CRD IV alert. end of 2013 DNB.NL

Transcription

1 CRD IV alert end of 2013 DNB.NL

2 zzzz CONTENTS CRD IV: finishing touches before the deadline Lapse and reassessment of waivers Take part in CRD IV Reporting Challenges survey CRD IV/CRR COREP/FINREP validation rules Transitional situation: submitting parallel reports Supervisory regulations in preparation E-Line DNB: simulation environment ready by mid-november Certification of prudential reports EBA Q&A process Basel III/CRD IV Academy seminar on 29 November Completion of discussion of status of credit institutions Testing of capital instruments under CRD IV Information: CRD IV implementation project Editors: Eleonora van Erp, Jesse Kaijser Contact (general): Contact (waivers): Contact (reports): References: EBA website: EBA Single Rulebook Q&A tool: Open Book Supervision Registration for Basel III / CRD IV seminar : Supervision reports questions form: CRD IV Academy Quick reference cards CRD IV Academy disclaimer:

3 CRD IV: FINISHING TOUCHES BEFORE THE DEADLINE The Capital Requirements Directive (CRD IV) will apply to banks from 1 January DNB has prepared this sector letter to draw your attention to the main topics that will need to be addressed by you and DNB in the coming months in the context of CRD IV. Banks are currently working to comply with all capital and liquidity rules and the phasing in of Basel III/CRD IV. Internal processes and reporting systems also need to be adapted. The next two months and the first half of 2014 will be taken up with completing the implementation of CRD IV. Reporting is one of the main areas for attention in the coming period. In this sector letter we discuss the main themes in relation to reporting. We also discuss renewed applications for waivers. Applications and assessment will take up a great deal of time for both DNB and the sector in the coming months.

4 LAPSE AND REASSESSMENT OF WAIVERS Banks have received a letter from DNB explaining that many of the existing waivers (exemptions) are to lapse. This is because of the coming into effect of the CRR, which will operate directly and take precedence over national regulations. The CRR does make it possible to apply for new waivers, but these cannot be transposed into existing waivers on a one-to-one basis. The familiar solo waiver will also be discontinued. Although we expect that it will be possible to grant the lion's share of existing waivers again, we cannot get around the fact that we also expect a number of difficult discussions with banks. DNB will assess new applications in accordance with the conditions as set out in the CRR. Those conditions are discussed in more detail on Open Book Supervision, which also contains information concerning the application procedure. Background to the lapse of waivers The background to the discussion concerning the lapsing of waivers is a difficult complication of CRD IV. The introduction of an EU Regulation (CRR) means that the Dutch regulations will lapse where they concern components that are covered in the CRR. This also means that waivers already granted will lapse. By far the best-known waiver is the solo waiver, on the grounds of which (subsidiary) banks within banking groups are exempt both from supervision of the individual bank and from the requirement to report at individual level. Issuing of new solo waivers The solo waiver grants an exemption from prudential regulations provided the group complies with those regulations at consolidated level. DNB has placed great reliance in recent years on the consolidated supervision of the parent of a group. The granting of solo waivers fitted into that context. We wish to reduce the number of solo waivers over time, because there are also drawbacks to placing complete reliance on consolidated supervision. For example, it undermines decentralised capitalisation, and there are disadvantages with the guarantees on which the solo waiver is based. DNB also wishes to have access to more figures from subsidiaries in order to form a better picture of the distribution of risks within groups. However, the timelines for the implementation of CRD IV and the potential impact of not reissuing solo waivers require a balance to be struck between different interests.

5 TAKE PART IN CRD IV REPORTING CHALLENGES SURVEY DNB and the Dutch Banking Association (NVB) invited you a while back to take part in the online survey CRD IV reporting challenges. DNB commissioned KPMG Risk Consultancy to conduct this survey. We are curious to know what challenges you face in implementing the CRD IV reporting requirements. The survey closed on Friday, 8 November. Feeding back results If you took part in the survey, you will receive (generalised) written feedback. We are also organising a meeting on Monday, 2 December for interested respondents to discuss the results. You will receive an invitation to this meeting by . Information on Open Book Supervision and link to survey: CRD IV/CRR COREP/FINREP VALIDATION RULES The validation rules as laid down by the EBA in the draft Implementing Technical Standard (ITS) are binding for banks. This means that banks must themselves validate their reports before submission via e-line. The reporting duty is only met if submitted reports are compliant with the validation rules. Technically, the validation rules no longer form part of the reporting form. All EBA validations are however part of the reporting process. DNB will carry out the same EBA validations after receiving your reports. However, you will not receive direct feedback via e-line DNB. More information You will find information on the completion and specifications of the various form sets in the production environment on the information page of e-line DNB.

6 TRANSITIONAL SITUATION: SUBMITTING PARALLEL REPORTS The transition from the existing (CRD III) to the new (CRD IV) reporting requirements has consequences for the way in which banks submit reports to DNB. We would ask banks, when they submit their first report under CRD IV, also to submit the 'old report under CRD III; you will only be asked to do this once. Whether solo and/or consolidated reports are submitted depends on the existing specific situation. We have spoken to the NVB Reporting Committee (CRAP) and understand that such parallel reports are difficult to deal with both operationally and technically. This has been taken into account in setting the final submission dates for the parallel reports. Timelines for submitting parallel reports The first COREP report under CRD IV as at 31 March 2014 must be submitted no later than 30 May 2014 for solo reports and 30 June 2014 for consolidated reports. We will require a COREP CRD III report for the same reporting date. You will be given an extended submission period for the CRD III report, i.e. three months instead of one month. This means that the final submission date is 30 June First submission of reports The first FINREP IFRS report under CRD IV as at 30 September 2014 must be submitted by 11 November DNB is currently assuming that banks reporting under IFRS will be required to submit a CRD III FINREP parallel run report covering the same period. An extended submission period of two months (instead of one month) will apply here. The final submission date for the parallel run report is 25 November The submission date for the first local GAAP (BW2T9) version of FINREP has yet to be determined. This will be communicated at a later date. No parallel reporting is required for the first CRD IV liquidity report templates as at 31 March 24 (final submission date: 30 April 2014). Background information for reporting during transitional period The reporting requirements set by EBA under CRD IV and CRR will mean a significant change compared with CRD III reports. In addition to a sizeable increase in the amount of information required, the new reports entail important system changes. There are also essential differences in the requirements for validation and submission.

7 Comparison between CRD III and CRD IV figures In order to guarantee relevant control information and reliable supervision reports, DNB expects banks to be able to facilitate a good comparison between CRD III and CRD IV reports. We require parallel reports and use the existing Basel III monitoring templates. DNB expects the use of parallel reports to prevent us having to request a reconstruction of the transitional situation afterwards. Additional information concerning the transition may however be requested in specific cases. Link to questions form on Open Book Supervision You can submit your questions about parallel reports by completing the questions form on supervision reports on our website: SUPERVISORY REGULATIONS IN PREPARATION DNB would like to inform you of the formulation of a new supervisory regulation. As the CRD IV package will be fully implemented within Dutch regulations in due course, DNB must rescind a large part of the existing supervisory regulations. This is because most of the existing DNB supervisory regulations are based on the annexes to the existing CRD, which will in future be an integral part of the CRR (which will have direct effect). Where the CRD IV/CRR offers scope for the drafting of more detailed rules, DNB will seek to formulate a single 'CRD IV (Specific Provisions) Regulation'. This regulation will formally come into effect on 31 December 2013 and will be applied for the first time from 1 January DNB will consult with the market on the supervisory regulation, and after consultation it will be published in the Dutch Government Gazette. Existing regulations will be rescinded The principle is that all relevant existing regulations will be rescinded, with any individual provisions that are to be retained being placed in a single new regulation where relevant. The main elements in the new supervisory regulation will be: a transitional regulation for the definition of

8 capital and the identification of supervisory options and discretions. The starting point is a 'policy-light' transposition of options from the existing (CRD III) situation to the new constellation (CRD IV) where possible. The system of separate supervisory regulations for each topic or risk will cease to exist. Existing supervisory regulations which are to be substantively continued will continue to exist in their present form. New supervisory regulations The new CRD IV (Specific Provisions) Regulation will apply to credit institutions within the meaning of the CRR, investment firms within the meaning of the CRR and institutions which are subject to the same supervision for certain elements of the prudential framework under national law. The additional financial entities coming under the Regulation are clearing houses, opt-in banks and financial holding companies. Timelines for CRD IV (Specific Provisions) Regulation 4 November 2013 Start of consultation 20 November 2013 End of consultation December 2013 Publication of supervisory regulation 1 January 2014 CRD IV and CRR come into effect 1 January 2014 Supervisory regulation comes into effect TBD Capital Requirements Directive Implementation Act Policy rules, Q&As and new SREP/ICAAP policy rule In addition to the supervisory regulations, DNB will also rescind its existing policy rules, i.e. all policy rules that are incorporated in the CRR. This also applies to a substantial part of the Q&As that have been published on Open Book Supervision. For the time being, a new policy rule will only be formulated for one element, i.e. an SREP/ICAAP policy rule in which a number of technical aspects of consolidated supervision will also be included. This is expected to be a temporary policy rule that will be replaced in due course once the ECB has worked out further instructions for pillar II supervision.

