Response to consultation on amendments to ITS on disclosure and reporting of MREL and TLAC
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Prior Permission deductions
First, we would like to report to the EBA, our concerns about the confidential nature of unused prior permission amounts and our reluctance about publishing in the Pillar 3 disclosure “EU-TLAC1”, in particular in the case of ad hoc permission obtained on non-callable instruments which may require their deduction before the public announcement to the market.
To address this concern, you will find below the approach proposed by the French banking industry:
Option 1: French banks propose the instructions to be modified so that:
- Deductions related to prior permission should be deducted directly from row 18 "Own funds and eligible liabilities items before adjustments", as well as from the rows making up "Own funds and eligible liabilities: non-regulatory capital elements" and not in a specific row as instructions from the consultation paper require it. Banks favor a regulatory view of the stock of eligible liabilities net of this deduction, as is the case for prudential own funds disclosures.
- The general instructions of disclosures “EU-TLAC1” (point 7 of annex IV) and “EU-ILAC” (second paragraph of point 8 of annex IV), requesting that banks shall explain in the narrative accompanying these templates any relevant information regarding material deductions related to unused prior permission amounts, be deleted from instructions of the consultation paper.
Option 2 : if option 1 is not possible, in the event that the reporting institution considers that the publication of the deductions relating to prior permission unused amount compromises the confidentiality of the transactions, in accordance with Article 432 of the CRR, we propose that the EBA confirms in its amendment that it is then possible to directly impact the amount of the deduction referred to in line 18 "Own funds and eligible liabilities items before adjustments" as well as on the lines making up the "Own funds and eligible liabilities: non regulatory capital elements”, and not to add any explanatory commentary on these deductions.
Then, another major point of concern identified by French banks in this consultation is the deduction of the unused portion on the subordinated tranche of their eligible instruments in the event that they do not distinguish between the subordinated and non-subordinated portions in their General Prior Permission (GPP) envelope request.
We refer here to the passage in the reporting instructions (Annex II) in which it is stated for line 0135 of template M02 "Own eligible liabilities instruments subordinated to excluded liabilities: (-) of which: unused prior permission amounts": "Where a general prior permission as referred to in point (ii) above does not specify the ranking of the instruments that may be called, redeemed, repaid or repurchased, the full unused GPP amount shall be reported in this row."
This approach is penalizing for institutions that do not specify in their GPP applications the ranking of the instruments to be redeemed. In such cases, we would therefore suggest breaking down this unused portion of the GPP between subordinated and non-subordinated categories in proportion to the used portion of each category (or alternatively in proportion to the portion of each category in the MREL capacity).
- Concerning general instructions of reporting templates M02 and M03 and disclosures “EU-TLAC1” and “EU-ILAC”, the banks would like it to be clarified to specify the treatment of eligible liabilities instruments with call-options and subject to prior permission as EBA Q&A 2017_3277 mentions it. In this specific case, 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 latter point in time.
- Concerning reporting template M02 row 132, banks identified a potential error in the formulation of (ii) in the instructions relating to the TLAC ratio: "unused prior permission amounts, to the extent that the permission covers eligible liabilities instruments subordinated to eligible liabilities." The proposed correction is to replace “eligible liabilities” by “excluded liabilities”.
- Banks validate the EBA's approach of not including prior permission deductions in the reporting template M04.
Daisy chains regime
The regulation relating to "daisy chains" will come into force on January 1, 2024 before the implementation of the new reporting format. Banks would like clarification on the treatment of daisy chain deductions before the implementation of the new format of reporting. Should banks use row 290 to report the amount of the deduction of their investments in equity and eligible liabilities issued by their subsidiaries?
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?
The French Banking Federation (FBF) welcomes the opportunity to express the views of the French banking industry on the public consultation on the draft Implementing Technical Standards amending the ITS on disclosure and reporting of MREL and TLAC. In this context, we herewith provide you with our responses to the questions listed in the Consultation Paper. We appreciate your consideration about our comments and remain at your disposal for further clarifications.Prior Permission deductions
First, we would like to report to the EBA, our concerns about the confidential nature of unused prior permission amounts and our reluctance about publishing in the Pillar 3 disclosure “EU-TLAC1”, in particular in the case of ad hoc permission obtained on non-callable instruments which may require their deduction before the public announcement to the market.
To address this concern, you will find below the approach proposed by the French banking industry:
Option 1: French banks propose the instructions to be modified so that:
- Deductions related to prior permission should be deducted directly from row 18 "Own funds and eligible liabilities items before adjustments", as well as from the rows making up "Own funds and eligible liabilities: non-regulatory capital elements" and not in a specific row as instructions from the consultation paper require it. Banks favor a regulatory view of the stock of eligible liabilities net of this deduction, as is the case for prudential own funds disclosures.
- The general instructions of disclosures “EU-TLAC1” (point 7 of annex IV) and “EU-ILAC” (second paragraph of point 8 of annex IV), requesting that banks shall explain in the narrative accompanying these templates any relevant information regarding material deductions related to unused prior permission amounts, be deleted from instructions of the consultation paper.
Option 2 : if option 1 is not possible, in the event that the reporting institution considers that the publication of the deductions relating to prior permission unused amount compromises the confidentiality of the transactions, in accordance with Article 432 of the CRR, we propose that the EBA confirms in its amendment that it is then possible to directly impact the amount of the deduction referred to in line 18 "Own funds and eligible liabilities items before adjustments" as well as on the lines making up the "Own funds and eligible liabilities: non regulatory capital elements”, and not to add any explanatory commentary on these deductions.
Then, another major point of concern identified by French banks in this consultation is the deduction of the unused portion on the subordinated tranche of their eligible instruments in the event that they do not distinguish between the subordinated and non-subordinated portions in their General Prior Permission (GPP) envelope request.
We refer here to the passage in the reporting instructions (Annex II) in which it is stated for line 0135 of template M02 "Own eligible liabilities instruments subordinated to excluded liabilities: (-) of which: unused prior permission amounts": "Where a general prior permission as referred to in point (ii) above does not specify the ranking of the instruments that may be called, redeemed, repaid or repurchased, the full unused GPP amount shall be reported in this row."
This approach is penalizing for institutions that do not specify in their GPP applications the ranking of the instruments to be redeemed. In such cases, we would therefore suggest breaking down this unused portion of the GPP between subordinated and non-subordinated categories in proportion to the used portion of each category (or alternatively in proportion to the portion of each category in the MREL capacity).
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.
Prior Permission deductions (Pillar 3 Disclosures)- Concerning general instructions of reporting templates M02 and M03 and disclosures “EU-TLAC1” and “EU-ILAC”, the banks would like it to be clarified to specify the treatment of eligible liabilities instruments with call-options and subject to prior permission as EBA Q&A 2017_3277 mentions it. In this specific case, 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 latter point in time.
- Concerning reporting template M02 row 132, banks identified a potential error in the formulation of (ii) in the instructions relating to the TLAC ratio: "unused prior permission amounts, to the extent that the permission covers eligible liabilities instruments subordinated to eligible liabilities." The proposed correction is to replace “eligible liabilities” by “excluded liabilities”.
- Banks validate the EBA's approach of not including prior permission deductions in the reporting template M04.
Daisy chains regime
The regulation relating to "daisy chains" will come into force on January 1, 2024 before the implementation of the new reporting format. Banks would like clarification on the treatment of daisy chain deductions before the implementation of the new format of reporting. Should banks use row 290 to report the amount of the deduction of their investments in equity and eligible liabilities issued by their subsidiaries?