What changed between the draft committee report and the plenary report

Added:(7) Under the current framework, for entities earmarked for liquidation ▌, the MREL is set, in the majority of the cases, to the amount necessary for loss absorption, which corresponds to the own funds requirements. In such cases, the MREL does not entail for the liquidation entity any additional requirement directly related to the resolution framework. That means that a liquidation entity can fully comply with the MREL by complying with the own funds requirements and that a dedicated decision of the resolution authority determining the MREL does not contribute in a meaningful way to the resolvability of liquidation entities. Such a decision entails many procedural obligations for resolution authorities and for the liquidation entities without a corresponding benefit in terms of improved resolvability. For that reason, resolution authorities should not set a MREL for liquidation entities.

Removed:Regulation (EU) No 806/2014

Added:(8) When preparing resolution plans and assessing the resolvability of resolution groups, resolution authorities may consider that a subsidiary institution qualifies as a liquidation entity as the exercise of the write-down and conversion powers is not envisaged in respect of that entity. Where that is the case, the group entity may not need to hold own funds and eligible liabilities in excess of its own funds requirements. In those circumstances, intermediate entities should not be required to deduct from their internal MREL capacity their holdings of own funds that are issued by liquidation entities which are not subject to a MREL decision. However, they should not be required to deduct liabilities that would meet the conditions for compliance with the internal MREL and that are issued by liquidation entities. In such a case, the liquidation entity is no longer required to comply with the MREL, and therefore there is no indirect subscription of internal MREL eligible resources through the chain formed by the resolution entity, the intermediate entity and the liquidation entity. In case of failure, the resolution strategy does not envisage that the liquidation entity would be recapitalised by the resolution entity. That means that the upstreaming of losses above the existing own funds from the liquidation entity to the resolution entity, via the intermediate entity, would not be expected, and neither would the downstreaming of capital in the opposite direction. That adjustment to the scope of the holdings to be deducted in the context of the indirect subscription of internal MREL eligible resources would thus not affect the prudential soundness of the framework. Not requiring intermediate entities, in some cases, to deduct from their internal MREL capacity their holdings of own funds, as opposed to only liabilities that do not qualify as own funds instruments, is a justified proportionate approach, as liquidation entities, in many cases, do not issue any liabilities.

Removed:Article 2 – paragraph 1 – point 3 – point a, Article 12g – paragraph 1 – subparagraph 3a – point a – point ii: (ii) the subsidiary is subject to the requirement referred to in Article 104a of Directive 2013/36/EU on a consolidated basis only;

Added:(9) The main objective of the permission regime for the reduction of eligible liabilities instruments laid down in Articles 77(2) and 78a of Regulation (EU) No 575/2013, which is also applicable to institutions and entities subject to the MREL and to the liabilities issued to comply with MREL, is to enable resolution authorities to monitor the actions that result in a reduction of the stock of eligible liabilities and to prohibit any action that would amount to a reduction beyond a level which resolution authorities deem adequate. Where the resolution authority has not adopted a decision determining the MREL in respect of an institution or entity, that objective is not relevant. Moreover, institutions or entities that are not subject to a decision determining the MREL might not have eligible liabilities on their balance sheet, even if some of their liabilities would theoretically meet the criteria for MREL eligibility. Institutions or entities for which no decisions determining the MREL have been adopted should therefore not be required to obtain the prior permission of the resolution authority to effect the call, redemption, repayment or repurchase of liabilities that would meet the eligibility requirements for MREL.

Removed:Regulation (EU) No 806/2014

Added:(10) There are liquidation entities for which the resolution authority may consider that the MREL should exceed the amount ▌for loss absorption . That is the case where the resolution authorities consider that such a higher amount is necessary to protect financial stability or address the risk of contagion to the financial system. In those situations, resolution authorities should determine a MREL for the liquidation entity consisting of an amount sufficient to absorb losses, increased by the amount necessary to properly address the potential risks identified by he resolution authorities. The liquidation entity concerned should comply with the MREL and should not be exempted from the prior permission regime laid down in Articles 77(2) and 78a of Regulation (EU) No 575/2013. Any intermediate entities belonging to the same resolution group as the liquidation entity concerned should continue to be required to deduct from their internal MREL capacity their holdings of internal MREL eligible resources issued by that liquidation entity. In addition, since liquidation proceedings take place at the level of the legal entity, liquidation entities still subject to MREL should comply with the requirement on an individual basis only. Lastly, certain eligibility requirements related to the ownership of the liability concerned are not relevant, as without the exercise of the write-down and conversion powers there would be no need to preserve the control of the subsidiary by the resolution entity, and should therefore not apply.

