Article 33 Conditions for resolution with regard to financial institutions and holding companies
1. Member States shall ensure that resolution authorities may take a resolution action in relation to a financial institution referred to in point (b) of Article 1(1), when the conditions laid down in Article 32(1), are met with regard to both the financial institution and with regard to the parent undertaking subject to consolidated supervision. 2. Member States shall ensure that resolution authorities may take a resolution action in relation to an entity referred to in point (c) or (d) of Article 1(1), when the conditions laid down in Article 32(1) are met with regard to both the entity referred to in point (c) or (d) of Article 1(1) and with regard to one or more subsidiaries which are institutions or, where the subsidiary is not established in the Union, the third-country authority has determined that it meets the conditions for resolution under the law of that third country. 3. Where the subsidiary institutions of a mixed-activity holding company are held directly or indirectly by an intermediate financial holding company, Member States shall ensure that resolution actions for the purposes of group resolution are taken in relation to the intermediate financial holding company, and shall not take resolution actions for the purposes of group resolution in relation to the mixed-activity holding company. 4. Subject to paragraph 3 of this Article, notwithstanding the fact that an entity referred to in point (c) or (d) of Article 1(1) does not meet the conditions established in Article 32(1), resolution authorities may take resolution action with regard to an entity referred to in point (c) or (d) of Article 1(1) when one or more of the subsidiaries which are institutions comply with the conditions established in Article 32(1), (4) and (5) and their assets and liabilities are such that their failure threatens an institution or the group as a whole or the insolvency law of the Member State requires that groups be treated as a whole and resolution action with regard to the entity referred to in point (c) or (d) of Article 1(1) is necessary for the resolution of such subsidiaries which are institutions or for the resolution of the group as a whole. For the purposes of paragraph 2 and of the first subparagraph of this paragraph, when assessing whether the conditions in Article 32(1) are met in respect of one or more subsidiaries which are institutions, the resolution authority of the institution and the resolution authority of the entity referred to in point (c) or (d) of Article 1(1) may by way of joint agreement disregard any intra-group capital or loss transfers between the entities, including the exercise of write down or conversion powers.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities ('MREL'), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks ('G-SIBs'), referred to as global systemically important institutions ('G-SIIs') in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD framework remains valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. This proposal covers specifically the targeted amendments to the BRRD related to the implementation of the TLAC standard in the Union. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and rendering it more resilient. In addition, based on views expressed by many respondents to the call for evidence to stakeholders published in September 2015 8 , this proposal amends the BRRD with the view to ease compliance costs of banks where their liabilities are governed by the laws of third countries. The current requirement has proven difficult to comply with in practice thus bringing limited added value to the resolvability of banks. It is thus necessary to introduce more flexibility in the contractual relationships of Union banks with third country entities by allowing resolution authorities to waive, subject to certain strict safeguards, the obligation to insert contractual clauses with the aim of recognising in third countries the effects of the bail-in of liabilities governed by the law of these third countries. In practice, the current rules are very difficult to enforce. Furthermore, at the invitation of the ECOFIN in its conclusions of 17 June 2016, this proposal amends the BRRD as regards the application by resolution authorities of moratorium tools in the course of resolution, i.e. powers to suspend the executions of bank commitments towards third parties. Harmonisation of such powers should contribute to the stabilisation by the relevant authorities of an institution in the period before, and possibly after, resolution. 
Revised version (Article 33 Conditions for resolution with regard to financial institutions and holding companies):
1. Member States shall ensure that resolution authorities may take a resolution action in relation to a financial institution referred to in point (b) of Article 1(1), when the conditions laid down in Article 32(1), are met with regard to both the financial institution and with regard to the parent undertaking subject to consolidated supervision. 2. Member States shall ensure that resolution authorities take a resolution action in relation to an entity referred to in point (c) or (d) of Article 1(1), when that entity meets the conditions laid down in Article 32(1). 3. Where the subsidiary institutions of a mixed-activity holding company are held directly or indirectly by an intermediate financial holding company, the resolution plan shall provide that the intermediate financial holding company is identified as a resolution entity and Member States shall ensure that resolution actions for the purposes of group resolution are taken in relation to the intermediate financial holding company. Member States shall ensure that resolution authorities do not take resolution actions for the purposes of group resolution in relation to the mixed-activity holding company. 4. Subject to paragraph 3 of this Article and notwithstanding the fact that an entity referred to in point (c) or (d) of Article 1(1) does not meet the conditions laid down in Article 32(1), resolution authorities may take resolution action with regard to an entity referred to in point (c) or (d) of Article 1(1) where all of the following conditions are fulfilled: (a) the entity is a resolution entity; (b) one or more of the subsidiaries of the entity that are institutions, but not resolution entities, comply with the conditions laid down in Article 32(1); (c) assets and liabilities of the subsidiaries referred to in point (b) are such that the failure of those subsidiaries threatens the resolution group as a whole, and resolution action with regard to the entity is necessary either for the resolution of such subsidiaries which are institutions or for the resolution of the relevant resolution group as a whole.
Article 34 General principles governing resolution
1. Member States shall ensure that, when applying the resolution tools and exercising the resolution powers, resolution authorities take all appropriate measures to ensure that the resolution action is taken in accordance with the following principles: (a) the shareholders of the institution under resolution bear first losses; (b) creditors of the institution under resolution bear losses after the shareholders in accordance with the order of priority of their claims under normal insolvency proceedings, save as expressly provided otherwise in this Directive; (c) management body and senior management of the institution under resolution are replaced, except in those cases when the retention of the management body and senior management, in whole or in part, as appropriate to the circumstances, is considered to be necessary for the achievement of the resolution objectives; (d) management body and senior management of the institution under resolution shall provide all necessary assistance for the achievement of the resolution objectives; (e) natural and legal persons are made liable, subject to Member State law, under civil or criminal law for their responsibility for the failure of the institution; (f) except where otherwise provided in this Directive, creditors of the same class are treated in an equitable manner; (g) no creditor shall incur greater losses than would have been incurred if the institution or entity referred to in point (b), (c) or (d) of Article 1(1) had been wound up under normal insolvency proceedings in accordance with the safeguards in Articles 73 to 75; (h) covered deposits are fully protected; and (i) resolution action is taken in accordance with the safeguards in this Directive. 2. Where an institution is a group entity resolution authorities shall, without prejudice to Article 31, apply resolution tools and exercise resolution powers in a way that minimises the impact on other group entities and on the group as a whole and minimises the adverse effects on financial stability in the Union and its Member States, in particular, in the countries where the group operates. 3. When applying the resolution tools and exercising the resolution powers, Member States shall ensure that they comply with the Union State aid framework, where applicable. 4. Where the sale of business tool, the bridge institution tool or the asset separation tool is applied to an institution or entity referred to in point (b), (c) or (d) of Article 1(1), that institution or entity shall be considered to be the subject of bankruptcy proceedings or analogous insolvency proceedings for the purposes of Article 5(1) of Council Directive 2001/23/EC ( 30 ) . 5. When applying the resolution tools and exercising the resolution powers, resolution authorities shall inform and consult employee representatives where appropriate. 6. Resolution authorities shall apply resolution tools and exercise resolution powers without prejudice to provisions on the representation of employees in management bodies as provided for in national law or practice.