9 E-LINE DNB: SIMULATION ENVIRONMENT READY BY MID- NOVEMBER DNB offers you the possibility of completing CRD IV report sets within the e-line simulation environment. This allows you to carry out advance testing of new or adapted systems. The simulation environment will be available from mid- November, and it will then be possible to test the new CRD IV reporting requirements. Both the COREP and FINREP report sets will be made accessible in phases in this environment. Access to simulation environment The login details are the existing standard access codes for the simulation environment, and are thus not the usual e-line production codes. The report sets offered in the simulation environment contain all templates. The simulation environment does not show any submission dates, frequencies or consolidation levels. The new, adapted form sets will be definitively adopted by DNB at the end of The same applies to completion of the authentication forms in the context of accreditation. No feedback in simulation environment When the report sets are complete in November, we will make the examples of XML specifications available. This will enable you to complete and view the new reports using your simulation user-id. The simulation environment does not allow DNB to assess the report forms. As in the production environment, no validation rules have been incorporated in the simulation environment. You will thus not receive any feedback on a submitted report. E-line remains the entrance portal for now E-Line DNB will initially serve as the entrance portal for submitting reports to DNB. We are currently developing the new forms in e-line DNB in accordance with the reporting templates and instructions (including the notation method) as adopted by the EBA. Just as in the present situation, you will be able to fill reports manually and/or read them in automatically using XML coding.

10 CERTIFICATION OF PRUDENTIAL REPORTS DNB would remind banks and their auditors that certification of certain statements will be required from 1 January In the light of the introduction of the new Regulation (CRR) and the associated new or amended reports, the provisions in relation to the certification of reports have also been reviewed. By certification we mean an audit of the statements by the external auditor. Certification remains important for data quality The statements concerned are prescribed via the CRR or continuing national regulations. The audit requirement will be maintained in national regulations. In addition, information from the statements will play a larger role in the DNB supervision model, while at the same time the data requirement of international bodies such as the EBA, ESRB (European Systemic Risk Board) and ECB has increased. The Regulation on Statements of Financial Undertakings (a DNB supervisory regulation) stipulates which statements fall under the certification regime. This Regulation will be updated to reflect the changes in the regulations. The intention is that reports submitted after 1 January 2014 will fall under the new certification rules. What will fall under the certification rules after 1 January 2014? Broadly speaking, this means that all statements covered by FINREP and COREP, both solo and consolidated, will fall under the certification rules, with the exception of statements for which CRD IV/CRR do not contain binding prudential rules. For example, the LCR and NSFR reports will not fall under the certification rules. On the other hand, the existing liquidity report (statement 8028) will be maintained and will be placed under the certification regime. Statements for which specific provisions apply, such as the interest rate risk report and the country risk report, will continue to fall under the existing provisions. Banks must give a separate instruction to the auditor for these statements, i.e. an agreedupon procedures instruction.

11 EBA Q&A PROCESS The EBA provides a Q&A service on its website, which can be used by banks, supervisors and other interested parties. In this Single Rulebook Q&A, the EBA answers questions about: CRD IV (2013/36/EU) and CRR (575/2013); EBA BTS; CRD-related technical standards as submitted to the European Commission by the EBA (only after the BTS had been published in the Official Journal of the European Union); EBA guidelines; CRD-related guidelines as published by the EBA. How does the Q&A process work? You can submit your question via the Single Rulebook Q&A tab on the EBA website. You will also find answers to questions asked earlier here. The EBA categorises all questions received: Questions under review: the question will be dealt with by the EBA. The aim is to answer the question within two months Rejected questions: the question is not related to the CRD, the CRR, EBA BTS or EBA guidelines, or it has been asked before; Final Q&A: the question has been answered and can be found on the EBA website. Q&As help ensure consistent application of new rules The purpose of the Q&As is to ensure consistent application of the new regulatory framework within the European Union. The Q&As are not legally binding, nor are they subject to the 'comply or explain' principle. However, their application is closely monitored by the EBA, which will not fail to challenge regulators if they act differently from the manner prescribed in the Q&As. The EBA also expects that peer pressure and the market will have a disciplinary impact on the consistent application of the interpretations given in the Q&As. Scope of the answers The scope of the answers that the EBA can give is limited to explanations concerning the consistent and effective application of CRD IV and CRR. Questions that fall outside this scope (e.g. questions relating to definitions or interpretations) must be answered by the Directorate-General for the Internal Market at the European Commission (because the EBA is not a regulator), though the European Court of Justice has the final say.

