Austrian Economic Chamber, Division Bank and Insurance
In general, we do not see the need to extend the scope of liabilities subject to the permission regime to the maximum (in comparison with the current praxis) as proposed in the consultation paper. However, we understand and support the intention to establish similar procedures for own funds and liabilities with comparable loss absorption based on their ranking in insolvency. While the level 1 text could be interpreted to cover all MREL eligible liabilities, we would strongly recommend that EBA gives flexibility to resolution authorities regarding the scope of liabilities covered and allows them to focus on subordinated liabilities while excluding other eligible liabilities from the annual renewal requirement. Such an approach would be in line with the current practice of the resolution authorities, where the prior permission is only applied for the senior non-preferred class of instruments.
In addition, the permission regime should at least follow the same step-wise approach as the MREL target level itself (that differentiates between intermediate (informational/binding) and final targets). In a first step and as long as final MREL targets do not become binding, only subordinated liabilities should be in scope of the permission regime until 1.1.2024.
Furthermore it is not understandable that the permission regime should cover and apply to institutions for which MREL does not exceed the loss absorption amount and thus goes not beyond the own funds requirement (i.e. institutions without a recapitalisation amount that would be wound up using normal insolvency proceedings) and institutions for which no MREL is determined/waived.
The regime in general is closely connected to own funds and MREL requirements with the intention to not endanger the fulfillment of these regulatory requirements in case of a reduction following a repurchase. Thus, it does not make sense to make institutions subject to such a control regime for eligible liabilities if they have now additional regulatory requirement that goes beyond own funds. In such cases it is absolutely sufficient that resolution authorities are informed about permissions granted on own funds by supervisory authorities.
This new regime means anyhow a huge additional workload compared to the current status on all sides – supervisory and resolution authorities as well as banks - and thus should not be overextended from the very beginning.
Finally, grandfathered instruments should not be considered and subject to the permission regime and not be taken into account when limits for a general prior permission are calculated.
In addition, it does not make sense to include instruments that are not MREL eligible and to cover them even when they do not meet the one year maturity requirement anymore.
It is not clear whether the Tier 2 instruments with residual maturity of at least 1 year, to the extent to which they do not qualify as Tier 2 items (“amortized Tier 2 instruments” – see Art. 72a (1) (b) CRR II) fall under the scope of this RTS. In case they are under the scope it is unclear whether the part of the instrument, that does not qualify as Tier 2 item anymore (due to their amortization) should be considered as Own Funds or Eligible Liabilities. Since we are always dealing with ISINs for which one part is still considered OF, such instrument shall be subject to the OF regime and therefore be subject to permission regime under the remit of the supervisory authority.
Our understanding is that an institution can obtain one general prior permission for different purposes. In case an institution intends to seek such permission for market making purposes and other repurchases (which was separated in the past) the RTS should provide further guidance on the procedural requirements and formats to be used when dealing with different topics in one application.
Own funds instruments that are passed on to employees should not be part of the general prior permission regime. The intention here is very clear and defined and not comparable with other repurchases that are i.e. part of market making. We see no need to change the existing process and thus they should be treated separately. A 1-year time limit for these transactions is not useful. Banks normally do not change their remuneration programs on an annual basis but keep them over a longer time period and thus it should be sufficient if they approach the regulator once they cannot get along with the existing permission anymore.
The possibility to seek for a prior permission for immaterial amounts should remain available in addition and independently of other general prior permissions at least for small and non-complex institutions. For these immaterial amounts/permissions the one-year time-limit should not apply. Such a proportionate approach should be kept, would reduce the bureaucratic burden and is absolutely necessary to cover the needs of smaller institutions to treat them separate from i.e. market making applications. This regime was intensively and constantly used in the past by small and non-complex institutions (even within banking groups). Article 29 (5) RTS should not be deleted.
We agree with most of the information items required in case of the first, original application with the following exceptions:
(i) The specifications foreseen in point e) in Article 30 are absolutely overshooting as these details have nothing to do with own funds and have to be provided anyhow in case of a permission for eligible liabilities. Asking for such a detailed breakdown is and should not be relevant for the supervisory authorities and their going concern perspective and would lead to a huge additional workload every year. We agree with the proposed three-year period, but the breakdown level of liabilities should be kept at a minimum level (i.e. subordinated and non-subordinated liabilities)
(ii) Point g (iii) the costs for replacement should be deleted as it has to be considered in the impact calculation under point g (v) already. Asking for both has no added value but leads to additional effort.
