Article 472 Items not deducted from Common Equity Tier 1
1. By way of derogation from point (c) of Article 33(1) and points (a) to (i) of Article 36(1), during the period from 1 January 2014 to 31 December 2017, institutions shall apply this Article to the residual amounts of items referred to in Article 468(4) and in points (b) and (d) of Article 469(1), as applicable. 2. The residual amount of the valuation adjustments to derivative liabilities arising from an institution's own credit risk shall not be deducted. 3. Institutions shall apply the following to the residual amount of losses of the current financial year referred to in point (a) of Article 36(1): (a) losses that are material are deducted from Tier 1 items; (b) losses that are not material are not deducted. 4. Institutions shall deduct the residual amount of the intangible assets referred to in point (b) of Article 36(1) from Tier 1 items. 5. The residual amount of the deferred tax assets referred to in point (c) of Article 36(1) shall not be deducted and shall be subject to a risk weight of 0 %. 6. The residual amount of the items referred to in point (d) of Article 36(1) shall be deducted half from Tier 1 items and half from Tier 2 items. 7. The residual amount of the assets of a defined benefit pension fund referred to in point (e) of Article 36(1) shall not be deducted from any element of own funds and shall be included in Common Equity Tier 1 items to the extent that amount would have been recognised as original own funds in accordance with the national transposition measures for points (a) to (ca) of Article 57 of Directive 2006/48/EC. 8. Institutions shall apply the following to the residual amount of holdings of own Common Equity Tier 1 instruments referred to in point (f) of Article 36(1): (a) the amount of direct holdings is deducted from Tier 1 items; (b) the amount of indirect and synthetic holdings, including own Common Equity Tier 1 instruments that an institution could be obliged to purchase by virtue of an existing or contingent contractual obligation, is not deducted and is subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable. 9. Institutions shall apply the following to the residual amount of holdings of Common Equity Tier 1 instruments of a financial sector entity where the institution has reciprocal cross holdings with that entity referred to in point (g) of Article 36(1): (a) where an institution does not have a significant investment in that financial sector entity, the amount of its holding of the Common Equity Tier 1 instruments of that entity is treated as falling under point (h) of Article 36(1); (b) where an institution has a significant investment in that financial sector entity, the amount of its holdings of Common Equity Tier 1 instruments of that entity is treated as falling under point (i) of Article 36(1). 10. Institutions shall apply the following to the residual amounts of items referred to in point (h) of Article 36(1): (a) the amounts required to be deducted that relate to direct holdings are deducted half from Tier 1 items and half from Tier 2 items; (b) the amounts that relate to indirect and synthetic holdings are not deducted and are subject to a risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable. 11. Institutions shall apply the following to the residual amounts of the items referred to in point (i) of Article 36(1): (b) the amounts that relate to indirect and synthetic holdings are not deducted and are subject to risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 472 Items not deducted from Common Equity Tier 1):
2. The residual amount of the valuation adjustments to derivative liabilities arising from an institution's own credit risk shall not be deducted. 3. Institutions shall apply the following to the residual amount of losses of the current financial year referred to in point (a) of Article 36(1): (a) losses that are material are deducted from Tier 1 items; (b) losses that are not material are not deducted. 4. Institutions shall deduct the residual amount of the intangible assets referred to in point (b) of Article 36(1) from Tier 1 items. 5. The residual amount of the deferred tax assets referred to in point (c) of Article 36(1) shall not be deducted and shall be subject to a risk weight of 0 %. 6. The residual amount of the items referred to in point (d) of Article 36(1) shall be deducted half from Tier 1 items and half from Tier 2 items. 8. Institutions shall apply the following to the residual amount of holdings of own Common Equity Tier 1 instruments referred to in point (f) of Article 36(1): (a) the amount of direct holdings is deducted from Tier 1 items; (b) the amount of indirect and synthetic holdings, including own Common Equity Tier 1 instruments that an institution could be obliged to purchase by virtue of an existing or contingent contractual obligation, is not deducted and is subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable. 9. Institutions shall apply the following to the residual amount of holdings of Common Equity Tier 1 instruments of a financial sector entity where the institution has reciprocal cross holdings with that entity referred to in point (g) of Article 36(1): where an institution does not have a significant investment in that financial sector entity, the amount of its holding of the Common Equity Tier 1 instruments of that entity is treated as falling under point (h) of Article 36(1); where an institution has a significant investment in that financial sector entity, the amount of its holdings of Common Equity Tier 1 instruments of that entity is treated as falling under point (i) of Article 36(1). 10. Institutions shall apply the following to the residual amounts of items referred to in point (h) of Article 36(1): (a) the amounts required to be deducted that relate to direct holdings are deducted half from Tier 1 items and half from Tier 2 items; (b) the amounts that relate to indirect and synthetic holdings are not deducted and are subject to a risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable. 11. Institutions shall apply the following to the residual amounts of the items referred to in point (i) of Article 36(1): (b) the amounts that relate to indirect and synthetic holdings are not deducted and are subject to risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable.
Article 473 Introduction of amendments to IAS 19
1. By way of derogation from Article 481 during the period from 1 January 2014 until 31 December 2018, competent authorities may permit institutions that prepare their accounts in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) of Regulation (EC) No 1606/2002 to add to their Common Equity Tier 1 capital the applicable amount in accordance with paragraph 2 or 3 of this Article, as applicable, multiplied by the factor applied in accordance with paragraph 4. 2. The applicable amount shall be calculated by deducting from the sum derived in accordance with point (a) the sum derived in accordance with point (b): (a) institutions shall determine the values of the assets of their defined benefit pension funds or plans, as applicable, in accordance with Regulation (EC) No 1126/2008 ( 33 ) as amended by Regulation (EU) No 1205/2011 ( 34 ). Institutions shall then deduct from the values of these assets the values of the obligations under the same funds or plans determined according to the same accounting rules; (b) institutions shall determine the values of the assets of their defined pension funds or plans, as applicable, in accordance with the rules set out in Regulation (EC) No 1126/2008. Institutions shall then deduct from the values of those assets, the values of the obligations under the same funds or plans determined in accordance with the same accounting rules. 3. The amount determined in accordance with paragraph 2 shall be limited to the amount not required to be deducted from own funds, prior to 1 January 2014, under national transposition measures of Directive 2006/48/EC, insofar as those national transposition measures would be eligible for the treatment set out in Article 481 of this Regulation in the Member State concerned. 4. The following factors apply: (a) 1 in the period from 1 January 2014 to 31 December 2014; (b) 0,8 in the period from 1 January 2015 to 31 December 2015; (c) 0,6 in the period from 1 January 2016 to 31 December 2016; (d) 0,4 in the period from 1 January 2017 to 31 December 2017; (e) 0,2 in the period from 1 January 2018 to 31 December 2018. 5. Institutions shall disclose the values of assets and liabilities in accordance with paragraph 2 in their published financial statements. Sub-Section 2 Deductions from Additional Tier 1 items
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Promoting the development of a securitisation market based on sound practices will contribute to a return to sustainable growth and job creation, consistent with the Commission's priority objective. Furthermore, a common, high quality EU securitisation framework will promote further integration of financial markets in the Union, help diversify funding sources and unlock capital, making it easier for credit institutions to lend to households and businesses. In order to attain this objective, the following two steps must be taken. The first step is to develop a common substantive framework for securitisations for all participants in this market and identify a subset of transactions meeting certain eligibility criteria: simple, transparent and standardised securitisations or STS securitisations. This is the subject of the Commission Proposal for a Securitisation Regulation. The second step is to make amendments to the regulatory framework of securitisations in EU law, including in the area of capital charges for credit institutions and investment firms originating, sponsoring or investing in these instruments, to provide for a more risk-sensitive regulatory treatment for STS securitisations. Such differentiated regulatory treatment already exists in certain le gislative instruments, in particular in the Delegated Act on the prudential requirements the liquidity of banks (Liquidity Coverage Ratio) 1 . This must now be complemented by an amendment to the regulatory capital treatment for securitisations in Regulation No. 575/2013 (the "CRR") 2 . The current securitisation framework in the CRR is essentially based on the standards developed by the Basel Committee on Banking Supervision ("BCBS") more than a decade ago and these do not make any distinction between STS secu ritisations and other more complex and opaque transactions. The global financial crisis revealed a number of shortcomings in the current securitisation framework. These include: mechanistic reliance on external ratings in determining capital requirements; insufficient risk-sensitivity due to the lack of sufficient risk drivers across approaches in determining risk weights; procyclical cliff effects in capital requirements. In order to address these shortcomings and contribute to enhancing the resilience of institutions to market shocks, the BCBS adopted a recommendation for a revised securitisation framework in December 2014 3 ("the Revised Basel Framework"). The Revised Basel Framework has been designed to reduce the complexity of the current r egulatory capital requirements, reflect better the risks of positions in a securitisation and allow the use of the information available to institution to allocate capital requirements based on their own calculations, thus reducing reliance on external rat ings. Under the Revised Basel Framework, institutions may calculate capital requirements for their securitisation positions in accordance with a single hierarchy of approaches, which starts with the Internal Ratings Based Approach at the top. If an institu tion cannot use the approach based on internal ratings, it must use an External Ratings Based Approach, provided the exposure has an external credit assessment which meets a series of operational requirements. In case the Institution cannot use the Externa l Ratings Based Approach, either because is located in a jurisdiction that doesn't permit its use or because it lacks the information needed to use that approach, shall use a Standardised Approach based