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 34 General principles governing resolution):
1. Member States shall ensure that, when applying the resolution tools and exercising the resolution powers, resolution authorities take all appropriate measures to ensure that the resolution action is taken in accordance with the following principles: (a) the shareholders of the institution under resolution bear first losses; (b) creditors of the institution under resolution bear losses after the shareholders in accordance with the order of priority of their claims under normal insolvency proceedings, save as expressly provided otherwise in this Directive; (c) management body and senior management of the institution under resolution are replaced, except in those cases when the retention of the management body and senior management, in whole or in part, as appropriate to the circumstances, is considered to be necessary for the achievement of the resolution objectives; (d) management body and senior management of the institution under resolution shall provide all necessary assistance for the achievement of the resolution objectives; (e) natural and legal persons are made liable, subject to Member State law, under civil or criminal law for their responsibility for the failure of the institution; (f) except where otherwise provided in this Directive, creditors of the same class are treated in an equitable manner; (h) covered deposits are fully protected; and (i) resolution action is taken in accordance with the safeguards in this Directive. 2. Where an institution is a group entity resolution authorities shall, without prejudice to Article 31, apply resolution tools and exercise resolution powers in a way that minimises the impact on other group entities and on the group as a whole and minimises the adverse effects on financial stability in the Union and its Member States, in particular, in the countries where the group operates. 3. When applying the resolution tools and exercising the resolution powers, Member States shall ensure that they comply with the Union State aid framework, where applicable. 4. Where the sale of business tool, the bridge institution tool or the asset separation tool is applied to an institution or entity referred to in point (b), (c) or (d) of Article 1(1), that institution or entity shall be considered to be the subject of bankruptcy proceedings or analogous insolvency proceedings for the purposes of Article 5(1) of Council Directive 2001/23/EC ( 9 ). 5. When applying the resolution tools and exercising the resolution powers, resolution authorities shall inform and consult employee representatives where appropriate. 6. Resolution authorities shall apply resolution tools and exercise resolution powers without prejudice to provisions on the representation of employees in management bodies as provided for in national law or practice.
Article 35 Special management
1. Member States shall ensure that resolution authorities may appoint a special manager to replace the management body of the institution under resolution. Resolution authorities shall make public the appointment of a special manager. Member States shall further ensure that the special manager has the qualifications, ability and knowledge required to carry out his or her functions. 2. The special manager shall have all the powers of the shareholders and the management body of the institution. However, the special manager may only exercise such powers under the control of the resolution authority. 3. The special manager shall have the statutory duty to take all the measures necessary to promote the resolution objectives referred to in Article 31 and implement resolution actions according to the decision of the resolution authority. Where necessary, that duty shall override any other duty of management in accordance with the statutes of the institution or national law, insofar as they are inconsistent. Those measures may include an increase of capital, reorganisation of the ownership structure of the institution or takeovers by institutions that are financially and organisationally sound in accordance with the resolution tools referred to in Chapter IV. 4. Resolution authorities may set limits to the action of a special manager or require that certain acts of the special manager be subject to the resolution authority’s prior consent. The resolution authorities may remove the special manager at any time. 5. Member States shall require that a special manager draw up reports for the appointing resolution authority on the economic and financial situation of the institution and on the acts performed in the conduct of his or her duties, at regular intervals set by the resolution authority and at the beginning and the end of his or her mandate. 6. A special manager shall not be appointed for more than one year. That period may be renewed, on an exceptional basis, if the resolution authority determines that the conditions for appointment of a special manager continue to be met. 7. Where more than one resolution authority intends to appoint a special manager in relation to an entity affiliated to a group, they shall consider whether it is more appropriate to appoint the same special manager for all the entities concerned in order to facilitate solutions redressing the financial soundness of the entities concerned. 8. In the event of insolvency, where national law provides for the appointment of insolvency management, such management may constitute special management as referred to in this Article.
Article 36 Valuation for the purposes of resolution
1. Before taking resolution action or exercising the power to write down or convert relevant capital instruments resolution authorities shall ensure that a fair, prudent and realistic valuation of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) is carried out by a person independent from any public authority, including the resolution authority, and the institution or entity referred to in point (b), (c) or (d) of Article 1(1). Subject to paragraph 13 of this Article and to Article 85, where all the requirements laid down in this Article are met, the valuation shall be considered to be definitive. 2. Where an independent valuation according to paragraph 1 is not possible, resolution authorities may carry out a provisional valuation of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1), in accordance with paragraph 9 of this Article. 3. The objective of the valuation shall be to assess the value of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) that meets the conditions for resolution of Articles 32 and 33. 4. The purposes of the valuation shall be: (a) to inform the determination of whether the conditions for resolution or the conditions for the write down or conversion of capital instruments are met; (b) if the conditions for resolution are met, to inform the decision on the appropriate resolution action to be taken in respect of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (c) when the power to write down or convert relevant capital instruments is applied, to inform the decision on the extent of the cancellation or dilution of shares or other instruments of ownership, and the extent of the write down or conversion of relevant capital instruments; (d) when the bail-in tool is applied, to inform the decision on the extent of the write down or conversion of eligible liabilities; (e) when the bridge institution tool or asset separation tool is applied, to inform the decision on the assets, rights, liabilities or shares or other instruments of ownership to be transferred and the decision on the value of any consideration to be paid to the institution under resolution or, as the case may be, to the owners of the shares or other instruments of ownership; (f) when the sale of business tool is applied, to inform the decision on the assets, rights, liabilities or shares or other instruments of ownership to be transferred and to inform the resolution authority’s understanding of what constitutes commercial terms for the purposes of Article 38; (g) in all cases, to ensure that any losses on the assets of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) are fully recognised at the moment the resolution tools are applied or the power to write down or convert relevant capital instruments is exercised. 5. Without prejudice to the Union State aid framework, where applicable, the valuation shall be based on prudent assumptions, including as to rates of default and severity of losses. The valuation shall not assume any potential future provision of extraordinary public financial support or central bank emergency liquidity assistance or any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms to the institution or entity referred to in point (b), (c) or (d) of Article 1(1) from the point at which resolution action is taken or the power to write down or convert relevant capital instruments is exercised. Furthermore, the valuation shall take account of the fact that, if any resolution tool is applied: (a) the resolution authority and any financing arrangement acting pursuant to Article 101 may recover any reasonable expenses properly incurred from the institution under resolution, in accordance with Article 37(7); (b) the resolution financing arrangement may charge interest or fees in respect of any loans or guarantees provided to the institution under resolution, in accordance with Article 101. 6. The valuation shall be supplemented by the following information as appearing in the accounting books and records of the institution or entity referred to in point (b), (c) or (d) of Article 1(1): (a) an updated balance sheet and a report on the financial position of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (b) an analysis and an estimate of the accounting value of the assets; (c) the list of outstanding on balance sheet and off balance sheet liabilities shown in the books and records of the institution or entity referred to in point (b), (c) or (d) of Article 1(1), with an indication of the respective credits and priority levels under the applicable insolvency law. 7. Where appropriate, to inform the decisions referred to in points (e) and (f) of paragraph 4, the information in point (b) of paragraph 6 may be complemented by an analysis and estimate of the value of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) on a market value basis. 