Legal provisions of COM(2020)310 - Amendment of Regulations 575/2013 and 2019/876 on capital requirements as regards adjustments in response to the COVID-19 pandemic

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dossier COM(2020)310 - Amendment of Regulations 575/2013 and 2019/876 on capital requirements as regards adjustments in response to the COVID-19 ...
document COM(2020)310 EN
date June 24, 2020

Contents

Article 1 - Amendments to Regulation (EU) No 575/2013

Regulation (EU) No 575/2013 is amended as follows:

(1)in Article 47c(4), the introductory phrase is replaced by the following:

‘4.   By way of derogation from paragraph 3 of this Article, the following factors shall apply to the part of the non-performing exposure guaranteed or insured by an official export credit agency or guaranteed or counter-guaranteed by an eligible protection provider referred to in points (a) to (e) of Article 201(1), unsecured exposures to which would be assigned a risk weight of 0 % under Chapter 2 of Title II of Part Three:’;

(2)in Article 114, paragraph 6 is deleted;

(3)in Article 150(1), point (ii) of point (d) of the first subparagraph is replaced by the following:

‘(ii)exposures to central governments and central banks are assigned a 0 % risk weight under Article 114(2) or (4);’;

(4)Article 429a, as amended by Regulation (EU) 2019/876, is amended as follows:

(a)in paragraph 1, the introductory phrase of point (n) is replaced by the following:

‘(n)the following exposures to the institution’s central bank, subject to the conditions set out in paragraphs 5 and 6:’;

(b)paragraph 5 is amended as follows:

(i)the introductory sentence is replaced by the following:

‘Institutions may exclude the exposures listed in point (n) of paragraph 1 where all of the following conditions are met:’;

(ii)the following point is added:

‘(c)the institution’s competent authority has determined, after consultation with the relevant central bank, the date when the exceptional circumstances are deemed to have started and publicly announced that date; that date shall be set at the end of a quarter.’;

(c)in paragraph 7, the definitions of ‘EMLR’ and ‘CB’ are replaced by the following:

‘EMLR = the institution’s total exposure measure as calculated in accordance with Article 429(4), including the exposures excluded in accordance with point (n) of paragraph 1 of this Article, on the date referred to in point (c) of paragraph 5 of this Article; and

CB = the daily average total value of the institution’s exposures to its central bank, calculated over the full reserve maintenance period of the central bank immediately preceding the date referred to in point (c) of paragraph 5, that are eligible to be excluded in accordance with point (n) of paragraph 1.’;

(5)Article 467 is deleted;

(6)Article 468 is replaced by the following:

‘Article 468

Temporary treatment of unrealised gains and losses measured at fair value through other comprehensive income in view of the COVID-19 pandemic

1. By way of derogation from Article 35, during the period from 1 January 2020 to 31 December 2022 (the ‘period of temporary treatment’), institutions may remove from the calculation of their Common Equity Tier 1 items the amount A, determined in accordance with the following formula:


where:

a=the amount of unrealised gains and losses accumulated since 31 December 2019 accounted for as ‘fair value changes of debt instruments measured at fair value through other comprehensive income’ in the balance sheet, corresponding to exposures to central governments, to regional governments or to local authorities referred to in Article 115(2) of this Regulation and to public sector entities referred to in Article 116(4) of this Regulation, excluding those financial assets that are credit-impaired as defined in Appendix A to the Annex to Commission Regulation (EC) No 1126/2008 (‘Annex relating to IFRS 9’); and
f=the factor applicable for each reporting year during the period of temporary treatment in accordance with paragraph 2.

2. Institutions shall apply the following factors f to calculate the amount A referred in paragraph 1:

(a)1 during the period from 1 January 2020 to 31 December 2020;

(b)0,7 during the period from 1 January 2021 to 31 December 2021;

(c)0,4 during the period from 1 January 2022 to 31 December 2022.

3. Where an institution decides to apply the temporary treatment set out in paragraph 1, it shall inform the competent authority of its decision at least 45 days before the remittance date for the reporting of the information based on that treatment. Subject to the prior permission of the competent authority, the institution may reverse its initial decision once during the period of temporary treatment. Institutions shall publicly disclose if they apply that treatment.

