Question ID
2025_7580
Legal act
Directive 2014/59/EU (BRRD)
Topic
MREL
Article
45i
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2021/763 – ITS with regard to the supervisory reporting and public disclosure of MREL
Article/Paragraph
Annex II
Type of submitter
Resolution authority
Subject matter
Reporting of unused prior permission amounts with no specification of subordination
Question

How should banks report the unused prior permission amount in case the insolvency rank is not specified, and the unused prior permission amount exceeds the amount of eligible liabilities subordinated to excluded liabilities before the deduction of prior permission amounts (M02.00-r0100 to M02.00-r0130)? Furthermore, how should the unused prior permission amount be reported in cases where the subordinated layer only includes Tier 2 instruments, as T2 in phase-out is not covered by a general prior permission amount for eligible liabilities.

Background on the question

Commission Implementing Regulation 2024/1618, Annex II, Part II, 2.1.2 states

  • r0135: Where a general prior permission as referred to in point (ii) 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.​
  • r0165: Where a general prior permission as referred to in point (ii) 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 row 0135, not in this row.​

For cases where the unused GPP amount (without any specification of insolvency ranking) is larger than the reported subordinated liabilities, the absolute value of r0135 can be larger than the total amount of subordinated eligible liabilities before GPP deductions (sum of M02.00-r0100 to M02.00-r0130). Moreover, validation rule v10761_m requires banks to report the total amount of subordinated eligible liabilities (r0090) as the sum of subtotals, which would be in breach, as the total amount of subordinated liabilities (r0090) is floored with 0 in the report.

Submission date
Final publishing date
Final answer

A  word-by-word interpretation of the Commission Implementing Regulation would indicate the following in case the unused prior permission amount exceeds the eligible liabilities subordinated to excluded liabilities (M02.00-r0100 to M02.00-r0130): 

  • Reporting the full amount of unused prior permission amounts in r0132 and r0135 and a zero in r0090, leading to a breach of validation rules. In this case, banks would need to deduct a larger value than the sum of subtotals which appears contradictory or​
  • Reporting the full amount of unused prior permission amounts in r0132 and r0135 and the gross amounts in r0090 and r0140, but the net amounts in r0060 and r0070, also leading to a breach of validation rules. 

Since both options would lead to inconsistencies and the breach of several validation rules, we would propose the following solution: 

  • In case, the unused prior permission amount exceeds the amount of eligible liabilities subordinated to excluded liabilities (M02.00-r0100 to M02.00-r0130), the deductions in r0132 and r0135 shall only be considered up to the extent of available subordinated eligible liabilities except for T2 in phase-out. The residual amount of unused prior permission amounts shall be reported in r0162 and r0165 in the field for eligible liabilities not subordinated to excluded liabilities. This solution would also be in line with the published validation rules and not lead to a breach. 

For the purposes of the reporting of MREL, T2 in phase-out should already by reported net of prior permission amounts for own funds instruments where applicable. 

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

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