8. The valuation shall indicate the subdivision of the creditors in classes in accordance with their priority levels under the applicable insolvency law and an estimate of the treatment that each class of shareholders and creditors would have been expected to receive, if the institution or entity referred to in point (b), (c) or (d) of Article 1(1) were wound up under normal insolvency proceedings. That estimate shall not affect the application of the ‘no creditor worse off’ principle to be carried out under Article 74. 9. Where due to the urgency in the circumstances of the case it is not possible to comply with the requirements in paragraphs 6 and 8 or paragraph 2 applies, a provisional valuation shall be carried out. The provisional valuation shall comply with the requirements in paragraph 3 and in so far as reasonably practicable in the circumstances with the requirements of paragraphs 1, 6 and 8. The provisional valuation referred to in this paragraph shall include a buffer for additional losses, with appropriate justification. 10. A valuation that does not comply with all the requirements laid down in this Article shall be considered to be provisional until an independent person has carried out a valuation that is fully compliant with all the requirements laid down in this Article. That ex-post definitive valuation shall be carried out as soon as practicable. It may be carried out either separately from the valuation referred to in Article 74, or simultaneously with and by the same independent person as that valuation, but shall be distinct from it. The purposes of the ex-post definitive valuation shall be: (a) to ensure that any losses on the assets of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) are fully recognised in the books of accounts of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (b) to inform a decision to write back creditors’ claims or to increase the value of the consideration paid, in accordance with paragraph 11. 11. In the event that the ex-post definitive valuation’s estimate of the net asset value of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) is higher than the provisional valuation’s estimate of the net asset value of the institution or entity referred to in point (b), (c) or (d) of Article 1(1), the resolution authority may: (a) exercise its power to increase the value of the claims of creditors or owners of relevant capital instruments which have been written down under the bail-in tool; (b) instruct a bridge institution or asset management vehicle to make a further payment of consideration in respect of the assets, rights, liabilities to the institution under resolution, or as the case may be, in respect of the shares or instruments of ownership to the owners of the shares or other instruments of ownership. 12. Notwithstanding paragraph 1, a provisional valuation conducted in accordance with paragraphs 9 and 10 shall be a valid basis for resolution authorities take resolution actions, including taking control of a failing institution or entity referred to in point (b), (c) or (d) of Article 1(1), or to exercise the write down or conversion power of capital instruments. 13. The valuation shall be an integral part of the decision to apply a resolution tool or exercise a resolution power, or the decision to exercise the write down or conversion power of capital instruments. The valuation itself shall not be subject to a separate right of appeal but may be subject to an appeal together with the decision in accordance with Article 85. 14. EBA shall develop draft regulatory technical standards to specify the circumstances in which a person is independent from both the resolution authority and the institution or entity referred to in point (b), (c) or (d) of Article 1(1) for the purposes of paragraph 1of this Article, and for the purposes of Article 74. 15. EBA may develop draft regulatory technical standards to specify the following criteria for the purposes of paragraphs 1, 3 and 9 of this Article, and for the purposes of Article 74: (a) the methodology for assessing the value of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (b) the separation of the valuations under Articles 36 and 74; (c) the methodology for calculating and including a buffer for additional losses in the provisional valuation. 16. EBA shall submit the draft regulatory technical standards referred to in paragraph 14 to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in paragraphs 14 and 15 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 The proposed amendments to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities ('MREL'), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks ('G-SIBs'), referred to as global systemically important institutions ('G-SIIs') in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD framework remains valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. This proposal covers specifically the targeted amendments to the BRRD related to the implementation of the TLAC standard in the Union. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and rendering it more resilient. In addition, based on views expressed by many respondents to the call for evidence to stakeholders published in September 2015 8 , this proposal amends the BRRD with the view to ease compliance costs of banks where their liabilities are governed by the laws of third countries. The current requirement has proven difficult to comply with in practice thus bringing limited added value to the resolvability of banks. It is thus necessary to introduce more flexibility in the contractual relationships of Union banks with third country entities by allowing resolution authorities to waive, subject to certain strict safeguards, the obligation to insert contractual clauses with the aim of recognising in third countries the effects of the bail-in of liabilities governed by the law of these third countries. In practice, the current rules are very difficult to enforce. Furthermore, at the invitation of the ECOFIN in its conclusions of 17 June 2016, this proposal amends the BRRD as regards the application by resolution authorities of moratorium tools in the course of resolution, i.e. powers to suspend the executions of bank commitments towards third parties. Harmonisation of such powers should contribute to the stabilisation by the relevant authorities of an institution in the period before, and possibly after, resolution. 
Revised version (Article 36 Valuation for the purposes of resolution):
1. Before taking resolution action or exercising the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 59 resolution authorities shall ensure that a fair, prudent and realistic valuation of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) is carried out by a person independent from any public authority, including the resolution authority, and the institution or entity referred to in point (b), (c) or (d) of Article 1(1). Subject to paragraph 13 of this Article and to Article 85, where all the requirements laid down in this Article are met, the valuation shall be considered to be definitive. 2. Where an independent valuation according to paragraph 1 is not possible, resolution authorities may carry out a provisional valuation of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1), in accordance with paragraph 9 of this Article. 3. The objective of the valuation shall be to assess the value of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) that meets the conditions for resolution of Articles 32 and 33. 4. The purposes of the valuation shall be: (a) to inform the determination of whether the conditions for resolution or the conditions for the write down or conversion of capital instruments and eligible liabilities in accordance with Article 59 are met; (b) if the conditions for resolution are met, to inform the decision on the appropriate resolution action to be taken in respect of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (c) when the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 59 is applied, to inform the decision on the extent of the cancellation or dilution of shares or other instruments of ownership, and the extent of the write down or conversion of relevant capital instruments and eligible liabilities in accordance with Article 59 ; (d) when the bail-in tool is applied, to inform the decision on the extent of the write down or conversion of bail-inable liabilities ; (e) when the bridge institution tool or asset separation tool is applied, to inform the decision on the assets, rights, liabilities or shares or other instruments of ownership to be transferred and the decision on the value of any consideration to be paid to the institution under resolution or, as the case may be, to the owners of the shares or other instruments of ownership; (f) when the sale of business tool is applied, to inform the decision on the assets, rights, liabilities or shares or other instruments of ownership to be transferred and to inform the resolution authority’s understanding of what constitutes commercial terms for the purposes of Article 38; (g) in all cases, to ensure that any losses on the assets of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) are fully recognised at the moment the resolution tools are applied or the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 59 is exercised. 5. Without prejudice to the Union State aid framework, where applicable, the valuation shall be based on prudent assumptions, including as to rates of default and severity of losses. The valuation shall not assume any potential future provision of extraordinary public financial support or central bank emergency liquidity assistance or any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms to the institution or entity referred to in point (b), (c) or (d) of Article 1(1) from the point at which resolution action is taken or the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 59 is exercised. Furthermore, the valuation shall take account of the fact that, if any resolution tool is applied: (a) the resolution authority and any financing arrangement acting pursuant to Article 101 may recover any reasonable expenses properly incurred from the institution under resolution, in accordance with Article 37(7); (b) the resolution financing arrangement may charge interest or fees in respect of any loans or guarantees provided to the institution under resolution, in accordance with Article 101. 