Does an institution that is:

a) covered by a group recovery plan drawn up by the relevant Union parent undertaking on a consolidated level [according to Article 7 of Directive 2014/59/EU]; and

b) covered by a group resolution plan drawn up by group-level resolution authorities, together with the resolution authorities of subsidiaries [according to Article 12 of Directive 2014/59/EU];

meet the condition in point (145)(c) Article 4 CRR, even if the group recovery plan or the group resolution plan are not subject to simplified obligations [in accordance with Article 4 of Directive 2014/59/EU]?

The banking package on revised rules on capital requirements (CRR II/CRD V) introduced the concept of small and non-complex institution, allowing institutions that fit into pre-determined criteria of size and complexity, for example, to be subject to simpler and conservative alternatives of new prudential standards, notably for market risk, the net stable funding ratio, counterparty credit risk and interest rate risk in the banking book. There are nine criteria that need to be met for an institution to be classified as a small and non-complex institution [Article 4(145) of Regulation 575/2013].

While the application seems straightforward for institutions which are not subject to consolidated supervision pursuant to Articles 111 and 112 of Directive 2013/36/EU and only need to meet prudential requirements at an individual level, clarity and certainty on the possible application of this concept on different institutions within a group subject to consolidated supervision would be welcome, particularly if the group is not eligible for simplified obligations for its recovery plan and its resolution plan according to Article 4 of Directive 2014/59/EU.

The reading of Article 4(145)(g) of Regulation 575/2013 seems to allow the application of small and non-complex institution criteria to subsidiaries if they do not use internal models to meet the prudential requirements in accordance with the Regulation 575/2013 or use internal models developed at the group level (provided that the group is subject to the disclosure requirements laid down in Article 433a or 433c on a consolidated basis).

3 examples to better illustrate the different possible scenarios:

Example 1

Group 1 is composed of 2 credit institutions – credit institution A and credit institution B. Credit institution A owns credit institution B.

• Credit institution A, on an individual level, meets the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013;
• Credit institution B, on an individual level, meets the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013; Credit institution A, on a consolidated level, meets the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013, but it is required to draw up a group recovery plan on a consolidated level [according to Article 7 of Directive 2014/59/EU] and a group resolution plan is drawn up by group-level resolution authorities, together with the resolution authorities of subsidiaries [according to Article 12 of Directive 2014/59/EU], both of which are not subject to simplified obligations.

Example 2

Group 2 is composed of a financial holding company C in European Union, which owns a credit institution D.

• Credit institution D, on an individual level, meets the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013;
• Credit institution D, on the basis of the consolidated situation of the financial holding company C, meets the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013; However, the group is required to draw up a group recovery plan on a consolidated level [according to Article 7 of Directive 2014/59/EU] and a group resolution plan is drawn up by group-level resolution authorities [according to Article 12 of Directive 2014/59/EU], both of which are not subject to simplified obligations.

Example 3

Group 3 is composed of 2 credit institutions – credit institution E and credit institution F. Credit institution E owns credit institution F.

• Credit institution E, on an individual level, does not meet the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013;
• Credit institution F, on an individual level, meets the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013;
• Credit institution E, on a consolidated level, does not meets the conditions established in Article 4(145)(a) to (b) and (d) to (i) of Regulation 575/2013, but it is required to draw up a group recovery plan on a consolidated level [according to Article 7 of Directive 2014/59/EU] and a group resolution plan is drawn up by group-level resolution authorities, together with the resolution authorities of subsidiaries [according to Article 12 of Directive 2014/59/EU], both of which are not subject to simplified obligations.