Response to consultation Paper on ITS on disclosure and reporting of MREL and TLAC

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Q1. The proposed standards would measure own funds in terms of carrying amounts and eligible liabilities in terms of out-standing nominal amounts. This approach aligns the reporting and disclosure on MREL/TLAC with the reporting in the context of the ITS on Resolution Planning Reporting, where the same measurement basis is used. In contrast, presenting both the amount of own funds and eligible liabilities as carrying amounts would potentially align the reporting more with the vast majority of prudential reporting and disclosure requirements and with the internal approaches of institutions for the monitoring of MREL/TLAC compliance on a daily basis. There is also ongoing work at the level of the BCBS to clarify the measurement of non-equity capital. What are the advantages and challenges of presenting MREL/TLAC figures, and in particular the amount of eligible liabilities, on the basis of a) outstanding amounts or b) carrying amounts for the purposes of reporting (and disclosure)?

The questions raised above are complex and have given rise to much detailed discussion among our members. No clear consensus has emerged from these discussions, for several reasons.
Firstly, members do not feel that the measurement basis can be reduced to a simple choice between carrying and outstanding amount, because neither of these bases corresponds consistently to the definitions of liabilities used in the Level 1 legislation (CRR in particular).
Secondly, both carrying and outstanding amounts have differing advantages. Very simplistically, carrying amount may be a closer reflection of the accounting impact of the bail-in of a given individual liability in an actual resolution, whereas outstanding amount will be more reflective of the way financing programmes are managed, and does not suffer from the sensitivity to interest rates or secondary market activities that will characterise the carrying amount. But none of these advantages or disadvantages are absolute.
This question therefore requires careful analysis, and clarity around the purpose of the reporting and disclosure. Is it to attempt to simulate actual resolution impacts, or is to provide a ‘going concern’ ratio that is meaningful in business terms?
We would urge the EBA to carry out detailed discussions with the industry and with supervisory and resolution authorities before fixing a position on this issue, and to ensure in any case that the position taken is applicable only to MREL/TLAC reporting and disclosure, and does not ‘overwrite’ or ‘overrule the level 1 texts (CRR, BRRD, SRMR).
Whatever position is eventually taken should of course be consistently applied for the expression of MREL requirements and for MREL reporting.

Q2. Are the scope and level of application of the reporting requirement and the content of the templates and the instructions M 01.00 to M 07.00 clear and appropriate?

We consider the templates and the instructions M 01.00 to M 07.00 should be amended as follows.
- KM2
Row 260/270: Institutions call for further clarifications on these rows, specifically referring to the fact that they do not apply to the TLAC column.
Row 360: We ask the EBA to provide further information on the calculation detailed in the instructions (Annex 2), where the application of a cap when referring to Article 72b(4) of Regulation (EU) 2019/876 is mentioned. Yet the latter does not indicate a cap on the amount of unsubordinated liabilities that could be included in own funds and eligible liabilities, but indicates a condition of 5% of excluded liabilities ranking pari passu or below eligible liabilities: if this condition is satisfied, unsubordinated liabilities can be included, without any cap. The formula given by the EBA in Annex 2 should be amended to reflect the difference between Article 72b(3) and 72b(4) of Regulation (EU) 2019/876.
Annex 2, page 5, column 0010 (“MREL”): Please correct the regulatory reference with Article 45e BRRD2 (i.e. Directive (UE) 2019/879), which specifies MREL requirements for resolution entities.
Annex 2, page 6, row 0250 (“Other bail-inable liabilities”) for MREL (column 0010): instructions indicate that this field corresponds to the difference between:
- The liabilities not excluded from bail-in as reported in {r0300, c0190} of template Z 02.00 of Annex I to Regulation (EU) No 2018/1624 (ITS on Resolution Planning Reporting). However, column c0190 does not exist in template Z 02.00; a correction appears necessary.
- The eligible liabilities as reported in {r0050, c0020} of template M 02.00 of Annex I to this draft ITS. However, this cell is fulfilled for the TLAC purpose; hence, for consistency purpose, we suggest correcting the reference by {r0050, c0010}, which applies to MREL.