6. The valuation shall be supplemented by the following information as appearing in the accounting books and records of the institution or entity referred to in point (b), (c) or (d) of Article 1(1): (a) an updated balance sheet and a report on the financial position of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (b) an analysis and an estimate of the accounting value of the assets; (c) the list of outstanding on balance sheet and off balance sheet liabilities shown in the books and records of the institution or entity referred to in point (b), (c) or (d) of Article 1(1), with an indication of the respective credits and priority levels under the applicable insolvency law. 7. Where appropriate, to inform the decisions referred to in points (e) and (f) of paragraph 4, the information in point (b) of paragraph 6 may be complemented by an analysis and estimate of the value of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) on a market value basis. 8. The valuation shall indicate the subdivision of the creditors in classes in accordance with their priority levels under the applicable insolvency law and an estimate of the treatment that each class of shareholders and creditors would have been expected to receive, if the institution or entity referred to in point (b), (c) or (d) of Article 1(1) were wound up under normal insolvency proceedings. That estimate shall not affect the application of the ‘no creditor worse off’ principle to be carried out under Article 74. 9. Where due to the urgency in the circumstances of the case it is not possible to comply with the requirements in paragraphs 6 and 8 or paragraph 2 applies, a provisional valuation shall be carried out. The provisional valuation shall comply with the requirements in paragraph 3 and in so far as reasonably practicable in the circumstances with the requirements of paragraphs 1, 6 and 8. The provisional valuation referred to in this paragraph shall include a buffer for additional losses, with appropriate justification. 10. A valuation that does not comply with all the requirements laid down in this Article shall be considered to be provisional until an independent person has carried out a valuation that is fully compliant with all the requirements laid down in this Article. That ex-post definitive valuation shall be carried out as soon as practicable. It may be carried out either separately from the valuation referred to in Article 74, or simultaneously with and by the same independent person as that valuation, but shall be distinct from it. The purposes of the ex-post definitive valuation shall be: (a) to ensure that any losses on the assets of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) are fully recognised in the books of accounts of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (b) to inform a decision to write back creditors’ claims or to increase the value of the consideration paid, in accordance with paragraph 11. 11. In the event that the ex-post definitive valuation’s estimate of the net asset value of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) is higher than the provisional valuation’s estimate of the net asset value of the institution or entity referred to in point (b), (c) or (d) of Article 1(1), the resolution authority may: (a) exercise its power to increase the value of the claims of creditors or owners of relevant capital instruments which have been written down under the bail-in tool; (b) instruct a bridge institution or asset management vehicle to make a further payment of consideration in respect of the assets, rights, liabilities to the institution under resolution, or as the case may be, in respect of the shares or instruments of ownership to the owners of the shares or other instruments of ownership. 12. Notwithstanding paragraph 1, a provisional valuation conducted in accordance with paragraphs 9 and 10 shall be a valid basis for resolution authorities take resolution actions, including taking control of a failing institution or entity referred to in point (b), (c) or (d) of Article 1(1), or to exercise the write down or conversion power of capital instruments and eligible liabilities in accordance with Article 59 . 13. The valuation shall be an integral part of the decision to apply a resolution tool or exercise a resolution power, or the decision to exercise the write down or conversion power of capital instruments and eligible liabilities in accordance with Article 59 . The valuation itself shall not be subject to a separate right of appeal but may be subject to an appeal together with the decision in accordance with Article 85. 14. EBA shall develop draft regulatory technical standards to specify the circumstances in which a person is independent from both the resolution authority and the institution or entity referred to in point (b), (c) or (d) of Article 1(1) for the purposes of paragraph 1of this Article, and for the purposes of Article 74. 15. EBA may develop draft regulatory technical standards to specify the following criteria for the purposes of paragraphs 1, 3 and 9 of this Article, and for the purposes of Article 74: (a) the methodology for assessing the value of the assets and liabilities of the institution or entity referred to in point (b), (c) or (d) of Article 1(1); (b) the separation of the valuations under Articles 36 and 74; (c) the methodology for calculating and including a buffer for additional losses in the provisional valuation. 16. EBA shall submit the draft regulatory technical standards referred to in paragraph 14 to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in paragraphs 14 and 15 in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 37 General principles of resolution tools
1. Member States shall ensure that resolution authorities have the necessary powers to apply the resolution tools to institutions and to entities referred to in point (b), (c) or (d) of Article 1(1) that meet the applicable conditions for resolution. 2. Where a resolution authority decides to apply a resolution tool to an institution or entity referred to in point (b), (c) or (d) of Article 1(1), and that resolution action would result in losses being borne by creditors or their claims being converted, the resolution authority shall exercise the power to write down and convert capital instruments in accordance with Article 59 immediately before or together with the application of the resolution tool. 3. The resolution tools referred to in paragraph 1 are the following: (a) the sale of business tool; (b) the bridge institution tool; (c) the asset separation tool; (d) the bail-in tool. 4. Subject to paragraph 5, resolution authorities may apply the resolution tools individually or in any combination. 5. Resolution authorities may apply the asset separation tool only together with another resolution tool. 6. Where only the resolution tools referred to in point (a) or (b) of paragraph 3 of this Article are used, and they are used to transfer only part of the assets, rights or liabilities of the institution under resolution, the residual institution or entity referred to in point (b), (c) or (d) of Article 1(1) from which the assets, rights or liabilities have been transferred, shall be wound up under normal insolvency proceedings. Such winding up shall be done within a reasonable timeframe, having regard to any need for that institution or entity referred to in point (b), (c) or (d) of Article 1(1) to provide services or support pursuant to Article 65 in order to enable the recipient to carry out the activities or services acquired by virtue of that transfer, and any other reason that the continuation of the residual institution or entity referred to in point (b), (c) or (d) of Article 1(1) is necessary to achieve the resolution objectives or comply with the principles referred to in Article 34. 7. The resolution authority and any financing arrangement acting pursuant to Article 101 may recover any reasonable expenses properly incurred in connection with the use of the resolution tools or powers or government financial stabilisation tools in one or more of the following ways: (a) as a deduction from any consideration paid by a recipient to the institution under resolution or, as the case may be, to the owners of the shares or other instruments of ownership; (b) from the institution under resolution, as a preferred creditor; or (c) from any proceeds generated as a result of the termination of the operation of the bridge institution or the asset management vehicle, as a preferred creditor. 8. Member States shall ensure that rules under national insolvency law relating to the voidability or unenforceability of legal acts detrimental to creditors do not apply to transfers of assets, rights or liabilities from an institution under resolution to another entity by virtue of the application of a resolution tool or exercise of a resolution power, or use of a government financial stabilisation tool. 9. Member States may confer upon resolution authorities additional tools and powers exercisable where an institution or entity referred to in point (b), (c) or (d) of Article 1(1) meets the conditions for resolution, provided that: (a) when applied to a cross-border group, those additional powers do not pose obstacles to effective group resolution; and (b) they are consistent with the resolution objectives and the general principles governing resolution referred to in Articles 31 and 34. 10. In the very extraordinary situation of a systemic crisis, the resolution authority may seek funding from alternative financing sources through the use of government stabilisation tools provided for in Articles 56 to 58 when the following conditions are met: (a) a contribution to loss absorption and recapitalisation equal to an amount not less than 8 % of total liabilities including own funds of the institution under resolution, measured at the time of resolution action in accordance with the valuation provided for in Article 36, has been made by the shareholders and the holders of other instruments of ownership, the holders of relevant capital instruments and other eligible liabilities through write down, conversion or otherwise; (b) it shall be conditional on prior and final approval under the Union State aid framework.
