Article 77 Protection for financial collateral, set off and netting agreements
1. Member States shall ensure that there is appropriate protection for title transfer financial collateral arrangements and set-off and netting arrangements so as to prevent the transfer of some, but not all, of the rights and liabilities that are protected under a title transfer financial collateral arrangement, a set-off arrangement or a netting arrangement between the institution under resolution and another person and the modification or termination of rights and liabilities that are protected under such a title transfer financial collateral arrangement, a set-off arrangement or a netting arrangement through the use of ancillary powers. For the purposes of the first subparagraph, rights and liabilities are to be treated as protected under such an arrangement if the parties to the arrangement are entitled to set-off or net those rights and liabilities. 2. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement; and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 77 Protection for financial collateral, set off and netting agreements):
1. Member States shall ensure that there is appropriate protection for title transfer financial collateral arrangements and set-off and netting arrangements so as to prevent the transfer of some, but not all, of the rights and liabilities that are protected under a title transfer financial collateral arrangement, a set-off arrangement or a netting arrangement between the institution under resolution and another person and the modification or termination of rights and liabilities that are protected under such a title transfer financial collateral arrangement, a set-off arrangement or a netting arrangement through the use of ancillary powers. For the purposes of the first subparagraph, rights and liabilities are to be treated as protected under such an arrangement if the parties to the arrangement are entitled to set-off or net those rights and liabilities. 2. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement; and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement; and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits.
Article 78 Protection for security arrangements
1. Member States shall ensure that there is appropriate protection for liabilities secured under a security arrangement so as to prevent one of the following: (a) the transfer of assets against which the liability is secured unless that liability and benefit of the security are also transferred; (b) the transfer of a secured liability unless the benefit of the security are also transferred; (c) the transfer of the benefit of the security unless the secured liability is also transferred; or (d) the modification or termination of a security arrangement through the use of ancillary powers, if the effect of that modification or termination is that the liability ceases to be secured. 2. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement; and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 78 Protection for security arrangements):
1. Member States shall ensure that there is appropriate protection for liabilities secured under a security arrangement so as to prevent one of the following: (a) the transfer of assets against which the liability is secured unless that liability and benefit of the security are also transferred; (b) the transfer of a secured liability unless the benefit of the security are also transferred; (c) the transfer of the benefit of the security unless the secured liability is also transferred; or (d) the modification or termination of a security arrangement through the use of ancillary powers, if the effect of that modification or termination is that the liability ceases to be secured. 2. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement; and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement; and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits
Article 79 Protection for structured finance arrangements and covered bonds
1. Member States shall ensure that there is appropriate protection for structured finance arrangements including arrangements referred to in points (e) and (f) of Article 76(2) so as to prevent either of the following: (a) the transfer of some, but not all, of the assets, rights and liabilities which constitute or form part of a structured finance arrangement, including arrangements referred to in points (e) and (f) of Article 76(2), to which the institution under resolution is a party; (b) the termination or modification through the use of ancillary powers of the assets, rights and liabilities which constitute or form part of a structured finance arrangement, including arrangements referred to in points (e) and (f) of Article 76(2), to which the institution under resolution is a party. 2. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement, and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 79 Protection for structured finance arrangements and covered bonds):
1. (a) 2. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement, and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits. Notwithstanding paragraph 1, where necessary in order to ensure availability of the covered deposits the resolution authority may: (a) transfer covered deposits which are part of any of the arrangements mentioned in paragraph 1 without transferring other assets, rights or liabilities that are part of the same arrangement, and (b) transfer, modify or terminate those assets, rights or liabilities without transferring the covered deposits.
Article 80 Partial transfers: protection of trading, clearing and settlement systems
1. Member States shall ensure that the application of a resolution tool does not affect the operation of systems and rules of systems covered by Directive 98/26/EC, where the resolution authority: (a) transfers some but not all of the assets, rights or liabilities of an institution under resolution to another entity; or (b) uses powers under Article 64 to cancel or amend the terms of a contract to which the institution under resolution is a party or to substitute a recipient as a party. 2. In particular, a transfer, cancellation or amendment as referred to in paragraph 1 of this Article shall not revoke a transfer order in contravention of Article 5 of Directive 98/26/EC; and shall not modify or negate the enforceability of transfer orders and netting as required by Articles 3 and 5 of that Directive, the use of funds, securities or credit facilities as required by Article 4 thereof or protection of collateral security as required by Article 9 thereof.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 80 Partial transfers: protection of trading, clearing and settlement systems):
1. Member States shall ensure that the application of a resolution tool does not affect the operation of systems and rules of systems covered by Directive 98/26/EC, where the resolution authority: (a) transfers some but not all of the assets, rights or liabilities of an institution under resolution to another entity; or (b) uses powers under Article 64 to cancel or amend the terms of a contract to which the institution under resolution is a party or to substitute a recipient as a party. Member States shall ensure that the application of a resolution tool does not affect the operation of systems and rules of systems covered by Directive 98/26/EC, where the resolution authority: (a) transfers some but not all of the assets, rights or liabilities of an institution under resolution to another entity; or (b) uses powers under Article 64 to cancel or amend the terms of a contract to which the institution under resolution is a party or to substitute a recipient as a party. 2. In particular, a transfer, cancellation or amendment as referred to in paragraph 1 of this Article shall not revoke a transfer order in contravention of Article 5 of Directive 98/26/EC; and shall not modify or negate the enforceability of transfer orders and netting as required by Articles 3 and 5 of that Directive, the use of funds, securities or credit facilities as required by Article 4 thereof or protection of collateral security as required by Article 9 thereof.