on a supervisory-provided formula. The Revised Basel Framework does not currently provide for a more risk-sensitive treatment for STS securitisations. However the BCBS is currently working on the incorporation in the new framework 4 of the STS criteria adopted jointly with the International Organisation of S ecurities Commission (IOSCO) on 23 July 2015. No outcome is expected from this workstream before mid-2016. At an European level, following a call for advice from the Commission, the European Banking Authority ("EBA") issued a report on qualifying securitis ations on 7 July 2015 5 which recommended lowering capital charges for STS securitisations to a prudent level relative to those set out in the Revised Basel Framework and amend the regulatory capital requirements for securitisations set out in the CRR in li ne with the Revised Basel Framework to address the weaknesses of the current rules. For STS securitisations, the EBA re-calibrated downwards the 3 approaches developed by the BCBS for the Revised Basel Framework. In order to contribute to the overarching objectives of the Commission Proposal for a Securitisation Regulation of restarting securitisation markets on a more sustainable basis and making this a safe and efficient instrument for funding and risk management, it is proposed to amend the regulatory capital requirements for securitisations in the CRR in order to: - implement the regulatory capital calculation approaches set out in the Revised Basel Framework (Articles 254 to 268); and - introduce a re-calibration for STS securitisations, consistent with the recommendation of the EBA (Articles 243, 260, 262, and 264). In the first instance and to remove any form of mechanistic reliance on external ratings, an institution should use its own calculation of regulatory capital requirements where the institution has permission to use the Internal Ratings Based approach (IRB) in relation to exposures of the same type as those underlying the securitisation and is able to calculate regulatory capital requirements in relation to the underlying exposures as if these had not been securitised ("Kirb"), in each case subject to certain pre-defined inputs (the "SEC-IRBA"). A Securitisation External Ratings-Based Approach ("SEC-ERBA") should then be available to institutions that may not use the SEC-IRBA in relation to their positions in a given securitisation. Under the SEC-ERBA, capital requirements should be assigned to securitisation tranches on the basis of their external rating. When the first two approaches are not available or the use of the SEC-ERBA would result in incommensurate regulatory capital requirements relative to the credit risk embedded in the underlying exposures, institutions should be able to apply the Securitisation Standardised Approach (the "SEC-SA") which should rely on a supervisory-provided formula using as an input the capital requirements that would be calculated under the SA in relation to the underlying exposures if these had not been securitised ("Ksa"). In addition to contributing to the re-launch of securitisation markets, this proposal will also allow the Commission to act as a front-runner with regard to potential future developments of the BCBS workstream on the regulatory treatment of STS securitisations and contribute to achieving the objectives of such workstream from an EU perspective. No later than 3-years from the entry into force of this Regulation the Commission will review the proposed approach to capital requirements for securitisation exposures, including the hierarchy of approaches, taking into account its impact on securitisation markets developments and the need to preserve financial stability in the EU. 
Revised version (Article 473 Introduction of amendments to IAS 19):
1. By way of derogation from Article 481 during the period from 1 January 2014 until 31 December 2018, competent authorities may permit institutions that prepare their accounts in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) of Regulation (EC) No 1606/2002 to add to their Common Equity Tier 1 capital the applicable amount in accordance with paragraph 2 or 3 of this Article, as applicable, multiplied by the factor applied in accordance with paragraph 4. 2. The applicable amount shall be calculated by deducting from the sum derived in accordance with point (a) the sum derived in accordance with point (b): (a) institutions shall determine the values of the assets of their defined benefit pension funds or plans, as applicable, in accordance with Regulation (EC) No 1126/2008 ( 14 ) as amended by Regulation (EU) No 1205/2011 ( 15 ). Institutions shall then deduct from the values of these assets the values of the obligations under the same funds or plans determined according to the same accounting rules; (b) institutions shall determine the values of the assets of their defined pension funds or plans, as applicable, in accordance with the rules set out in Regulation (EC) No 1126/2008. Institutions shall then deduct from the values of those assets, the values of the obligations under the same funds or plans determined in accordance with the same accounting rules. 3. The amount determined in accordance with paragraph 2 shall be limited to the amount not required to be deducted from own funds, prior to 1 January 2014, under national transposition measures of Directive 2006/48/EC, insofar as those national transposition measures would be eligible for the treatment set out in Article 481 of this Regulation in the Member State concerned. 4. The following factors apply: (a) 1 in the period from 1 January 2014 to 31 December 2014; (b) 0,8 in the period from 1 January 2015 to 31 December 2015; (c) 0,6 in the period from 1 January 2016 to 31 December 2016; (d) 0,4 in the period from 1 January 2017 to 31 December 2017; (e) 0,2 in the period from 1 January 2018 to 31 December 2018. 5. Institutions shall disclose the values of assets and liabilities in accordance with paragraph 2 in their published financial statements.
Article 474 Deductions from Additional Tier 1 items
By way of derogation from Article 56, during the period from 1 January 2014 to 31 December 2017, the following shall apply: (a) institutions shall deduct from Additional Tier 1 items the applicable percentage specified in Article 478 of the amounts required to be deducted pursuant to Article 56; (b) institutions shall apply the requirements laid down in Article 475 to the residual amounts of the items required to be deducted pursuant to Article 56.
Article 475 Items not deducted from Additional Tier 1 items
1. By way of derogation from Article 56, during the period from 1 January 2014 to 31 December 2017, the requirements laid down in this Article shall apply to the residual amounts referred to in point (b) of Article 474. 2. Institutions shall apply the following to the residual amount of the items referred to in point (a) of Article 56: (a) direct holdings of own Additional Tier 1 instruments are deducted at book value from Tier 1 items; (b) indirect and synthetic holdings of own Additional Tier 1 instruments, including own Additional Tier 1 instruments that an institution could be obliged to purchase by virtue of an existing or contingent contractual obligation, are not deducted and are risk weighted in accordance with Chapter 2 or 3 of Title II of Part Three and subject to the requirements of Title IV of Part Three, as applicable. 3. Institutions shall apply the following to the residual amount of the items referred to in point (b) of Article 56: (a) where an institution does not have a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of its direct, indirect and synthetic holdings of those Additional Tier 1 instruments of that entity is treated as falling within point (c) of Article 56; (b) where the institution has a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of its direct, indirect and synthetic holdings of those Additional Tier 1 instruments of that entity is treated as falling within point (d) of Article 56. 4. Institutions shall apply the following to the residual amount of the items referred to in points (c) and (d) of Article 56: (a) the amount relating to direct holdings required to be deducted in accordance with points (c) and (d) of Article 56 are deducted half from Tier 1 items and half from Tier 2 items; (b) the amount relating to indirect and synthetic holdings required to be deducted in accordance with points (c) and (d) of Article 56 shall not be deducted and shall be subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements of Title IV of Part Three, as applicable. Sub-Section 3 Deductions from Tier 2 items
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives . EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT 3 recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 4 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerabilit y . Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place . It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction.
Revised version (Article 475 Items not deducted from Additional Tier 1 items):
1. By way of derogation from Article 56, during the period from 1 January 2014 to 31 December 2017, the requirements laid down in this Article shall apply to the residual amounts referred to in point (b) of Article 474.
Article 476 Deductions from Tier 2 items
By way of derogation from Article 66, during the period from 1 January 2014 to 31 December 2017, the following shall apply: (a) institutions shall deduct from Tier 2 items the applicable percentage specified in Article 478 of the amounts required to be deducted pursuant to Article 66; (b) institutions shall apply the requirements laid down in Article 477 to the residual amounts required to be deducted pursuant to Article 66.
Article 477 Deductions from Tier 2 items
1. By way of derogation from Article 66, during the period from 1 January 2014 to 31 December 2017, the requirements laid down in this Article shall apply to the residual amounts referred to in point (b) of Article 476. 2. Institutions shall apply the following to the residual amount of items referred to in point (a) of Article 66: (a) direct holdings of own Tier 2 instruments are deducted at book value from Tier 2 items; (b) indirect and synthetic holdings of own Tier 2 instruments, including own Tier 2 instruments that an institution could be obliged to purchase by virtue of an existing or contingent contractual obligation are not deducted and are risk weighted in accordance with Chapter 2 or 3 of Title II of Part Three and subject to the requirements of Title IV of Part Three, as applicable. 3. Institutions shall apply the following to the residual amount of the items referred to in point (b) of Article 66: (a) where an institution does not have a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of its direct, indirect and synthetic holdings of the Tier 2 instruments of that entity is treated as falling within point (c) of Article 66; (b) where the institution has a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of direct, indirect and synthetic holdings of the Tier 2 instruments of that financial sector entity are treated as falling within point (d) of Article 66. 4. Institutions shall apply the following to the residual amount of the items referred to in points (c) and (d) of Article 66: (a) the amount relating to direct holdings that is required to be deducted in accordance with points (c) and (d) of Article 66 is deducted half from Tier 1 items and half from Tier 2 items; (b) the amount relating to indirect and synthetic holdings that is required to be deducted in accordance with points (c) and (d) of Article 66 is not be deducted and is subject to a risk weight under Chapter 2 or 3 of Title II of Part Three and the requirements laid down in Title IV of Part Three, as applicable. Sub-Section 4 Applicable percentages for deduction
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives . EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT 3 recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 4 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerabilit y . Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place . It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction.
Revised version (Article 477 Deductions from Tier 2 items):
1. By way of derogation from Article 66, during the period from 1 January 2014 to 31 December 2017, the requirements laid down in this Article shall apply to the residual amounts referred to in point (b) of Article 476.
Article 478 Applicable percentages for deduction from Common Equity Tier 1, Additional Tier 1 and Tier 2 items
1. The applicable percentage for the purposes of Article 468(4), points (a) and (c) of Article 469(1), point (a) of Article 474 and point (a) of Article 476 shall fall within the following ranges: (a) 20 % to 100 % for the period from 1 January 2014 to 31 December 2014; (b) 40 % to 100 % for the period from 1 January 2015 to 31 December 2015; (c) 60 % to 100 % for the period from 1 January 2016 to 31 December 2016; (d) 80 % to 100 % for the period from 1 January 2017 to 31 December 2017. 2. By way of derogation from paragraph 1, for the items referred in point (c) of Article 36(1) that existed prior to 1 January 2014, the applicable percentage for the purpose of point (c) of Article 469(1) shall fall within the following ranges: (a) 0 % to 100 % for the period from 1 January 2014 to 31 December 2014; (b) 10 % to 100 % for the period from 1 January 2015 to 31 December 2015; (c) 20 % to 100 % for the period from 1 January 2016 to 31 December 2016; (d) 30 % to 100 % for the period from 1 January 2017 to 31 December 2017; (e) 40 % to 100 % for the period from 1 January 2018 to 31 December 2018; (f) 50 % to 100 % for the period from 1 January 2019 to 31 December 2019; (g) 60 % to 100 % for the period from 1 January 2020 to 31 December 2020; (h) 70 % to 100 % for the period from 1 January 2021 to 31 December 2021; (i) 80 % to 100 % for the period from 1 January 2022 to 31 December 2022; (j) 90 % to 100 % for the period from 1 January 2023 to 31 December 2023. 3. Competent authorities shall determine and publish an applicable percentage in the ranges specified in paragraphs 1 and 2 for each of the following deductions: (a) the individual deductions required pursuant to points (a) to (h) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences; (b) the aggregate amount of deferred tax assets that rely on future profitability and arise from temporary differences and the items referred to in point (i) of Article 36(1) that is required to be deducted pursuant to Article 48; (c) each deduction required pursuant to points (b) to (d) of Article 56; (d) each deduction required pursuant to points (b) to (d) of Article 66.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 478 Applicable percentages for deduction from Common Equity Tier 1, Additional Tier 1 and Tier 2 items):
(a) 20 % to 100 % for the period from 1 January 2014 to 31 December 2014; 20 % to 100 % for the period from 1 January 2014 to 31 December 2014; (b) 40 % to 100 % for the period from 1 January 2015 to 31 December 2015; 40 % to 100 % for the period from 1 January 2015 to 31 December 2015; (c) 60 % to 100 % for the period from 1 January 2016 to 31 December 2016; 60 % to 100 % for the period from 1 January 2016 to 31 December 2016; (d) 80 % to 100 % for the period from 1 January 2017 to 31 December 2017. 80 % to 100 % for the period from 1 January 2017 to 31 December 2017. (a) 0 % to 100 % for the period from 1 January 2014 to 31 December 2014; (b) 10 % to 100 % for the period from 1 January 2015 to 31 December 2015; (c) 20 % to 100 % for the period from 1 January 2016 to 31 December 2016; (d) 30 % to 100 % for the period from 1 January 2017 to 31 December 2017; (e) 40 % to 100 % for the period from 1 January 2018 to 31 December 2018; 40 % to 100 % for the period from 1 January 2018 to 31 December 2018; (f) 50 % to 100 % for the period from 1 January 2019 to 31 December 2019; 50 % to 100 % for the period from 1 January 2019 to 31 December 2019; (g) 60 % to 100 % for the period from 1 January 2020 to 31 December 2020; 60 % to 100 % for the period from 1 January 2020 to 31 December 2020; (h) 70 % to 100 % for the period from 1 January 2021 to 31 December 2021; 70 % to 100 % for the period from 1 January 2021 to 31 December 2021; (i) 80 % to 100 % for the period from 1 January 2022 to 31 December 2022; 80 % to 100 % for the period from 1 January 2022 to 31 December 2022; (j) 90 % to 100 % for the period from 1 January 2023 to 31 December 2023. 90 % to 100 % for the period from 1 January 2023 to 31 December 2023. 3. Competent authorities shall determine and publish an applicable percentage in the ranges specified in paragraphs 1 and 2 for each of the following deductions: the aggregate amount of deferred tax assets that rely on future profitability and arise from temporary differences and the items referred to in point (i) of Article 36(1) that is required to be deducted pursuant to Article 48; each deduction required pursuant to points (b) to (d) of Article 56; (d) each deduction required pursuant to points (b) to (d) of Article 66.
Article 479 Recognition in consolidated Common Equity Tier 1 capital of instruments and items that do not qualify as minority interests
1. By way of derogation from Title II of Part Two, during the period from 1 January 2014 to 31 December 2017, recognition in consolidated own funds of the items that would qualify as consolidated reserves in accordance with national transposition measures for Article 65 of Directive 2006/48/EC that do not qualify as consolidated Common Equity Tier 1 capital for any of the following reasons shall be determined by the competent authorities in accordance with paragraphs 2 and 3 of this Article: (a) the instrument does not qualify as a Common Equity Tier 1 instrument, and the related retained earnings and share premium accounts consequently do not qualify as consolidated Common Equity Tier 1 items; (b) the items do not qualify as a result of Article 81(2); (c) the items do not qualify because the subsidiary is not an institution or an entity that is subject by virtue of applicable national law to the requirements of this Regulation and Directive 2013/36/EU; (d) the items do not qualify because the subsidiary is not included fully in the consolidation pursuant to Chapter 2 of Title II of Part One. 2. The applicable percentage of the items referred to in paragraph 1 that would have qualified as consolidated reserves in accordance with the national transposition measures for Article 65 of Directive 2006/48/EC shall qualify as consolidated Common Equity Tier 1 capital. 3. For the purposes of paragraph 2, the applicable percentages shall fall within the following ranges: (a) 0 % to 80 % for the period from 1 January 2014 to 31 December 2014; (b) 0 % to 60 % for the period from 1 January 2015 to 31 December 2015; (c) 0 % to 40 % for the period from 1 January 2016 to 31 December 2016; (d) 0 % to 20 % for the period from 1 January 2017 to 31 December 2017. 4. Competent authorities shall determine and publish the applicable percentage in the ranges specified in paragraph 3.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 479 Recognition in consolidated Common Equity Tier 1 capital of instruments and items that do not qualify as minority interests):
By way of derogation from Title II of Part Two, during the period from 1 January 2014 to 31 December 2017, recognition in consolidated own funds of the items that would qualify as consolidated reserves in accordance with national transposition measures for Article 65 of Directive 2006/48/EC that do not qualify as consolidated Common Equity Tier 1 capital for any of the following reasons shall be determined by the competent authorities in accordance with paragraphs 2 and 3 of this Article: (a) the instrument does not qualify as a Common Equity Tier 1 instrument, and the related retained earnings and share premium accounts consequently do not qualify as consolidated Common Equity Tier 1 items; (b) the items do not qualify as a result of Article 81(2); (c) the items do not qualify because the subsidiary is not an institution or an entity that is subject by virtue of applicable national law to the requirements of this Regulation and Directive 2013/36/EU; (d) the items do not qualify because the subsidiary is not included fully in the consolidation pursuant to Chapter 2 of Title II of Part One. 2. The applicable percentage of the items referred to in paragraph 1 that would have qualified as consolidated reserves in accordance with the national transposition measures for Article 65 of Directive 2006/48/EC shall qualify as consolidated Common Equity Tier 1 capital. For the purposes of paragraph 2, the applicable percentages shall fall within the following ranges: (a) 0 % to 80 % for the period from 1 January 2014 to 31 December 2014; 0 % to 80 % for the period from 1 January 2014 to 31 December 2014; (b) 0 % to 60 % for the period from 1 January 2015 to 31 December 2015; 0 % to 60 % for the period from 1 January 2015 to 31 December 2015; (c) 0 % to 40 % for the period from 1 January 2016 to 31 December 2016; 0 % to 40 % for the period from 1 January 2016 to 31 December 2016; (d) 0 % to 20 % for the period from 1 January 2017 to 31 December 2017. 0 % to 20 % for the period from 1 January 2017 to 31 December 2017. 4. Competent authorities shall determine and publish the applicable percentage in the ranges specified in paragraph 3.
Article 480 Recognition in consolidated own funds of minority interests and qualifying Additional Tier 1 and Tier 2 capital
1. By way of derogation from point (b) of Article 84(1), point (b) of Article 85(1) and point (b) of Article 87(1), during the period from 1 January 2014 to 31 December 2017, the percentages referred to in those Articles shall be multiplied by an applicable factor. 2. For the purposes of paragraph 1, the applicable factor shall fall within the following ranges: (a) 0,2 to 1 in the period from 1 January 2014 to 31 December 2014; (b) 0,4 to 1 in the period from 1 January 2015 to 31 December 2015; (c) 0,6 to 1 in the period from 1 January 2016 to 31 December 2016; and (d) 0,8 to 1 in the period from 1 January 2017 to 31 December 2017. 3. Competent authorities shall determine and publish the value of the applicable factor in the ranges specified in paragraph 2.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 480 Recognition in consolidated own funds of minority interests and qualifying Additional Tier 1 and Tier 2 capital):
For the purposes of paragraph 1, the applicable factor shall fall within the following ranges: (a) 0,2 to 1 in the period from 1 January 2014 to 31 December 2014; (b) 0,4 to 1 in the period from 1 January 2015 to 31 December 2015; (c) 0,6 to 1 in the period from 1 January 2016 to 31 December 2016; and (d) 0,8 to 1 in the period from 1 January 2017 to 31 December 2017. 3. Competent authorities shall determine and publish the value of the applicable factor in the ranges specified in paragraph 2.
Article 481 Additional filters and deductions
1. By way of derogation from Articles 32 to 36, 56 and 66, during the period from 1 January 2014 to 31 December 2017, institutions shall make adjustments to include in or deduct from Common Equity Tier 1 items, Tier 1 items, Tier 2 items or own funds items the applicable percentage of filters or deductions required under national transposition measures for Articles 57, 61, 63, 63a, 64 and 66 of Directive 2006/48/EC, and for Articles 13 and 16 of Directive 2006/49/EC, and which are not required in accordance with Part Two of this Regulation. 2. By way of derogation from Article 36(1)(i) and Article 49(1), during the period from the 1 January 2014 to 31 December 2014, competent authorities may require or permit institutions to apply the methods referred to in Article 49(1) where the requirements laid down in point (b) of Article 49(1) are not met, rather than the deduction required pursuant to Article 36(1). In such cases, the proportion of holdings of the own funds instruments of a financial sector entity in which the parent undertaking has a significant investment that is not required to be deducted in accordance with Article 49(1) shall be determined by the applicable percentage referred to in paragraph 4 of this Article. The amount that is not deducted shall be subject to the requirements of Article 49(4), as applicable. 3. For the purposes of paragraph 1, the applicable percentage shall fall within the following ranges: (a) 0 % to 80 % for the period from 1 January 2014 to 31 December 2014; (b) 0 % to 60 % for the period from 1 January 2015 to 31 December 2015; (c) 0 % to 40 % for the period from 1 January 2016 to 31 December 2016; (d) 0 % to 20 % for the period from 1 January 2017 to 31 December 2017. 4. For the purpose of paragraph 2, the applicable percentage shall fall between 0 % and 50 % for the period from 1 January 2014 to 31 December 2014. 5. For each filter or deduction referred to in paragraphs 1 and 2, competent authorities shall determine and publish the applicable percentages in the ranges specified in paragraphs 3 and 4. 6. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities shall determine whether adjustments made to own funds, or elements thereof, in accordance with national transposition measures for Directive 2006/48/EC or Directive 2006/49/EC that are not included in Part Two of this Regulation are, for the purposes of this Article, to be made to Common Equity Tier 1 items, Additional Tier 1 items, Tier 1 items, Tier 2 items or own funds. EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 481 Additional filters and deductions):
1. By way of derogation from Articles 32 to 36, 56 and 66, during the period from 1 January 2014 to 31 December 2017, institutions shall make adjustments to include in or deduct from Common Equity Tier 1 items, Tier 1 items, Tier 2 items or own funds items the applicable percentage of filters or deductions required under national transposition measures for Articles 57, 61, 63, 63a, 64 and 66 of Directive 2006/48/EC, and for Articles 13 and 16 of Directive 2006/49/EC, and which are not required in accordance with Part Two of this Regulation. For the purposes of paragraph 1, the applicable percentage shall fall within the following ranges: (a) 0 % to 80 % for the period from 1 January 2014 to 31 December 2014; 0 % to 80 % for the period from 1 January 2014 to 31 December 2014; (b) 0 % to 60 % for the period from 1 January 2015 to 31 December 2015; 0 % to 60 % for the period from 1 January 2015 to 31 December 2015; (c) 0 % to 40 % for the period from 1 January 2016 to 31 December 2016; 0 % to 40 % for the period from 1 January 2016 to 31 December 2016; (d) 0 % to 20 % for the period from 1 January 2017 to 31 December 2017. 0 % to 20 % for the period from 1 January 2017 to 31 December 2017. 4. For the purpose of paragraph 2, the applicable percentage shall fall between 0 % and 50 % for the period from 1 January 2014 to 31 December 2014. 5. For each filter or deduction referred to in paragraphs 1 and 2, competent authorities shall determine and publish the applicable percentages in the ranges specified in paragraphs 3 and 4. 6. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities shall determine whether adjustments made to own funds, or elements thereof, in accordance with national transposition measures for Directive 2006/48/EC or Directive 2006/49/EC that are not included in Part Two of this Regulation are, for the purposes of this Article, to be made to Common Equity Tier 1 items, Additional Tier 1 items, Tier 1 items, Tier 2 items or own funds. EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 482 Scope of application for derivatives transactions with pension funds
In respect of those transactions referred to in Article 89 of Regulation (EU) No 648/2012 and entered into with a pension scheme arrangement as defined in Article 2 of that Regulation, institutions shall not calculate own funds requirements for CVA risk as provided for in Article 382(4)(c) of this Regulation.
Article 483 Grandfathering of State aid instruments
1. By way of derogation from Articles 26 to 29, 51, 52, 62 and 63, during the period from 1 January 2014 to 31 December 2017 this Article applies to capital instruments and items where the following conditions are met: (a) the instruments were issued prior to 1 January 2014; (b) the instruments were issued within the context of recapitalisation measures pursuant to State aid rules. Insofar as part of the instruments are privately subscribed, they must be issued prior to 30 June 2012 and in conjunction with those parts that are subscribed by the Member State; (c) the instruments were considered compatible with the internal market by the Commission under Article 107 TFEU. Where the instruments are subscribed by both the Member State and private investors and there is a partial redemption of the instruments subscribed by the Member State, a corresponding share of the privately subscribed part of the instruments shall be grandfathered in accordance with Article 484. When all the instruments subscribed by the Member State have been redeemed, the remaining instruments subscribed by private investors shall be grandfathered in accordance with Article 484. 2. Instruments that qualified in accordance with the national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 instruments notwithstanding either of the following: (a) the conditions laid down in Article 28 of this Regulation are not met; (b) the instruments were issued by an undertaking referred to in Article 27 of this Regulation and the conditions laid down in Article 28 of this Regulation or, where applicable, Article 29 of this Regulation are not met. 3. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 instruments notwithstanding the fact that the requirements of point (a) or (b) of paragraph 2 of this Article are not met, provided that the requirements of paragraph 8 of this Article are met. Instruments that qualify as Common Equity Tier 1 pursuant to the first subparagraph shall not qualify as Additional Tier 1 instruments or Tier 2 instruments under paragraph 5 or 7. 4. Instruments that qualified in accordance with the national transposition measures for point (ca) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Additional Tier 1 instruments notwithstanding that the conditions laid down in Article 52(1) of this Regulation are not met. 5. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under the national transposition measures for point (ca) of Article 57 of Directive 2006/48/EC shall qualify as Additional Tier 1 instruments notwithstanding that the conditions laid down in Article 52(1) of this Regulation are not met, provided that the requirements of paragraph 8 of this Article are met. Instruments that qualify as Additional Tier 1 instruments pursuant to the first subparagraph shall not qualify as Common Equity Tier 1 instruments or Tier 2 instruments under paragraph 3 or 7. 6. Items that qualified in accordance with national transposition measures for points (f), (g) or (h) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Tier 2 instruments notwithstanding that the items are not referred to in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not met. 7. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under the national transposition measures for point (f), (g) or (h) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Tier 2 instruments notwithstanding that the items are not referred to in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not met, provided that the conditions in paragraph 8 of this Article are met. Instruments that qualify as Tier 2 instruments pursuant to the first subparagraph shall not qualify as Common Equity Tier 1 instruments or Additional Tier 1 instruments under paragraph 3 or 5. 8. Instruments referred to paragraphs 3, 5 and 7 may qualify as own funds instruments referred to in those paragraphs only where the condition in point (a) of paragraph 1 is met and where they are issued by institutions that are incorporated in a Member State that is subject to an Economic Adjustment Programme, and the issuance of those instruments is agreed or eligible under that programme.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives . EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT 3 recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 4 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerabilit y . Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place . It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction.
Revised version (Article 483 Grandfathering of State aid instruments):
1. Where the instruments are subscribed by both the Member State and private investors and there is a partial redemption of the instruments subscribed by the Member State, a corresponding share of the privately subscribed part of the instruments shall be grandfathered in accordance with Article 484. When all the instruments subscribed by the Member State have been redeemed, the remaining instruments subscribed by private investors shall be grandfathered in accordance with Article 484. 3. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 instruments notwithstanding the fact that the requirements of point (a) or (b) of paragraph 2 of this Article are not met, provided that the requirements of paragraph 8 of this Article are met. Instruments that qualify as Common Equity Tier 1 pursuant to the first subparagraph shall not qualify as Additional Tier 1 instruments or Tier 2 instruments under paragraph 5 or 7. 4. Instruments that qualified in accordance with the national transposition measures for point (ca) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Additional Tier 1 instruments notwithstanding that the conditions laid down in Article 52(1) of this Regulation are not met. 5. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under the national transposition measures for point (ca) of Article 57 of Directive 2006/48/EC shall qualify as Additional Tier 1 instruments notwithstanding that the conditions laid down in Article 52(1) of this Regulation are not met, provided that the requirements of paragraph 8 of this Article are met. Instruments that qualify as Additional Tier 1 instruments pursuant to the first subparagraph shall not qualify as Common Equity Tier 1 instruments or Tier 2 instruments under paragraph 3 or 7. 6. Items that qualified in accordance with national transposition measures for points (f), (g) or (h) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Tier 2 instruments notwithstanding that the items are not referred to in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not met. 7. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under the national transposition measures for point (f), (g) or (h) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Tier 2 instruments notwithstanding that the items are not referred to in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not met, provided that the conditions in paragraph 8 of this Article are met. Instruments that qualify as Tier 2 instruments pursuant to the first subparagraph shall not qualify as Common Equity Tier 1 instruments or Additional Tier 1 instruments under paragraph 3 or 5. 8. Instruments referred to paragraphs 3, 5 and 7 may qualify as own funds instruments referred to in those paragraphs only where the condition in point (a) of paragraph 1 is met and where they are issued by institutions that are incorporated in a Member State that is subject to an Economic Adjustment Programme, and the issuance of those instruments is agreed or eligible under that programme.
Article 484 Eligibility for grandfathering of items that qualified as own funds under national transposition measures for Directive 2006/48/EC
1. This Article shall apply only to instruments and items that were issued on or prior to 31 December 2011 and that were eligible as own funds on 31 December 2011 and are not those referred to in Article 483(1). 2. By way of derogation from Articles 26 to 29, 51, 52, 62 and 63, this Article shall apply from 1 January 2014 to 31 December 2021. 3. Subject to Article 485 of this Regulation and to the limit specified in Article 486(2) thereof, capital within the meaning of Article 22 of Directive 86/635/EEC, and the related share premium accounts, that qualified as original own funds under the national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 items notwithstanding that the conditions laid down in Article 28 or, where applicable, Article 29 of this Regulation are not met. 4. Subject to the limit specified Article 486(3) of this Regulation, instruments, and the related share premium accounts, that qualified as original own funds under national transposition measures for point (ca) of Article 57 and Article 154(8) and (9) of Directive 2006/48/EC shall qualify as Additional Tier 1 items, notwithstanding that the conditions laid down in Article 52 of this Regulation are not met. 5. Subject to the limits specified in Article 486(4) of this Regulation, items, and the related share premium accounts, that qualified under national transposition measures for points (e), (f), (g) or (h) of Article 57 of Directive 2006/48/EC shall qualify as Tier 2 items, notwithstanding that those items are not included in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not met.
Article 485 Eligibility for inclusion in the Common Equity Tier 1 of share premium accounts related to items that qualified as own funds under national transposition measures for Directive 2006/48/EC
1. This Article shall apply only to instruments that were issued prior to 31 December 2010 and are not those referred to in Article 483(1). 2. Share premium accounts related to capital within the meaning of Article 22 of Directive 86/635/EEC that qualified as original own funds under the national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 items if they meet the conditions laid down in points (i) and (j) of Article 28 of this Regulation.
Article 486 Limits for grandfathering of items within Common Equity Tier 1, Additional Tier 1 and Tier 2 items
1. From 1 January 2014 to 31 December 2021, the extent to which instruments and items referred to in Article 484 shall qualify as own funds shall be limited in accordance with this Article. 2. The amount of items referred to in Article 484(3) that shall qualify as Common Equity Tier 1 items is limited to the applicable percentage of the sum of the amounts specified in points (a) and (b) of this paragraph: (a) the nominal amount of capital referred to in Article 484(3) that were in issue on 31 December 2012; (b) the share premium accounts related to the items referred to in point (a). 3. The amount of items referred to in Article 484(4) that shall qualify as Additional Tier 1 items is limited to the applicable percentage multiplied by the result of subtracting from the sum of the amounts specified in points (a) and (b) of this paragraph the sum of the amounts specified in points (c) to (f) of this paragraph: (a) the nominal amount of instruments referred to in Article 484(4), that remained in issue on 31 December 2012; (b) the share premium accounts related to the instruments referred to in point (a); (c) the amount of instruments referred to in Article 484(4) which on 31 December 2012 exceeded the limits specified in the national transposition measures for point (a) of Article 66(1) and Article 66(1a) of Directive 2006/48/EC; (d) the share premium accounts related to the instruments referred to in point (c); (e) the nominal amount of instruments referred to Article 484(4) that were in issue on 31 December 2012 but do not qualify as Additional Tier 1 instruments pursuant to Article 489(4); (f) the share premium accounts related to the instruments referred to in point (e). 4. The amount of items referred to in Article 484(5) that shall qualify as Tier 2 items is limited to the applicable percentage of the result of subtracting from the sum of the amounts specified in points (a) to (d) of this paragraph the sum of amounts specified in points (e) to (h) of this paragraph: (a) the nominal amount of instruments referred to in Article 484(5) that remained in issue on 31 December 2012; (c) the nominal amount of subordinated loan capital that remained in issue on 31 December 2012, reduced by the amount required pursuant to national transposition measures for point (c) of Article 64(3) of Directive 2006/48/EC; (d) the nominal amount of items referred to in Article 484(5), other than the instruments and subordinated loan capital referred to in points (a) and (c) of this paragraph, that were in issue on 31 December 2012; (e) the nominal amount of instruments and items referred to in Article 484(5) that were in issue on 31 December 2012 that exceeded the limits specified in the national transposition measures for point (a) of Article 66(1) of Directive 2006/48/EC; (g) the nominal amount of instruments referred to in Article 484(5) that were in issue on 31 December 2012 that do not qualify as Tier 2 items pursuant to Article 490(4); (h) the share premium accounts related to the instruments referred to in point (g). 5. For the purposes of this Article, the applicable percentages referred to in paragraphs 2 to 4 shall fall within the following ranges: (a) 60 % to 80 % during the period from 1 January 2014 to 31 December 2014; (b) 40 % to 70 % during the period from 1 January 2015 to 31 December 2015; (c) 20 % to 60 % during the period from 1 January 2016 to 31 December 2016; (d) 0 % to 50 % during the period from 1 January 2017 to 31 December 2017; (e) 0 % to 40 % during the period from 1 January 2018 to 31 December 2018; (f) 0 % to 30 % during the period from 1 January 2019 to 31 December 2019; (g) 0 % to 20 % during the period from 1 January 2020 to 31 December 2020; (h) 0 % to 10 % during the period from 1 January 2021 to 31 December 2021. 6. Competent authorities shall determine and publish the applicable percentages in the ranges specified in paragraph 5.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 486 Limits for grandfathering of items within Common Equity Tier 1, Additional Tier 1 and Tier 2 items):
1. From 1 January 2014 to 31 December 2021, the extent to which instruments and items referred to in Article 484 shall qualify as own funds shall be limited in accordance with this Article. (a) the nominal amount of capital referred to in Article 484(3) that were in issue on 31 December 2012; (b) the share premium accounts related to the items referred to in point (a). (a) the nominal amount of instruments referred to in Article 484(4), that remained in issue on 31 December 2012; (b) the share premium accounts related to the instruments referred to in point (a); (d) the share premium accounts related to the instruments referred to in point (c); the nominal amount of instruments referred to Article 484(4) that were in issue on 31 December 2012 but do not qualify as Additional Tier 1 instruments pursuant to Article 489(4); (f) the share premium accounts related to the instruments referred to in point (e). (a) the nominal amount of instruments referred to in Article 484(5) that remained in issue on 31 December 2012; the nominal amount of subordinated loan capital that remained in issue on 31 December 2012, reduced by the amount required pursuant to national transposition measures for point (c) of Article 64(3) of Directive 2006/48/EC; the nominal amount of instruments referred to in Article 484(5) that were in issue on 31 December 2012 that do not qualify as Tier 2 items pursuant to Article 490(4); (h) the share premium accounts related to the instruments referred to in point (g). For the purposes of this Article, the applicable percentages referred to in paragraphs 2 to 4 shall fall within the following ranges: (a) 60 % to 80 % during the period from 1 January 2014 to 31 December 2014; 60 % to 80 % during the period from 1 January 2014 to 31 December 2014; (b) 40 % to 70 % during the period from 1 January 2015 to 31 December 2015; 40 % to 70 % during the period from 1 January 2015 to 31 December 2015; (c) 20 % to 60 % during the period from 1 January 2016 to 31 December 2016; 20 % to 60 % during the period from 1 January 2016 to 31 December 2016; (d) 0 % to 50 % during the period from 1 January 2017 to 31 December 2017; 0 % to 50 % during the period from 1 January 2017 to 31 December 2017; (e) 0 % to 40 % during the period from 1 January 2018 to 31 December 2018; 0 % to 40 % during the period from 1 January 2018 to 31 December 2018; (f) 0 % to 30 % during the period from 1 January 2019 to 31 December 2019; 0 % to 30 % during the period from 1 January 2019 to 31 December 2019; (g) 0 % to 20 % during the period from 1 January 2020 to 31 December 2020; 0 % to 20 % during the period from 1 January 2020 to 31 December 2020; (h) 0 % to 10 % during the period from 1 January 2021 to 31 December 2021. 0 % to 10 % during the period from 1 January 2021 to 31 December 2021. 6. Competent authorities shall determine and publish the applicable percentages in the ranges specified in paragraph 5.
Article 487 Items excluded from grandfathering in Common Equity Tier 1 or Additional Tier 1 items in other elements of own funds
1. From 1 January 2014 to 31 December 2021, institutions may, by way of derogation from Articles 51, 52, 62 and 63, treat as items referred to in Article 484(4), capital, and the related share premium accounts, referred to in Article 484(3) that are excluded from Common Equity Tier 1 items because they exceed the applicable percentage specified in Article 486(2), to the extent that the inclusion of that capital and the related share premium accounts, does not exceed the applicable percentage limit referred to in Article 486(3). 2. From 1 January 2014 to 31 December 2021, institutions may, by way of derogation from Articles 51, 52, 62 and 63, treat the following as items referred to in Article 484(5), to the extent that their inclusion does not exceed the applicable percentage limit referred to in Article 486(4): (a) capital, and the related share premium accounts, referred to in Article 484(3) that are excluded from Common Equity Tier 1 items because they exceed the applicable percentage specified in Article 486(2); (b) instruments, and the related share premium accounts, referred to in Article 484(4) that exceed the applicable percentage referred to in Article 486(3). 3. EBA shall develop draft regulatory technical standards to specify the conditions for treating own funds instruments referred to in paragraphs 1 and 2 as falling under Article 486(4) or (5) during the period from 1 January 2014 to 31 December 2021. EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 487 Items excluded from grandfathering in Common Equity Tier 1 or Additional Tier 1 items in other elements of own funds):
From 1 January 2014 to 31 December 2021, institutions may, by way of derogation from Articles 51, 52, 62 and 63, treat the following as items referred to in Article 484(5), to the extent that their inclusion does not exceed the applicable percentage limit referred to in Article 486(4): capital, and the related share premium accounts, referred to in Article 484(3) that are excluded from Common Equity Tier 1 items because they exceed the applicable percentage specified in Article 486(2); (b) instruments, and the related share premium accounts, referred to in Article 484(4) that exceed the applicable percentage referred to in Article 486(3). 3. EBA shall develop draft regulatory technical standards to specify the conditions for treating own funds instruments referred to in paragraphs 1 and 2 as falling under Article 486(4) or (5) during the period from 1 January 2014 to 31 December 2021. EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 488 Amortisation of items grandfathered as Tier 2 items
The items referred to in Article 484(5) that qualify as Tier 2 items referred to in Article 484(5) or Article 486(4) shall be subject to the requirements laid down in Article 64. Sub-Section 2 Inclusion of instruments with a call and incentive to redeem in additional Tier 1 and Tier 2 items
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives . EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT 3 recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 4 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerabilit y . Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place . It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction.
Revised version (Article 488 Amortisation of items grandfathered as Tier 2 items):
The items referred to in Article 484(5) that qualify as Tier 2 items referred to in Article 484(5) or Article 486(4) shall be subject to the requirements laid down in Article 64.
Article 489 Hybrid instruments with a call and incentive to redeem
1. From 1 January 2014 to 31 December 2021, instruments referred to in Article 484(4) that include in their terms and conditions a call with an incentive for them to be redeemed by the institution shall, by way of derogation from Articles 51 and 52, be subject to this Article. 2. The instruments shall qualify as Additional Tier 1 instruments provided that the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only prior to 1 January 2013; (b) the institution did not exercise the call; (c) the conditions laid down in Article 52 are met from 1 January 2013. 3. The instruments shall qualify as Additional Tier 1 instruments with their recognition reduced in accordance with Article 484(4) until the date of their effective maturity and thereafter shall qualify as Additional Tier 1 items without limit provided that: (a) the institution was able to exercise a call with an incentive to redeem only on or after 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the instruments; (c) the conditions laid down in Article 52 are met from the date of the effective maturity of the instruments. 4. The instruments shall not qualify as Additional Tier 1 instruments, and shall not be subject to Article 484(4), from 1 January 2014 where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem between 31 December 2011 and 1 January 2013; (c) the conditions laid down in Article 52 are not met from the date of the effective maturity of the instruments. 5. The instruments shall qualify as Additional Tier 1 instruments with their recognition reduced in accordance with Article 484(4) until the date of their effective maturity, and shall not qualify as Additional Tier 1 instruments thereafter, where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013; 6. The instruments shall qualify as Additional Tier 1 instruments in accordance with Article 484(4) where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only prior to or on 31 December 2011; (c) the conditions laid down in Article 52 were not met from the date of the effective maturity of the instruments.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives . EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT 3 recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 4 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerabilit y . Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place . It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction.
Revised version (Article 489 Hybrid instruments with a call and incentive to redeem):
1. From 1 January 2014 to 31 December 2021, instruments referred to in Article 484(4) that include in their terms and conditions a call with an incentive for them to be redeemed by the institution shall, by way of derogation from Articles 51 and 52, be subject to this Article.
Article 490 Tier 2 items with an incentive to redeem
1. By way of derogation from Articles 62 and 63, during the period from 1 January 2014 to 31 December 2021, items referred to in Article 484(5) that qualified under the national transposition measures for point (f) or (h) of Article 57 of Directive 2006/48/EC and include in their terms and conditions a call with an incentive for them to be redeemed by the institution shall be subject to this Article. 2. The items shall qualify as Tier 2 instruments provided that: (a) the institution was able to exercise a call with an incentive to redeem only prior to 1 January 2013; (b) the institution did not exercise the call; (c) from 1 January 2013 the conditions laid down in Article 63 are met. 3. The items shall qualify as Tier 2 items in accordance with Article 484(5) until the date of their effective maturity, and shall qualify thereafter as Tier 2 items without limit, provided that the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only on or after 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the items; (c) the conditions laid down in Article 63 are met from the date of the effective maturity of the items. 4. The items shall not qualify as Tier 2 items from 1 January 2014 where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only between 31 December 2011 and 1 January 2013; (c) the conditions laid down in Article 63 are not met from the date of the effective maturity of the items. 5. The items shall qualify as Tier 2 items with their recognition reduced in accordance with Article 484(5) until the date of their effective maturity, and shall not qualify as Tier 2 items thereafter, where: (a) the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013; (b) the institution did not exercise the call on the date of their effective maturity; (c) the conditions set out in Article 63 are not met from the date of effective maturity of the items. 6. The items shall qualify as Tier 2 items in accordance with Article 484(5) where: (a) the institution was able to exercise a call with an incentive to redeem only prior to or on 31 December 2011;
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 1 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in pa rticular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. Amongst various subsequent changes, Regulation (EU) 2017/2395 3 has inserted in the CRR transitional arrangements for mitigating the impact on own funds from the introduction of the new accounting standard, the International Financial Reporting Standard – Financial Instruments (IFRS) 9. Regulation (EU) 2019/630 4 has introduced in the CRR a requirement for minimum loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, Reg ulation (EU) 2019/876 5 (CRR II) has added to the CRR some of the final elements of the international reforms (the finalised Basel III framework), which entail amongst others, a new definition of the leverage ratio and a leverage ratio buffer, which will pr event institutions from excessively increasing leverage. The latter Regulation has also introduced in the CRR more favourable prudential treatments of certain software assets, of certain pension- and salary-backed loans, as well as of loans to small and me dium sized enterprises (SMEs) and infrastructure projects. The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Due to the reforms undertaken in the aftermath of the 2008 financial crisis, credit institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector. In reaction to the new circumstances, competent authorities across the Union have provided temporary capital and operational relief to ensure favourable conditions for credit institutions to continue lending amid COVID-19. It is therefore important that capital is deployed where it is most needed and that the prudential framework interacts smoothly with the various measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to support public and private initiatives to promote contin ued lending in the context of the COVID-19 pandemic, while ensuring a prudent approach. The flexibility embedded in the CRR is described in the Commission Interpretative Communication of 28 April 2020 6 on the application of the accounting and prudential frameworks to facilitate bank lending in the Union amid COVID-19. Besides making full use of the flexibility allowed for in the existing framework, some limited changes to specific aspects of the CRR ar e necessary in order to maximise the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a one-year delay in t he deadline for implementing the final elements of the Basel III framework, of which some elements had been already incorporated in the CRR 7 , as well as a greater flexibility to the phase-in of the impact of the IFRS 9 on capital . These changes need to be reflected in the existing rules. First, it is necessary to adjust the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic. Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily the treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are covered by the various guarantee schemes that were put in place by Member States. This would recognise the similar characteristics shared by export credit agencies guarantees and COVID-19 related guarantees. Third, the offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio needs to be modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channelled by credit institutions to the economy. Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of the new leverage ratio buffer requirement. This would free up credit institutions’ operational capacity and allow them to focus on the more immediate challenges associated with the COVID-19 pandemic. Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet applicable need to be anticipated, namely the provisions on the treatment of certain software assets, the provisions on certain loans backed by pensions or salaries, the revised supporting factor for small and medium-sized enterprises (SME) and the new supporting factor for infrastructure finance. Advancing the date of application of the two supporting factors, the preferential treatment of certain software assets, and the preferential treatment of certain loans backed by pensions or salaries would free up own funds of institutions, allowing them to boost much needed lending during the COVID-19 pandemic and its aftermath. These proposed changes will not fundamentally alter the prudential regulatory framework. They form part of the response of the Commission to address the emergency situation triggered by the COVID-19 pandemic. These adjustments to the prudential framework would facilitate collective efforts aimed at mitigating the impact of the pandemic and thus moving towards a fast recovery.
Revised version (Article 490 Tier 2 items with an incentive to redeem):
The items shall qualify as Tier 2 instruments provided that: (a) the institution was able to exercise a call with an incentive to redeem only prior to 1 January 2013; (b) the institution did not exercise the call; (c) from 1 January 2013 the conditions laid down in Article 63 are met. The items shall qualify as Tier 2 items in accordance with Article 484(5) until the date of their effective maturity, and shall qualify thereafter as Tier 2 items without limit, provided that the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only on or after 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the items; (c) the conditions laid down in Article 63 are met from the date of the effective maturity of the items. The items shall not qualify as Tier 2 items from 1 January 2014 where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only between 31 December 2011 and 1 January 2013; (c) the conditions laid down in Article 63 are not met from the date of the effective maturity of the items. The items shall qualify as Tier 2 items with their recognition reduced in accordance with Article 484(5) until the date of their effective maturity, and shall not qualify as Tier 2 items thereafter, where: (a) the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013; (b) the institution did not exercise the call on the date of their effective maturity; (c) the conditions set out in Article 63 are not met from the date of effective maturity of the items. The items shall qualify as Tier 2 items in accordance with Article 484(5) where: (a) the institution was able to exercise a call with an incentive to redeem only prior to or on 31 December 2011;
Article 491 Effective maturity
For the purposes of Articles 489 and 490, effective maturity shall be determined as follows: (a) for the items referred to in paragraphs 3 and 5 of those Articles, the date of the first call with an incentive to redeem occurring on or after 1 January 2013; (b) for the items referred to in paragraph 4 of those Articles, the date of the first call with an incentive to redeem occurring between 31 December 2011 and 1 January 2013; (c) for the items referred to in paragraph 6 of those Articles, the date of the first call with an incentive to redeem prior to 31 December 2011.
Article 492 Disclosure of own funds
1. Institutions shall apply this Article during the period from 1 January 2014 to 31 December 2021. 2. From 1 January 2014 to 31 December 2015, institutions shall disclose the extent to which the level of Common Equity Tier 1 capital and Tier 1 capital exceed the requirements laid down in Article 465. 3. From 1 January 2014 to 31 December 2017, institutions shall disclose the following additional information about their own funds: (a) the nature and effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds of the individual filters and deductions applied in accordance with Articles 467 to 470, 474, 476 and 479; (b) the amounts of minority interests and Additional Tier 1 and Tier 2 instruments, and related retained earnings and share premium accounts, issued by subsidiaries that are included in consolidated Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds in accordance with 4 of Chapter 1; (c) the effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds of the individual filters and deductions applied in accordance with Article 481; (d) the nature and amount of items that qualify as Common Equity Tier 1 items, Tier 1 items and Tier 2 items by virtue of applying the derogations specified in Section 2 of Chapter 2. 4. From 1 January 2014 to 31 December 2021, institutions shall disclose the amount of instruments that qualify as Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments by virtue of applying Article 484. 5. EBA shall develop draft implementing technical standards to specify uniform templates for disclosure made in accordance with this Article. The templates shall include the items listed in points (a), (b), (d) and (e) of Article 437(1), as amended by Chapters 1 and 2 of this Title. EBA shall submit those draft implementing technical standards to the Commission by 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives . EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT 3 recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 4 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerabilit y . Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place . It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction.
Revised version (Article 492 Disclosure of own funds):
1. Institutions shall apply this Article during the period from 1 January 2014 to 31 December 2021. 2. From 1 January 2014 to 31 December 2015, institutions shall disclose the extent to which the level of Common Equity Tier 1 capital and Tier 1 capital exceed the requirements laid down in Article 465. 4. From 1 January 2014 to 31 December 2021, institutions shall disclose the amount of instruments that qualify as Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments by virtue of applying Article 484. 5. EBA shall develop draft implementing technical standards to specify uniform templates for disclosure made in accordance with this Article. The templates shall include the items listed in points (a), (b), (d) and (e) of Article 437(1), as amended by Chapters 1 and 2 of this Title. EBA shall submit those draft implementing technical standards to the Commission by 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.
Article 493 Transitional provisions for large exposures
1. The provisions on large exposures as laid down in Articles 387 to 403 shall not apply to investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC and to whom Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field ( 35 ) did not apply on 31 December 2006. This exemption is available until 31 December 2017 or the date of entry into force of any amendments pursuant to paragraph 2 of this Article, whichever is the earlier. 2. By 31 December 2015, the Commission shall, on the basis of public consultations and in the light of discussions with the competent authorities, report to the European Parliament and the Council on: (a) an appropriate regime for the prudential supervision of investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the commodity derivatives or derivatives contracts set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC; (b) the desirability of amending Directive 2004/39/EC to create a further category of investment firm whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC relating to energy supplies. On the basis of that report, the Commission may submit proposals to amend this Regulation. 3. By way of derogation from Article 400(2) and (3), Member States may, for a transitional period until the entry into force of any legal act following the review in accordance with Article 507, but not after 31 December 2028, fully or partially exempt the following exposures from the application of Article 395(1): (a) covered bonds falling within Article 129(1), (3) and (6); (b) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2; (c) exposures, including participations or other kinds of holdings, incurred by an institution to its parent undertaking, to other subsidiaries of that parent undertaking or to its own subsidiaries, in so far as those undertakings are covered by the supervision on a consolidated basis to which the institution itself is subject, in accordance with this Regulation, Directive 2002/87/EC or with equivalent standards in force in a third country. Exposures that do not meet those criteria, whether or not exempted from Article 395(1) of this Regulation, shall be treated as exposures to a third party; (d) asset items constituting claims on and other exposures, including participations or other kinds of holdings, to regional or central credit institutions with which the credit institution belongs to a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network; (e) asset items constituting claims on and other exposures to credit institutions incurred by credit institutions, one of which operates on a non-competitive basis and provides or guarantees loans under legislative programmes or its statutes, to promote specified sectors of the economy under some form of government oversight and restrictions on the use of the loans, provided that the respective exposures arise from such loans that are passed on to the beneficiaries via credit institutions or from the guarantees of these loans; (f) asset items constituting claims on and other exposures to institutions, provided that those exposures do not constitute such institutions' own funds, do not last longer than the following business day and are not denominated in a major trading currency; (g) asset items constituting claims on central banks in the form of required minimum reserves held at those central banks which are denominated in their national currencies; (h) asset items constituting claims on central governments in the form of statutory liquidity requirements held in government securities which are denominated and funded in their national currencies provided that, at the discretion of the competent authority, the credit assessment of those central governments assigned by a nominated ECAI is investment grade; (i) 50 % of medium/low risk off-balance sheet documentary credits and of medium/low risk off-balance sheet undrawn credit facilities referred to in Annex I and subject to the competent authorities' agreement, 80 % of guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions; (j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk- weighted exposure amounts; (k) assets items constituting claims on and other exposures to recognised exchanges.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Promoting the development of a securitisation market based on sound practices will contribute to a return to sustainable growth and job creation, consistent with the Commission's priority objective. Furthermore, a common, high quality EU securitisation framework will promote further integration of financial markets in the Union, help diversify funding sources and unlock capital, making it easier for credit institutions to lend to households and businesses. In order to attain this objective, the following two steps must be taken. The first step is to develop a common substantive framework for securitisations for all participants in this market and identify a subset of transactions meeting certain eligibility criteria: simple, transparent and standardised securitisations or STS securitisations. This is the subject of the Commission Proposal for a Securitisation Regulation. The second step is to make amendments to the regulatory framework of securitisations in EU law, including in the area of capital charges for credit institutions and investment firms originating, sponsoring or investing in these instruments, to provide for a more risk-sensitive regulatory treatment for STS securitisations. Such differentiated regulatory treatment already exists in certain le gislative instruments, in particular in the Delegated Act on the prudential requirements the liquidity of banks (Liquidity Coverage Ratio) 1 . This must now be complemented by an amendment to the regulatory capital treatment for securitisations in Regulation No. 575/2013 (the "CRR") 2 . The current securitisation framework in the CRR is essentially based on the standards developed by the Basel Committee on Banking Supervision ("BCBS") more than a decade ago and these do not make any distinction between STS secu ritisations and other more complex and opaque transactions. The global financial crisis revealed a number of shortcomings in the current securitisation framework. These include: mechanistic reliance on external ratings in determining capital requirements; insufficient risk-sensitivity due to the lack of sufficient risk drivers across approaches in determining risk weights; procyclical cliff effects in capital requirements. In order to address these shortcomings and contribute to enhancing