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EBA RTS on Own Funds Part 2 Summary

Core Content

The European Banking Authority (EBA) is developing Regulatory Technical Standards (RTS) on own funds as part of its role in implementing the Capital Requirements Regulation (CRR) and the Capital Requirements Directive IV (CRD IV). These standards aim to harmonize the regulatory framework across the European Union while ensuring proportionality for different types of financial institutions. Part 2 of the RTS focuses specifically on the recognition of cooperatives, mutuals, savings institutions, and similar institutions.

Main Purpose

The main purpose of Part 2 of the RTS on own funds is to define the conditions under which competent authorities may recognize a type of undertaking as a mutual, cooperative, savings institution, or similar institution. This recognition is crucial for determining the treatment of Common Equity Tier 1 (CET1) instruments in the regulatory own funds of the institution. The EBA aims to ensure that these institutions are treated in line with their legal and statutory frameworks, while also preventing misuse of specific status for institutions that do not meet the essential characteristics of these types.

Key Points

EBA Tasks and Responsibilities

• The EBA is tasked with developing draft Regulatory or Implementing Technical Standards (RTS/ITS) related to own funds.
• These standards are part of the EU single rulebook, aimed at enhancing regulatory harmonization.
• The EBA's role includes:
  • Developing the draft BTS with internal bodies and policy/legal experts.
  • Conducting cost-benefit and impact assessments.
  • Adopting the draft proposals through the Board of Supervisors.
  • Public consultation and feedback.
  • Final adoption and publication of the RTS.

Timeline

• The EBA issued a consultation paper on 4 April 2012, which was the first part of the consultation on own funds.
• Part two of the consultation was published later, consisting of only one standard.
• The consultation period for Part two ended on 21 December 2012.
• The EBA may consult on additional standards depending on the final CRR.

Main Features of Part 2 RTS

The draft RTS outlines two main types of conditions for recognizing an institution as a mutual, cooperative, savings institution, or similar institution:

1. Specific National Rules: Institutions must operate under specific dedicated rules under national company laws.
2. Own Funds Features: The RTS focuses on elements relevant to own funds, such as capital, reserves, and profit distribution.

The following conditions are specified for each type of institution:

• For all 4 types: The institution can only issue capital instruments referred to in Article 27 of the CRR at the level of the legal entity.
• For cooperatives: Holders of CET1 instruments have the ability to resign and may have a right to return the capital instrument to the institution, subject to national law and CRR provisions.
• For savings institutions: The sum of capital, reserves, and profits cannot be distributed to CET1 holders, unless proportionate to their contribution or an alternative arrangement is allowed by national law.
• For mutuals: Members own the total or partial amount of capital and reserves, and they do not benefit directly from reserves, particularly through dividends.
• For similar institutions: One or more of the above criteria must be met to qualify for recognition.

Conclusion

Part 2 of the EBA RTS on own funds aims to provide a clear and consistent framework for the recognition of specific types of institutions. It ensures that these institutions are treated appropriately in terms of their own funds structure, while also preventing the misuse of such recognition. The EBA is committed to aligning its standards with the final CRR texts and incorporating feedback from public consultations.

Contact Information

• Address: Floor 18 | Tower 42 | 25 Old Broad Street, London EC2N 1HQ, United Kingdom
• Phone: +44 (0)20 7933 9900
• Fax: +44 (0)20 7382 1771
• Email: info@eba.europa.eu
• Website: www.eba.europa.eu