Regulation (EU) No 575/2013 of the European Parliament and of the CouncilDangos y teitl llawn

TITLE II U.K. REPORTS AND REVIEWS

Article 502 U.K. Cyclicality of capital requirements

The Commission, in cooperation with EBA, ESRB and the Member States, and taking into account the opinion of the ECB, shall periodically monitor whether this Regulation taken as a whole, together with Directive 2013/36/EU has significant effects on the economic cycle and, in the light of that examination, shall consider whether any remedial measures are justified. By 31 December 2013, EBA shall report to the Commission if and how methodologies of institutions under the IRB Approach should converge with a view to more comparable capital requirements while mitigating pro-cyclicality.

Based on that analysis and taking into account the opinion of the ECB, the Commission shall draw up a biennial report and submit it to the European Parliament and to the Council, together with any appropriate proposals. Contributions from credit taking and credit lending parties shall be adequately acknowledged when the report is drawn up.

By 31 December 2014 the Commission shall review and report on the application of Article 33(1)(c) and shall submit that report to the European Parliament and the Council, together with a legislative proposal if appropriate.

With respect to the potential elimination of the Article 33(1)(c) and its potential application at the Union level, the review shall in particular ensure that sufficient safeguards are in place to ensure financial stability in all Member States.

Article 503 U.K. Own funds requirements for exposures in the form of covered bonds

1. The Commission shall, by 31 December 2014, after consulting EBA, report to the European Parliament and to the Council, together with any appropriate proposals, on whether the risk weights laid down in Article 129 and the own funds requirements for specific risk in Article 336(3) are adequate for all the instruments that qualify for these treatments and whether the criteria in Article 129 are appropriate.

2. The report and the proposals referred to in paragraph 1 shall have regard to:

(a) the extent to which the current regulatory capital requirements applicable to covered bonds adequately differentiate between variances in the credit quality of covered bonds and the collateral against which they are secured, including the extent of variations across Member States;

(b) the transparency of the covered bond market and the extent to which this facilitates comprehensive internal analysis by investors in respect of the credit risk of covered bonds and the collateral against which they are secured and the asset segregation in case of the issuer's insolvency, including the mitigating effects of the underlying strict national legal framework in accordance with Article 129 of this Regulation and Article 52(4) of Directive 2009/65/EC on the overall credit quality of a covered bond and its implications on the level of transparency needed by investors; and

(c) the extent to which covered bond issuance by a credit institution impacts on the credit risk to which other creditors of the issuing institution are exposed.

3. The Commission shall, by 31 December 2014, after consulting EBA, report to the European Parliament and the Council on whether loans secured by aircrafts (aircraft liens) and whether residential loans secured by a guarantee, but not secured by a registered mortgage, should under certain conditions be considered as an eligible asset in accordance with Article 129.

4. The Commission shall, by 31 December 2016, review the appropriateness of the derogation set out in Article 496 and, if relevant, the appropriateness of extending similar treatment to any other form of covered bond. In the light of that review, the Commission may, if appropriate, adopt delegated acts in accordance with Article 462 to make that derogation permanent or make legislative proposals to extend it to other forms of covered bonds.

Article 504 U.K. Capital instruments subscribed by public authorities in emergency situations

The Commission shall, by 31 December 2016, after consulting EBA, report to the European Parliament and the Council, together with any appropriate proposals, whether the treatment set out in Article 31 needs to be amended or removed.

Article 505 U.K. Review of long-term financing

By 31 December 2014, the Commission shall report to the European Parliament and to the Council, together with any appropriate proposals, about the appropriateness of the requirements of this Regulation in light of the need to ensure adequate levels of funding for all forms of long-term financing for the economy, including critical infrastructure projects in the Union in the field of transport, energy and communications.

Article 506 U.K. Credit risk – definition of default

EBA shall, by 31 December 2017, report to the Commission on how replacing 90 days by 180 days past due, as provided in point (b) of Article 178(1), impacts risk-weighted exposure amounts and the appropriateness of the continued application of that provision after 31 December 2019.

On the basis of that report, the Commission may submit a legislative proposal to amend this Regulation.

Article 507 U.K. Large exposures

By 31 December 2015, the Commission shall review and report on the application of Article 400(1)(j) and Article 400(2), including whether the exemptions set out in Article 400(2) is to be discretionary, and shall submit that report to the European Parliament and to the Council, together with a legislative proposal if appropriate.

