Response to consultation on amendments to ITS on disclosure and reporting of MREL and TLAC
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1. Timing of the deduction
For an ad-hoc permission there are two regulatory conditions to require a deduction: 1) sufficient certainly and 2) prior-permission. This was confirmed by the EBA in the recent update of the Q&A 2017_3277: “for instruments containing call options in their terms and conditions, in case of the use of the call, sufficient certainty is deemed to exist only at the time of the announcement of the call of the instrument to the holders and the deduction will take place only at that later point in time.”
This is however not reflected in the draft reporting templates (the template instructions require a bank to report a deduction even if the redemption is yet to be announced). We believe the instructions should be updated to reflect the sufficient certainty condition in line with the regulation No 241/2014 and Q&A 2017_3277.
2. Amortized instruments (less than 1 year to maturity)
According to the draft instructions, banks would be required to deduct unused prior permission amounts received for eligible liabilities instruments even if they are already amortized (because of the residual maturity of less than one year) and not reported in eligible liabilities items. Such eligible liability instruments are excluded from the eligible liability items, but banks are still required to obtain prior permission to redeem them (in case of redemption prior to the contractual maturity).
We believe the reporting instructions should be amended so that banks are not required to report prior permission amounts for amortized instruments not included in the eligible liability items. In case this information is deemed valuable, it could be requested additionally in the form of ‘Memorandum’ item.
1. Reporting template M03 rows 102 and 112 (TREA – of which: exposures to liquidation entities of the same resolution group)
According to the draft instructions, banks would be required to report all exposures (not only exposures towards own funds and eligible liabilities) to liquidation entities. In line with the daisy-chain framework, our view is that the EBA should limit the scope of reported exposures to exposures towards own funds and eligible liabilities (internal MREL) of liquidation entities, because other exposures are irrelevant and would obfuscate the data relevant from the daisy-chain perspective.
2. Reporting template M03 row 251 (Eligible liabilities and guarantees).
There is an explanation missing on what should be reported in this row.
a) Did you identify any issues regarding the representation of the policy framework for MREL and TLAC, including the representation of the ‘daisy chain’ framework and the prior permission regime, in these ITS?
Comments to the reporting templates1. Timing of the deduction
For an ad-hoc permission there are two regulatory conditions to require a deduction: 1) sufficient certainly and 2) prior-permission. This was confirmed by the EBA in the recent update of the Q&A 2017_3277: “for instruments containing call options in their terms and conditions, in case of the use of the call, sufficient certainty is deemed to exist only at the time of the announcement of the call of the instrument to the holders and the deduction will take place only at that later point in time.”
This is however not reflected in the draft reporting templates (the template instructions require a bank to report a deduction even if the redemption is yet to be announced). We believe the instructions should be updated to reflect the sufficient certainty condition in line with the regulation No 241/2014 and Q&A 2017_3277.
2. Amortized instruments (less than 1 year to maturity)
According to the draft instructions, banks would be required to deduct unused prior permission amounts received for eligible liabilities instruments even if they are already amortized (because of the residual maturity of less than one year) and not reported in eligible liabilities items. Such eligible liability instruments are excluded from the eligible liability items, but banks are still required to obtain prior permission to redeem them (in case of redemption prior to the contractual maturity).
We believe the reporting instructions should be amended so that banks are not required to report prior permission amounts for amortized instruments not included in the eligible liability items. In case this information is deemed valuable, it could be requested additionally in the form of ‘Memorandum’ item.
b) Are the templates, and the instructions provided for filling them in, clear? If you identify any issues, please clearly specify the affected templates and instructions, and include suggestions how to rectify the issues.
Comments to the reporting templates1. Reporting template M03 rows 102 and 112 (TREA – of which: exposures to liquidation entities of the same resolution group)
According to the draft instructions, banks would be required to report all exposures (not only exposures towards own funds and eligible liabilities) to liquidation entities. In line with the daisy-chain framework, our view is that the EBA should limit the scope of reported exposures to exposures towards own funds and eligible liabilities (internal MREL) of liquidation entities, because other exposures are irrelevant and would obfuscate the data relevant from the daisy-chain perspective.
2. Reporting template M03 row 251 (Eligible liabilities and guarantees).
There is an explanation missing on what should be reported in this row.