- TLAC 1
Row 110: We agree that further information is necessary in order to complete row “0110 - Tier 2 instruments with a residual maturity of at least one year to the extent they do not qualify as Tier 2 items”. In particular, and in order to ensure clarity and consistency among reporting institutions, more detailed instructions on the way T2 instruments with a residual maturity of less than one year should be taken into consideration (deduction from that cell for example).
Row 70 and 120: More clarity about the difference between liabilities subordinated to excluded liabilities and liabilities non - subordinated to excluded liabilities is deemed to be helpful.
Rows 150 and 160: As Articles 72b(3) and 72b(4) of Regulation (EU) 2019/876 are mutually exclusive, we would propose the following text “amounts eligible, where applicable after application of Articles 72b (3) or (4) CRR” (instead of “Articles 72b (3) and (4) CRR”).
Row 190: Institutions ask the EBA for confirmation on the fact that they should deduct from row “0190 (-) Investments in other eligible liabilities instruments” the eligible liabilities issued by them or another G-SII, only for the reporting of their TLAC (i.e. not for the reporting of their MREL).
Row 200: This row does not contemplate the case where all Tier 2 is used (deduction higher than T2) and deduction should then take place in AT1 or CET1. Therefore, we propose to add:
• Row 200a: Excess of deductions from eligible liabilities over eligible liabilities (deducted from AT1)
• Row 200b: Excess of deductions from eligible liabilities over eligible liabilities (deducted from CET1)
Row 310 to 330: We wish to have elucidations on the rationale behind reporting these rows, specifically since the MREL column is expected to be reported. The row 310 “investments in subordinated EL of G-SIIs” should, on our opinion, be equal to row 190 regarding the deductions of “Investments in other eligible liabilities instruments”.
Additionally, it is not clear what is the purpose of the information requested in row 0320 (investment in subordinated EL of O-SIIs) and 0330 (investment in subordinated EL or other institutions). In accordance with Regulation (EU) 2019/876 Art. 72e, solely holdings of eligible liabilities of G-SII entities are to be deducted from the TLAC capacity. The
monitoring and reporting of holdings of eligible liabilities issued by institutions that are not G-SII entities is rather burdensome and should be eliminated if it does not affect an institution’s compliance with the MREL or TLAC requirements.
While we are aware that the EBA is mandated by the Commission (Art. 504a of Regulation (EU) 2019/876) to produce a report on “the amounts and distribution of holdings of eligible liabilities instruments among institutions identified as G-SIIs or O-SIIs and on potential impediments to resolution and the risk of contagion in relation to those holdings”, this information, however, does not need to go through a regular quarterly report as it is not mandated by the Level 1 text. It would be more appropriate if it was transmitted by the institutions to the EBA by the means of an ad-hoc report at that time at which the EBA is working on this report.

We ask the EBA to clarify that row 100 “ELIGIBLE LIABILITIES” is a summation of rows 200, 300, 400, 500, 600, 700 and 800.

- TLAC 2
To ensure an appropriate completion of the reporting template “TLAC 2: M 05.00 - Creditor ranking (entity that is not a resolution entity) (TLAC2)”, banks would like to be confirmed that TLAC 2 is only required for entities with internal MREL requirements.
Institutions assume that these templates are to be reported at the insolvency ranking level, and not at an instrument level. A confirmation would be welcome.

- TLAC 3
In “TLAC 3 - M 06.00 - Creditor ranking (resolution entities and groups) (TLAC3)”, the reporting of creditor ranking at the group level (implying Member States) cast doubts. In our opinion, data should be reported at the level of all points of entry (whatever an MPE or a SPE strategy) situated within the perimeter of the European Union. Data should be reported at the level of each “resolution entity” as explained in the Table 2 of the consultation paper “EBA-CP-2019-14” (cf. page 12) and not at the level of the “resolution entities and groups” (i.e. the title of the TLAC3 template is misleading).
Institutions assume that these templates are to be reported at the insolvency ranking level, and not at an instrument level. A confirmation would be welcome.
We would appreciate if the EBA could clarify that "Insolvency Rank" is the same as "Creditor Rank" (column 0010) and would encourage "Insolvency Rank" to be used more consistently.