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 37 General principles of resolution tools):
The resolution tools referred to in paragraph 1 are the following: (a) the sale of business tool; (b) the bridge institution tool; (c) the asset separation tool; (d) the bail-in tool. 4. Subject to paragraph 5, resolution authorities may apply the resolution tools individually or in any combination. 5. Resolution authorities may apply the asset separation tool only together with another resolution tool. The resolution authority and any financing arrangement acting pursuant to Article 101 may recover any reasonable expenses properly incurred in connection with the use of the resolution tools or powers or government financial stabilisation tools in one or more of the following ways: (a) as a deduction from any consideration paid by a recipient to the institution under resolution or, as the case may be, to the owners of the shares or other instruments of ownership; (b) from the institution under resolution, as a preferred creditor; or (c) from any proceeds generated as a result of the termination of the operation of the bridge institution or the asset management vehicle, as a preferred creditor. 8. Member States shall ensure that rules under national insolvency law relating to the voidability or unenforceability of legal acts detrimental to creditors do not apply to transfers of assets, rights or liabilities from an institution under resolution to another entity by virtue of the application of a resolution tool or exercise of a resolution power, or use of a government financial stabilisation tool. (a) when applied to a cross-border group, those additional powers do not pose obstacles to effective group resolution; and (b) they are consistent with the resolution objectives and the general principles governing resolution referred to in Articles 31 and 34. 10. In the very extraordinary situation of a systemic crisis, the resolution authority may seek funding from alternative financing sources through the use of government stabilisation tools provided for in Articles 56 to 58 when the following conditions are met: (a) a contribution to loss absorption and recapitalisation equal to an amount not less than 8 % of total liabilities including own funds of the institution under resolution, measured at the time of resolution action in accordance with the valuation provided for in Article 36, has been made by the shareholders and the holders of other instruments of ownership, the holders of relevant capital instruments and other bail-inable liabilities through write down, conversion or otherwise; (b) it shall be conditional on prior and final approval under the Union State aid framework. In the very extraordinary situation of a systemic crisis, the resolution authority may seek funding from alternative financing sources through the use of government stabilisation tools provided for in Articles 56 to 58 when the following conditions are met: (a) a contribution to loss absorption and recapitalisation equal to an amount not less than 8 % of total liabilities including own funds of the institution under resolution, measured at the time of resolution action in accordance with the valuation provided for in Article 36, has been made by the shareholders and the holders of other instruments of ownership, the holders of relevant capital instruments and other bail-inable liabilities through write down, conversion or otherwise; (b) it shall be conditional on prior and final approval under the Union State aid framework.
Article 38 The sale of business tool
1. Member States shall ensure that resolution authorities have the power to transfer to a purchaser that is not a bridge institution: (a) shares or other instruments of ownership issued by an institution under resolution; (b) all or any assets, rights or liabilities of an institution under resolution; Subject to paragraphs 8 and 9 of this Article and to Article 85, the transfer referred to in the first subparagraph shall take place without obtaining the consent of the shareholders of the institution under resolution or any third party other than the purchaser, and without complying with any procedural requirements under company or securities law other than those included in Article 39. 2. A transfer made pursuant to paragraph 1 shall be made on commercial terms, having regard to the circumstances, and in accordance with the Union State aid framework. 3. In accordance with paragraph 2 of this Article, resolution authorities shall take all reasonable steps to obtain commercial terms for the transfer that conform with the valuation conducted under Article 36, having regard to the circumstances of the case. 4. Subject to Article 37(7), any consideration paid by the purchaser shall benefit: (a) the owners of the shares or other instruments of ownership, where the sale of business has been effected by transferring shares or instruments of ownership issued by the institution under resolution from the holders of those shares or instruments to the purchaser; (b) the institution under resolution, where the sale of business has been effected by transferring some or all of the assets or liabilities of the institution under resolution to the purchaser. 5. When applying the sale of business tool the resolution authority may exercise the transfer power more than once in order to make supplemental transfers of shares or other instruments of ownership issued by an institution under resolution or, as the case may be, assets, rights or liabilities of the institution under resolution. 6. Following an application of the sale of business tool, resolution authorities may, with the consent of the purchaser, exercise the transfer powers in respect of assets, rights or liabilities transferred to the purchaser in order to transfer the assets, rights or liabilities back to the institution under resolution, or the shares or other instruments of ownership back to their original owners, and the institution under resolution or original owners shall be obliged to take back any such assets, rights or liabilities, or shares or other instruments of ownership. 7. A purchaser shall have the appropriate authorisation to carry out the business it acquires when the transfer is made pursuant to paragraph 1. Competent authorities shall ensure that an application for authorisation shall be considered, in conjunction with the transfer, in a timely manner. 8. By way of derogation from Articles 22 to 25 of Directive 2013/36/EU, from the requirement to inform the competent authorities in Article 26 of Directive 2013/36/EU, from Article 10(3), Article 11(1) and (2) and Articles 12 and 13 of Directive 2014/65/EU and from the requirement to give a notice in Article 11(3) of that Directive, where a transfer of shares or other instruments of ownership by virtue of an application of the sale of business tool would result in the acquisition of or increase in a qualifying holding in an institution of a kind referred to in Article 22(1) of Directive 2013/36/EU or Article 11(1) of Directive 2014/65/EU, the competent authority of that institution shall carry out the assessment required under those Articles in a timely manner that does not delay the application of the sale of business tool and prevent the resolution action from achieving the relevant resolution objectives. 9. Member States shall ensure that if the competent authority of that institution has not completed the assessment referred to in paragraph 8 from the date of transfer of shares or other instruments of ownership in the application of the sale of business tool by the resolution authority, the following provisions shall apply: (a) such a transfer of shares or other instruments of ownership to the acquirer shall have immediate legal effect; (b) during the assessment period and during any divestment period provided by point (f), the acquirer’s voting rights attached to such shares or other instruments of ownership shall be suspended and vested solely in the resolution authority, which shall have no obligation to exercise any such voting rights and which shall have no liability whatsoever for exercising or refraining from exercising any such voting rights; (c) during the assessment period and during any divestment period provided by point (f), the penalties and other measures for infringing the requirements for acquisitions or disposals of qualifying holdings contemplated by Articles 66, 67 and 68 of Directive 2013/36/EU shall not apply to such a transfer of shares or other instruments of ownership; (d) promptly upon completion of the assessment by the competent authority, the competent authority shall notify the resolution authority and the acquirer in writing of whether the competent authority approves or, in accordance with Article 22(5) of Directive 2013/36/EU, opposes such a transfer of shares or other instruments of ownership to the acquirer; (e) if the competent authority approves such a transfer of shares or other instruments of ownership to the acquirer, then the voting rights attached to such shares or other instruments of ownership shall be deemed to be fully vested in the acquirer immediately upon receipt by the resolution authority and the acquirer of such an approval notice from the competent authority; (f) if the competent authority opposes such a transfer of shares or other instruments of ownership to the acquirer, then: (i) the voting rights attached to such shares or other instruments of ownership as provided by point (b) shall remain in full force and effect; (ii) the resolution authority may require the acquirer to divest such shares or other instruments of ownership within a divestment period determined by the resolution authority having taken into account prevailing market conditions; and (iii) if the acquirer does not complete such a divestment within the divestment period established by the resolution authority, then the competent authority, with the consent of the resolution authority, may impose on the acquirer penalties and other measures for infringing the requirements for acquisitions or disposals of qualifying holdings contemplated by Articles 66, 67, and 68 of Directive 2013/36/EU. 10. Transfers made by virtue of the sale of business tool shall be subject to the safeguards referred to in Chapter VII of Title IV. 11. For the purposes of exercising the rights to provide services or to establish itself in another Member State in accordance with Directive 2013/36/EU or Directive 2014/65/EU, the purchaser shall be considered to be a continuation of the institution under resolution, and may continue to exercise any such right that was exercised by the institution under resolution in respect of the assets, rights or liabilities transferred. 12. Member States shall ensure that the purchaser referred to in paragraph 1 may continue to exercise the rights of membership and access to payment, clearing and settlement systems, stock exchanges, investor compensation schemes and deposit guarantee schemes of the institution under resolution, provided that it meets the membership and participation criteria for participation in such systems. Notwithstanding the first subparagraph, Member States shall ensure that: (a) access is not denied on the ground that the purchaser does not possess a rating from a credit rating agency, or that rating is not commensurate to the rating levels required to be granted access to the systems referred to in the first subparagraph; (b) where the purchaser does not meet the membership or participation criteria for a relevant payment, clearing or settlement system, stock exchange, investor compensation scheme or deposit guarantee scheme, the rights referred to in the first subparagraph are exercised for such a period of time as may be specified by the resolution authority, not exceeding 24 months, renewable on application by the purchaser to the resolution authority. 13. Without prejudice to Chapter VII of Title IV, shareholders or creditors of the institution under resolution and other third parties whose assets, rights or liabilities are not transferred shall not have any rights over or in relation to the assets, rights or liabilities transferred.