12 The role of DNB The role of DNB, similar to all other EU regulators involved in this process, is to give its own views to the EBA. DNB's influence on the outcomes is limited. We see the EBA Q&A tool as a useful instrument. We will therefore refer to the EBA website if DNB receives questions about the application of CRD IV and CRR. Links to EBA website and EBA Single Rulebook Q&A tool: BASEL III/CRD IV ACADEMY SEMINAR ON 29 NOVEMBER Following the great success of the two seminars held in September and October, we will organise another seminar on Basel III and CRD IV on Friday, 29 November If you are interested, you can register via Open Book Supervision. Information available on Open Book You will find much of the information that was discussed during the seminars on Open Book. There are a number of quick reference cards, and you can also download a poster about CRD IV. The information can be found at Disclaimer We cannot avoid adding the disclaimer here that the CRD IV Academy is intended as a guide for the sector to make CRD IV more accessible, but that these documents cannot be seen as a comprehensive interpretation of CRD IV.

13 FINALISATION OF DISCUSSION OF STATUS OF CREDIT INSTITUTIONS In July, DNB asked all banks whether they take deposits from the public and therefore qualify as credit institutions. The possibility of obtaining a licence as an opt-in bank was also outlined. This discussion has been finalised for all entities in terms of procedure, and follow-up for entities where amendment or rescission of the licence is appropriate will take place as part of the regular supervisory process. A number of the present 73 licences in issue will require amendment. All banks will receive a letter about their status and licence. Background to the issue The reason for this request is both the implementation of CRD IV in the Dutch Financial Supervision Act (Wft) and the preparation for the Single Supervisory Mechanism (SSM). Both CRD and the SSM apply only to entities that meet the definition of credit institution. However, the complex transitional legislation from old Dutch regulations means that a bank that is in our national register need not necessarily be a credit institution as defined in European law. It also follows from this that the requirement to place non-credit institutions with an opt-in licence under supervision must be enshrined in national legislation. Bank details needed Prior to the request to banks to indicate whether they meet the definition, this was not always clear for DNB. In some cases, the standard reports that DNB receives do not provide a uniform picture of a bank. Given the effect of consolidation of subsidiaries, and reports that are a poor match for the legal terminology, DNB sent out a specific request to all banking entities this summer. This information was previously less relevant for DNB because the distinction between 'true' banks and voluntary opt-in banks was not important under Dutch law. Updating of register In order to make the distinction between direct (credit institutions) and indirect (opt-in banks) statutory supervision and the associated rights clear to the public, that distinction must also be reflected in DNB's public register. However, the moment of the formal conversion or rescission of a licence depends on when the amendments of the Wft to implement CRD IV come into effect.

14 TESTING OF CAPITAL INSTRUMENTS UNDER CRD IV The new capital definitions under CRD IV will apply from 1 January 2014, and banks will then begin classifying their outstanding capital instruments according to those definitions. The distinction between instruments that meet all requirements in full (i.e. are eligible) and instruments that are included in the capital due to grandfathering will also be relevant. For example: an instrument that is grandfathered may be included in the Tier 2 capital, but cannot be classified as a Tier 2 instrument. DNB urges banks to check each instrument carefully in order to be able to classify and report it in the correct manner. Testing process The CRD IV (Specific Provisions) Regulation (in consultation) describes how banks must submit capital transactions to DNB for testing. This provision focuses exclusively on the procedural aspects of this testing. DNB has already announced on Open Book what documentation is required for testing. The testing and classification itself takes place on the basis of the CRR text. Self-assessment and DNB assessment A number of banks have recently asked DNB to issue a new opinion about outstanding instruments. We are prepared to accede to this request, but are still seeking a feasible timeframe for doing so. In the light of this, we are considering carrying out a sector-wide audit in the first quarter of 2014 of the classification of capital instruments. Our attention will focus mainly on (innovative) hybrid instruments. Banks may carry out a self-assessment and prepare for a more detailed review by DNB. At the heart of this will be a systematic comparison of the characteristics of the instruments and the rules in the CRR. A further relevant factor is that other non-approved capital transactions can also influence eligibility. EBA will also be taking an interest The EBA is showing an increasing interest in the assessment of capital instruments. The list that the EBA is drawing up for CET1 instruments will be posted on its website at the end of From 2014, the EBA will play the lead role in the assessment of CET1 transactions. The assessment of instruments in the lower tiers is also receiving increasing attention from the EBA.