With respect to the potential elimination of the national discretion under Article 400(2)(c) and its potential application at the Union level, the review shall in particular take into account the efficiency of group risk management while ensuring that sufficient safeguards are in place to ensure financial stability in all Member States in which an entity belonging to a group is incorporated.

Article 508 U.K. Level of application

1. By 31 December 2014, the Commission shall review and report on the application of Part One, Title II, and Article 113(6) and (7) and shall submit that report to the European Parliament and the Council, together with a legislative proposal if appropriate.

2. By 31 December 2015, the Commission shall report on whether and how the liquidity coverage requirement laid down in Part Six should apply to investment firms and shall, after consulting EBA, submit that report to the European Parliament and to the Council, together with a legislative proposal if appropriate.

3. By 31 December 2015, the Commission shall, after consulting EBA and ESMA and in the light of discussions with the competent authorities, report to the European Parliament and to the Council on an appropriate regime for the prudential supervision of investment firms and of firms referred to in points (2)(b) and (c) of Article 4(1). Where appropriate the report shall be followed by a legislative proposal.

Article 509 U.K. Liquidity requirements

1. EBA shall monitor and evaluate the reports made in accordance with Article 415(1), across currencies and across different business models. EBA shall, after consulting the ESRB, non-financial end-users, the banking industry, competent authorities and the ESCB central banks annually and for the first time by 31 December 2013 report to the Commission on whether a specification of the general liquidity coverage requirement in Part Six based on the items to be reported in accordance with Part Six, Title II and Annex III, considered either individually or cumulatively, is likely to have a material detrimental impact on the business and risk profile of institutions established in the Union or on the stability and orderly functioning of financial markets or on the economy and the stability of the supply of bank lending, with a particular focus on lending to SMEs and on trade financing, including lending under official export credit insurance schemes.

The report referred to in the first subparagraph shall take due account of markets and international regulatory developments as well as of the interactions of the liquidity coverage requirement with other prudential requirements under this Regulation such as the risk based capital ratios as set out in Article 92 and the leverage ratio.

The European Parliament and the Council shall be given the opportunity to state their views on the report referred to in the first subparagraph.

2. EBA shall in the report referred to in paragraph 1 assess the following in particular:

(a) the provision of mechanisms restricting the value of liquidity inflows, in particular with a view to determining an appropriate inflow cap and the conditions for its application, taking into account different business models including pass through financing, factoring, leasing, covered bonds, mortgages, issuance of covered bonds, and the extent to which that cap should be amended or removed to cater for the specificities of specialised financing;

(b) the calibration of inflows and outflows referred to in Part Six, Title II, in particular under Article 422(7) and Article 425(2);

(c) the provision of mechanisms restricting the coverage of liquidity requirements by certain categories of liquid assets, in particular assessing the appropriate minimum percentage for liquid assets referred to in points (a), (b) and (c) of Article 416(1) to the total of liquid assets, testing a threshold of 60 % and taking into account international regulatory developments. Assets owed and due or callable within 30 calendar days should not count towards the limit unless the assets have been obtained against collateral that also qualifies under points (a), (b) and (c) of Article 416(1);

(d) the provision of specific lower outflow and/or higher inflow rates for intragroup flows, specifying under which conditions such specific in- or outflow rates would be justified from a prudential point of view and setting out the high level outline of a methodology using objective criteria and parameters in order to determine specific levels of inflows and outflows between the institution and the counterparty when they are not established in the same Member State;

(e) the calibration of the draw-down rates applicable to the undrawn committed credit and liquidity facilities that fall under Article 424(3) and (5). In particular, EBA shall test a draw-down rate of 100 %;

(f) the definition of retail deposit in point (2) of Article 411, in particular the appropriateness of introducing a threshold on deposits of natural persons;

(g) the need to introduce a new retail deposit category with a lower outflow in the light of the specific characteristics of such deposits that could justify a lower outflow rate and taking into account international developments;

(h) derogations from requirements on the composition of the liquid assets institutions will be required to hold, where in a given currency the institutions' collective justified needs for liquid assets are exceeding the availability of those liquid assets and conditions to which such derogations should be subject;