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 38 The sale of business tool):
1. Member States shall ensure that resolution authorities have the power to transfer to a purchaser that is not a bridge institution: (a) shares or other instruments of ownership issued by an institution under resolution; (b) all or any assets, rights or liabilities of an institution under resolution; Member States shall ensure that resolution authorities have the power to transfer to a purchaser that is not a bridge institution: (a) shares or other instruments of ownership issued by an institution under resolution; (b) all or any assets, rights or liabilities of an institution under resolution; Subject to paragraphs 8 and 9 of this Article and to Article 85, the transfer referred to in the first subparagraph shall take place without obtaining the consent of the shareholders of the institution under resolution or any third party other than the purchaser, and without complying with any procedural requirements under company or securities law other than those included in Article 39. 2. A transfer made pursuant to paragraph 1 shall be made on commercial terms, having regard to the circumstances, and in accordance with the Union State aid framework. 3. In accordance with paragraph 2 of this Article, resolution authorities shall take all reasonable steps to obtain commercial terms for the transfer that conform with the valuation conducted under Article 36, having regard to the circumstances of the case. 4. Subject to Article 37(7), any consideration paid by the purchaser shall benefit: (a) the owners of the shares or other instruments of ownership, where the sale of business has been effected by transferring shares or instruments of ownership issued by the institution under resolution from the holders of those shares or instruments to the purchaser; (b) the institution under resolution, where the sale of business has been effected by transferring some or all of the assets or liabilities of the institution under resolution to the purchaser. 5. When applying the sale of business tool the resolution authority may exercise the transfer power more than once in order to make supplemental transfers of shares or other instruments of ownership issued by an institution under resolution or, as the case may be, assets, rights or liabilities of the institution under resolution. 6. Following an application of the sale of business tool, resolution authorities may, with the consent of the purchaser, exercise the transfer powers in respect of assets, rights or liabilities transferred to the purchaser in order to transfer the assets, rights or liabilities back to the institution under resolution, or the shares or other instruments of ownership back to their original owners, and the institution under resolution or original owners shall be obliged to take back any such assets, rights or liabilities, or shares or other instruments of ownership. 7. A purchaser shall have the appropriate authorisation to carry out the business it acquires when the transfer is made pursuant to paragraph 1. Competent authorities shall ensure that an application for authorisation shall be considered, in conjunction with the transfer, in a timely manner. 9. Member States shall ensure that if the competent authority of that institution has not completed the assessment referred to in paragraph 8 from the date of transfer of shares or other instruments of ownership in the application of the sale of business tool by the resolution authority, the following provisions shall apply: (a) such a transfer of shares or other instruments of ownership to the acquirer shall have immediate legal effect; (b) during the assessment period and during any divestment period provided by point (f), the acquirer’s voting rights attached to such shares or other instruments of ownership shall be suspended and vested solely in the resolution authority, which shall have no obligation to exercise any such voting rights and which shall have no liability whatsoever for exercising or refraining from exercising any such voting rights; (c) during the assessment period and during any divestment period provided by point (f), the penalties and other measures for infringing the requirements for acquisitions or disposals of qualifying holdings contemplated by Articles 66, 67 and 68 of Directive 2013/36/EU shall not apply to such a transfer of shares or other instruments of ownership; (d) promptly upon completion of the assessment by the competent authority, the competent authority shall notify the resolution authority and the acquirer in writing of whether the competent authority approves or, in accordance with Article 22(5) of Directive 2013/36/EU, opposes such a transfer of shares or other instruments of ownership to the acquirer; (e) if the competent authority approves such a transfer of shares or other instruments of ownership to the acquirer, then the voting rights attached to such shares or other instruments of ownership shall be deemed to be fully vested in the acquirer immediately upon receipt by the resolution authority and the acquirer of such an approval notice from the competent authority; if the competent authority opposes such a transfer of shares or other instruments of ownership to the acquirer, then: (i) the voting rights attached to such shares or other instruments of ownership as provided by point (b) shall remain in full force and effect; (ii) the resolution authority may require the acquirer to divest such shares or other instruments of ownership within a divestment period determined by the resolution authority having taken into account prevailing market conditions; and (iii) if the acquirer does not complete such a divestment within the divestment period established by the resolution authority, then the competent authority, with the consent of the resolution authority, may impose on the acquirer penalties and other measures for infringing the requirements for acquisitions or disposals of qualifying holdings contemplated by Articles 66, 67, and 68 of Directive 2013/36/EU. 10. Transfers made by virtue of the sale of business tool shall be subject to the safeguards referred to in Chapter VII of Title IV. 11. For the purposes of exercising the rights to provide services or to establish itself in another Member State in accordance with Directive 2013/36/EU or Directive 2014/65/EU, the purchaser shall be considered to be a continuation of the institution under resolution, and may continue to exercise any such right that was exercised by the institution under resolution in respect of the assets, rights or liabilities transferred. 12. Member States shall ensure that the purchaser referred to in paragraph 1 may continue to exercise the rights of membership and access to payment, clearing and settlement systems, stock exchanges, investor compensation schemes and deposit guarantee schemes of the institution under resolution, provided that it meets the membership and participation criteria for participation in such systems. Notwithstanding the first subparagraph, Member States shall ensure that: (a) access is not denied on the ground that the purchaser does not possess a rating from a credit rating agency, or that rating is not commensurate to the rating levels required to be granted access to the systems referred to in the first subparagraph; (b) where the purchaser does not meet the membership or participation criteria for a relevant payment, clearing or settlement system, stock exchange, investor compensation scheme or deposit guarantee scheme, the rights referred to in the first subparagraph are exercised for such a period of time as may be specified by the resolution authority, not exceeding 24 months, renewable on application by the purchaser to the resolution authority. 13. Without prejudice to Chapter VII of Title IV, shareholders or creditors of the institution under resolution and other third parties whose assets, rights or liabilities are not transferred shall not have any rights over or in relation to the assets, rights or liabilities transferred.