Article 81 Notification requirements
1. Member States shall require the management body of an institution or any entity referred to in point (b), (c) or (d) of Article 1(1) to notify the competent authority where they consider that the institution or the entity referred to in point (b), (c) or (d) of Article 1(1) is failing or likely to fail, within the meaning specified in Article 32(4). 2. Competent authorities shall inform the relevant resolution authorities of any notifications received under paragraph 1 of this Article, and of any crisis prevention measures, or any actions referred to in Article 104 of Directive 2013/36/EU they require an institution or an entity referred to in point (b), (c) or (d) of Article 1(1) of this Directive to take. 3. Where a competent authority or resolution authority determines that the conditions referred to in points (a) and (b) of Article 32(1) are met in relation to an institution or an entity referred to in point (b), (c) or (d) of Article 1(1), it shall communicate that determination without delay to the following authorities, if different: (a) the resolution authority for that institution or entity referred to in point (b), (c) or (d) of Article 1(1); (b) the competent authority for that institution or entity referred to in point (b), (c) or (d) of Article 1(1); (c) the competent authority of any branch of that institution or entity referred to in point (b), (c) or (d) of Article 1(1); (d) the resolution authority of any branch of that institution or entity referred to in point (b), (c) or (d) of Article 1, (1) (e) the central bank; (f) the deposit guarantee scheme to which a credit institution is affiliated where necessary to enable the functions of the deposit guarantee scheme to be discharged; (g) the body in charge of the resolution financing arrangements where necessary to enable the functions of the resolution financing arrangements to be discharged; (h) where applicable, the group-level resolution authority; (i) the competent ministry; (j) where the institution or the entity referred to in point (b), (c) or (d) of Article 1(1) of this Directive is subject to supervision on consolidated basis under Chapter 3 of Title VII of Directive 2013/36/EU, the consolidating supervisor; and (k) the ESRB and the designated national macro-prudential authority. 4. Where the transmission of information referred to in paragraphs 3(f) and 3(g) does not guarantee the appropriate level of confidentiality, the competent authority or resolution authority shall establish alternative communication procedures that achieve the same objectives while ensuring the appropriate level of confidentiality.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 81 Notification requirements):
3. (a) (e) the central bank; (f) the deposit guarantee scheme to which a credit institution is affiliated where necessary to enable the functions of the deposit guarantee scheme to be discharged; (g) the body in charge of the resolution financing arrangements where necessary to enable the functions of the resolution financing arrangements to be discharged; (h) where applicable, the group-level resolution authority; (i) the competent ministry; (k) the ESRB and the designated national macro-prudential authority. 4. Where the transmission of information referred to in paragraphs 3(f) and 3(g) does not guarantee the appropriate level of confidentiality, the competent authority or resolution authority shall establish alternative communication procedures that achieve the same objectives while ensuring the appropriate level of confidentiality.
