Directive 2006/48/EC of the European Parliament and of the Council (repealed)Dangos y teitl llawn

ANNEX XII U.K. [F1 TECHNICAL CRITERIA ON TRANSPARENCY AND DISCLOSURE]

Textual Amendments

F1 Substituted by Directive 2010/76/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies (Text with EEA relevance).

PART 1 U.K. General criteria

1. Information shall be regarded as material in disclosures if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions. U.K.

2. Information shall be regarded as proprietary to a credit institution if sharing that information with the public would undermine its competitive position. It may include information on products or systems which, if shared with competitors, would render a credit institution's investments therein less valuable. U.K.

3. Information shall be regarded as confidential if there are obligations to customers or other counterparty relationships binding a credit institution to confidentiality. U.K.

4. Competent authorities shall require credit institution to assess the need to publish some or all disclosures more frequently than annually in the light of the relevant characteristics of their business such as scale of operations, range of activities, presence in different countries, involvement in different financial sectors, and participation in international financial markets and payment, settlement and clearing systems. That assessment shall pay particular attention to the possible need for more frequent disclosure of items of information laid down in Part 2, points 3(b) and 3(e) and 4(b) to 4(e), and information on risk exposure and other items prone to rapid change. U.K.

5. The disclosure requirement in Part 2, points 3 and 4 shall be provided pursuant to Article 72(1) and (2). U.K.

PART 2 U.K. General requirements

1. The risk management objectives and policies of the credit institution shall be disclosed for each separate category of risk, including the risks referred to under points 1 to 14. These disclosures shall include: U.K.

(a)

the strategies and processes to manage those risks;

(b)

the structure and organisation of the relevant risk management function or other appropriate arrangements;

(c)

the scope and nature of risk reporting and measurement systems; and

(d)

the policies for hedging and mitigating risk, and the strategies and processes for monitoring the continuing effectiveness of hedges and mitigants.

2. The following information shall be disclosed regarding the scope of application of the requirements of this Directive: U.K.

(a)

the name of the credit institution to which the requirements of this Directive apply;

(b)

an outline of the differences in the basis of consolidation for accounting and prudential purposes, with a brief description of the entities that are:

(i)

fully consolidated;

(ii)

proportionally consolidated;

(iii)

deducted from own funds; or

(iv)

neither consolidated nor deducted;

(c)

any current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities among the parent undertaking and its subsidiaries;

(d)

the aggregate amount by which the actual own funds are less than the required minimum in all subsidiaries not included in the consolidation, and the name or names of such subsidiaries; and

(e)

if applicable, the circumstance of making use of the provisions laid down in Articles 69 and 70.

3. The following information shall be disclosed by the credit institutions regarding their own funds: U.K.

(a)

[F2 summary information on the terms and conditions of the main features of all own-funds items and components thereof, including instruments referred to in Article 57(ca), instruments the provisions of which provide an incentive for the credit institution to redeem them, and instruments subject to Article 154(8) and (9);

(b)

the amount of the original own funds, with separate disclosure of all positive items and deductions; the overall amount of instruments referred to in Article 57(ca) and instruments the provisions of which provide an incentive for the credit institution to redeem them, shall also be disclosed separately; those disclosures shall each specify instruments subject to Article 154(8) and (9);]

(c)

the total amount of additional own funds, and own funds as defined in Chapter IV of Directive 2006/49/EC;

(d)

deductions from original and additional own funds pursuant to Article 66(2), with separate disclosure of items referred to in Article 57(q); and

(e)

total eligible own funds, net of deductions and limits laid down in Article 66.

Textual Amendments

F2 Substituted by Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management (Text with EEA relevance).

4. The following information shall be disclosed regarding the compliance by the credit institution with the requirements laid down in Articles 75 and 123: U.K.