Article 39 Sale of business tool: procedural requirements
1. Subject to paragraph 3 of this Article, when applying the sale of business tool to an institution or entity referred to in point (b), (c) or (d) of Article 1(1), a resolution authority shall market, or make arrangements for the marketing of the assets, rights, liabilities, shares or other instruments of ownership of that institution that the authority intends to transfer. Pools of rights, assets, and liabilities may be marketed separately. 2. Without prejudice to the Union State aid framework, where applicable, the marketing referred to in paragraph 1 shall be carried out in accordance with the following criteria: (a) it shall be as transparent as possible and shall not materially misrepresent the assets, rights, liabilities, shares or other instruments of ownership of that institution that the authority intends to transfer, having regard to the circumstances and in particular the need to maintain financial stability; (b) it shall not unduly favour or discriminate between potential purchasers; (c) it shall be free from any conflict of interest; (d) it shall not confer any unfair advantage on a potential purchaser; (e) it shall take account of the need to effect a rapid resolution action; (f) it shall aim at maximising, as far as possible, the sale price for the shares or other instruments of ownership, assets, rights or liabilities involved. Subject to point (b) of the first subparagraph, the principles referred to in this paragraph shall not prevent the resolution authority from soliciting particular potential purchasers. Any public disclosure of the marketing of the institution or entity referred to in point (b), (c) or (d) of Article 1(1) of this Directive that would otherwise be required in accordance with Article 17(1) of Regulation (EU) No 596/2014 may be delayed in accordance with Article 17(4) or (5) of that Regulation. 3. The resolution authority may apply the sale of business tool without complying with the requirement to market as laid down in paragraph 1 when it determines that compliance with those requirements would be likely to undermine one or more of the resolution objectives and in particular if the following conditions are met: (a) it considers that there is a material threat to financial stability arising from or aggravated by the failure or likely failure of the institution under resolution; and (b) it considers that compliance with those requirements would be likely to undermine the effectiveness of the sale of business tool in addressing that threat or achieving the resolution objective referred to in point (b) of Article 31(2). 4. EBA shall, by 3 July 2015, issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 specifying the factual circumstances amounting to a material threat and the elements relating to the effectiveness of the sale of business tool provided for in points (a) and (b) 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 39 Sale of business tool: procedural requirements):
2. Without prejudice to the Union State aid framework, where applicable, the marketing referred to in paragraph 1 shall be carried out in accordance with the following criteria: (a) it shall be as transparent as possible and shall not materially misrepresent the assets, rights, liabilities, shares or other instruments of ownership of that institution that the authority intends to transfer, having regard to the circumstances and in particular the need to maintain financial stability; (b) it shall not unduly favour or discriminate between potential purchasers; (c) it shall be free from any conflict of interest; (d) it shall not confer any unfair advantage on a potential purchaser; (e) it shall take account of the need to effect a rapid resolution action; (f) it shall aim at maximising, as far as possible, the sale price for the shares or other instruments of ownership, assets, rights or liabilities involved. Subject to point (b) of the first subparagraph, the principles referred to in this paragraph shall not prevent the resolution authority from soliciting particular potential purchasers. The resolution authority may apply the sale of business tool without complying with the requirement to market as laid down in paragraph 1 when it determines that compliance with those requirements would be likely to undermine one or more of the resolution objectives and in particular if the following conditions are met: (a) it considers that there is a material threat to financial stability arising from or aggravated by the failure or likely failure of the institution under resolution; and (b) it considers that compliance with those requirements would be likely to undermine the effectiveness of the sale of business tool in addressing that threat or achieving the resolution objective referred to in point (b) of Article 31(2). 4. EBA shall, by 3 July 2015, issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 specifying the factual circumstances amounting to a material threat and the elements relating to the effectiveness of the sale of business tool provided for in points (a) and (b) of paragraph 3.
Article 40 Bridge institution tool
1. In order to give effect to the bridge institution tool and having regard to the need to maintain critical functions in the bridge institution, Member States shall ensure that resolution authorities have the power to transfer to a bridge institution: (a) shares or other instruments of ownership issued by one or more institutions under resolution; (b) all or any assets, rights or liabilities of one or more institutions under resolution. Subject to Article 85, the transfer referred to in the first subparagraph may take place without obtaining the consent of the shareholders of the institutions under resolution or any third party other than the bridge institution, and without complying with any procedural requirements under company or securities law. 2. The bridge institution shall be a legal person that meets all of the following requirements: (a) it is wholly or partially owned by one or more public authorities which may include the resolution authority or the resolution financing arrangement and is controlled by the resolution authority; (b) it is created for the purpose of receiving and holding some or all of the shares or other instruments of ownership issued by an institution under resolution or some or all of the assets, rights and liabilities of one or more institutions under resolution with a view to maintaining access to critical functions and selling the institution or entity referred to in point (b), (c) or (d) of Article 1(1). The application of the bail-in tool for the purpose referred to in point (b) of Article 43(2) shall not interfere with the ability of the resolution authority to control the bridge institution. 3. When applying the bridge institution tool, the resolution authority shall ensure that the total value of liabilities transferred to the bridge institution does not exceed the total value of the rights and assets transferred from the institution under resolution or provided by other sources. 4. Subject to Article 37(7), any consideration paid by the bridge institution shall benefit: (a) the owners of the shares or instruments of ownership, where the transfer to the bridge institution has been effected by transferring shares or instruments of ownership issued by the institution under resolution from the holders of those shares or instruments to the bridge institution; (b) the institution under resolution, where the transfer to the bridge institution has been effected by transferring some or all of the assets or liabilities of the institution under resolution to the bridge institution. 5. When applying the bridge institution tool, the resolution authority may exercise the transfer power more than once in order to make supplemental transfers of shares or other instruments of ownership issued by an institution under resolution or, as the case may be, assets, rights or liabilities of the institution under resolution. 6. Following an application of the bridge institution tool, the resolution authority may: (a) transfer rights, assets or liabilities back from the bridge institution to the institution under resolution, or the shares or other instruments of ownership back to their original owners, and the institution under resolution or original owners shall be obliged to take back any such assets, rights or liabilities, or shares or other instruments of ownership, provided that the conditions laid down in paragraph 7 are met; (b) transfer, shares or other instruments of ownership, or assets, rights or liabilities from the bridge institution to a third party. 7. Resolution authorities may transfer shares or other instruments of ownership, or assets, rights or liabilities back from the bridge institution in one of the following circumstances: (a) the possibility that the specific shares or other instruments of ownership, assets, rights or liabilities might be transferred back is stated expressly in the instrument by which the transfer was made; (b) the specific shares or other instruments of ownership, assets, rights or liabilities do not in fact fall within the classes of, or meet the conditions for transfer of shares or other instruments of ownership, assets, rights or liabilities specified in the instrument by which the transfer was made. Such a transfer back may be made within any period, and shall comply with any other conditions, stated in that instrument for the relevant purpose. 8. Transfers between the institution under resolution, or the original owners of shares or other instruments of ownership, on the one hand, and the bridge institution on the other, shall be subject to the safeguards referred to in Chapter VII of Title IV. 9. For the purposes of exercising the rights to provide services or to establish itself in another Member State in accordance with Directive 2013/36/EU or Directive 2014/65/EU, a bridge institution shall be considered to be a continuation of the institution under resolution, and may continue to exercise any such right that was exercised by the institution under resolution in respect of the assets, rights or liabilities transferred. For other purposes, resolution authorities may require that a bridge institution be considered to be a continuation of the institution under resolution, and be able to continue to exercise any right that was exercised by the institution under resolution in respect of the assets, rights or liabilities transferred. 10. Member States shall ensure that the bridge institution may continue to exercise the rights of membership and access to payment, clearing and settlement systems, stock exchanges, investor compensation schemes and deposit guarantee schemes of the institution under resolution, provided that it meets the membership and participation criteria for participation in such systems. Notwithstanding the first subparagraph, Member States shall ensure that: (a) access is not denied on the ground that the bridge institution does not possess a rating from a credit rating agency, or that rating is not commensurate to the rating levels required to be granted access to the systems referred to in the first subparagraph; (b) where the bridge institution does not meet the membership or participation criteria for a relevant payment, clearing or settlement system, stock exchange, investor compensation scheme or deposit guarantee scheme, the rights referred to in the first subparagraph are exercised for such a period of time as may be specified by the resolution authority, not exceeding 24 months, renewable on application by the bridge institution to the resolution authority. 11. Without prejudice to Chapter VII of Title IV, shareholders or creditors of the institution under resolution and other third parties whose assets, rights or liabilities are not transferred to the bridge institution shall not have any rights over or in relation to the assets, rights or liabilities transferred to the bridge institution, its management body or senior management. 12. The objectives of the bridge institution shall not imply any duty or responsibility to shareholders or creditors of the institution under resolution, and the management body or senior management shall have no liability to such shareholders or creditors for acts and omissions in the discharge of their duties unless the act or omission implies gross negligence or serious misconduct in accordance with national law which directly affects rights of such shareholders or creditors. Member States may further limit the liability of a bridge institution and its management body or senior management in accordance with national law for acts and omissions in the discharge of their duties.