4. Where an institution removes an amount of unrealised losses from its Common Equity Tier 1 items in accordance with paragraph 1 of this Article, it shall recalculate all requirements laid down in this Regulation and in Directive 2013/36/EU that are calculated using any of the following items:

(a)the amount of deferred tax assets that is deducted from Common Equity Tier 1 items in accordance with point (c) of Article 36(1) or risk weighted in accordance with Article 48(4);

(b)the amount of specific credit risk adjustments.

When recalculating the relevant requirement, the institution shall not take into account the effects that the expected credit loss provisions relating to exposures to central governments, to regional governments or to local authorities referred to in Article 115(2) of this Regulation and to public sector entities referred to in Article 116(4) of this Regulation, excluding those financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9, have on those items.

5. During the periods set out in paragraph 2 of this Article, in addition to disclosing the information required in Part Eight, institutions that have decided to apply the temporary treatment set out in paragraph 1 of this Article shall disclose the amounts of own funds, Common Equity Tier 1 capital and Tier 1 capital, the total capital ratio, the Common Equity Tier 1 capital ratio, the Tier 1 capital ratio, and the leverage ratio they would have in case they were not to apply that treatment.’;

(7)Article 473a is amended as follows:

(a)paragraph 1 is amended as follows:

(i)in the first subparagraph, the introductory phrase is replaced by the following:

‘1.   By way of derogation from Article 50 and until the end of the transitional periods set out in paragraphs 6 and 6a of this Article, the following may include in their Common Equity Tier 1 capital the amount calculated in accordance with this paragraph:’;

(ii)the second subparagraph is replaced by the following:

‘The amount referred to in the first subparagraph shall be calculated as the sum of the following:

(a)for exposures which are subject to risk weighting in accordance with Chapter 2 of Title II of Part Three, the amount (ABSA) calculated in accordance with the following formula:


where:

A2,SA=the amount calculated in accordance with paragraph 2;
A4,SA=the amount calculated in accordance with paragraph 4 based on the amounts calculated in accordance with paragraph 3;

;

=the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9, on 1 January 2020;
=the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9, on 1 January 2018 or on the date of the initial application of IFRS 9, whichever is later;
f1=the applicable factor laid down in paragraph 6;
f2=the applicable factor laid down in paragraph 6a;
t1=the increase of Common Equity Tier 1 capital that is due to tax deductibility of the amount A2,SA;
t2=the increase of Common Equity Tier 1 capital that is due to tax deductibility of the amount A4,SA;
t3=the increase of Common Equity Tier 1 capital that is due to tax deductibility of the amount


;

(b)for exposures which are subject to risk weighting in accordance with Chapter 3 of Title II of Part Three, the amount (ABIRB) calculated in accordance with the following formula:


where:

A2,IRB=the amount calculated in accordance with paragraph 2 which is adjusted in accordance with point (a) of paragraph 5;
A4,IRB=the amount calculated in accordance with paragraph 4 based on the amounts calculated in accordance with paragraph 3 which are adjusted in accordance with points (b) and (c) of paragraph 5;

;

=the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired, as defined in Appendix A to the Annex relating to IFRS 9, reduced by the sum of related expected loss amounts for the same exposures calculated in accordance with Article 158(5), (6) and (10) of this Regulation, on 1 January 2020. Where the calculation results in a negative number, the institution shall set the value of


to zero;
=the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired, as defined in Appendix A to the Annex relating to IFRS 9, on 1 January 2018 or on the date of the initial application of IFRS 9, whichever is later, reduced by the sum of related expected loss amounts for the same exposures calculated in accordance with Article 158(5), (6) and (10) of this Regulation. Where the calculation results in a negative number, the institution shall set the value of


as equal to zero;
f1=the applicable factor laid down in paragraph 6;
f2=the applicable factor laid down in paragraph 6a;
t1=the increase of Common Equity Tier 1 capital that is due to tax deductibility of the amount A2,IRB;
t2=the increase of Common Equity Tier 1 capital that is due to tax deductibility of the amount A4,IRB;
t3=the increase of Common Equity Tier 1 capital that is due to tax deductibility of the amount


.’;

(b)in paragraph 3, points (a) and (b) are replaced by the following:

‘(a)the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9, on the reporting date and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9;

(b)the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9 and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9, on 1 January 2020 or on the date of the initial application of IFRS 9, whichever is later.’;

(c)in paragraph 5, points (b) and (c) are replaced by the following:

‘(b)institutions shall replace the amount calculated in accordance with point (a) of paragraph 3 of this Article with the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired, as defined in Appendix A to the Annex relating to IFRS 9, and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9, reduced by the sum of related expected loss amounts for the same exposures calculated in accordance with Article 158(5), (6) and (10) of this Regulation on the reporting date. Where the calculation results in a negative number, the institution shall set the value of the amount referred to in point (a) of paragraph 3 of this Article as equal to zero;

(c)institutions shall replace the amount calculated in accordance with point (b) of paragraph 3 of this Article with the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired, as defined in Appendix A to the Annex relating to IFRS 9, and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9, on 1 January 2020 or on the date of the initial application of IFRS 9, whichever is later, reduced by the sum of related expected loss amounts for the same exposures calculated in accordance with Article 158(5), (6) and (10) of this Regulation on 1 January 2020 or on the date of the initial application of IFRS 9, whichever is later. Where the calculation results in a negative number, the institution shall set the value of the amount referred to in point (b) of paragraph 3 of this Article as equal to zero.’;

(d)paragraph 6 is replaced by the following:

‘6.   Institutions shall apply the following factors f1 to calculate the amounts ABSA and ABIRB referred to in points (a) and (b) of the second subparagraph of paragraph 1 respectively:

(a)0,7 during the period from 1 January 2020 to 31 December 2020;

(b)0,5 during the period from 1 January 2021 to 31 December 2021;

(c)0,25 during the period from 1 January 2022 to 31 December 2022;

(d)0 during the period from 1 January 2023 to 31 December 2024.

Institutions whose financial year commences after 1 January 2020 but before 1 January 2021 shall adjust the dates in points (a) to (d) of the first subparagraph so that they correspond to their financial year, shall report the adjusted dates to their competent authority and shall publicly disclose them.

Institutions which start to apply accounting standards as referred to in paragraph 1 on or after 1 January 2021 shall apply the relevant factors in accordance with points (b) to (d) of the first subparagraph starting with the factor corresponding to the year of the first application of those accounting standards.’;

(e)the following paragraph is inserted:

‘6a.   Institutions shall apply the following factors f2 to calculate the amounts ABSA and ABIRB referred to in points (a) and (b) of the second subparagraph of paragraph 1 respectively:

(a)1 during the period from 1 January 2020 to 31 December 2020;

(b)1 during the period from 1 January 2021 to 31 December 2021;

(c)0,75 during the period from 1 January 2022 to 31 December 2022;

(d)0,5 during the period from 1 January 2023 to 31 December 2023;

(e)0,25 during the period from 1 January 2024 to 31 December 2024.

Institutions whose financial year commences after 1 January 2020 but before 1 January 2021 shall adjust the dates in points (a) to (e) of the first subparagraph so that they correspond to their financial year, shall report the adjusted dates to their competent authority and shall publicly disclose them.

Institutions which start to apply accounting standards as referred to in paragraph 1 on or after 1 January 2021 shall apply the relevant factors in accordance with points (b) to (e) of the first subparagraph starting with the factor corresponding to the year of the first application of those accounting standards.’;

(f)the following paragraph is inserted:

‘7a.   By way of derogation from point (b) of paragraph 7 of this Article, when recalculating the requirements laid down in this Regulation and in Directive 2013/36/EU, institutions may assign a risk weight of 100 % to the amount ABSA referred to in point (a) of the second subparagraph of paragraph 1 of this Article. For the purposes of calculating the total exposure measure referred to in Article 429(4) of this Regulation, institutions shall add the amounts ABSA and ABIRB referred to in points (a) and (b) of the second subparagraph of paragraph 1 of this Article to the total exposure measure.

Institutions may choose only once whether to use the calculation set out in point (b) of paragraph 7 or the calculation set out in the first subparagraph of this paragraph. Institutions shall disclose their decision.’;

(g)paragraph 8 is replaced by the following:

‘8.   During the periods set out in paragraphs 6 and 6a of this Article, in addition to disclosing the information required in Part Eight, institutions that have decided to apply the transitional arrangements set out in this Article shall report to competent authorities and shall disclose the amounts of own funds, Common Equity Tier 1 capital and Tier 1 capital, the Common Equity Tier 1 capital ratio, the Tier 1 capital ratio, the total capital ratio and the leverage ratio they would have in case they were not to apply this Article.’;

(h)paragraph 9 is amended as follows:

(i)the first and the second subparagraphs are replaced by the following:

‘9.   An institution shall decide whether to apply the arrangements set out in this Article during the transitional period and shall inform the competent authority of its decision by 1 February 2018. Where an institution has received the prior permission of the competent authority, it may reverse its decision during the transitional period. Institutions shall publicly disclose any decision taken in accordance with this subparagraph.

