Banking Recovery and Resolution Matters - Newsletter 3

Easy access to corporate information for investors: Council agrees its position on the European Single Access Point

On 29 June 2022, the Council agreed its position on three proposals creating the European Single Access Point (ESAP), which is the first action in the Capital Markets Union (CMU) Action Plan. This action aims at creating a single point of access to public financial and sustainability-related information about EU companies and EU investment products. Free, user friendly, centralised and digital access to financial and sustainability-related information made public by European companies, including small companies, will facilitate the decision-making process for a broad range of investors, including retail investors. By increasing the circulation of information, including across borders, and by increasing the digital use of that information, ESAP will further foster the integration of financial services and capital markets within the Union and help achieving the objectives of the Digital Finance Strategy.

This proposal does not impose any additional information reporting requirements on European companies, as ESAP will provide access to information already made public in application of the relevant European directives and regulations. Sustainability information will be made available early on ESAP, supporting the objectives of the European Green Deal. In its position, the Council designs a gradual phasing in of the ESAP platform to allow for a robust implementation. Based on coherent phases this phasing-in will ensure that European regulations and directives will in accordance with their priority enter into the scope of ESAP between 2026 and 2030. This ensures that sufficient time is available to define and implement the required technical aspects of the project.

The Council position also provides for a regular assessment of ESAP’s functioning and a review clause that should guarantee the adequacy of the platform to the needs of its users and its technical efficiency. To ensure the most efficient organisation at member states level, the Council’s position also provides for maximum flexibility to organise the collection of information in member states and relies on already existing schemes, in order to limit costs of adaptation for national authorities and reporting entities.

The proposals may be accessed through the following links:

• Proposal for a Regulation of the European Parliament and off the Council amending certain Regulations as regards the establishment and functioning of the European single access point; and
• Proposal for a Directive of the European Parliament and off the Council amending certain Directives as regards the establishment and functioning of the European single access point.

SRB publishes its Annual Report for 2021

On 27 June 2022, the Single Resolution Board (SRB) published its Annual Report for 2021.

The report details the work of Europe’s SRB and highlights the progress made in making Europe’s banking sector more stable, by ensuring all of the SRB’s banks are resolvable.

The SRB focused on areas such as implementing the Banking Recovery and Resolution Directive II (BRRD2), continuing to build the SRF and the continued monitoring of banks, given the context of the pandemic. The SRB also worked on crisis readiness and fine-tuning existing resolution plans.

The SRB’s Annual Report 2021 may be accessed through this link.

SRB’s request for Resolution Reporting

In 2021 the SRB made a request to banks for resolution reports, in line with Article 11(1) of the BRRD, with the aim of collecting information for drawing up and implementing resolution plans, including calibrating Minimum Required Eligible Liabilities (MREL) targets from 120 banking groups in scope of the exercise.

For 2022, the SRB once again highlights the importance of high quality, complete and timely data submissions. The ability to provide the necessary data to support the implementation of the resolution strategy, is a key resolvability issue, to be adequately considered by banks’ top management. To ensure banks meet the reporting deadlines, the SRB recommended that all banks implement the following measures:

1. To support high quality and complete data, the resolution reports should be submitted in line with the published guidance, with validation checks performed by the bank ensuring, among others, reconciliation with its FINREP and COREP regulatory reports (where applicable); and
2. Banks should ensure that they have the necessary IT processes in place to facilitate a timely, controlled and robust reporting process generating consistent and reliable results.

Data quality and availability on time are key items to consider within the resolvability assessment. In this context, the SRB can consider the failure to comply with the information requirements as an impediment to resolvability, potentially significant. It is therefore important that the quality of and deadlines for the resolution reporting submissions are respected.

The scope of the reports has evolved to reflect the needs of resolution planning, while limiting the burden of reporting for banks. Nevertheless, the SRB retains the flexibility to request additional information wherever and whenever it deems necessary to do so.

As concerns the reporting perimeters, (Sub)-Consolidated views are based on the prudential or resolution scopes of consolidation, whereas Resolution Groups are to be defined by Internal Resolution Teams, in collaboration with the respective institutions.

Further information on reporting timelines, requirements and data quality may be accessed through this link.

SRB publishes updated Operationalisation Bail-In Guidance and consultations

Operationalisation Bail-In Guidance

On 15 June 2022, the SRB published its updated operational guidance to banks on the implementation of the bail-in tool, which enables the write-down or conversion of debt owed by a bank to creditors in resolution. The set of documents adds operational guidance to the SRB’s Expectations for Banks, which outlines the responsibilities of banks in making themselves resolvable.

These documents include updated guidance on bail-in playbooks, bail-in data set instructions and an explanatory note on the latter. This guidance compiles the main elements that banks are expected to consider for enhancing their bail-in playbooks and the operationalisation of the bail-in tool in resolution.

Compared to the guidance published in August 2020, the documents add more detail to the expectations related to intra-group loss transfer and recapitalisation mechanisms between the resolution entity and its subsidiaries, as well as the required Management Information Systems (MIS) capabilities.

It further introduces a dedicated section on the testing of bail-in playbooks and MIS capabilities by banks and includes targeted amendments based on the SRB’s experience in this area since August 2020.

The operational guidance, updated by the SRB together with national resolution authorities, takes feedback from banks and lessons learned in crisis simulation exercises into account.

The guidance may be accessed through this link.

Consultation

On 07 June 2022, the European Banking Authority (EBA) launched a public consultation on its draft Guidelines addressed to national resolution authorities (NRAs) for the publication of their approach to implementing the bail-in tool. The Guidelines aim to ensure that a minimum level of harmonised information is made public with regard to the mechanics underpinning the execution of the bail-in tool. The consultation runs until 7 September 2022. 

Transparency and predictability are key, both to the credibility of the resolution framework, and to the safeguard of investors’ protection. Practices by institutions and authorities differ with regard to the publication of information on how they would effectively execute the write down and conversion of capital instruments and the use of the bail-in tool (“exchange mechanic”). 

All NRAs that have not yet published their bail-in mechanic are expected to start publishing a high-level document from January 2024 setting out the key aspects of their preferred approach. In particular, they should indicate whether they intend to make use of interim instruments.   All the NRAs that have already published such information are expected to check if their publication complies with the EBA draft Guidelines.  

The Consultation Guidelines may be accessed through this link.