(a)

a summary of the credit institution's approach to assessing the adequacy of its internal capital to support current and future activities;

(b)

for credit institutions calculating the risk-weighted exposure amounts in accordance with Articles 78 to 83, 8 per cent of the risk-weighted exposure amounts for each of the exposure classes specified in Article 79;

(c)

for credit institutions calculating risk-weighted exposure amounts in accordance with Articles 84 to 89, 8 per cent of the risk-weighted exposure amounts for each of the exposure classes specified in Article 86. For the retail exposure class, this requirement applies to each of the categories of exposures to which the different correlations in Annex VII, Part 1, points 10 to 13 correspond. For the equity exposure class, this requirement applies to:

(i)

each of the approaches provided in Annex VII, Part 1, points 17 to 26;

(ii)

exchange traded exposures, private equity exposures in sufficiently diversified portfolios, and other exposures;

(iii)

exposures subject to supervisory transition regarding capital requirements; and

(iv)

exposures subject to grandfathering provisions regarding capital requirements;

(d)

minimum capital requirements calculated in accordance with Article 75, points (b) and (c); and

(e)

minimum capital requirements calculated in accordance with Articles 103 to 105, and disclosed separately.

5. The following information shall be disclosed regarding the credit institution's exposure to counterparty credit risk as defined in Annex III, Part 1: U.K.

(a)

a discussion of the methodology used to assign internal capital and credit limits for counterparty credit exposures;

(b)

a discussion of policies for securing collateral and establishing credit reserves;

(c)

a discussion of policies with respect to wrong-way risk exposures;

(d)

a discussion of the impact of the amount of collateral the credit institution would have to provide given a downgrade in its credit rating;

(e)

gross positive fair value of contracts, netting benefits, netted current credit exposure, collateral held and net derivatives credit exposure. Net derivatives credit exposure is the credit exposure on derivatives transactions after considering both the benefits from legally enforceable netting agreements and collateral arrangements;

(f)

measures for exposure value under the methods set out in Parts 3 to 6 of Annex III, whichever method is applicable;

(g)

the notional value of credit derivative hedges, and the distribution of current credit exposure by types of credit exposure;

(h)

credit derivative transactions (notional), segregated between use for the credit institution's own credit portfolio, as well as in its intermediation activities, including the distribution of the credit derivatives products used, broken down further by protection bought and sold within each product group; and

(i)

the estimate of α if the credit institution has received the approval of the competent authorities to estimate α.

6. The following information shall be disclosed regarding the credit institution's exposure to credit risk and dilution risk: U.K.

(a)

the definitions for accounting purposes of ‘past due’ and ‘impaired’;

(b)

a description of the approaches and methods adopted for determining value adjustments and provisions;

(c)

the total amount of exposures after accounting offsets and without taking into account the effects of credit risk mitigation, and the average amount of the exposures over the period broken down by different types of exposure classes;

(d)

the geographic distribution of the exposures, broken down in significant areas by material exposure classes, and further detailed if appropriate;

(e)

the distribution of the exposures by industry or counterparty type, broken down by exposure classes, and further detailed if appropriate;

(f)

the residual maturity breakdown of all the exposures, broken down by exposure classes, and further detailed if appropriate;

(g)

by significant industry or counterparty type, the amount of:

(i)

impaired exposures and past due exposures, provided separately;

(ii)

value adjustments and provisions; and

(iii)

charges for value adjustments and provisions during the period;

(h)

the amount of the impaired exposures and past due exposures, provided separately, broken down by significant geographical areas including, if practical, the amounts of value adjustments and provisions related to each geographical area;

(i)

the reconciliation of changes in the value adjustments and provisions for impaired exposures, shown separately. The information shall comprise:

(i)

a description of the type of value adjustments and provisions;

(ii)

the opening balances;

(iii)

the amounts taken against the provisions during the period;

(iv)

the amounts set aside or reversed for estimated probable losses on exposures during the period, any other adjustments including those determined by exchange rate differences, business combinations, acquisitions and disposals of subsidiaries, and transfers between provisions; and

(v)

the closing balances.

Value adjustments and recoveries recorded directly to the income statement shall be disclosed separately.

7. For credit institutions calculating the risk-weighted exposure amounts in accordance with Articles 78 to 83, the following information shall be disclosed for each of the exposure classes specified in Article 79: U.K.