(i) the definition of Shari'ah-compliant financial products as an alternative to assets that would qualify as liquid assets for the purposes of Article 416, for the use of Shari'ah-compliant banks;

(j) the definition of circumstances of stress, including principles for the use of the stock of liquid assets and the necessary supervisory reactions under which institutions would be able to use their liquid assets to meet liquidity outflows and how to address non-compliance;

(k) the definition of established operational relationship for non-financial customer as referred to in Article 422(3)(c);

(l) the calibration of the outflow rate applicable to correspondent banking and prime brokerage services as referred to in the first subparagraph of Article 422(4);

(m) mechanisms for the grandfathering of government guaranteed bonds issued to credit institutions as part of Government support measures with Union State aid approval, such as bonds issued by the National Asset Management Agency (NAMA) in Ireland and by the Spanish Asset Management Company in Spain, designed to remove problem assets from the balance sheets of credit institutions, as assets of extremely high liquidity and credit quality until at least December 2023.

3. EBA shall, after consulting ESMA and the ECB, by 31 December 2013, report to the Commission on appropriate uniform definitions of high and of extremely high liquidity and credit quality of transferable assets for the purposes of Article 416 and appropriate haircuts for assets that would qualify as liquid assets for the purposes of Article 416, with the exception of assets referred to in points (a), (b) and (c) of Article 416(1).

The European Parliament and the Council shall be given the opportunity to state their views on that report.

The report referred to in the first subparagraph shall also consider:

(a) other categories of assets, in particular residential mortgage-backed securities of high liquidity and credit quality;

(b) other categories of central bank eligible securities or loans, for example local government bonds and commercial paper; and

(c) other non-central bank eligible but tradable assets, for example equities listed on a recognised exchange, gold, major index linked equity instruments, guaranteed bonds, covered bonds, corporate bonds and funds based on those assets.

4. The report referred to in paragraph 3 shall consider whether, and if, to what extent standby credit facilities referred to in point (e) of Article 416(1) should be included as liquid assets in light of international development and taking into account European specificities, including the way monetary policy is performed in the Union.

EBA shall in particular test the adequacy of the following criteria and the appropriate levels for such definitions:

(a) minimum trade volume of the assets;

(b) minimum outstanding volume of the assets;

(c) transparent pricing and post-trade information;

(d) credit quality steps referred to in Part Three, Title II, Chapter 2;

(e) proven record of price stability;

(f) average volume traded and average trade size;

(g) maximum bid/ask spread;

(h) remaining time to maturity;

(i) minimum turnover ratio.

5. By 31 January 2014, EBA shall furthermore report on the following:

(a) uniform definitions of high and extremely high liquidity and credit quality;

(b) the possible unintended consequences of the definition of liquid assets on the conduct of monetary policy operation and the extent to which:

(i)

a list of liquid assets that is disconnected from the list of central bank eligible assets may incentivise institutions to submit eligible assets which are not included in the definition of liquid assets in refinancing operations;

(ii)

regulation of liquidity may disincentivise institutions to lend or borrow on the unsecured money market and whether this may lead to question the targeting of EONIA in monetary policy implementation;

(iii)

the introduction of the liquidity coverage requirement may make it more difficult for central banks to ensure price stability by using the existing monetary policy framework and instruments;

(c) the operational requirements for the holdings of liquid assets, as referred in points (b) to (f) of Article. 417, in line with international regulatory developments.

Article 510 U.K. Net Stable Funding Requirements

1. By 31 December 2015, EBA shall report to the Commission, on the basis of the items to be reported in accordance with Part Six, Title III, on whether and how it would be appropriate to ensure that institutions use stable sources of funding, including an assessment of the impact on the business and risk profile of institutions established in the Union or on financial markets or the economy and bank lending, with a particular focus on lending to SMEs and on trade financing, including lending under official export credit insurance schemes and pass through financing models, including match funded mortgage lending. In particular EBA shall analyse the impact of stable sources of funding on the refinancing structures of different banking models in the Union.

2. By 31 December 2015, EBA shall also report to the Commission, on the basis of the items to be reported in accordance with Part Six, Title III and in accordance with the uniform reporting formats referred to in point (a) of Article 415(3) and after consulting the ESRB, on methodologies for determining the amount of stable funding available to and required by institutions and on appropriate uniform definitions for calculating such a net stable funding requirement, examining in particular the following:

(a) the categories and weightings applied to sources of stable funding in Article 427(1);

(b) the categories and weightings applied to determine the requirement for stable funding in Article 428(1);

(c) methodologies shall provide incentives and disincentives as appropriate to encourage a more stable longer term funding of assets, business activities, investment and funding of institutions;

(d) the need to develop different methodologies for different types of institutions.

3. By 31 December 2016, the Commission shall, if appropriate, and taking into account the reports referred to in paragraphs 1 and 2, and taking full account of the diversity of the banking sector in the Union, submit a legislative proposal to the European Parliament and the Council on how to ensure that institutions use stable sources of funding.

Article 511 U.K. Leverage

1. Based on the results of the report referred to in paragraph 3, the Commission shall submit by 31 December 2016 a report on the impact and effectiveness of the leverage ratio to the European Parliament and the Council.

2. Where appropriate, the report shall be accompanied by a legislative proposal on the introduction of an appropriate number of levels of the leverage ratio that institutions following different business models would be required to meet, suggesting an adequate calibration for those levels and any appropriate adjustments to the capital measure and the total exposure measure as referred to in Article 429, together with any connected flexibility measures if necessary, including appropriate amendments to Article 458 to introduce the leverage ratio within the scope of measures included in that Article.

3. For the purposes of paragraph 1, EBA shall report to the Commission by 31 October 2016 on at least the following:

(a) whether the leverage ratio framework provided by this Regulation and Articles 87 and 98 of Directive 2013/36/EU is the appropriate tool to suppress the risk of excessive leverage on the part of the institutions in a satisfactory manner and degree;

(b) on identifying business models that reflect the overall risk profiles of the institutions and on introducing differentiated levels of the leverage ratio for those business models;

(c) whether the requirements laid out in Articles 76 and 87 of Directive 2013/36/EU in accordance with Articles 73 and 97 of Directive 2013/36/EU for addressing the risk of excessive leverage are sufficient to ensure sound management of this risk by institutions and, if not, which further enhancements are needed in order to ensure these objectives;

(d) whether – and if so, which - changes to the calculation methodology referred to in Article 429 would be necessary to ensure that the leverage ratio can be used as an appropriate indicator of an institution's risk of excessive leverage;

(e) whether, in the context of the calculation of the total exposure measure of the leverage ratio, the exposure value of contracts listed in Annex II determined by using the Original Exposure Method differs in a material way from the exposure value determined by using the Mark-to-Market Method;

(f) whether using either own funds or Common Equity Tier 1 capital as the capital measure of the leverage ratio could be more appropriate for the intended purpose of tracking the risk of excessive leverage and, if so, what would be the appropriate calibration of the leverage ratio;

(g) whether the conversion factor referred to in point (a) of Article 429(10) for undrawn credit facilities, which may be cancelled unconditionally at any time without notice, is appropriately conservative based on the evidence collected during the observation period;

(h) whether the frequency and format of the disclosure of items referred to in Article 451 are adequate;

(i) what would be the appropriate level for the leverage ratio for each of the business models indentified in accordance with point (b);

(j) whether a range for each level of the leverage ratio should be defined;

(k) whether introducing the leverage ratio as a requirement for institutions would necessitate any changes to the leverage ratio framework provided by this Regulation and, if so, which ones;

(l) whether introducing the leverage ratio as a requirement for institutions would effectively constrain the risk of excessive leverage on the part of those institutions, and, if so, whether the level for the leverage ratio should be the same for all institutions or should be determined according to the risk profile and business model as well as the size of institutions and, with regard to this, which additional calibrations or transition period would be required.

4. The report referred to in paragraph 3 shall cover at least the period from 1 January 2014 until 30 June 2016 and shall take account of at least the following:

(a) the impact of introducing the leverage ratio, determined in accordance with Article 429, as a requirement that institutions would have to meet on:

(i)

financial markets in general and markets for repurchase transactions, derivatives and covered bonds in particular;

(ii)

the robustness of institutions;

(iii)

business models and balance-sheet structures of institutions; in particular as regards low-risk areas of business, such as promotional credit by public development banks, municipal loans, financing of residential property and other low-risk areas regulated under national law;

(iv)

the migration of exposures to entities which are not subject to prudential supervision;

(v)

financial innovation, in particular the development of instruments with embedded leverage;

(vi)

institutions' risk-taking behaviour;

(vii)

clearing, settlement and custody activities and the operation of a central counterparty;

(viii)

cyclicality of the capital measure and the total exposure measure of the leverage ratio;

(ix)

bank lending, with a particular focus on lending to SMEs, local authorities, regional governments and public sector entities and on trade financing, including lending under official export credit insurance schemes;

(b) the interaction of the leverage ratio with the risk-based own funds requirements and the liquidity requirements as specified in this Regulation;

(c) the impact of accounting differences between accounting standards applicable under Regulation (EC) No 1606/2002, accounting standards applicable under Directive 86/635/EEC and other applicable accounting framework and other relevant accounting frameworks on the comparability of the leverage ratio.

Article 512 U.K. Exposures to transferred credit risk

By 31 December 2014 the Commission shall report to the European Parliament and the Council on the application and effectiveness of the provisions of Part Five in the light of international market developments.

Article 513 U.K. Macroprudential rules

1. By 30 June 2014, the Commission shall, after consulting the ESRB and EBA, review whether the macroprudential rules contained in this Regulation and Directive 2013/36/EU are sufficient to mitigate systemic risks in sectors, regions and Member States including assessing:

(a) whether the current macroprudential tools in this Regulation and Directive 2013/36/EU are effective, efficient and transparent;

(b) whether the coverage and the possible degrees of overlap between different macroprudential tools for targeting similar risks in this Regulation and Directive 2013/36/EU are adequate and, if appropriate, propose new macroprudential rules;

(c) how internationally agreed standards for systemic institutions interacts with the provisions in this Regulation and Directive 2013/36/EU and, if appropriate, propose new rules taking into account those internationally agreed standards.

2. By 31 December 2014, the Commission shall, on the basis of the consultation with the ESRB and EBA, report to the European Parliament and the Council on the assessment referred to in paragraph 1 and, where appropriate, submit a legislative proposal to the European Parliament and the Council.

Article 514 U.K. Counterparty Credit Risk and the Original Exposure Method

By 31 December 2016 the Commission shall review and report on the application of Article 275 and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.

Article 515 U.K. Monitoring and evaluation

1. EBA, together with ESMA, shall by 2 January 2015 report on the functioning of this Regulation with the related obligations under Regulation (EU) No 648/2012 and in particular with regard to institutions operating a central counterparty, in order to avoid duplication of requirements for derivative transactions and thereby avoid increased regulatory risk and increased costs for monitoring by competent authorities.

2. EBA shall monitor and evaluate the operation of the provisions for own funds requirements for exposures to a central counterparty as set out in Section 9 of Chapter 6 of Title II of Part Three. By 1 January 2015 EBA shall report to the Commission on the impact and effectiveness of such provisions.

3. By 31 December 2016 the Commission shall review and report on the reconciliation of this Regulation with the related obligations under Regulation (EU) No 648/2012, the own funds requirements as set out in Section 9 of Chapter 6 of Title II of Part Three and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.

Article 516 U.K. Long-term financing

By 31 December 2015 the Commission shall report on the impact of this Regulation on the encouragement of long-term investments in growth promoting infrastructure.

Article 517 U.K. Definition of eligible capital

By 31 December 2014 the Commission shall review and report on the appropriateness of the definition of eligible capital being applied for the purposes of Title III of Part Two and Part Four and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.

Article 518 U.K. Review of capital instruments which may be written down or converted at the point of non-viability

By 31 December 2015, the Commission shall review and report on whether this Regulation should contain a requirement that Additional Tier 1 or Tier 2 capital instruments are to be written down in the event of a determination that an institution is no longer viable. The Commission shall submit that report to the European Parliament and the Council, together with a legislative proposal if appropriate.

Article 519 U.K. Deduction of defined benefit pension fund assets from Common Equity Tier 1 items

EBA shall by 30 June 2014 prepare a report on whether the revised IAS 19 in conjunction with the deduction of net pension assets as set out in Article 36(1)(e) and changes in the net pension liabilities lead to undue volatility of institutions' own funds.

Taking into account the EBA report, the Commission shall by 31 December 2014 prepare a report to the European Parliament and the Council on the issue referred to in the first paragraph, together with a legislative proposal, if appropriate, to introduce a treatment which adjusts defined net benefit pension fund assets or liabilities for the calculation of own funds.