Article 82 Decision of the resolution authority
1. On receiving a communication from the competent authority pursuant to paragraph 3 of Article 81, or on its own initiative, the resolution authority shall determine, in accordance with Article 32(1) and Article 33, whether the conditions of that paragraph are met in respect of the institution or the entity referred to in point (b), (c) or (d) of Article 1(1) in question. 2. A decision whether or not to take resolution action in relation to an institution or an entity referred to in point (b), (c) or (d) of Article 1(1) shall contain the following information: (a) the reasons for that decision, including the determination that the institution meets or does not meet the conditions for resolution; (b) the action that the resolution authority intends to take including, where appropriate, the determination to apply for winding up, the appointment of an administrator or any other measure under applicable normal insolvency proceedings or, subject to Article 37(9), under national law. 3. EBA shall develop draft regulatory technical standards in order to specify the procedures and contents relating to the following requirements: (a) the notifications referred to in Article 81(1), (2) and (3); (b) the notice of suspension referred to in Article 83. EBA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. 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 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 82 Decision of the resolution authority):
(a) the reasons for that decision, including the determination that the institution meets or does not meet the conditions for resolution; (b) the action that the resolution authority intends to take including, where appropriate, the determination to apply for winding up, the appointment of an administrator or any other measure under applicable normal insolvency proceedings or, subject to Article 37(9), under national law. EBA shall develop draft regulatory technical standards in order to specify the procedures and contents relating to the following requirements: (b) the notice of suspension referred to in Article 83. EBA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. 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 83 Procedural obligations of resolution authorities
1. Member States shall ensure that, as soon as reasonably practicable after taking a resolution action, resolution authorities comply with the requirements laid down in paragraphs 2, 3 and 4. 2. The resolution authority shall notify the institution under resolution and the following authorities, if different: (a) the competent authority for the institution under resolution; (b) the competent authority of any branch of the institution under resolution; (c) the central bank; (d) the deposit guarantee scheme to which the credit institution under resolution is affiliated; (e) the body in charge of the resolution financing arrangements; (f) where applicable, the group-level resolution authority; (g) the competent ministry; (h) where the institution under resolution is subject to supervision on a consolidated basis under Chapter 3 of Title VII of Directive 2013/36/EU, the consolidating supervisor; (i) the designated national macroprudential authority and the ESRB; (j) the Commission, the European Central Bank, ESMA, the European Supervisory Authority (European Investment and Occupational Pensions Authority) (‘EIOPA’) established by Regulation (EU) No 1094/2010 and EBA; (k) where the institution under resolution is an institution as defined in Article 2(b) of Directive 98/26/EC, the operators of the systems in which it participates. 3. The notification referred to in paragraph 2 shall include a copy of any order or instrument by which the relevant powers are exercised and indicate the date from which the resolution action or actions are effective. 4. The resolution authority shall publish or ensure the publication of a copy of the order or instrument by which the resolution action is taken, or a notice summarising the effects of the resolution action, and in particular the effects on retail customers and, if applicable, the terms and period of suspension or restriction referred to in Articles 69, 70 and 71, by the following means: (a) on its official website; (b) on the website of the competent authority, if different from the resolution authority, and on the website of EBA; (c) on the website of the institution under resolution; (d) where the shares, other instruments of ownership or debt instruments of the institution under resolution are admitted to trading on a regulated market, the means used for the disclosure of regulated information concerning the institution under resolution in accordance with Article 21(1) of Directive 2004/109/EC of the European Parliament and of the Council ( 35 ) . 5. If the shares, instruments of ownership or debt instruments are not admitted to trading on a regulated market, the resolution authority shall ensure that the documents providing proof of the instruments referred to in paragraph 4 are sent to the shareholders and creditors of the institution under resolution that are known through the registers or databases of the institution under resolution which are available to the resolution authority.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The establishment of a European Single Access Point (ESAP) by 2024 is a flagship action of the Capital Markets Union (CMU) Action Plan adopted by the European Commission in September 2020 1 . ESAP will contribute to the achievement of the CMU’s objectives by providing EU-wide access to information published by entities that is relevant to capital markets, financial services and sustainable finance, i.e. mainly information about their economic activities and products. ESAP will provide access to this information in an efficient and non-discriminatory manner. Information about entities’ activities and products is essential for decision-making by providers of capital. ESAP will contribute to further integrating the financial services and capital markets in the single market, to allocating capital more efficiently across the EU and promoting the development of smaller national capital markets and economies by giving them greater visibility. ESAP will also allow non-listed entities including Small and Medium-Sized enterprises (SMEs) to make available information on a voluntary basis. This will facilitate their access to capital. This proposal is part of a package comprised of: · a proposal for a Regulation establishing a European Single Access Point; · a proposal for a Directive amending certain Directives (this proposal); and · a proposal for a Regulation amending certain Regulations. Amendments to certain Directives are necessary to achieve the above objectives to contribute to the integration of the single market, particularly as regards the collection of information to be made available to ESAP. 
Revised version (Article 83 Procedural obligations of resolution authorities):
1. Member States shall ensure that, as soon as reasonably practicable after taking a resolution action, resolution authorities comply with the requirements laid down in paragraphs 2, 3 and 4. 3. The notification referred to in paragraph 2 shall include a copy of any order or instrument by which the relevant powers are exercised and indicate the date from which the resolution action or actions are effective. 5. If the shares, instruments of ownership or debt instruments are not admitted to trading on a regulated market, the resolution authority shall ensure that the documents providing proof of the instruments referred to in paragraph 4 are sent to the shareholders and creditors of the institution under resolution that are known through the registers or databases of the institution under resolution which are available to the resolution authority.