An institution that has decided to apply the transitional arrangements set out in this Article may decide not to apply paragraph 4 in which case it shall inform the competent authority of its decision by 1 February 2018. In such a case, the institution shall set A4,SA, A4,IRB, , , t2 and t3 referred to in paragraph 1 as equal to zero. Where an institution has received the prior permission of the competent authority, it may reverse its decision during the transitional period. Institutions shall publicly disclose any decision taken in accordance with this subparagraph.’;

(ii)the following subparagraphs are added:

‘An institution that has decided to apply the transitional arrangements set out in this Article may decide not to apply paragraph 2 in which case it shall inform the competent authority of its decision without delay. In such a case, the institution shall set A2,SA, A2,IRB and t1 referred to in paragraph 1 as equal to zero. An institution may reverse its decision during the transitional period provided it has received the prior permission of the competent authority.

Competent authorities shall notify EBA at least on an annual basis of the application of this Article by institutions under their supervision.’;

(8)in Article 495, paragraph 2 is deleted;

(9)the following articles are inserted:

‘Article 500a

Temporary treatment of public debt issued in the currency of another Member State

1. By way of derogation from Article 114(2), until 31 December 2024, for exposures to the central governments and central banks of Member States, where those exposures are denominated and funded in the domestic currency of another Member State, the following apply:

(a)until 31 December 2022, the risk weight applied to the exposure values shall be 0 % of the risk weight assigned to those exposures in accordance with Article 114(2);

(b)in 2023, the risk weight applied to the exposure values shall be 20 % of the risk weight assigned to those exposures in accordance with Article 114(2);

(c)in 2024, the risk weight applied to the exposure values shall be 50 % of the risk weight assigned to those exposures in accordance with Article 114(2).

2. By way of derogation from Articles 395(1) and 493(4), competent authorities may allow institutions to incur exposures referred to in paragraph 1 of this Article, up to the following limits:

(a)100 % of the institution’s Tier 1 capital until 31 December 2023;

(b)75 % of the institution’s Tier 1 capital between 1 January and 31 December 2024;

(c)50 % of the institution’s Tier 1 capital between 1 January and 31 December 2025.

The limits referred to in points (a), (b) and (c) of the first subparagraph of this paragraph shall apply to exposure values after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403.

3. By way of derogation from point (ii) of point (d) of Article 150(1), after receiving the prior permission of the competent authorities and subject to the conditions laid down in Article 150, institutions may also apply the Standardised Approach to exposures to central governments and central banks, where those exposures are assigned a 0 % risk weight under paragraph 1 of this Article.

Article 500 - b Temporary exclusion of certain exposures to central banks from the total exposure measure in view of the COVID-19 pandemic

1. By way of derogation from Article 429(4), until 27 June 2021, an institution may exclude from its total exposure measure the following exposures to the institution’s central bank, subject to the conditions set out in paragraphs 2 and 3 of this Article:

(a)coins and banknotes constituting legal currency in the jurisdiction of the central bank;

(b)assets representing claims on the central bank, including reserves held at the central bank.

The amount excluded by the institution shall not exceed the daily average amount of the exposures listed in points (a) and (b) of the first subparagraph over the most recent full reserve maintenance period of the institution’s central bank.

2. An institution may exclude the exposures listed in paragraph 1 where the institution’s competent authority has determined, after consultation with the relevant central bank, and publicly declared that exceptional circumstances exist that warrant the exclusion in order to facilitate the implementation of monetary policies.

The exposures to be excluded under paragraph 1 shall meet both of the following conditions:

(a)they are denominated in the same currency as the deposits taken by the institution;

(b)their average maturity does not significantly exceed the average maturity of the deposits taken by the institution.

An institution that excludes exposures to its central bank from its total exposure measure in accordance with paragraph 1 shall also disclose the leverage ratio it would have if it did not exclude those exposures.

