Would such a frame given in advance to reduce own funds for a certain predetermined amount for market making purposes result in a deduction from own funds at the time when permission is given or would a deduction from own funds be made at the time when the actual repurchase of capital instruments takes place? It should be noted that the question being posed is linked to the situation where a permission is given in advance to repurchase own capital instrument for market making purposes. The question being posed is not linked to a situation where a permission is given in advance to repurchase own capital instrument in order to reduce own funds on a permanently basis.
It follows from Article 28, paragraph 2, that “where redemptions, reductions and repurchases are expected to take place with sufficient certainty, and once the prior permission of the competent authority has been obtained, the institution shall deduct the corresponding amounts to be redeemed, reduced or repurchased from corresponding elements of its own funds before the effective redemptions, reductions or repurchases occur. Sufficient certainty is deemed to exist in particular when the institution has publicly announced its intention to redeem, reduce or repurchase an own funds instrument.”
In our view a frame given in advance to reduce own funds for a certain predetermined amount for market making purposes would not lead to a deduction in own funds as this situation is a very different from a situation where the institution has publicly announced its intention to repurchase own funds instruments which would have a permanently impact on the institutions own funds. Moreover in our view a frame given in advance to reduce own funds for a certain predetermined amount for market making purposes is not to be considered an actual or contingent obligation to purchase own funds instruments by virtue of an existing contractual obligation and would not be covered by CRR, article 36, paragraph 1 (f)).
Disclaimer: This Q&A was submitted prior to the amendments introduced with Regulation (EU) 2019/876 (CRR 2) and the enter into force of its relevant delegated acts. Therefore, the legal references made by the submitter are not reflected in the revised answer.
The predetermined amount for which the competent authority has given its permission under the second subparagraph of Article 78
29(1 3) of Regulation (EU) No 575/2013 (CRR) 241/2014 should must be deducted, from corresponding elements of the institution’s own funds, from the moment the authorisation is granted, pursuant to Article 28(3 2) of that Delegated Regulation (EU) No 241/2014. as sufficient certainty about the repurchase is deemed to exist from that moment.
For the sake of completeness, the predetermined amount for which the resolution authority, after consulting the competent authority, has given its permission under the second subparagraph of Article 78a(1) of the CRR should be deducted from the institution’s eligible liabilities instruments from the moment the authorisation is granted pursuant to Article 32b(3) of Delegated Regulation (EU) No 241/2014.
Disclaimer: This Q&A was submitted prior to the amendments introduced by Regulation (EU) 2019/876 (CRR 2). Therefore, references to Commission Delegated Regulation (EU) No 241/2014 in all sections of the Q&A except those in the “EBA Answer” section are to that Regulation as it is currently in force. However, in the “EBA Answer” section, references to Delegated Regulation (EU) No 241/2014 are to that Regulation after its forthcoming amendment by the Draft Regulated Technical Standard on Own Funds and Eligible Liabilities (EBA/RTS/2021/05) as adopted by the Commission (C(2022)7138), but which is not yet in force, and this should be considered. The EBA will revise its response, where needed, after these amending technical standards come into force.
Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.
Update 14.02.2023: the Q&A has been reviewed and the changes are highlighted in mock track changes.