- M 07.00
Paragraph 45 of the consultation paper states that “The BRRD2 requires institutions to report whether the own funds, eligible liabilities and other bail-inable liabilities are governed by third country law and contain contractual write down and conversion clauses pursuant to Article 55 BRRD, Article 52 CRR and Article 63 CRR”. To be consistent with reporting “M 07.00 Instruments governed by third-country law (MTCI)”, paragraph 45 of the consultation document should, in our view, be amended and aligned with the instructions of Annex II of the consultation paper, stating reporting requirements on instruments governed by third-country law (i.e. reporting M 07.00) focus on own funds and eligible liabilities only.
Additionally, could the EBA please confirm that this template only covers Third Country Law instruments?

- Definition of the outstanding amount
Institutions would welcome the inclusion in the final version of the Technical standard of a definition of the “outstanding amount”, by each type of products.

- Resolution group
We consider that the scope of some templates is not clear as we see discrepancies between the information on the consultation paper and the annex II. For instance, template M02.00 / TLAC 1 should be reported on a consolidated level OR individual level according to the consultation document, and on a resolution group AND entities level according to the table of contents of the annex II.
Furthermore, we would appreciate a clarification of the scope for each one of the templates, in order to avoid any interpretation or confusion.

- Entities that are not themselves resolution entities
The present Consultation does not restrict the scope of entities that are subject to reporting requirements. However, Article 45i(1) of BRRD 2 indicates that reporting obligations apply to entities subject to the requirement referred to in Article 45(1), i.e. entities that are subject to MREL requirements. Consequently, it would be useful that the draft ITS specifies the same scope, and, consequently, alleviates entities not subject to MREL requirement from reporting obligations.

- Interaction with existing reporting requirements
As already specified under the general remarks, we would like to highlight that, in order to ensure proportionality, we urge the EBA to set up an optimal framework that does not require the reporting of the same data in different templates: most of the requested information is already reported, for instance, in the LDR or LIAB reports.
The interaction between the LDR and the current reporting should be explicitly clarified. In particular, we call the EBA to list, under dedicated instructions, the various data quality controls (i.e. same data in the different reporting templates) that should be realized by institutions between the current set of reporting proposed by the EBA and the LDR template, and/or to provide mapping table between the different reporting templates.
Furthermore, it is important to remark that the timing for submitting the MREL Reporting and the LDR (i.e. in EBA terminology “LIAB template”) shall be fully aligned.

- Quantitative tool to assess the NCWOL
The EBF understands from discussions with the Single Resolution Board during the 9th industry dialogue on the Banking Package and the next SRB MREL Policy (16 December 2019), that a quantitative tool will be set up to assess the No Creditor Worse Off than in Liquidation principle (NCWOL) of institutions. We call for synergies between the templates proposed by the EBA under consultation paper EBA-CP-2019-14 and the tools the SRB plans to develop to assess NCWOL. In that context, paragraphs 18 and 19 (page 10 of the Consultation) raise some concerns about the usefulness of the LIAB template. At this stage, we do not know if the quantitative tool is a new report, or if it will be fed by the LIAB. In addition, to justify why the choice has been made not to leverage on the LIAB template, the EBA mentions in the Consultation (page 10) “differences and incompatibilities in terms of content and some of the terminology used.” It would be highly appreciated if the EBA could specifically describe these differences of terminology. For example, could the EBA explain why it is said that LIAB “does not differentiate between counterparties within and those outside the resolution group”, whereas SRB, in its LDR guidance, requires that the reporting be produced on the resolution group basis?

Q3. Do you see any discrepancies between these templates and instructions and the requirements set out in the underlying regulation, i.e. do these templates and instructions reflect the substance of the TLAC requirement and MREL in a proper manner? Do you agree that the proposed reporting requirement is fit for purpose?

- Title of templates
The titles of disclosure templates appear clearer than the titles of reporting templates. We call for a revision of the title of the reporting templates.
Some examples:
- Reporting template: “M 03.00 - Internal MREL and Requirement for own funds and eligible liabilities for non-EU G-SIIs (ILAC)”.
- Disclosure template: “EU ILAC 1 – internal MREL and, “where applicable”, the G-SII Requirement for own funds and eligible liabilities.”