Article 500 - c Exclusion of overshootings from the calculation of the back-testing addend in view of the COVID-19 pandemic

By way of derogation from Article 366(3), competent authorities may, in exceptional circumstances and in individual cases, permit institutions to exclude the overshootings evidenced by the institution’s back-testing on hypothetical or actual changes from the calculation of the addend set out in Article 366(3), provided that those overshootings do not result from deficiencies in the internal model and provided that they occurred between 1 January 2020 and 31 December 2021.

Article 500 - d Temporary calculation of the exposure value of regular-way purchases and sales awaiting settlement in view of the COVID-19 pandemic

1. By way of derogation from Article 429(4), until 27 June 2021, institutions may calculate the exposure value of regular-way purchases and sales awaiting settlement in accordance with paragraphs 2, 3 and 4 of this Article.

2. Institutions shall treat cash related to regular-way sales and securities related to regular-way purchases which remain on the balance sheet until the settlement date as assets in accordance with point (a) of Article 429(4).

3. Institutions that, in accordance with the applicable accounting framework, apply trade date accounting to regular-way purchases and sales which are awaiting settlement shall reverse out any offsetting between cash receivables for regular-way sales awaiting settlement and cash payables for regular-way purchases awaiting settlement allowed under that accounting framework. After institutions have reversed out the accounting offsetting, they may offset between those cash receivables and cash payables where the related regular-way sales and purchases are both settled on a delivery-versus-payment basis.

4. Institutions that, in accordance with the applicable accounting framework, apply settlement date accounting to regular-way purchases and sales which are awaiting settlement shall include in the total exposure measure the full nominal value of commitments to pay related to regular-way purchases.

Institutions may offset the full nominal value of commitments to pay related to regular-way purchases by the full nominal value of cash receivables related to regular-way sales awaiting settlement only where both of the following conditions are met:

(a)both the regular-way purchases and sales are settled on a delivery-versus-payment basis;

(b)the financial assets bought and sold that are associated with cash payables and receivables are measured at fair value through profit or loss and included in the institution’s trading book.

5. For the purposes of this Article, ‘regular-way purchase or sale’ means a purchase or sale of a security under a contract for which the terms require the delivery of the security within the period established generally by law or convention in the marketplace concerned.’;

(10)the following article is inserted:

‘Article 518b

Report on overshootings and supervisory powers to limit distributions

By 31 December 2021, the Commission shall report to the European Parliament and to the Council on whether exceptional circumstances that trigger serious economic disturbance in the orderly functioning and integrity of financial markets justify:

(a)during such periods, permitting competent authorities to exclude from institutions’ market risk internal models overshootings that do not result from deficiencies in those models;

(b)during such periods, granting additional binding powers to competent authorities to impose restrictions on distributions by institutions.

The Commission shall consider further measures, if appropriate.’.

Article 2 - Amendments to Regulation (EU) 2019/876

Article 3 of Regulation (EU) 2019/876 is amended as follows:

(1)the following paragraph is inserted:

‘3a.The following points of Article 1 of this Regulation shall apply from 27 June 2020:

(a)point (59), as regards the provisions on the treatment of certain loans granted by credit institutions to pensioners or employees laid down in Article 123 of Regulation (EU) No 575/2013;

(b)point (133), as regards the provisions on adjustment of risk-weighted non-defaulted SME exposures laid down in Article 501 of Regulation (EU) No 575/2013;

(c)point (134), as regards the provisions on adjustment to own funds requirements for credit risk for exposures to entities that operate or finance physical structures or facilities, systems and networks that provide or support essential public services laid down in Article 501a of Regulation (EU) No 575/2013.’;

(2)paragraph 5 is replaced by the following:

‘5.Point (46)(b) of Article 1 of this Regulation, as regards the new requirement for own funds for G-SIIs laid down in Article 92(1a) of Regulation (EU) No 575/2013, shall apply from 1 January 2023.’;

(3)paragraph 7 is replaced by the following:

‘7.Point (18) of Article 1 of this Regulation, as regards point (b) of Article 36(1) of Regulation (EU) No 575/2013, containing the provision on the exemption from deductions of prudently valued software assets, shall apply from the date of entry into force of the regulatory technical standards referred to in Article 36(4) of Regulation (EU) No 575/2013.’.

Article 3 - Entry into force and application

This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.

It shall apply from 27 June 2020.

Notwithstanding the second paragraph of this Article, point (4) of Article 1 shall apply from 28 June 2021.

This Regulation shall be binding in its entirety and directly applicable in all Member States.