Commission Delegated Regulation (EU) 2016/1075Show full title

CHAPTER III U.K. INTRA GROUP FINANCIAL SUPPORT

Article 33 U.K. Prospect to redress financial difficulties

1. The condition of a reasonable prospect that the support provided significantly redresses the financial difficulties of the group entity receiving the financial support (‘receiving entity’) shall be considered as being met, where such prospect of redress is supported by the following elements:

(a) the capital and liquidity needs of the receiving entity identified by a description of the capital and liquidity situation of the receiving entity and a projection of its capital and liquidity needs are covered for a sufficient period of time, taking into account all other relevant financial sources from which those needs could be met, the timescale required to redress the financial difficulties and the term of the support;

(b) the analysis of the financial situation and of the internal and external causes for the financial difficulties, in particular of the business model and the risk management of the receiving entity, and of past, present and expected market conditions does not contradict the prospect of redress;

(c) an action plan describing measures for the redress of the financial situation of the receiving entity, including where necessary a revision of its business model and risk management;

(d) the underlying assumptions in the descriptions and projections mentioned in points (a), (b) and (c) are coherent and plausible and take into account the stressed condition of the receiving entity, the current market conditions and potential adverse developments.

2. When assessing the condition referred to in paragraph 1, the competent authority referred to in Article 25(2) of Directive 2014/59/EU shall take into account information and assessments provided by the competent authority responsible for the receiving entity.

Article 34 U.K. Terms of the support

1. The terms, including consideration, for providing the financial support shall be deemed to be in compliance with Article 19(7) of Directive 2014/59/EU, if the following conditions are met:

(a) the terms adequately reflect:

(i)

the default risk of the receiving entity;

(ii)

the seniority of the claim;

(iii)

the expected loss for the group entity providing the support (‘providing entity’) in the event of a default of the receiving entity;

(iv)

in case of a loan or committed facility, the maturity profile, based on a full disclosure of all relevant and up-to-date information by the receiving entity and further information available to the providing entity;

(b) the terms reflect the best interest of the providing entity in accordance with Article 19(7) of Directive 2014/59/EU and the relation of benefits, risks and costs taken into account when determining the best interest, including direct or indirect benefits that may accrue to the providing entity as a result of the provision of financial support and of the benefits for the group from this provision.

For the purposes of point (a)(iv), an anticipated temporary impact on market prices arising from events external to the group does not need to be taken into account, if a plausible projection of the market situation supports the assumption that the extent of this impact and its duration do not jeopardise the ability of the receiving entity to meet all of its liabilities as they fall due.

2. The assessment of the conditions referred to in points (a) and (b) of paragraph 1 shall be based on a comparative analysis of the default risk of the receiving entity for each of the cases if the support is or is not provided.

The analysis of the default risk shall be based on the elements set out in Article 33. This analysis is without prejudice to considering, for the purpose of the assessment of the relation of benefits, risks and costs on a case-by-case basis and at the discretion of the competent authority responsible for the providing entity, further elements that the providing entity would consider in a credit assessment when deciding on granting a loan on the basis of all information available to the providing entity.

3. The assessment shall include potential damage to franchise, refinancing and reputation and benefits from an efficient use and fungibility of the group's capital resources and its refinancing conditions.

To the extent possible, the benefits and costs taken into account in determining the best interest shall be quantified in monetary terms. In addition, the discount granted to the receiving entity compared to market terms shall be quantified, including in relation to haircuts on collateral or interest rates.

4. When assessing the best interest, any binding commitments in the financial support agreement sustaining the assumptions on the future business model and risk management of the receiving entity shall be taken into account.

5. The competent authority shall take into account information and assessments provided by the competent authority responsible for the receiving entity.

Article 35 U.K. Liquidity and solvency of the providing entity

1. Subject to the condition specified in point (g) of Article 23(1) of Directive 2014/59/EU, the provision of the financial support shall be considered not to jeopardise the liquidity or solvency of the providing entity if, following the provision of the financial support:

(a) the assets of the providing entity can be reasonably expected to be at all times higher than its liabilities;

(b) the providing entity can be reasonably expected to comply with the following:

(i)

to be able to pay all of its liabilities as they fall due;

(ii)

not to infringe the requirements on solvency and liquidity under Directive 2013/36/EU and Regulation (EU) No 575/2013 in a way that would justify the withdrawal of the authorisation by the competent authority.

2. The assessment shall take into account the default risk of the receiving entity and the loss for the providing entity resulting from the default of the receiving entity also having regard to a potential adverse development. The assessment shall comply with the appropriate prudential requirements of proper risk management for the providing entity.

Article 36 U.K. Resolvability of the providing entity

1. The provision of the financial support shall be considered not to undermine the resolvability of the providing entity, if the provision of the financial support does not make the implementation of the resolution strategy for the providing entity as set out in the resolution plan substantively less feasible or less credible, in accordance with the assessment under Articles 15 and 16 of Directive 2014/59/EU.

That assessment shall take into account in particular the impact of the provision of the financial support on:

(a) the potential absorption of losses within the group after the resolution conditions have been met;

(b) the interconnectedness of the providing entity with the receiving entity;

(c) the risk of contagion within the group;

(d) the group's complexity increased by the provision of the financial support;

(e) the capital and liquidity situation of the providing entity.

2. If providing entities are not fully informed about a preferred resolution strategy, they shall perform the assessment referred to in paragraph 1 on the basis of the information available to them about the resolution plan.

3. The competent authorities and resolution authorities responsible for the providing entity shall cooperate closely in determining the impact of the group financial support on the resolvability of the providing entity.