Article 84 Confidentiality
1. The requirements of professional secrecy shall be binding in respect of the following persons: (a) resolution authorities; (b) competent authorities and EBA; (c) competent ministries; (d) special managers or temporary administrators appointed under this Directive; (e) potential acquirers that are contacted by the competent authorities or solicited by the resolution authorities, irrespective of whether that contact or solicitation was made as preparation for the use of the sale of business tool, and irrespective of whether the solicitation resulted in an acquisition; (f) auditors, accountants, legal and professional advisors, valuers and other experts directly or indirectly engaged by the resolution authorities, competent authorities, competent ministries or by the potential acquirers referred to in point (e); (g) bodies which administer deposit guarantee schemes; (h) bodies which administer investor compensation schemes; (i) the body in charge of the resolution financing arrangements; (j) central banks and other authorities involved in the resolution process; (k) a bridge institution or an asset management vehicle; (l) any other persons who provide or have provided services directly or indirectly, permanently or occasionally, to persons referred to in points (a) to (k); (m) senior management, members of the management body, and employees of the bodies or entities referred to in points (a) to (k) before, during and after their appointment. 2. With a view to ensuring that the confidentiality requirements laid down in paragraphs 1 and 3 are complied with, the persons in points (a), (b), (c), (g), (h), (j) and (k) of paragraph 1 shall ensure that there are internal rules in place, including rules to secure secrecy of information between persons directly involved in the resolution process. 3. Without prejudice to the generality of the requirements under paragraph 1, the persons referred to in that paragraph shall be prohibited from disclosing confidential information received during the course of their professional activities or from a competent authority or resolution authority in connection with its functions under this Directive, to any person or authority unless it is in the exercise of their functions under this Directive or in summary or collective form such that individual institutions or entities referred to in point (b), (c) or (d) of Article 1(1) cannot be identified or with the express and prior consent of the authority or the institution or the entity referred to in point (b), (c) or (d) of Article 1(1) which provided the information. Member States shall ensure that no confidential information is disclosed by the persons referred to in paragraph 1 and that the possible effects of disclosing information on the public interest as regards financial, monetary or economic policy, on the commercial interests of natural and legal persons, on the purpose of inspections, on investigations and on audits, are assessed. The procedure for checking the effects of disclosing information shall include a specific assessment of the effects of any disclosure of the contents and details of recovery and resolution plan as referred to in Articles 5, 7, 10, 11 and 12 and the result of any assessment carried out under Articles 6, 8 and 15. Any person or entity referred to in paragraph 1 shall be subject to civil liability in the event of an infringement of this Article, in accordance with national law. 4. This Article shall not prevent: (a) employees and experts of the bodies or entities referred to in points (a) to (j) of paragraph 1 from sharing information among themselves within each body or entity; or (b) resolution authorities and competent authorities, including their employees and experts, from sharing information with each other and with other Union resolution authorities, other Union competent authorities, competent ministries, central banks, deposit guarantee schemes, investor compensation schemes, authorities responsible for normal insolvency proceedings, authorities responsible for maintaining the stability of the financial system in Member States through the use of macroprudential rules, persons charged with carrying out statutory audits of accounts, EBA, or, subject to Article 98, third-country authorities that carry out equivalent functions to resolution authorities, or, subject to strict confidentiality requirements, to a potential acquirer for the purposes of planning or carrying out a resolution action. 5. Notwithstanding any other provision of this Article, Member States may authorise the exchange of information with any of the following: (a) subject to strict confidentiality requirements, any other person where necessary for the purposes of planning or carrying out a resolution action; (b) parliamentary enquiry committees in their Member State, courts of auditors in their Member State and other entities in charge of enquiries in their Member State, under appropriate conditions; and (c) national authorities responsible for overseeing payment systems, the authorities responsible for normal insolvency proceedings, the authorities entrusted with the public duty of supervising other financial sector entities, the authorities responsible for the supervision of financial markets and insurance undertakings and inspectors acting on their behalf, the authorities of Member States responsible for maintaining the stability of the financial system in Member States through the use of macroprudential rules, the authorities responsible for protecting the stability of the financial system, and persons charged carrying out statutory audits; 6. This Article shall be without prejudice to national law concerning the disclosure of information for the purpose of legal proceedings in criminal or civil cases. 7. EBA shall, by 3 July 2015, issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 to specify how information should be provided in summary or collective form for the purposes of paragraph 3.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 84 Confidentiality):
The requirements of professional secrecy shall be binding in respect of the following persons: (a) resolution authorities; (b) competent authorities and EBA; (c) competent ministries; (d) special managers or temporary administrators appointed under this Directive; (e) potential acquirers that are contacted by the competent authorities or solicited by the resolution authorities, irrespective of whether that contact or solicitation was made as preparation for the use of the sale of business tool, and irrespective of whether the solicitation resulted in an acquisition; (f) auditors, accountants, legal and professional advisors, valuers and other experts directly or indirectly engaged by the resolution authorities, competent authorities, competent ministries or by the potential acquirers referred to in point (e); (g) bodies which administer deposit guarantee schemes; (h) bodies which administer investor compensation schemes; (i) the body in charge of the resolution financing arrangements; (j) central banks and other authorities involved in the resolution process; (k) a bridge institution or an asset management vehicle; any other persons who provide or have provided services directly or indirectly, permanently or occasionally, to persons referred to in points (a) to (k); senior management, members of the management body, and employees of the bodies or entities referred to in points (a) to (k) before, during and after their appointment. 3. Member States shall ensure that no confidential information is disclosed by the persons referred to in paragraph 1 and that the possible effects of disclosing information on the public interest as regards financial, monetary or economic policy, on the commercial interests of natural and legal persons, on the purpose of inspections, on investigations and on audits, are assessed. The procedure for checking the effects of disclosing information shall include a specific assessment of the effects of any disclosure of the contents and details of recovery and resolution plan as referred to in Articles 5, 7, 10, 11 and 12 and the result of any assessment carried out under Articles 6, 8 and 15. Any person or entity referred to in paragraph 1 shall be subject to civil liability in the event of an infringement of this Article, in accordance with national law. This Article shall not prevent: employees and experts of the bodies or entities referred to in points (a) to (j) of paragraph 1 from sharing information among themselves within each body or entity; or (b) resolution authorities and competent authorities, including their employees and experts, from sharing information with each other and with other Union resolution authorities, other Union competent authorities, competent ministries, central banks, deposit guarantee schemes, investor compensation schemes, authorities responsible for normal insolvency proceedings, authorities responsible for maintaining the stability of the financial system in Member States through the use of macroprudential rules, persons charged with carrying out statutory audits of accounts, EBA, or, subject to Article 98, third-country authorities that carry out equivalent functions to resolution authorities, or, subject to strict confidentiality requirements, to a potential acquirer for the purposes of planning or carrying out a resolution action. 5. Notwithstanding any other provision of this Article, Member States may authorise the exchange of information with any of the following: (a) subject to strict confidentiality requirements, any other person where necessary for the purposes of planning or carrying out a resolution action; (b) parliamentary enquiry committees in their Member State, courts of auditors in their Member State and other entities in charge of enquiries in their Member State, under appropriate conditions; and (c) national authorities responsible for overseeing payment systems, the authorities responsible for normal insolvency proceedings, the authorities entrusted with the public duty of supervising other financial sector entities, the authorities responsible for the supervision of financial markets and insurance undertakings and inspectors acting on their behalf, the authorities of Member States responsible for maintaining the stability of the financial system in Member States through the use of macroprudential rules, the authorities responsible for protecting the stability of the financial system, and persons charged carrying out statutory audits; 6. This Article shall be without prejudice to national law concerning the disclosure of information for the purpose of legal proceedings in criminal or civil cases. 7. EBA shall, by 3 July 2015, issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 to specify how information should be provided in summary or collective form for the purposes of paragraph 3.
Article 85 Ex-ante judicial approval and rights to challenge decisions
1. Member States may require that a decision to take a crisis prevention measure or a crisis management measure is subject to ex-ante judicial approval, provided that in respect of a decision to take a crisis management measure, according to national law, the procedure relating to the application for approval and the court’s consideration are expeditious. 2. Member States shall provide in national law for a right of appeal against a decision to take a crisis prevention measure or a decision to exercise any power, other than a crisis management measure, under this Directive. 3. Member States shall ensure that all persons affected by a decision to take a crisis management measure, have the right to appeal against that decision. Member States shall ensure that the review is expeditious and that national courts use the complex economic assessments of the facts carried out by the resolution authority as a basis for their own assessment. 4. The right to appeal referred to in paragraph 3 shall be subject to the following provisions: (a) the lodging of an appeal shall not entail any automatic suspension of the effects of the challenged decision; (b) the decision of the resolution authority shall be immediately enforceable and it shall give rise to a rebuttable presumption that a suspension of its enforcement would be against the public interest. Where it is necessary to protect the interests of third parties acting in good faith who have acquired shares, other instruments of ownership, assets, rights or liabilities of an institution under resolution by virtue of the use of resolution tools or exercise of resolution powers by a resolution authority, the annulment of a decision of a resolution authority shall not affect any subsequent administrative acts or transactions concluded by the resolution authority concerned which were based on the annulled decision. In that case, remedies for a wrongful decision or action by the resolution authorities shall be limited to compensation for the loss suffered by the applicant as a result of the decision or act.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 85 Ex-ante judicial approval and rights to challenge decisions):
1. Member States may require that a decision to take a crisis prevention measure or a crisis management measure is subject to ex-ante judicial approval, provided that in respect of a decision to take a crisis management measure, according to national law, the procedure relating to the application for approval and the court’s consideration are expeditious. 2. Member States shall provide in national law for a right of appeal against a decision to take a crisis prevention measure or a decision to exercise any power, other than a crisis management measure, under this Directive. 3. Member States shall ensure that all persons affected by a decision to take a crisis management measure, have the right to appeal against that decision. Member States shall ensure that the review is expeditious and that national courts use the complex economic assessments of the facts carried out by the resolution authority as a basis for their own assessment. 4. The right to appeal referred to in paragraph 3 shall be subject to the following provisions: (a) the lodging of an appeal shall not entail any automatic suspension of the effects of the challenged decision; (b) the decision of the resolution authority shall be immediately enforceable and it shall give rise to a rebuttable presumption that a suspension of its enforcement would be against the public interest. The right to appeal referred to in paragraph 3 shall be subject to the following provisions: (a) the lodging of an appeal shall not entail any automatic suspension of the effects of the challenged decision; (b) the decision of the resolution authority shall be immediately enforceable and it shall give rise to a rebuttable presumption that a suspension of its enforcement would be against the public interest. Where it is necessary to protect the interests of third parties acting in good faith who have acquired shares, other instruments of ownership, assets, rights or liabilities of an institution under resolution by virtue of the use of resolution tools or exercise of resolution powers by a resolution authority, the annulment of a decision of a resolution authority shall not affect any subsequent administrative acts or transactions concluded by the resolution authority concerned which were based on the annulled decision. In that case, remedies for a wrongful decision or action by the resolution authorities shall be limited to compensation for the loss suffered by the applicant as a result of the decision or act.
