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Q&As refer to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.

Please note that the Q&As related to the supervisory benchmarking exercises have been moved to the dedicated handbook page. You can submit Q&As on this topic here.

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List of Q&A's

Definition of ‘establishment’ for the purposes of Country-by-Country reporting – scope of consolidation

What would be considered an ‘establishment’ for the purposes of country-by-country reporting in Article 89(1) of Directive 2013/36/EU (CRD)? For the purposes of consolidation, should the prudential or the accounting scope of consolidation be applied?

  • Legal act: Directive 2013/36/EU (CRD)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_1248
  • Topic: Other issues
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Treatment as own funds under Regulation (EU) No 575/2013 (CRR)

Confirmation is sought that instruments that initially qualified for transitional treatment in a higher own funds category according to CRR transition rules in Articles 484ff, but for which documentation had to be altered to a lower own funds category as instructed by a court ruling following a litigation, are to be reported as fully compliant with that lower own funds category. More background information on the instruments will be made available directly to EBA.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions
  • ID: 2014_1071
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Lower maximum penalties for natural persons

Articles 66 (2) d) and Art. 67 (2) f) of Directive 2013/36/EU (CRD) provides that for certain breaches stipulated in Articles 66 (1) and 67 (1) Member States shall ensure that administrative penalties that can be applied include at least up to 5 million euro in the case of natural person. May Member States, considering the circumstances of particular Member State, provide directly in their national law lower maximum amount of the penalty (e.g. "up to 1 million euro") for natural persons in the case of the breaches set in Articles 66 (1) and 67 (1)?

  • Legal act: Directive 2013/36/EU (CRD)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_859
  • Topic: Other issues
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Definition of counterparty for the purpose of applying on-balance sheet netting

1) What is the definition of a counterparty in the context of using on-balance sheet netting (OBSN) of mutual claims between the bank and the counterparty as eligible credit risk mitigation form? 2) In other words, to be eligible for OBSN should the netting of loans and deposits always be with one legal entity or can they be across legally connected entities (for example parent-subsidiaries)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_538
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Interpretation of Article 325b of Regulation (EU) No 575/2013 (CRR)

1. Are the conditions set out in Article 325b (2) CRR conditions that have to be simultaneously met with respect to every single institution and undertaking (parent and subsidiaries) no matter whether it holds positions that shall actually be offset on a consolidated basis? 2. Analogously, are the conditions set out in Article 325b (3) CRR conditions that have to be simultaneously met with respect to every single undertaking in a third country no matter whether it holds positions that shall actually be offset on a consolidated basis?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_429
  • Topic: Market risk
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Scope of "undertaking" in Article 325 (1) of Regulation (EU) No 575/2013 (CRR)

Does the term “undertaking” in Article 325 (1) of CRR refer to financial sector entities as well as other legal business entities outside the financial sector? If not, to which does it refer?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_428
  • Topic: Market risk
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Grandfathering of Own Funds Instruments

When an institution has launched an exchange offer, prior to December 31st 2011, that will exchange, on a one for one basis, existing Tier 1 bonds, with or without an incentive to redeem, with bonds that have similar provisions, the same coupons and call dates, but a different issuer (within the same banking group), will the newly issued bonds be considered in the same category as the former bonds (with or without an incentive to redeem)? This seems consistent with the fact that the newly issued bonds obviously do not have a coupon that is priced at fair market value on the issuance date, so assessing whether they have an incentive to redeem the day they are issued does not really make sense, but a clarification would be helpful.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_220
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Capital buffers

According to Directive 2013/36/EU (CRD), Title VII, Chapter 4, institutions shall hold capital to cover combined buffer requirement (CombB, in % of a given institution’s total risk exposure). The CombB (as in Art 128 para 6 CRD) will consist of conservation buffer (CB), possibly extended by countercyclical capital buffer (CCB), SII buffer and systemic risk buffer (SRB) applicable to institutions on consolidated, subconsolidated or individual level as set by competent or designated authorities. The CRD also sets some rules and conditions on combinations of the individual types of capital buffers (additivity versus higher of) and rules for combinations arising from application of capital buffers on different levels (parent versus subsidiary), especially in Articles 131 and 133 CRD IV. However, given this variety of potential application of capital buffers, many capital buffer combinations may emerge where the rules for setting the resulting CombB of an institution may not be 100% clear as the CRD wording can give different interpretations. The rule in Art 131 (16, 17) can a) either mean that the decision of the home regulator as regards CombB of the group effectively introduces a floor of CombB in subsidiaries, or b) just emphasize that buffers imposed on the group should not be taken as a reason for reducing buffers imposed individually on the group’s subsidiaries and sub-groups. Which interpretation of capital buffer combinations on different levels is correct?