(a)

the names of the nominated ECAIs and ECAs and the reasons for any changes;

(b)

the exposure classes for which each ECAI or ECA is used;

(c)

a description of the process used to transfer the issuer and issue credit assessments onto items not included in the trading book;

(d)

the association of the external rating of each nominated ECAI or ECA with the credit quality steps prescribed in Annex VI, taking into account that this information needs not be disclosed if the credit institution complies with the standard association published by the competent authority; and

(e)

the exposure values and the exposure values after credit risk mitigation associated with each credit quality step prescribed in Annex VI, as well as those deducted from own funds.

8. The credit institutions calculating the risk-weighted exposure amounts in accordance with Annex VII, Part 1, points 6 or 19 to 21 shall disclose the exposures assigned to each category in Table 1 in point 6 of Annex VII, Part 1, or to each risk weight mentioned in points 19 to 21 of Annex VII, Part 1. U.K.

[F1 9. The credit institutions calculating their capital requirements in accordance with Article 75(b) and (c) shall disclose those requirements separately for each risk referred to in those provisions. In addition, the capital requirement for specific interest rate risk of securitisation positions shall be disclosed separately. U.K.

10. The following information shall be disclosed by each credit institution which calculates its capital requirements in accordance with Annex V to Directive 2006/49/EC: U.K.

(a)

for each sub-portfolio covered:

(i)

the characteristics of the models used;

(ii)

for the capital charges in accordance with points 5a and 5l of Annex V to Directive 2006/49/EC separately, the methodologies used and the risks measured through the use of an internal model including a description of the approach used by the credit institution to determine liquidity horizons, the methodologies used to achieve a capital assessment that is consistent with the required soundness standard and the approaches used in the validation of the model;

(iii)

a description of stress testing applied to the sub-portfolio;

(iv)

a description of the approaches used for back-testing and validating the accuracy and consistency of the internal models and modelling processes;

(b)

the scope of acceptance by the competent authority;

(c)

a description of the extent and methodologies for compliance with the requirements set out in Part B of Annex VII to Directive 2006/49/EC;

(d)

the highest, the lowest and the mean of the following:

(i)

the daily value-at-risk measures over the reporting period and as per the period end;

(ii)

the stressed value-at-risk measures over the reporting period and as per the period end;

(iii)

the capital charges in accordance with points 5a and 5l of Annex V to Directive 2006/49/EC separately over the reporting period and as per the period-end;

(e)

the amount of capital in accordance with points 5a and 5l of Annex V to Directive 2006/49/EC separately, together with the weighted average liquidity horizon for each sub-portfolio covered;

(f)

a comparison of the daily end-of-day value-at-risk measures to the one-day changes of the portfolio’s value by the end of the subsequent business day together with an analysis of any important overshooting during the reporting period.]

11. The following information shall be disclosed by the credit institutions on operational risk: U.K.

(a)

the approaches for the assessment of own funds requirements for operational risk that the credit institution qualifies for; and

(b)

a description of the methodology set out in Article 105, if used by the credit institution, including a discussion of relevant internal and external factors considered in the credit institution's measurement approach. In the case of partial use, the scope and coverage of the different methodologies used.

12. The following information shall be disclosed regarding the exposures in equities not included in the trading book: U.K.

(a)

the differentiation between exposures based on their objectives, including for capital gains relationship and strategic reasons, and an overview of the accounting techniques and valuation methodologies used, including key assumptions and practices affecting valuation and any significant changes in these practices;

(b)

the balance sheet value, the fair value and, for those exchange-traded, a comparison to the market price where it is materially different from the fair value;

(c)

the types, nature and amounts of exchange-traded exposures, private equity exposures in sufficiently diversified portfolios, and other exposures;

(d)

the cumulative realised gains or losses arising from sales and liquidations in the period; and

(e)

the total unrealised gains or losses, the total latent revaluation gains or losses, and any of these amounts included in the original or additional own funds.

13. The following information shall be disclosed by credit institutions on their exposure to interest rate risk on positions not included in the trading book: U.K.

(a)

the nature of the interest rate risk and the key assumptions (including assumptions regarding loan prepayments and behaviour of non-maturity deposits), and frequency of measurement of the interest rate risk; and

(b)

the variation in earnings, economic value or other relevant measure used by the management for upward and downward rate shocks according to management's method for measuring the interest rate risk, broken down by currency.

[F1 14. Credit institutions calculating risk weighted exposure amounts in accordance with Articles 94 to 101 or capital requirements in accordance with point 16a of Annex I to Directive 2006/49/EC shall disclose the following information, where relevant, separately for their trading and non-trading book: U.K.

(a)

a description of the credit institution’s objectives in relation to securitisation activity;

(b)

the nature of other risks including liquidity risk inherent in securitised assets;

(c)

the type of risks in terms of seniority of underlying securitisation positions and in terms of assets underlying those latter securitisation positions assumed and retained with re-securitisation activity;

(d)

the different roles played by the credit institution in the securitisation process;

(e)

an indication of the extent of the credit institution’s involvement in each of the roles referred to in point (d);

(f)

a description of the processes in place to monitor changes in the credit and market risk of securitisation exposures including, how the behaviour of the underlying assets impacts securitisation exposures and a description of how those processes differ for re-securitisation exposures;

(g)

a description of the credit institution’s policy governing the use of hedging and unfunded protection to mitigate the risks of retained securitisation and re-securitisation exposures, including identification of material hedge counterparties by relevant type of risk exposure;

(h)

the approaches to calculating risk weighted exposure amounts that the credit institution follows for its securitisation activities including the types of securitisation exposures to which each approach applies;

(i)

the types of SSPE that the credit institution, as sponsor, uses to securitise third-party exposures including whether and in what form and to what extent the credit institution has exposures to those SSPEs, separately for on- and off-balance sheet exposures, as well as a list of the entities that the credit institution manages or advises and that invest in either the securitisation positions that the credit institution has securitised or in SSPEs that the credit institution sponsors;

(j)

a summary of the credit institution’s accounting policies for securitisation activities, including:

(i)

whether the transactions are treated as sales or financings;

(ii)

the recognition of gains on sales;

(iii)

the methods, key assumptions, inputs and changes from the previous period for valuing securitisation positions;

(iv)

the treatment of synthetic securitisations if not covered by other accounting policies;

(v)

how assets awaiting securitisation are valued and whether they are recorded in the credit institution’s non-trading book or the trading book;

(vi)

policies for recognising liabilities on the balance sheet for arrangements that could require the credit institution to provide financial support for securitised assets;

(k)

the names of the ECAIs used for securitisations and the types of exposure for which each agency is used;

(l)

where applicable, a description of the Internal Assessment Approach as set out in Part 4 of Annex IX, including the structure of the internal assessment process and relation between internal assessment and external ratings, the use of internal assessment other than for IAA capital purposes, the control mechanisms for the internal assessment process including discussion of independence, accountability, and internal assessment process review, the exposure types to which the internal assessment process is applied and the stress factors used for determining credit enhancement levels, by exposure type;

(m)

an explanation of significant changes to any of the quantitative disclosures in points (n) to (q) since the last reporting period;

(n)

separately for the trading and the non-trading book, the following information broken down by exposure type:

(i)

the total amount of outstanding exposures securitised by the credit institution, separately for traditional and synthetic securitisations and securitisations for which the credit institution acts only as sponsor;

(ii)

the aggregate amount of on-balance sheet securitisation positions retained or purchased and off-balance sheet securitisation exposures;

(iii)

the aggregate amount of assets awaiting securitisation;

(iv)

for securitised facilities subject to the early amortisation treatment, the aggregate drawn exposures attributed to the originator’s and investors’ interests respectively, the aggregate capital requirements incurred by the credit institution against the originator’s interest and the aggregate capital requirements incurred by the credit institution against the investor’s shares of drawn balances and undrawn lines;

(v)

the amount of securitisation positions that are deducted from own funds or risk-weighted at 1 250 %;

(vi)

a summary of the securitisation activity of the current period, including the amount of exposures securitised and recognised gain or loss on sale;

(o)

separately for the trading and the non-trading book, the following information:

(i)

the aggregate amount of securitisation positions retained or purchased and the associated capital requirements, broken down between securitisation and re-securitisation exposures and further broken down into a meaningful number of risk-weight or capital requirement bands, for each capital requirements approach used;

(ii)

the aggregate amount of re-securitisation exposures retained or purchased broken down according to the exposure before and after hedging/insurance and the exposure to financial guarantors, broken down according to guarantor credit worthiness categories or guarantor name;

(p)

for the non-trading book and regarding exposures securitised by the credit institution, the amount of impaired/past due assets securitised and the losses recognised by the credit institution during the current period, both broken down by exposure type;

(q)

for the trading book, the total outstanding exposures securitised by the credit institution and subject to a capital requirement for market risk, broken down into traditional/synthetic and by exposure type.]

[F3 15. The following information, including regular, at least annual, updates, shall be disclosed to the public regarding the remuneration policy and practices of the credit institution for those categories of staff whose professional activities have a material impact on its risk profile: U.K.

(a)

information concerning the decision-making process used for determining the remuneration policy, including if applicable, information about the composition and the mandate of a remuneration committee, the external consultant whose services have been used for the determination of the remuneration policy and the role of the relevant stakeholders;

(b)

information on link between pay and performance;

(c)

the most important design characteristics of the remuneration system, including information on the criteria used for performance measurement and risk adjustment, deferral policy and vesting criteria;

(d)

information on the performance criteria on which the entitlement to shares, options or variable components of remuneration is based;

(e)

the main parameters and rationale for any variable component scheme and any other non-cash benefits;

(f)

aggregate quantitative information on remuneration, broken down by business area;

(g)

aggregate quantitative information on remuneration, broken down by senior management and members of staff whose actions have a material impact on the risk profile of the credit institution, indicating the following:

(i)

the amounts of remuneration for the financial year, split into fixed and variable remuneration, and the number of beneficiaries;

(ii)

the amounts and forms of variable remuneration, split into cash, shares, share-linked instruments and other types;

(iii)

the amounts of outstanding deferred remuneration, split into vested and unvested portions;

(iv)

the amounts of deferred remuneration awarded during the financial year, paid out and reduced through performance adjustments;

(v)

new sign-on and severance payments made during the financial year, and the number of beneficiaries of such payments; and

(vi)

the amounts of severance payments awarded during the financial year, number of beneficiaries and highest such award to a single person.

For credit institutions that are significant in terms of their size, internal organisation and the nature, scope and the complexity of their activities, the quantitative information referred to in this point shall also be made available to the public at the level of persons who effectively direct the business of the credit institution within the meaning of Article 11(1).

Credit institutions shall comply with the requirements set out in this point in a manner that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities and without prejudice to Directive 95/46/EC.]

Textual Amendments

F3 Inserted by Directive 2010/76/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies (Text with EEA relevance).

PART 3 U.K. Qualifying requirements for the use of particular instruments or methodologies

1. The credit institutions calculating the risk-weighted exposure amounts in accordance with Articles 84 to 89 shall disclose the following information: U.K.

(a)

the competent authority's acceptance of approach or approved transition;

(b)

an explanation and review of:

(i)

the structure of internal rating systems and relation between internal and external ratings;

(ii)

the use of internal estimates other than for calculating risk-weighted exposure amounts in accordance with Articles 84 to 89;

(iii)

the process for managing and recognising credit risk mitigation; and

(iv)

the control mechanisms for rating systems including a description of independence, accountability, and rating systems review;

(c)

a description of the internal ratings process, provided separately for the following exposure classes:

(i)

central governments and central banks;

(ii)

institutions;

(iii)

corporate, including SMEs, specialised lending and purchased corporate receivables;

(iv)

retail, for each of the categories of exposures to which the different correlations in Annex VII, Part 1, points 10 to 13 correspond; and

(v)

equities;

(d)

the exposure values for each of the exposure classes specified in Article 86. Exposures to central governments and central banks, institutions and corporates where credit institutions use own estimates of LGDs or conversion factors for the calculation of risk-weighted exposure amounts shall be disclosed separately from exposures for which the credit institutions do not use such estimates;

(e)

for each of the exposure classes central governments and central banks, institutions, corporate and equity, and across a sufficient number of obligor grades (including default) to allow for a meaningful differentiation of credit risk, credit institutions shall disclose:

(i)

the total exposures (for the exposure classes central governments and central banks, institutions and corporate, the sum of outstanding loans and exposure values for undrawn commitments; for equities, the outstanding amount);

(ii)

for the credit institutions using own LGD estimates for the calculation of risk-weighted exposure amounts, the exposure-weighted average LGD in percentage;

(iii)

the exposure-weighted average risk weight; and

(iv)

for the credit institutions using own estimates of conversion factors for the calculation of risk-weighted exposure amounts, the amount of undrawn commitments and exposure-weighted average exposure values for each exposure class;

(f)

for the retail exposure class and for each of the categories as defined under point (c)(iv), either the disclosures outlined under (e) above (if applicable, on a pooled basis), or an analysis of exposures (outstanding loans and exposure values for undrawn commitments) against a sufficient number of EL grades to allow for a meaningful differentiation of credit risk (if applicable, on a pooled basis);

(g)

the actual value adjustments in the preceding period for each exposure class (for retail, for each of the categories as defined under point (c)(iv) and how they differ from past experience;

(h)

a description of the factors that impacted on the loss experience in the preceding period (for example, has the credit institution experienced higher than average default rates, or higher than average LGDs and conversion factors); and

(i)

the credit institution's estimates against actual outcomes over a longer period. At a minimum, this shall include information on estimates of losses against actual losses in each exposure class (for retail, for each of the categories as defined under point (c)(iv) over a period sufficient to allow for a meaningful assessment of the performance of the internal rating processes for each exposure class (for retail for each of the categories as defined under point (c)(iv). Where appropriate, the credit institutions shall further decompose this to provide analysis of PD and, for the credit institutions using own estimates of LGDs and/or conversion factors, LGD and conversion factor outcomes against estimates provided in the quantitative risk assessment disclosures above.

For the purposes of point (c), the description shall include the types of exposure included in the exposure class, the definitions, methods and data for estimation and validation of PD and, if applicable, LGD and conversion factors, including assumptions employed in the derivation of these variables, and the descriptions of material deviations from the definition of default as set out in Annex VII, Part 4, points 44 to 48, including the broad segments affected by such deviations.

2. The credit institutions applying credit risk mitigation techniques shall disclose the following information: U.K.

(a)

the policies and processes for, and an indication of the extent to which the entity makes use of, on- and off-balance sheet netting;

(b)

the policies and processes for collateral valuation and management;

(c)

a description of the main types of collateral taken by the credit institution;

(d)

the main types of guarantor and credit derivative counterparty and their creditworthiness;

(e)

information about market or credit risk concentrations within the credit mitigation taken;

(f)

for credit institutions calculating risk-weighted exposure amounts in accordance with Articles 78 to 83 or 84 to 89, but not providing own estimates of LGDs or conversion factors in respect of the exposure class, separately for each exposure class, the total exposure value (after, where applicable, on- or off-balance sheet netting) that is covered — after the application of volatility adjustments — by eligible financial collateral, and other eligible collateral; and

(g)

for credit institutions calculating risk-weighted exposure amounts in accordance with Articles 78 to 83 or 84 to 89, separately for each exposure class, the total exposure (after, where applicable, on- or off-balance sheet netting) that is covered by guarantees or credit derivatives. For the equity exposure class, this requirement applies to each of the approaches provided in Annex VII, Part 1, points 17 to 26.

[F4 3. The credit institutions using the approach set out in Article 105 for the calculation of their own funds requirements for operational risk shall disclose a description of the use of insurances and other risk transfer mechanisms for the purpose of mitigation of this risk.] U.K.

Textual Amendments

F4 Substituted by Commission Directive 2009/83/EC of 27 July 2009 amending certain Annexes to Directive 2006/48/EC of the European Parliament and of the Council as regards technical provisions concerning risk management (Text with EEA relevance).