Removed:Article 2 – paragraph 1 – point 3 – point a, Article 12g – paragraph 1 – subparagraph 3a – point b: (b) compliance with the requirement laid down in Article 12d on a consolidated basis does not negatively affect the resolvability of the resolution group, or the write down or conversion, in accordance with Article 21, of relevant capital instruments and eligible liabilities of the institution or subsidiary concerned or of other entities in the resolution group;

Added:(11) Pursuant to Article 45i of Directive 2014/59/EU, institutions and entities are to report to their competent and resolution authorities the levels of eligible and bail-inable liabilities and the composition of those liabilities, and to disclose that information to the public, together with the level of their MREL, on a regular basis. For liquidation entities, no such reporting or disclosure is required. However, to ensure the transparent application of the MREL, those reporting and disclosure obligations should also apply to liquidation entities for which the resolution authority determines that the MREL should be higher than the amount sufficient to absorb losses. In accordance with the principle of proportionality, the resolution authority should ensure that those obligations do not go beyond what is necessary to monitor compliance with the MREL.

Change 2

Changed:(12) Directive 2014/59/EU and Regulation (EU) No 806/2014 should therefore be amended accordingly.

Change 3

Removed:Article 2 – paragraph 1 – point 3 – point b, Article 12g – paragraph 2a – subparagraph 2 – introductory part: The liabilities referred to in the first subparagraph, points (a) and (b), shall not exceed the amount determined by subtracting from the amount of the requirement referred to in Article 12(1) applicable to the subsidiary included in the consolidation the sum of all of the following:

Added:(13) To ensure consistency, the national measures transposing the amendments to Directive 2014/59/EU and the amendments to Regulation (EU) No 806/2014 should apply from the same date. However, to ensure that the derogation in Regulation (EU) No 806/2014, Article 12g(1), subparagraph 4, is effective immediately, Article 2, point (3), of this amending Directive should apply one day after the date of entry into force of this amending Directive.

Added:(13a) This amending Directive should respect the principles of the original review mandate to the Commission by the European Parliament and the Council to ensure proportionality and a level playing field between different types of banking group structures.

Added:(14) Since the objectives of this Directive, namely to adjust the treatment of liquidation entities under the MREL framework and the possibility for resolution authorities to determine the internal MREL on a consolidated basis, cannot be sufficiently achieved by the Member States but can rather, by amending rules that are already set at Union level, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on the European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives,

Added:HAVE ADOPTED THIS DIRECTIVE:

Added:Amendments to Directive 2014/59/EU

Added:Directive 2014/59/EU is amended as follows:

Added:(1) in Article 2(1), the following point (83aa) is inserted:

Added:‘(83aa) ‘liquidation entity’ means a legal person established in the Union in respect of which the group resolution plan or, for entities that are not part of a group, the resolution plan, provides that the entity is to be wound up under normal insolvency proceedings; or with regard to an entity within a resolution group other than a resolution entity, the group resolution plan does not envisage the exercise of the write-down and conversion powers with respect to that entity;’;

Added:(2) Article 45c is amended as follows:

Added:(a) in paragraph 2, the second and third subparagraphs are deleted;

Added:(b) the following paragraph 2a is inserted:

Added:‘2a. Resolution authorities shall not determine the requirement referred to in Article 45(1) for liquidation entities.

Added:By way of derogation from the first subparagraph, ▌the ▌resolution authority may assess whether it is justified to determine the requirement referred to in Article 45(1) for a liquidation entity on an individual basis in an amount exceeding the amount sufficient to absorb losses, taking into account, in particular, any possible impact on financial stability and on the risk of contagion to the financial system ▌. In those cases, liquidation entities shall meet the requirement referred to in Article 45(1) by using one or more of the following:

Added:(a) own funds;

Added:(b) liabilities that fulfil the eligibility criteria referred to in Article 72a of Regulation (EU) No 575/2013, with the exception of Article 72b(2), points (b) and (d), of that Regulation;

Added:(c) the liabilities referred to in Article 45b(2).

Added:Articles 77(2) and 78a of Regulation (EU) No 575/2013 shall not apply to liquidation entities for which the resolution authority has not determined the requirement referred to in Article 45(1) of this Directive.