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 40 Bridge institution tool):
1. In order to give effect to the bridge institution tool and having regard to the need to maintain critical functions in the bridge institution, Member States shall ensure that resolution authorities have the power to transfer to a bridge institution: (a) shares or other instruments of ownership issued by one or more institutions under resolution; (b) all or any assets, rights or liabilities of one or more institutions under resolution. In order to give effect to the bridge institution tool and having regard to the need to maintain critical functions in the bridge institution, Member States shall ensure that resolution authorities have the power to transfer to a bridge institution: (a) shares or other instruments of ownership issued by one or more institutions under resolution; (b) all or any assets, rights or liabilities of one or more institutions under resolution. Subject to Article 85, the transfer referred to in the first subparagraph may take place without obtaining the consent of the shareholders of the institutions under resolution or any third party other than the bridge institution, and without complying with any procedural requirements under company or securities law. The bridge institution shall be a legal person that meets all of the following requirements: (a) it is wholly or partially owned by one or more public authorities which may include the resolution authority or the resolution financing arrangement and is controlled by the resolution authority; The application of the bail-in tool for the purpose referred to in point (b) of Article 43(2) shall not interfere with the ability of the resolution authority to control the bridge institution. 3. When applying the bridge institution tool, the resolution authority shall ensure that the total value of liabilities transferred to the bridge institution does not exceed the total value of the rights and assets transferred from the institution under resolution or provided by other sources. 4. Subject to Article 37(7), any consideration paid by the bridge institution shall benefit: (a) the owners of the shares or instruments of ownership, where the transfer to the bridge institution has been effected by transferring shares or instruments of ownership issued by the institution under resolution from the holders of those shares or instruments to the bridge institution; (b) the institution under resolution, where the transfer to the bridge institution has been effected by transferring some or all of the assets or liabilities of the institution under resolution to the bridge institution. 5. When applying the bridge institution tool, the resolution authority may exercise the transfer power more than once in order to make supplemental transfers of shares or other instruments of ownership issued by an institution under resolution or, as the case may be, assets, rights or liabilities of the institution under resolution. 6. Following an application of the bridge institution tool, the resolution authority may: (a) transfer rights, assets or liabilities back from the bridge institution to the institution under resolution, or the shares or other instruments of ownership back to their original owners, and the institution under resolution or original owners shall be obliged to take back any such assets, rights or liabilities, or shares or other instruments of ownership, provided that the conditions laid down in paragraph 7 are met; (b) transfer, shares or other instruments of ownership, or assets, rights or liabilities from the bridge institution to a third party. Following an application of the bridge institution tool, the resolution authority may: (a) transfer rights, assets or liabilities back from the bridge institution to the institution under resolution, or the shares or other instruments of ownership back to their original owners, and the institution under resolution or original owners shall be obliged to take back any such assets, rights or liabilities, or shares or other instruments of ownership, provided that the conditions laid down in paragraph 7 are met; (b) transfer, shares or other instruments of ownership, or assets, rights or liabilities from the bridge institution to a third party. 7. Resolution authorities may transfer shares or other instruments of ownership, or assets, rights or liabilities back from the bridge institution in one of the following circumstances: (a) the possibility that the specific shares or other instruments of ownership, assets, rights or liabilities might be transferred back is stated expressly in the instrument by which the transfer was made; (b) the specific shares or other instruments of ownership, assets, rights or liabilities do not in fact fall within the classes of, or meet the conditions for transfer of shares or other instruments of ownership, assets, rights or liabilities specified in the instrument by which the transfer was made. Resolution authorities may transfer shares or other instruments of ownership, or assets, rights or liabilities back from the bridge institution in one of the following circumstances: (a) the possibility that the specific shares or other instruments of ownership, assets, rights or liabilities might be transferred back is stated expressly in the instrument by which the transfer was made; (b) the specific shares or other instruments of ownership, assets, rights or liabilities do not in fact fall within the classes of, or meet the conditions for transfer of shares or other instruments of ownership, assets, rights or liabilities specified in the instrument by which the transfer was made. Such a transfer back may be made within any period, and shall comply with any other conditions, stated in that instrument for the relevant purpose. 8. Transfers between the institution under resolution, or the original owners of shares or other instruments of ownership, on the one hand, and the bridge institution on the other, shall be subject to the safeguards referred to in Chapter VII of Title IV. 9. For the purposes of exercising the rights to provide services or to establish itself in another Member State in accordance with Directive 2013/36/EU or Directive 2014/65/EU, a bridge institution shall be considered to be a continuation of the institution under resolution, and may continue to exercise any such right that was exercised by the institution under resolution in respect of the assets, rights or liabilities transferred. For other purposes, resolution authorities may require that a bridge institution be considered to be a continuation of the institution under resolution, and be able to continue to exercise any right that was exercised by the institution under resolution in respect of the assets, rights or liabilities transferred. 10. Member States shall ensure that the bridge institution may continue to exercise the rights of membership and access to payment, clearing and settlement systems, stock exchanges, investor compensation schemes and deposit guarantee schemes of the institution under resolution, provided that it meets the membership and participation criteria for participation in such systems. Notwithstanding the first subparagraph, Member States shall ensure that: (a) access is not denied on the ground that the bridge institution does not possess a rating from a credit rating agency, or that rating is not commensurate to the rating levels required to be granted access to the systems referred to in the first subparagraph; (b) where the bridge institution does not meet the membership or participation criteria for a relevant payment, clearing or settlement system, stock exchange, investor compensation scheme or deposit guarantee scheme, the rights referred to in the first subparagraph are exercised for such a period of time as may be specified by the resolution authority, not exceeding 24 months, renewable on application by the bridge institution to the resolution authority. 11. Without prejudice to Chapter VII of Title IV, shareholders or creditors of the institution under resolution and other third parties whose assets, rights or liabilities are not transferred to the bridge institution shall not have any rights over or in relation to the assets, rights or liabilities transferred to the bridge institution, its management body or senior management. 12. The objectives of the bridge institution shall not imply any duty or responsibility to shareholders or creditors of the institution under resolution, and the management body or senior management shall have no liability to such shareholders or creditors for acts and omissions in the discharge of their duties unless the act or omission implies gross negligence or serious misconduct in accordance with national law which directly affects rights of such shareholders or creditors. Member States may further limit the liability of a bridge institution and its management body or senior management in accordance with national law for acts and omissions in the discharge of their duties.