Article 86 Restrictions on other proceedings
1. Without prejudice to point (b) of Article 82(2), Member States shall ensure with respect to an institution under resolution or an institution or an entity referred to in point (b), (c) or (d) of Article 1(1) in relation to which the conditions for resolution have been determined to be met, that normal insolvency proceedings shall not be commenced except at the initiative of the resolution authority and that a decision placing an institution or an entity referred to in point (b), (c) or (d) of Article 1(1) into normal insolvency proceedings shall be taken only with the consent of the resolution authority. 2. For the purposes of paragraph 1, Member States shall ensure that: (a) competent authorities and resolution authorities are notified without delay of any application for the opening of normal insolvency proceedings in relation to an institution or an entity referred to in point (b), (c) or (d) of Article 1(1), irrespective of whether the institution or the entity referred to in point (b), (c) or (d) of Article 1(1) is under resolution or a decision has been made public in accordance with Article 83(4) and (5); (b) the application is not determined unless the notifications referred to in point (a) have been made and either of the following occurs: (i) the resolution authority has notified the authorities responsible for normal insolvency proceedings that it does not intend to take any resolution action in relation to the institution or the entity referred to in point (b), (c) or (d) of Article 1(1); (ii) a period of seven days beginning with the date on which the notifications referred to in point (a) were made has expired. 3. Without prejudice to any restriction on the enforcement of security interests imposed pursuant to Article 70, Member States shall ensure that, if necessary for the effective application of the resolution tools and powers, resolution authorities may request the court to apply a stay for an appropriate period of time in accordance with the objective pursued, on any judicial action or proceeding in which an institution under resolution is or becomes a party.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 575/2013 of the European Parliament and of the Council 1 (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council 2 (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the 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 particular the Basel Committee on Banking Supervision (BCBS). The CRR has been subsequently amended to tackle remaining weaknesses in the regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. A major revision was brought by t he ‘Risk Reduction Measures Package’ , which was adopted by the European Parliament and the Council on 20 May 2019 and published in the Official Journal on 7 June 2019. Th at package include d inter alia changes to the Union bank resolution framework through Directive (EU) 2019/879 of the European Parliament an d of the Council 3 , amending Directive 2014/59/EU of the European P arliament and of the Council 4 (Bank Recovery and Resolution Directive or BRRD) , Regulation (EU) 2019/87 7 of the European Parliament and of the Council 5 , amending Regulation (EU) No 806/2014 of the European Parliament and of the Council 6 (Single Resolution Mechanism Regulation or SRMR) and Regulation (EU) 2019/87 6 of the European Parliament and of the Council 7 , amending the CRR . This reform implement ed in the Union the international Total Loss-Absorbing Capacity (TLAC) standard for global systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in November 2015 8 and enhanced the application of the minimum requirement for own funds and eligible liabilities (MREL) for all institutions established in the Union. The TLAC standard requires G-SIIs to hold a sufficient amount of highly loss-absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in the event of resolution. The implementation of the TLAC standard in Union law, namely through amendments to the CRR, took into account the existing institution-specific minimum requirement for own funds and eligible liabilities (MREL), set out in the BRRD. 9 Moreover, both sets of rules are closely interconnected, particularly through cross-references from the BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rel y on the total exposure measure and the total risk exposure amount as calculated under the CRR for calculating and expressing MREL . The refore, the two requirements should be understood as complementary elements of a common framework. 10 Th at revised framework should better ensure that ins t itutions’ loss absorption and recapitalisation occur s through private means once those institutions get into financial difficulties and are subsequently placed in resolution. TLAC and MREL are thus essential to effectively manage bank crises and reduce their negative impact on financial stability and public finances. TLAC and the revised rules on MREL became applicable in the Union on 2 7 June 2019 and 28 December 2020, respectively. In line with international standards , Union law recognises both the Single Point of Entry (SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy. 11 Under the SPE resolution strategy, only one group entity , typically the parent undertaking, is resolved (‘resolution entity’) , whereas o ther group entities, usually operating subsidiaries, are not subject to resolution action . Instead, the losses of those subsidiaries are transferred to the resolution entity and capital is down streamed to the subsidiary . This ensures that the subsidiaries can continue to operate smoothly even after they have reach ed the point of non-viability . Each resolution entity forms a ‘resolution group’ t ogether with the subsidiaries that belong to it and that are not themselves resolution entities . Under the MPE resolution strategy, more than one entity of the banking group may be resolved . C onsequently , more than one resolution entity and thus more than one resolution group may exist within the banking group . The underlying principle of the MPE resolution approach is to enable the resolution of a given resolution group in a feasible and credible way without undermining the resolvability of other resolution entities and resolution groups in the same consolidated banking group. The revised bank resolution framework provides that MREL for resolution entities should be set at the consolidated level of a resolution group ( ‘ external MREL ’ ). 