the resilience of institutions to market shocks, the BCBS adopted a recommendation for a revised securitisation framework in December 2014 3 ("the Revised Basel Framework"). The Revised Basel Framework has been designed to reduce the complexity of the current r egulatory capital requirements, reflect better the risks of positions in a securitisation and allow the use of the information available to institution to allocate capital requirements based on their own calculations, thus reducing reliance on external rat ings. Under the Revised Basel Framework, institutions may calculate capital requirements for their securitisation positions in accordance with a single hierarchy of approaches, which starts with the Internal Ratings Based Approach at the top. If an institu tion cannot use the approach based on internal ratings, it must use an External Ratings Based Approach, provided the exposure has an external credit assessment which meets a series of operational requirements. In case the Institution cannot use the Externa l Ratings Based Approach, either because is located in a jurisdiction that doesn't permit its use or because it lacks the information needed to use that approach, shall use a Standardised Approach based on a supervisory-provided formula. The Revised Basel Framework does not currently provide for a more risk-sensitive treatment for STS securitisations. However the BCBS is currently working on the incorporation in the new framework 4 of the STS criteria adopted jointly with the International Organisation of S ecurities Commission (IOSCO) on 23 July 2015. No outcome is expected from this workstream before mid-2016. At an European level, following a call for advice from the Commission, the European Banking Authority ("EBA") issued a report on qualifying securitis ations on 7 July 2015 5 which recommended lowering capital charges for STS securitisations to a prudent level relative to those set out in the Revised Basel Framework and amend the regulatory capital requirements for securitisations set out in the CRR in li ne with the Revised Basel Framework to address the weaknesses of the current rules. For STS securitisations, the EBA re-calibrated downwards the 3 approaches developed by the BCBS for the Revised Basel Framework. In order to contribute to the overarching objectives of the Commission Proposal for a Securitisation Regulation of restarting securitisation markets on a more sustainable basis and making this a safe and efficient instrument for funding and risk management, it is proposed to amend the regulatory capital requirements for securitisations in the CRR in order to: - implement the regulatory capital calculation approaches set out in the Revised Basel Framework (Articles 254 to 268); and - introduce a re-calibration for STS securitisations, consistent with the recommendation of the EBA (Articles 243, 260, 262, and 264). In the first instance and to remove any form of mechanistic reliance on external ratings, an institution should use its own calculation of regulatory capital requirements where the institution has permission to use the Internal Ratings Based approach (IRB) in relation to exposures of the same type as those underlying the securitisation and is able to calculate regulatory capital requirements in relation to the underlying exposures as if these had not been securitised ("Kirb"), in each case subject to certain pre-defined inputs (the "SEC-IRBA"). A Securitisation External Ratings-Based Approach ("SEC-ERBA") should then be available to institutions that may not use the SEC-IRBA in relation to their positions in a given securitisation. Under the SEC-ERBA, capital requirements should be assigned to securitisation tranches on the basis of their external rating. When the first two approaches are not available or the use of the SEC-ERBA would result in incommensurate regulatory capital requirements relative to the credit risk embedded in the underlying exposures, institutions should be able to apply the Securitisation Standardised Approach (the "SEC-SA") which should rely on a supervisory-provided formula using as an input the capital requirements that would be calculated under the SA in relation to the underlying exposures if these had not been securitised ("Ksa"). In addition to contributing to the re-launch of securitisation markets, this proposal will also allow the Commission to act as a front-runner with regard to potential future developments of the BCBS workstream on the regulatory treatment of STS securitisations and contribute to achieving the objectives of such workstream from an EU perspective. No later than 3-years from the entry into force of this Regulation the Commission will review the proposed approach to capital requirements for securitisation exposures, including the hierarchy of approaches, taking into account its impact on securitisation markets developments and the need to preserve financial stability in the EU. 
Revised version (Article 493 Transitional provisions for large exposures):
1. The provisions on large exposures as laid down in Articles 387 to 403 shall not apply to investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC and to whom Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field ( 16 ) did not apply on 31 December 2006. This exemption is available until 31 December 2020 or the date of entry into force of any amendments pursuant to paragraph 2 of this Article, whichever is the earlier. 2. By 31 December 2015, the Commission shall, on the basis of public consultations and in the light of discussions with the competent authorities, report to the European Parliament and the Council on: (a) an appropriate regime for the prudential supervision of investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the commodity derivatives or derivatives contracts set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC; (b) the desirability of amending Directive 2004/39/EC to create a further category of investment firm whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC relating to energy supplies. On the basis of that report, the Commission may submit proposals to amend this Regulation. 3. By way of derogation from Article 400(2) and (3), Member States may, for a transitional period until the entry into force of any legal act following the review in accordance with Article 507, but not after 31 December 2028, fully or partially exempt the following exposures from the application of Article 395(1): (a) covered bonds falling within Article 129(1), (3) and (6); (b) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2; (c) exposures, including participations or other kinds of holdings, incurred by an institution to its parent undertaking, to other subsidiaries of that parent undertaking or to its own subsidiaries, in so far as those undertakings are covered by the supervision on a consolidated basis to which the institution itself is subject, in accordance with this Regulation, Directive 2002/87/EC or with equivalent standards in force in a third country. Exposures that do not meet those criteria, whether or not exempted from Article 395(1) of this Regulation, shall be treated as exposures to a third party; (d) asset items constituting claims on and other exposures, including participations or other kinds of holdings, to regional or central credit institutions with which the credit institution belongs to a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network; (e) asset items constituting claims on and other exposures to credit institutions incurred by credit institutions, one of which operates on a non-competitive basis and provides or guarantees loans under legislative programmes or its statutes, to promote specified sectors of the economy under some form of government oversight and restrictions on the use of the loans, provided that the respective exposures arise from such loans that are passed on to the beneficiaries via credit institutions or from the guarantees of these loans; (f) asset items constituting claims on and other exposures to institutions, provided that those exposures do not constitute such institutions' own funds, do not last longer than the following business day and are not denominated in a major trading currency; (g) asset items constituting claims on central banks in the form of required minimum reserves held at those central banks which are denominated in their national currencies; (h) asset items constituting claims on central governments in the form of statutory liquidity requirements held in government securities which are denominated and funded in their national currencies provided that, at the discretion of the competent authority, the credit assessment of those central governments assigned by a nominated ECAI is investment grade; (i) 50 % of medium/low risk off-balance sheet documentary credits and of medium/low risk off-balance sheet undrawn credit facilities referred to in Annex I and subject to the competent authorities' agreement, 80 % of guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions; (j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk- weighted exposure amounts; (k) assets items constituting claims on and other exposures to recognised exchanges. 4. By way of derogation from Article 395(1), competent authorities may allow institutions to incur any of the exposures provided for in paragraph 5 of this Article meeting the conditions set out in paragraph 6 of this Article, up to the following limits: (a) 100 % of the institution’s Tier 1 capital until 31 December 2018; (b) 75 % of the institution’s Tier 1 capital until 31 December 2019; (c) 50 % of the institution’s Tier 1 capital until 31 December 2020. The limits referred to in points (a), (b) and (c) of the first subparagraph shall apply to exposure values after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403. 5. The transitional arrangements set out in paragraph 4 shall apply to the following exposures: (a) asset items constituting claims on central governments, central banks, or public sector entities of Member States; (b) asset items constituting claims expressly guaranteed by central governments, central banks, or public sector entities of Member States; (c) other exposures to, or guaranteed by, central governments, central banks, or public sector entities of Member States; (d) asset items constituting claims on regional governments or local authorities of Member States treated as exposures to a central government in accordance with Article 115(2); (e) other exposures to, or guaranteed by, regional governments or local authorities of Member States treated as exposures to a central government in accordance with Article 115(2). For the purposes of points (a), (b) and (c) of the first subparagraph, the transitional arrangements set out in paragraph 4 of this Article shall apply only to asset items and other exposures to, or guaranteed by, public sector entities which are treated as exposures to a central government, a regional government or a local authority in accordance with Article 116(4). Where asset items and other exposures to, or guaranteed by, public sector entities are treated as exposures to a regional government or a local authority in accordance with Article 116(4), the transitional arrangements set out in paragraph 4 of this Article shall apply only where exposures to that regional government or local authority are treated as exposures to a central government in accordance with Article 115(2). 6. The transitional arrangements set out in paragraph 4 of this Article shall apply only where an exposure referred to in paragraph 5 of this Article meets all of the following conditions: (a) the exposure would be assigned a risk weight of 0 % in accordance with the version of Article 495(2) in force on 31 December 2017; (b) the exposure was incurred on or after 12 December 2017. 7. An exposure as referred to in paragraph 5 of this Article incurred before 12 December 2017 to which a risk weight of 0 % was assigned on 31 December 2017 in accordance with Article 495(2) shall be exempted from the application of Article 395(1).