However we in addition see a strong need to define additional reliefs and a quick and unbureaucratic process (fast procedure) in case of renewals of a general prior permission where the amount and the instruments covered are highly comparable with the first original approval and in case of immaterial amounts.
a) In our opinion, the time period for individual permissions should not be extended and kept by a maximum of 3 months. The necessary interaction between authorities is no valid argument to extend the deadlines to the detriment of banks. A longer deadline increases uncertainty for banks in a topic that is highly relevant vis-á-vis investors and the market. Since the application has to be renewed every 12 months the long timeframe of 4 months for authorities would be inappropriate. Supervisory and resolution authorities should be able to establish a smooth and unbureaucratic interaction process to ensure that from the very beginning information and data are shared immediately.
Renewals should be dealt with by a fast track procedure of 1 or max 2 months. In particular if the application does not materially differentiate from the first application.
b) The content in case of renewals should be adjusted and limited to those parts that have changed compared to the last/first application.
Further shortenings would be appropriate in case of renewals of general prior permissions. Here, adjusting of the content of the application, e.g. if the total volume to be repurchased will remain the same or will not change significantly (reduction of requirements to the necessary minimum to check whether the conditions are still met) is crucial considering the proposed extension of the scope. The reduction of information requirements would also be beneficial for competent (resolution) authorities and is also practically a precondition for a shorter time period.
Supervisory authorities should consider implementing a standardized and transparent process ensuring an efficient approval procedure of the yearly applications i.e. to deal with all applications within the same fixed time frame as it is the case for SREP decisions. This would ensure a level playing field and avoid different treatment/duration. If it cannot be ensured from supervisory side that decision will be delivered on time EBA should alternatively think about providing supervisory authorities additional discretion and flexibility to grant an on-time extension of the GPP by further three months in case the expiration of the permission without renewal would lead to an adverse effects to the business of the institution.
The sustainability assessment of the resolution authority should fully build on those performed by the supervisory authority. The profitability of institutions in stress situations is not the focus of resolution authorities and thus currently not assessed by them. It needs to be avoided that resolution authorities start acting as shadow supervisors and duplicate the assessments of supervisors. Therefore, this information should be provided by supervisory authorities to resolution authorities and based on that they should consider it as part of their approval process.
To reflect this the wording in Art 32a should be changed as follows:
The resolution authority’s assessment shall take into account the supervisory assessment of institution`s profitability in stress situation.
The deduction regime should be limited to senior non preferred instruments and refer to the subordination requirement only (see above for more reasoning on this topic). Otherwise it needs to be clarified from which stock the deduction shall be performed and what portion shall be deducted from NPS and PS instruments.
Yes, we agree. In addition, we think that based on the principle of proportionality a separate general prior permission should be established and determined by EBA in this RTS in case of immaterial amounts of eligible liabilities and for eligible liabilities that are not subordinated. A paragraph comparable to the existing Article 29 (5) should be included in Article 32c to deal with such cases. In these cases, a 1 year time limit should not apply. The information required according to Article 32d in such a case should be narrowed down to a minimum (i.e. not asking for a detailed split as foreseen under letters c) d) f)). See our answer to Question 7 above.
The current proposal of 3% for all eligible liabilities is not sufficient. As foreseen in the case of own funds (different thresholds for CET1 and AT1/T2 instruments) it should be differentiated between subordinated and non-subordinated liabilities. If applicable, the limit should be applied on both levels separately. 3% of the total amount of subordinated eligible liabilities and 3% for other eligible liabilities to reflect and differentiate in the ranking of liabilities. Since the Level 1 text does not specify the limits there is room for EBA to ensure sufficient flexibility.
As outlined in the general remarks a phase-in approach should apply.
Furthermore, it is not clear how the amount of Amortized Tier 2 instruments (subordinated instruments – as stated above) is considered and would be included for the purposes of calculating the 3 % limit.
Institutions for which no MREL is determined/ where MREL is waived should not be subject to the permission regime for eligible liabilities and thus be exempted from the limits.
The same comments/statement as provided in the answer to question 9 above are relevant and should be taken into account in case of eligible liabilities as well.