- Standardised ranking (Annex IV)
It is not completely clear whether the institutions are expected to report this template. While we understand that it should be provided by the Resolution Authority, additional information on whether institutions have to include it in its reporting set of templates would be helpful. If this is the case, what is the frequency of this reporting?
Furthermore, as Reporting Authorities are involved in this report, and the Consultation mentions the SRB guidance on insolvency rankings provided for the LDR (page 19 of the consultation paper), we take this opportunity to share the following observations:
- The following information is provided by the SRB in the disclaimer of its insolvency ranking annex: “This annex is for informative purposes only and shall neither be binding nor construed as constituting a commitment or an interpretation by the SRB or by the national resolution authorities. This annex contains a general and simplified overview of the national legal frameworks concerning the insolvency ranking of liabilities, which is not intended to be comprehensive or exhaustive and which was prepared for the sole purpose of providing assistance when completing the LDR. This annex shall not be used without checking the primary sources. (…).” Consequently, we would appreciate if the SRB could confirm that it can be used as a reference for reporting and disclosure (and not just for the LDR).
- The EBF would like to underline the difficulty banks encounter when required to provide reliable insolvency hierarchies.
- Institutions signal that there is a difference of format between the “annex 3” provided by the SRB and the EBA template. In our view, it is highly important to reach an alignment on the format in order to avoid an additional report for entities as stated in the Consultation (page 19) “Resolution authorities are asked to compile the relevanT information in that standardised format and make it available to entities subject to the BRRD under their jurisdiction and supervision.”
- We also take the opportunity of this Consultation to ask that insolvency hierarchies provided by Resolution Authorities should be sufficiently detailed to allow classification of all liabilities. In this respect, we consider the hierarchy provided by the SRB could be improved.

Q4. Template KM2 in the BCBS standard includes special rows to reflect the own funds amounts on an IFRS9 fully loaded basis. There is a template implemented in the EU with this information at the level of the prudential scope of consolidation. The instructions for KM2 ask institutions to explain any material difference between the own funds amounts disclosed and the IFRS 9 fully loaded amount at the resolution group level. They are also asked to explain any material difference between the IFRS 9 fully loaded amount at the resolution group level compared to the prudential group level. Do respondents agree that this is a good way to request this information, rather than adding specific rows, considering that this information will cease to be relevant once the IFRS 9 transition period is over?

- KM2
Institutions ask for clarification on the reason why cells of rows “EU-1a”, “EU-3a” et “EU-5a” for “G-SII Requirement for own funds and eligible liabilities (TLAC)” are locked, given that EU institutions may use the 2.5% senior debts allowance. In our view, the template should be amended in order to authorize their completion.
Regarding quarterly data (columns c to f under “G-SII Requirement for own funds and eligible liabilities (TLAC)”), we would like to receive the instructions for the first publication of the template.

Row 6c: We underline that the reference to a cap on subordination for the Article 72b(4) of Regulation (EU) 2019/876 is not correct (see comment on reporting for row 360 of TLAC1). In this regard, further details from the EBA on the expected amounts to be reported is welcome.
The mapping between disclosure and reporting (EU KM2 map) seems incorrect and may be changed as proposed in THE ATTACHED DOCUMENT.

Referring to question 4 itself, institutions ask the EBA for the following explanations:
- “The instructions for KM2 ask institutions to explain any material difference between the own funds amounts disclosed and the IFRS 9 fully loaded amount at the resolution group level”. We would like to understand what it is meant by "own funds amounts disclosed" and what are the possible differences referred to.
- The second sentence “They are also asked to explain any material difference between the IFRS 9 fully loaded amount at the resolution group level compared to the prudential group level” is not applicable for Multiple-Point-of-Entry (MPE) models, since the level of application/perimeters are different as there is no prudential reporting at resolution group level.

Q5. Are the instructions, tables and templates clear and appropriate to the respondents?

Banks consider instructions, tables and templates should be amended as follows. FOR FURTHER DETAILS PLEASE SEE THE ATTACHED DOC.

Q6. Do you identify any discrepancies between these templates and instructions and the calculation of the requirements set out in the underlying regulation?


Q7. Do you agree that the new draft ITS fits the purpose of the underlying regulation?


Q8. Are the scope and level of application of the reporting requirement, the content of the ‘forecast’ templates and the instructions clear and appropriate?


Q9. What are the particular benefits and challenges you see with regard to the reporting of the ‘forecast’ information?


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European Banking Federation