12 In addition, that framework envisages how the loss absorption and recapitalisation capacity should be allocated within resolution groups ( ‘ internal MREL ’ ) 13 . According to the BRRD, as a rule, financial instruments that are eligible for internal MREL must be held by the resolution entity , i.e. typically the parent undertaking 14 . The rationale of this rule is to ensure that t he loss-absorbing and recapitalisation capacity of a subsidiary is provided by its parent, i.e. by the resolution entity . That parent may hold internal MREL eligible instruments either directly or indirectly through other entities in the same resolution group (see illustration below) . The possibility for instruments to be also indirectly subscribed by the parent through intermediate entities was justified by the fact that the obligation to comply with i nternal MREL should not unnecessarily alter the existing funding channels of banking groups where the funding for acquiring such instruments is structured around the chains of ownership and distributed to the s ubsidiaries across the group through intermediate entities and not directly by ultimate parents (resolution entities). Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) To operationalise the approach of indirect subscription of internal MREL eligible instruments within resolution groups , also referred to as the ‘daisy chain’ approach, and to ensure that it i s prudentially sound, the co-legislators mandated the E uropean B anking A uthority (EBA) to develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis a delegated act to specify a methodology for such an indirect issuance of eligible instruments . 15 According to the BRRD mandate that methodology should: · permit a proper transfer of losses from subsidiaries to their ultimate parent (resolution entity) and a proper transfer of capital from that parent to subsidiaries; · ensure that the loss-absorbing capacity of the subsidiary is not also counted for the purposes of compliance with internal MREL by the intermediate parent ; and · ensure that its outcome is equivalent to that of a direct subscription by the ultimate parent (resolution entity) of eligible instruments issued by subsidiaries. Since early 2020, t he EBA has been working on that draft RTS on the basis of a deduction regime , in line with the mandate set out in the BRRD and the recommend ations in the relevant international standards . 16 The deduction regime developed by the EBA envisages that i nternal MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate parent would have to be fully deducted from the amount of the intermediate parent’s own i nternal MREL capacity. Such a deduction approach was considered as the most consistent with the conditions set out in the BRRD mandate and conducive to the operationalisation of the i nternal MREL framework . 17 Th e methodology developed by the EBA was subject to a public consultation. 18 The consultation feedback showed general support to the draft RTS, but highlighted several inconsistencies of the requirements for the delegation laid down in the BRRD with the existing prudential rules laid down in the CRR. Hence, in a letter to the European Commission dated 25 January 2021 19 , the EBA outlined that the interactions between the BRRD and the CRR would not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended. More precisely, the EBA noted that the CRR did not allow for the deduction of internal MREL eligible instruments and , subsequently, for the application of an appropriate risk weight of zero percent in all the cases relevant for the mandate under the BRRD . Similar issues were identified in the area of the CRR leverage ratio requirement. T his situation would not only generate an inconsistency between the prudential and resolution framework but would also go against the requirement of the BRRD mandate to generate an outcome equivalent to that of a direct subscription , according to the EBA. It was concluded that the BRRD requirements could not be fulfilled without additional provisions that the RTS could not bear on its own but need ed rather to rely on the Level 1 text to specify. Apart from the need to operationalise the indirect subscription of instruments eligible for internal MREL, some other resolution related issues have been identified since the revised TLAC/MREL framework bec a me applicable in 2019. 