolution group . The text also specifies that intermediate entities complying with internal MREL on a consolidated basis are exempted from the obligation to deduct their holdings of instruments issued by the entities included in the consolidation . This approach was preferred to a requirement-based deduction approach where the amount of deductions required of the intermediate entities would be limited by a cap corresponding to the level of the internal MREL of the issuing entity belonging to the same resolution group. Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of the deduction approach for indirect subscription of internal MREL eligible resources across the different types of banking group structures, to assess any potential unintended consequences of the new deduction mechanism and to ensure proportionate treatment and a level playing field, particularly with regard to chains of ownership that include an operating company between a parent holding company and its subsidiaries (‘holdco structures’ in opposition to ‘opco structures’, where the parent entity is not a holding company). The Commission was asked to assess: (i) the possibility of allowing compliance with internal MREL on a consolidated basis in additional situations; (ii) the treatment of entities whose resolution plan provides that they are to be wound up under normal insolvency proceedings (‘liquidation entities’); and (iii) the appropriateness of limiting the deductions to an amount equivalent to the internal MREL of the issuing entity. Based on an analysis of the deduction mechanism introduced in the Regulation and a quantitative impact assessment using data provided by the Single Resolution Board (SRB), the Commission found that targeted amendments to the BRRD and the SRMR with respect to the scope of application of internal MREL requirements and the treatment of liquidation entities are necessary and appropriate. The proposed amendments will contribute to the resolvability of banks by improving the functioning and proportionality of the deduction mechanism, and will ensure that it does not create level playing field issues between different banking group structures. Given that the corresponding provisions are already in force and will become applicable in the EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The need for speedy adoption is further amplified by the fact that banking groups need clarity on the deduction mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline, also set on 1 January 2024. 
Revised version (Article 65 Contributions to the administrative expenditures of the Board):
1. Entities referred to in Article 2 shall contribute to part I of the budget of the Board in accordance with this Regulation and the delegated acts on contributions adopted pursuant to paragraph 5 of this Article. 2. The amounts of the contributions shall be fixed at such a level as to ensure that the revenue in respect thereof is in principle sufficient for part I of the budget of the Board to be balanced each year. 3. The Board shall determine and raise, in accordance with the delegated acts referred to in paragraph 5 of this Article, the contributions due by each entity referred to in Article 2 in a decision addressed to the entity concerned. The Board shall apply procedural, reporting and other rules ensuring that contributions are paid fully and in a timely manner. 4. The amounts raised in accordance with paragraphs 1, 2, 3 shall be used only for the purposes of this Regulation.
Article 66 Anti-fraud measures
1. For the purposes of combating fraud, corruption and any other unlawful activity under Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council ( 21 ) , within six months from the day the Board becomes operational, it shall accede to the Interinstitutional Agreement of 25 May 1999 concerning internal investigations by OLAF and shall immediately adopt appropriate provisions applicable to all staff of the Board using the template set out in the Annex to that Interinstitutional Agreement. 2. The Court of Auditors shall have the power of audit, on the basis of documents and on the spot, over the beneficiaries, contractors and subcontractors who have received funds from the Board. 3. OLAF may carry out investigations, including on-the-spot checks and inspections with a view to establishing whether there has been fraud, corruption or other illegal activity affecting the financial interests of the Union in connection with a contract funded by the Board in accordance with the provisions and procedures laid down in Council Regulation (Euratom, EC) No 2185/96 ( 22 ) and Regulation (EU, Euratom) No 883/2013.
Article 67 General provisions
1. The Single Resolution Fund (‘the Fund’) is hereby established. It shall be filled in accordance with the rules on transferring the funds raised at national level towards the Fund as laid down in the Agreement. 2. The Board shall use the Fund only for the purpose of ensuring the efficient application of the resolution tools and exercise of the resolution powers referred to in Part II, Title I and in accordance with the resolution objectives and the principles governing resolution referred to in Articles 14 and 15. Under no circumstances shall the Union budget or the national budgets be held liable for expenses or losses of the Fund. 3. The owner of the Fund shall be the Board. 4. Contributions referred to in Articles 69, 70 and 71 shall be raised from entities referred to in Article 2 by the national resolution authorities and transferred to the Fund in accordance with the Agreement.
Article 68 Requirement to establish resolution financing arrangements
Participating Member States shall establish financing arrangements in accordance with Article 100 of Directive 2014/59/EU and with this Regulation.