  • Legal act: Directive 2013/36/EU (CRD)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_173
  • Topic: Other issues
  • Date of submission:
  • Published as final Q&A: 06/06/2014

Clarifications with respect to Commission Implementing Regulation (EU) No. 1423/2013 (ITS on disclosure of own funds requirments)

1) Further guidance is requested on the disclosure relating to ‘governing law of the instrument’ as securities can be issued in one country (e.g. the USA) but governed or have subordination provisions based on the law of the country in which the issuing bank resides (e.g. the UK) The 'governing law of the instrument’ is required to be populated in row 3 of Annex II. 2) More refined language is requested for the disclosure relating to ‘If convertible, specify instrument type convertible into’. Specifically clarification on whether disclosure is required for conversion within the same category of capital (e.g. securities that qualify as AT1 and can convert into preference shares that would also qualify as AT1). This is required to complete row 28 of Annex II. 3) Possible options for specifying non-compliant features should be included in the guidance thereby ensuring consistency across banks. This is required to complete row 36 of Annex II. 4) Guidance is requested on the publishing mechanism. We would like to clarify whether there is a requirement to publish on the external website or in the printed financial statements. A possible date for publishing the table would ensure consistency across banks although this disclosure may need to tie to the date of results presentation. 5) Guidance is requested to provide the expected frequency of update. When a change in security is incorporated in the table is it expected that the value change (as at the last reporting date) for all securities is reported? (expected to arise when the update frequency is semi annual or less frequent). Also guidance is requested with respect to the time line within which the schedule is required to be updated. 6) Further guidance is requested for the type of Instrument (row 7). The current guidance under Annex III indicates 'menu options to be provided to institutions by each jurisdiction...' 7) Current guidance under Annex III for row 8 indicates '...total amount of the instrument recognised in regulatory capital before transitional provisions for the relevant level of the disclosure...'. Our interpretation of the text in the law requires disclosing the value of each security in the composition of regulatory capital prior to the grandfathering cap. Our interpretation, therefore requires disclosing within row 8 the value of the security that is different from the value included in the calculation of regulatory capital (calculated post the application of the cap). This seems to be inconsistent with the purpose of EU 1423/2013 where all articles included therein are closely linked and therefore amounts disclosed in each of the schedules are expected to reconcile. Please advise if our interpretation is in line with your understanding of the regulation.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 1423/2013 - ITS on disclosure of own funds requirements
  • ID: 2014_800
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 28/05/2014

Grandfathering of own funds

In question 2013_15 the EBA clarified that legacy step-up Tier 1 instruments with quarterly calls will not be eligible as fully CRR compliant Tier 2 instruments after their first call and step-up date. In question 2013_31 the EBA clarified that non-step-up Tier 1 instruments could be eligible, for the amounts exceeding the grandfathering limits, as fully eligible Tier 2 instruments with no time limit and independently of the frequency of calls, with an important caveat : should the terms of the legacy non-step-up Tier 1 instruments interfere with Articles 28(1)(h)(vii)) (CET1) and 52(1)(l)(v) (AT1), then such AT1 and CET1 instruments could be disqualified, while the legacy non-step-up Tier 1 instrument would remain in fully eligible Tier 2. By doing so the EBA referenced to questions 2013_21 and 2013_54. However, these two questions mainly dealt with "stopper provisions" and more precisely about cases where the legacy non-step-up Tier 1 instruments have terms that could prevent (optionally or in a mandatory way) coupons being paid if distributions are skipped on CET1 or AT1 instruments. I have several questions related to this : 1. My first question is to confirm that the same reasoning would apply during the grandfathering period independently of the fact that the bonds would still be within the grandfathering limit or not. Logically the answer should be yes as questions 2013_21 and 2013_54 clarify that the impact of the terms of the legacy instrument is not on the regulatory eligibility of this instrument but on the AT1 / CET1 instruments. The effect of the terms of the grandfathered bonds on the CET1 / AT1 bonds is obviously totally independent of the grandfathering status of the grandfathered bond (with the possible exception of contractual provisions that make an explicit reference to pushers / stoppers only on bonds that are included in regulatory capital.) 2. My second question is to confirm that the same reasoning would apply to step-up bonds as I see no reason why the impact of pusher / stopper provisions on CET1 / AT1 bonds would be different if there is a step up or not and application of articles 28(1)(h)(vii)) (CET1) and 52(1)(l)(v) (AT1) would be the same for step / non step bonds. 3. My third question is on pusher provisions. Many legacy Tier 1 instruments have pusher provisions saying that a coupon being paid on the legacy Tier 1 instrument forces a payment on "pari passu" bonds, such pari passu bonds being defined in the contract. Could the EBA confirm that, if an additional Tier 1 is included in the list of pari passu bonds defined in the legacy Tier 1 contract, then the AT1 instrument would not be eligible? This is because of the fact that [not paying on AT1 implies not paying on Legacy Tier 1] is logically strictly the same as [paying on Legacy Tier 1 implies paying on AT1], so in such cases not paying coupons on the AT1 would obviously trigger restrictions for the bank, the case specifically considered by the EBA in question 2013_21.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_542
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 28/05/2014

Conversion of the total amount owed to institution from national currency to EUR

Which exchange rate should the institution use to convert the amount owed to institution (mentioned in Article 501 point 1)? Should it be converted to EUR each day with exchange rate from this day or should the exchange rate be fixed, for example from the day when the product was sold?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_417
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 28/05/2014

High Income OECD countries and High Income Euro Area countries as defined in the OECD

High Income OECD countries and High Income Euro Area countries as defined in the OECD (currently e.g. USA, UK, Germany, Luxembourg, Canada, Finland, etc.) receive since early 2013 no longer a country risk classification, due to their high solvency, tax income as well as tax possibilities etc. As a consequence, it is not possible to derive a risk weight according to article 137 (2) CRR without using any appropriate mechanism for determining the corresponding country risk classification. Can it be assumed, that High Income OECD countries and High Income Euro Area countries which are supposed to be even “better” than country risk classification 0 can be treated under Article 137 with an MEIP being equal to 0?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_760
  • Topic: External Credit Assessment Institutions (ECAI)
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Application of phase-in regime

What is the compatibility between Recital (117) of Regulation (EU) No 575/2013 (CRR) and the provisions of aforementioned Basel III Q&A with Articles 472, 475 and 477, which provide for the deduction of the share not deducted as an effect of the phase-in period (described in Articles 469, 474, 476 and 478)? Literal application of these provisions, which effectively impose a 100% deduction, to items which, under the current regulations (of the individual member states, enacting the Basel II regulations), would not be deducted, would appear to in contrast with very logic of the phase-in regime.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_723
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Passporting for financial institutions

Article 34(3) of Directive 2013/36/EU (CRD) (same wording with 24(3) of the Banking Consolidation Directive) states that "Paragraphs 1 and 2 shall apply accordingly to subsidiaries of a financial institution as referred to in the first subparagraph of paragraph 1". We are trying to understand what this para. 34 (3) means. Let us assume that there is a financial institution (Institution A), as defined in point (26) of Article 4(1) of Regulation (EU) No 575/2013 CRR, which is not “a subsidiary of a credit institution or the jointly owned subsidiary of two or more credit institutions”. That financial institution then has a subsidiary (Institution B) that is itself a financial institution within the meaning of point (26) of Article 4(1) of Regulation (EU) No 575/2013. Would that subsidiary (Institution B) be able to passport itself into another member state, per the provisions of Article 34(3)?

  • Legal act: Directive 2013/36/EU (CRD)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_719
  • Topic: Passporting and supervision of branches
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Grandfathering

Linked to 2013_47, prior to the first call date, can the amount of a step up Tier 1 in excess of the Tier 1 grandfathering limit work in the Tier 2 grandfathering limit (if there is space) as is permitted for non-step Tier 1 instruments?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_696
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 23/05/2014

CVA for client exposures

Are exchange traded derivatives (ETDs) in scope in terms of CVA applicability?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_692
  • Topic: Market risk
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Conditions for application of 4% risk weight

Please confirm that the criteria in Article 305(2)(a) is met with gross omnibus segregation solutions that provide the same level of segregation as individual segregation (e.g. account segregation with asset-tagging, where good individual asset attribution yields the same results as individual segregation).

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_668
  • Topic: Market risk
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Validations

There appears to be several prior year validations that do not work in FINREP. v1321_m {F 46.00, r010, c080} = {F 01.03, r210, c010} t-1 v1233_m {F 46.00, r010, c080} = {F 46.00, r210, c080} t-1 v1231_m {F 46.00, r010, c060} = {F 46.00, r210, c060} t-1 v1318_m {F 46.00, r010, c060} = {F 01.03, r190, c010} t-1

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
  • ID: 2014_709
  • Topic: Supervisory reporting - FINREP (incl. FB&NPE)
  • Date of submission:
  • Published as final Q&A: 23/05/2014

Eligibility of capital instruments for classification as Common Equity Tier 1 instruments when the instruments are supplemented by a contractual obligation of the majority-shareholder to pay a fixed yearly compensation to the minority shareholders

Para 1 point (i) of Article 28 of Regulation (EU) No 575/2013 (CRR) states that "compared to all the capital instruments issued by the institution, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other Common Equity Tier 1 instruments". The question is, whether a contractual obligation of the majority shareholder of a credit institution to pay a fixed yearly compensation to the minority shareholders even in loss years (by reason that the majority shareholder and the credit institution have entered into a profit and loss transfer agreement) is permissible according to para 1 point (i) of Article 28 CRR?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_541
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 16/05/2014

Specific collective provisions allocation

In line with question 2013_201, how do we allocate any specific (to particular portfolios) collective provisions to various asset classes? a) do we follow the rules applied when calculating the specific collective provisions by the relevant department?; or b) can we allocate them to past-due exposures first and then to the all other exposures?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 183/2014 - RTS for the calculation of specific and general credit risk adjustments
  • ID: 2013_499
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 16/05/2014