20 Those issues mainly relate to the regulatory tr eatment of G-SII groups with a n MPE resolution strategy, including those MPE groups that have subsidiaries in third countries . For instance, the CRR currently does not specify whether the various adjustments to TLAC 21 for G-SIIs with an MPE resolution strategy also cover those subsidiaries of a G-SII that are located in a third country . In addition, the formula 22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also take into account the non-risked - based TLAC/MREL. Further issues include some contradictions within the Level 1 text, notably with regard to the interplay of provisions in the CRR and the BRRD 23 that are relevant to address potential inconsistencies between SPE and MPE requirements . Lastly, some issues have been observed with regard to the criteria 24 for instruments to be eligible for compliance with the internal TLAC requirement, which is of relevance when addressing the failure of EU subsidiaries of non-EU global systemically important institutions (G-SIIs). Some targeted changes to specific resolution related aspects of the CRR are necessary to address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE resolution strategy, including of those MPE groups that have subsidiaries in third countries, needs to be better aligned with the treatment outlined in the TLAC standard. This would help to ensure that, in case of resolution, each resolution entity and group belonging to those G-SIIs can continue to perform critical functions without the risk of contagion. The amendments proposed would not alter the overall architecture of the framework but would ensure the proper application of TLAC and MREL. First, it is necessary to incorporate directly into the CRR a dedicated prudential treatment related to the indirect subscription of instruments eligible for internal MREL (daisy chain approach). The proposed modifications to the CRR would address the identified inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to the European Commission dated 25 January 2021. More precisely, the deduction regime, which was developed by the EBA in the context of the draft RTS under the BRRD, would be incorporated directly into the CRR. This would ensure a proper functioning of the indirect subscription of internal MREL within resolution groups with several layers of ownership, in line with the political agreement reached during the negotiations of Directive (EU) 2019/879. In addition, the revisions would ensure that the treatment of holdings of internal MREL eligible instruments remains aligned in both the resolution and the prudential framework, thus enabling the operationalisation of the deduction methodology developed by the EBA and, at the same time, avoiding the introduction of undue complexity in the treatment of those exposures. Second , the CRR provisions on the comparison between the sum of the actual TLAC requirement s of all the resolution groups within a G-SII group with a n MPE resolution strategy with the theoretical SPE requirement of that G-SII group need to be clarified . 25 The changes proposed are needed to clarify the extent to which resolution authorities can address the potential inconsistencies between SPE and MPE requirements. This would be achieved by aligning the CRR treatment with the one envisaged under the BRRD 26 and the TLAC standard 27 . Th ird , it is necessary to amend th e formula for the calculation of the TLAC/MREL surplus of a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE resolution strategy 28 to ensure that that formula takes into account both the risk-based and the non- risk- based TLAC/MREL requirement s of the subsidiary, in line with the TLAC standard. This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be clarified to allow for the consideration of subsidiaries established outside of the Union. This would align the CRR with the corresponding TLAC principle agreed internationally, which is applicable with respect to subsidiaries established in all FSB jurisdictions. Fifth, some targeted clarifications in the context of the r equirement for own funds and eligible liabilities for i nstitutions that are material subsidiaries of non-EU G-SIIs ( ‘ internal TLAC ’ ) are needed to ensure that debt instruments issued by those institutions could meet all eligibility criteria for eligible liabilities instruments . The reason for this change is that currently the eligibility criteria for eligible liabilities instruments are based on the assumption that those instruments are issued by a resolution entity, and not by subsidiaries subject to an internal TLAC requirement. The gap would be addressed by clarifying that the same eligibility conditions applicable to resolution entities apply also to non-resolution entities, mutatis mutandis . This, in turn, would enable those institutions to me e t their internal TLAC requirement inter alia with eligible liabilities, as originally intended by the co-legislators . 29 These proposed amendments to the CRR can play an essential role in improving an institution’s resolvability . Given that the corresponding provisions are already applicable in the Union, the proposed modifications would need to be made in a timely manner . The need for an expedited adoption is further amplified by the fact that banking groups need clarity on the daisy chain mechanism to decide how best to preposition their internal MREL capacity in view of the general MREL compliance deadline that is set to 1 January 2024 , with binding intermediate targets needing to be complied with by 1 January 2022 . 
Revised version (Article 86 Restrictions on other proceedings):
For the purposes of paragraph 1, Member States shall ensure that: the application is not determined unless the notifications referred to in point (a) have been made and either of the following occurs: (ii) a period of seven days beginning with the date on which the notifications referred to in point (a) were made has expired. 3. Without prejudice to any restriction on the enforcement of security interests imposed pursuant to Article 70, Member States shall ensure that, if necessary for the effective application of the resolution tools and powers, resolution authorities may request the court to apply a stay for an appropriate period of time in accordance with the objective pursued, on any judicial action or proceeding in which an institution under resolution is or becomes a party.