Added:Holdings of own funds instruments or holdings of liabilities issued by subsidiaries which are liquidation entities for which the resolution authority has not determined the requirement referred to in Article 45(1) shall not be deducted under Article 72e(5) of Regulation (EU) No 575/2013.’;

Added:(3) Article 45f is amended as follows:

Added:(a) in paragraph 1, the following ▌subparagraph is inserted after the third subparagraph:

Added:‘By way of derogation from the first and second subparagraphs, where intermediate entities would be disproportionately affected by the deduction rules set out in Article 72e(5) of Regulation (EU) No 575/2013, resolution authorities may decide to determine the requirement laid down in Article 45c on a consolidated basis for a subsidiary as referred to in this paragraph where the resolution authority confirms that all of the following conditions are met:

Added:(a) the subsidiary meets one of the following conditions:

Added:(i) the subsidiary is held directly by the resolution entity and:

Added:- the resolution entity is a Union parent financial holding company or a Union parent mixed financial holding company;

Added:- both the subsidiary and the resolution entity are established in the same Member State and are part of the same resolution group;

Added:- the resolution entity does not hold directly any subsidiary institution or entity as referred to in Article 1(1), points (b), (c) or (d), other than the subsidiary concerned;

Added:(ii) the subsidiary is subject to the requirement referred to in Article 104a of Directive 2013/36/EU ▌on a consolidated basis only;

Added:(b) compliance with the requirement laid down in Article 45c on a consolidated basis as a substitute for compliance with that requirement on an individual basis does not negatively affect in a significant way:

Added:(i) the resolvability of the resolution group;

Added:(ii) the subsidiary’s capacity to comply with its own funds requirement after the exercise of the write-down and conversion powers;

Added:(iii) the internal loss transfer and recapitalisation mechanism, including the write down or conversion, in accordance with Article 59, of relevant capital instruments and eligible liabilities of the subsidiary concerned or of other entities in the resolution group.’;

Added:(b) the following paragraph 2a is inserted:

Added:‘2a. Where an entity as referred to in paragraph 1 complies with the requirement referred to in Article 45(1) on a consolidated basis, the amount of own funds and eligible liabilities of that entity shall include the following liabilities issued in accordance with paragraph 2, point (a), of this Article by a subsidiary established in the Union included in the consolidation of that entity:

Added:(a) liabilities issued to and bought by the resolution entity, either directly, or indirectly through other entities in the same resolution group that are not included in the consolidation of the entity complying with the requirement referred to in Article 45(1) on a consolidated basis;

Added:(b) liabilities issued to an existing shareholder that is not part of the same resolution group.

Added:The liabilities referred to in the first subparagraph, points (a) and (b), shall not exceed the amount determined by subtracting from the amount of the requirement referred to in Article 45(1) applicable to the subsidiary included in the consolidation the sum of all of the following:

Added:(a) the liabilities issued to and bought by the entity complying with the requirement referred to in Article 45(1) on a consolidated basis, either directly, or indirectly through other entities in the same resolution group that are included in the consolidation of that entity;

Added:(b) the amount of own funds that are issued in accordance with paragraph 2, point (b), of this Article.’;

Added:(4) in Article 45i, paragraph 4 is replaced by the following:

Added:‘4. Paragraphs 1 and 3 shall not apply to liquidation entities unless the resolution authority has determined the requirement referred to in Article 45(1) for such entity in accordance with Article 45c(2a), second subparagraph. In that case, the resolution authority shall determine the content and frequency of the reporting and disclosure obligations referred to in paragraphs 5 and 6 of this Article for that entity. The resolution authority shall communicate those reporting and disclosure obligations to the liquidation entity concerned. Those reporting and disclosure obligations shall not go beyond what is necessary to monitor compliance with the requirement determined pursuant to Article 45c(2a), second subparagraph.’;

Added:Amendments to Regulation (EU) No 806/2014

Added:Regulation (EU) No 806/2014 is amended as follows:

Added:(1) in Article 3(1), the following point (24aa) is inserted:

Added:‘(24aa) ‘liquidation entity’ means a legal person established in a participating Member State in respect of which the group resolution plan or, for entities that are not part of a group, the resolution plan, provides that the entity is to be wound up under normal insolvency proceedings; or with regard to an entity within a resolution group other than a resolution entity, the group resolution plan does not envisage the exercise of the write-down and conversion powers with respect to that entity;’;

Added:(2) Article 12d is amended as follows:

Added:(a) in paragraph 2, the second and third subparagraphs are deleted;

Added:(b) the following paragraph 2a is inserted:

Added:‘2a. The Board shall not determine the requirement referred to in Article 12a(1) for liquidation entities.

Added:By way of derogation from the first subparagraph, ▌the Board may assess whether it is justified to determine the requirement referred to in Article 12a(1) for a liquidation entity on an individual basis in an amount exceeding the amount sufficient to absorb losses, taking into account, in particular, any possible impact on financial stability and on the risk of contagion to the financial system ▌. In those cases, liquidation entities shall meet the requirement referred to in Article 12a(1) by using one or more of the following: