COMMISSION DELEGATED REGULATION (EU) No 1222/2014

of 8 October 2014

supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards for the specification of the methodology for the identification of global systemically important institutions and for the definition of subcategories of global systemically important institutions

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC(1), and in particular Article 131(18) thereof,

Whereas:

(1) Directive 2013/36/EU empowers competent or designated authorities of the Member States to impose higher own funds requirements on global systemically important institutions (G-SIIs) in order to compensate for the higher risk that G-SIIs represent for the financial system and the potential impact of their failure on taxpayers. That Directive outlines certain basic principles of a methodology for the identification of G-SIIs and for the allocation of G-SIIs to subcategories in accordance with their systemic relevance. In accordance with that allocation they will be assigned an additional Common Equity Tier 1 capital requirement, the G-SII buffer. That methodology of identification and allocation of G-SIIs is based on five categories measuring the systemic significance of a bank for the global financial market, and is further specified in this Regulation.

(2) In order to follow the approach of Directive 2013/36/EU, this Regulation should take into account standards for the methodology of assessing global systemically important banks and for the higher loss absorbency requirement by the Basel Committee on Banking Supervision, that are based on the framework for global systemically important financial institutions established by the Financial Stability Board following the report ‘Reducing the moral hazard posed by systemically important financial institutions — FSB Recommendations and Time Lines’.

(3) Directive 2013/36/EU makes clear that the identification and allocation methodology is harmonised in all Member States by the use of uniform and transparent parameters for determining an overall score of an entity to measure its systemic importance. In order to ensure that the sample of banks and banking groups both of the Union and authorised in third countries serving as a reference to reflect the global financial system are uniform across the Union, the European Banking Authority (EBA) should determine that sample. Exclusions and additions to that sample based on supervisory judgment should be chosen strictly to ensure its function as a term of reference and should not be based on other grounds.

(4) The G-SII identification process should be based on comparable data and should take into account that institutions need clarity as to whether and in which amount a buffer requirement will apply to them, therefore, timelines and procedures for that process should be included in the methodology. However, since the identification of G-SIIs should be based on up-to-date data relating to the sample of large global banking groups some of which are authorised in third countries, the data needed will not be available earlier than the second half of each year. In order to enable institutions to comply with the requirements resulting from their status as a G-SII, the buffer requirement should take effect as of approximately one year following their identification as a G-SII.

(5) Directive 2013/36/EU sets out five categories measuring systemic significance, which consist of quantifiable indicators. In order to minimise the administrative burden for institutions and authorities, those categories are identical to those applied by the Basel Committee on Banking Supervision. In further defining the quantifiable indicators, this Regulation should follow the same approach. The indicators should be chosen to reflect the different aspects of potential negative externalities of an entity's failure and its critical functions for the stability of the financial system. The reference system for assessing systemic significance should be the global financial markets and the global economy.

(6) In order to set out a precise methodology for identifying and classifying G-SIIs in accordance with the basic rules set out in Directive 2013/36/EU, it is important to clearly circumscribe the notions of ‘relevant entity’, ‘indicator value’, ‘denominator’ and ‘cut-off score’ by defining them for the purposes of this Regulation.

(7) The systemic significance of each banking group measured by the indicators on a consolidated basis should be expressed as an individual overall score for a certain year measuring its position relative to other entities in the sample. Banks should be identified as G-SIIs and allocated to the sub-categories to which different capital buffer requirements will apply, based on that overall score. When calculating the score as the average of the category scores, each of the five categories should receive a weighting of 20 %. A cap should be applied to the substitutability category for the purpose of calculating the overall score given that, on the basis of an analysis of data until and including the year 2013, that category proved to have a disproportionately high impact on the score for banks that are dominant in the provision of payment, underwriting and asset custody services.

(8) Relevant authorities should have the option to use sound supervisory judgment to re-allocate a G-SII from a lower subcategory to a higher subcategory or to designate an entity as a G-SII that has an overall score that is lower than the cut-off score of the lowest subcategory. As that identification by supervisory judgment shares the same objective as the regular scoring process, the criterion upon which this judgment is to be based should also be the bank's systemic significance for the global financial market and the global economy, consistent with the methodology used by the Basel Committee on Banking Supervision. The failure risk of the bank should not be a criterion, as it is already accounted for in other prudential requirements, inter alia, in the total risk exposure amount and, where applicable, in further own fund requirements such as the systemic risk buffer.

(9) This Regulation is based on the draft regulatory technical standards submitted by the EBA to the Commission.

(10) The EBA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the opinion of the Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council(2).

(11) This Regulation should apply from 1 January 2015, as the requirement to maintain a G-SII buffer set out in Article 131(4) of Directive 2013/36/EU will apply and be phased in from 1 January 2016. Therefore and to inform institutions in a timely manner of the G-SII buffer applicable to them and to give them sufficient time to raise the required capital, G-SIIs should be identified in early 2015 at the latest.

(12) The G-SII buffer requirement should be phased in over a period of three years in accordance with Article 162(5) of Directive 2013/36/EU: the first step of the requirement referred to in Article 162(5)(a) of Directive 2013/36/EU should apply from 1 January 2016 for those G-SIIs which have been identified by relevant authorities in early 2015, on the basis of data of financial year-ends prior to July 2014. The second step referred to in Article 162(5)(b) of Directive 2013/36/EU of the G-SII buffer requirement should apply from 1 January 2017 for those G-SIIs which have been identified by relevant authorities by the end of 2015 or, at the latest, the beginning of 2016, on the basis of data of financial year-ends prior to July 2015,

HAS ADOPTED THIS REGULATION:

Article 1

Subject matter and scope

This Regulation specifies the methodology in accordance with which the authority referred to in Article 131(1) of Directive 2013/36/EU (hereinafter referred to as ‘relevant authority’) of a Member State shall identify, on a consolidated basis, a relevant entity as a global systemically important institution (G-SII), and the methodology for the definition of subcategories of G-SIIs and the allocation of G-SIIs to those subcategories based on their systemic significance and, as part of the methodology, timelines and data to be used for the identification.

Article 2

Definitions

For the purpose of this Regulation, the following definitions apply:

(1) ‘Relevant entity’ means an EU parent institution or EU parent financial holding company or EU parent mixed financial holding company or an institution that is not a subsidiary of an EU parent institution or EU parent financial holding company or EU parent mixed financial holding company;

(2) ‘Indicator value’ means for each indicator set out in Article 6 and for each relevant entity of the sample the individual value of the indicator and for each bank authorised in a third country a comparable individual value publicly disclosed in accordance with internationally agreed standards;

(3) ‘Denominator’ means for each indicator the total aggregate value of the indicator values of the relevant entities and banks authorised in third countries of the sample;

(4) ‘Cut-off score’ means a score value determining the lowest boundary and the boundaries between the five subcategories as defined in Article 131(9) of Directive 2013/36/EU.

Article 3

Common parameters for the methodology

1. The EBA shall identify a sample of institutions or groups whose indicator values are to be used as reference values representing the global banking sector for the purpose of calculating the scores, taking into account internationally agreed standards, in particular the sample used by the Basel Committee on Banking Supervision for the identification of global systemically important banks and shall notify relevant authorities of the relevant entities included in the sample by 31 July of each year.

The sample shall consist of relevant entities and banks authorised in third countries and comprise the 75 largest of them, based on the total exposure as defined in Article 6(1), as well as relevant entities that were designated as G-SIIs and banks in third countries that were designated as global systemically important in the previous year.

The EBA shall exclude or add relevant entities or banks authorised in third countries, if and to the extent necessary to ensure an adequate reference system for assessing systemic significance reflecting the global financial markets and the global economy, taking into account internationally agreed standards including the sample used by the Basel Committee on Banking Supervision.

2. The relevant authority shall report the indicator values of each relevant entity with an exposure measure above EUR 200 billion which is authorised within its jurisdiction to the EBA not later than 31 July each year. The relevant authority shall ensure that the indicator values are identical to the ones submitted to the Basel Committee on Banking Supervision and to those disclosed by that relevant entity in accordance with Commission Implementing Regulation (EU) No 1030/2014(3). The relevant authority shall use the templates set out therein.

3. The EBA shall compute the denominators, based on the indicator values reported by the relevant authority pursuant to paragraph 2, taking into account internationally agreed standards, in particular the denominators published by the Basel Committee on Banking Supervision for that year, and notify them to relevant authorities. The denominator of an indicator shall be the aggregate amount of the indicator values across all relevant entities and banks authorised in third countries in the sample, as reported for the relevant entities pursuant to paragraph 2 and disclosed by the banks authorised in third countries on 31 July of the relevant year.

Article 4

Identification procedure

1. The relevant authority shall calculate the scores of the relevant entities that are included in the sample notified by the EBA, which are authorised in its jurisdiction, not later than 15 December of each year. Where the relevant authority, in the exercise of sound supervisory judgment, designates a relevant entity as a G-SII in accordance with Article 131(10)(b) of Directive 2013/36/EU, the relevant authority shall communicate a detailed statement in written form on the reasons for its assessment to the EBA not later than 15 December of each year.

2. The identification of a relevant entity as a G-SII and the allocation to a subcategory shall take effect as of the 1 January of the second year following the calendar year when the denominators have been determined in accordance with Article 3.

Article 5

Identification as G-SII, determination of the scores and allocation to subcategories

1. The indicator values shall be based on reported data of the relevant entity of the preceding financial year-end, on a consolidated basis, and for banks authorised in third countries on data disclosed in accordance with internationally agreed standards. Relevant authorities may use indicator values of relevant entities whose financial year-end is 30 June based on their position on 31 December.

2. The relevant authority shall determine the score of each relevant entity of the sample as the simple average of the category scores subject to a maximum category score of 500 base points for the category measuring the substitutability. Each category score shall be calculated as the simple average of the values resulting from dividing each of the indicator values of that category by the denominator of the indicator notified by the EBA. The scores shall be expressed in base points and shall be rounded to the nearest whole base point.

3. The lowest cut-off score shall be 130 base points. The subcategories shall be allocated as follows:

(a) subcategory 1 shall encompass scores from 130 to 229 base points;

(b) subcategory 2 shall encompass scores from 230 to 329 base points;

(d) subcategory 4 shall encompass scores from 430 to 529 base points;

(e) subcategory 5 shall encompass scores from 530 to 629 base points.

4. The relevant authority shall identify a relevant entity as a G-SII where the score of that entity is equal to or higher than the lowest cut-off score. A decision to designate a relevant entity as a G-SII in the exercise of sound supervisory judgment in accordance with Article 131(10)(b) of Directive 2013/36/EU shall be based on an assessment of whether its failure would have a significant negative impact on the global financial market and the global economy.

5. The relevant authority shall allocate a G-SII to a subcategory in accordance with its score. A decision to re-allocate a G-SII from a lower subcategory to a higher subcategory in the exercise of sound supervisory judgment in accordance with Article 131(10)(a), of Directive 2013/36/EU shall be based on an assessment whether its failure would have a higher negative impact on the global financial market and the global economy.

6. The decisions referred to in paragraphs 4 and 5 may be supported by ancillary indicators, which shall not be indicators of the probability that the relevant entity fails. Such decisions shall comprise well documented and verifiable quantitative and qualitative information.

Article 6

Indicators

1. The category measuring the size of the group shall consist of one indicator equal to the total exposure of the group as further specified in the Annex.

2. The category measuring the interconnectedness of the group with the financial system shall consist of all of the following indicators, as further specified in the Annex:

(a) intra-financial system assets;

(b) intra-financial system liabilities;

3. The category measuring the substitutability of the services or of the financial infrastructure provided by the group shall consist of all of the following indicators, as further specified in the Annex:

(a) assets under custody;

(b) payments activity;

4. The category measuring the complexity of the group shall consist of all of the following indicators, as further specified in the Annex:

(a) notional amount of over-the-counter derivatives;

(b) assets included in the level 3 of fair-value measured in accordance with Commission Regulation (EU) No 1255/2012(4);

5. The category measuring the cross border activity of the group shall consist of the following indicators, as further specified in the Annex:

(a) cross-jurisdictional claims;

(b) cross-jurisdictional liabilities.

6. For data reported in currencies other than the Euro, the relevant authority shall use an appropriate exchange rate taking into account the reference exchange rate published by the European Central Bank applicable on 31 December and international standards. For the payment activity indicator as referred to in paragraph 3(b), the relevant authority shall use the average exchanges rates for the relevant year.

Article 7

Transitional provisions

By way of derogation from the first subparagraph of Article 3(1), the EBA shall determine the sample to identify a relevant entity as a G-SII for the year 2014 by 14 January 2015. The relevant authorities shall report the indicator values regarding relevant entities within that sample based on data for financial year-ends prior to July 2014 to the EBA, by 21 January 2015. Based on those indicator values, the EBA shall calculate the denominators for the year 2014 by 30 January 2015. The relevant authorities shall determine, on the basis of those denominators, the scores for the relevant entities for the year 2014. They shall also identify G-SIIs and allocate them to subcategories. Concurrently, the relevant authority shall notify the identified G-SIIs to the Commission, the ESRB and EBA and publish their names together with their scores for the year 2014 by 28 February 2015.

By way of derogation from Article 4(2), the identification of a relevant entity as a G-SII and the subcategory it is allocated to, based on the scores for the year 2014, shall apply from 1 January 2016.

Article 8

Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the

Official Journal of the European Union

It shall apply from 1 January 2015.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 8 October 2014.

For the Commission

The President

José Manuel BARROSO

(1)

OJ L 176, 27.6.2013, p. 338

(2) Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (

OJ L 331, 15.12.2010, p. 12

(3) Commission Implementing Regulation (EU) No 1030/2014 of 29 September 2014 laying down implementing technical standards with regard to the uniform formats and date for the disclosure of the values used to identify global systemically important institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council (

OJ L 284, 30.9.2014, p. 14

(4) Commission Regulation (EU) No 1255/2012 of 11 December 2012 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Accounting Standard 12, International Financial Reporting Standards 1 and 13, and Interpretation 20 of the International Financial Reporting Interpretations Committee (

OJ L 360, 29.12.2012, p. 78

ANNEX

For the purposes of Article 6, the indicators shall be determined as follows:

1. Total exposure

The total exposure shall be the aggregate of total on-balance sheets items and of total derivative and off-balance sheet items, on a consolidated basis, including entities consolidated for accounting purposes but not for risk-based regulatory purposes, less regulatory adjustments.

The total exposure shall follow the accounting measure of exposure (however, using the broader scope of consolidation) subject to the following principles:

— On-balance sheet, non-derivative exposures are included in the exposure measure net of specific provisions and valuation adjustments (for example credit valuation adjustments),

— Netting of loans and deposits shall not be allowed,

— Physical or financial collateral, guarantees or credit risk mitigation purchased shall not reduce on-balance sheet exposures.

On-balance sheet items shall be the aggregate of the following:

(a) counterparty exposure of derivatives contracts;

(b) gross value of securities financing transactions (SFTs);

(d) the maximum of (i) other assets less securities received in SFTs that are recognised as assets and (ii) zero.

Off-balance sheet items shall be the aggregate of the following:

(a) potential future exposure of derivative contracts;

(b) notional amount of off-balance sheet items with a 0 % Credit Conversion Factor (CCF), less 100 % of unconditionally cancellable credit card commitments, less 100 % of other unconditionally cancellable commitments;

(d) 10 % of other unconditionally cancellable commitments;

(e) notional amount of off-balance sheet items with a 20 % CCF;

(f) notional amount of off-balance sheet items with a 50 % CCF;

(g) notional amount of off-balance sheet items with a 100 % CCF.

For entities consolidated for accounting purposes but not for risk-based regulatory purposes the indicator value shall be increased by the aggregate of the following:

(a) on-balance sheet assets;

(b) potential future exposure of derivatives contracts;

(d) other off-balance sheet commitments;

(e) less investment value in the consolidated entities.

2. Interconnectedness

For the purpose of the interconnectedness indicators, financial institutions shall be defined as including banks and other deposit-taking institutions, bank holding companies, securities dealers, insurance companies, mutual funds, hedge funds, pension funds, investment banks, and central counterparties (CCPs). Central banks and other public sector bodies (for example multilateral development banks) shall be excluded, but state-owned commercial banks shall be included.

2.1. Intra-financial system assets

Intra-financial system assets shall be the aggregate of funds deposited with or lent to other financial institutions and undrawn committed lines extended to other financial institutions, holdings of securities issued by other financial institutions, the net positive current exposure of securities financing transactions and over-the-counter (OTC) derivatives with other financial institutions that have a net positive fair value.

(a) Funds deposited or lent to other financial institutions and undrawn committed lines

Funds deposited or lent to other financial institutions and undrawn committed lines shall be the aggregate of the following:

(1) Funds deposited with or lent to other financial institutions, including certificates of deposit;

(2) Undrawn committed lines extended to other financial institutions.

(b) Holdings of securities issued by other financial institutions

This item shall reflect all holdings of securities issued by other financial institutions. Total holdings shall be counted at fair value for securities classified as held-for-trading and available-for-sale; held-to-maturity securities shall be counted at amortised cost.

Holdings of securities issued by other financial institutions shall be the aggregate of the following:

(1) Secured debt securities;

(2) Senior unsecured debt securities;

(3) Subordinated debt securities;

(4) Commercial paper;

(5) the maximum of stock, including par and surplus of common and preferred shares, less offsetting short positions in relation to the specific stock holdings and zero.

(c) Securities financing transactions

Securities financing transactions shall be the aggregate of net positive current exposure of securities financing transactions with other financial institutions.

The reported value shall not be intended to reflect amounts recorded on the balance sheet. It shall represent the single legally owed amount per netting set. Netting shall only be used where the transactions are covered by a legally enforceable netting agreement. Where these criteria are not met, the gross balance sheet amount shall be counted. Conduit lending transactions shall not be included.

(d) Over-the-counter (OTC) derivatives with other financial institutions that have a net positive fair value

Over-the-counter (OTC) derivatives with other financial institutions that have a net positive fair value shall be the aggregate of the following:

(1) Net positive fair value, including collateral held where it is within the master netting agreement;

(2) Potential future exposure.

2.2. Intra-financial system liabilities

Total intra-financial system liabilities shall be the aggregate of deposits by financial institutions, securities financing transactions and OTC derivatives with other financial institutions that have a net negative fair value.

(a) Deposits by financial institutions

Deposits by financial institutions shall be the aggregate of the following:

(1) Deposits due to depository institutions;

(2) Deposits due to non-depository financial institutions;

(3) Undrawn committed lines obtained from other financial institutions.

(b) Securities financing transactions

Securities financing transactions shall be the aggregate of net negative current exposure of securities financing transactions with other financial institutions.

(c) OTC derivatives with other financial institutions that have a net negative fair value

OTC derivatives with other financial institutions that have a net negative fair value shall be the aggregate of the following:

(1) Net negative fair value, including collateral provided if it is within the master netting agreement;

(2) Potential future exposure.

2.3. Securities outstanding

The indicator shall reflect the book value of outstanding securities issued by the relevant entity. Intra-financial and other activity shall not be distinguished.

Total securities outstanding shall be the aggregate of the following:

(a) Secured debt securities;

(b) Senior unsecured debt securities;

(d) Commercial paper;

(e) Certificates of deposit;

(f) Common equity;

(g) Preferred shares and any other forms of subordinated funding not referred to in point (c).

3. Substitutability of the services or of the financial infrastructure provided by the group

3.1. Payments activity

The total payment activity shall be payments made in the reporting year excluding intragroup payments.

The relevant payment value shall be the total gross value of all cash payments sent by the reporting group via large value funds transfer systems, along with the gross value of all cash payments sent through an agent bank (for example using a correspondent or nostro account). Cash payments made on behalf of the relevant entity as well as those made on behalf of customers, including financial institutions and other commercial customers, shall be included. Payments made through retail payment systems shall not be included. Only outgoing payments shall be included. The value shall be calculated in euro.

3.2. Assets under custody

The value of assets under custody shall be the value of all assets, including cross-border assets, which the reporting group held as a custodian on behalf of customers, including financial institutions other than the reporting group. Any assets under management or assets under administration which are not also classified as assets under custody shall not be included.

3.3. Underwritten transactions in debt and equity markets

The total underwritten transactions in debt and equity markets shall be the aggregate of equity underwriting activity and debt underwriting activity.

All underwriting where the bank is obligated to purchase unsold securities shall be included. When the underwriting is on a best-efforts basis (which shall mean that the bank is not obligated to purchase the remaining inventory), only the securities that were actually sold shall be included.

4. Complexity of the group

4.1. Notional amount of over-the-counter (OTC) derivatives

This indicator shall measure the scope of the reporting group's engagement in OTC derivatives transactions and shall include all types of risk categories and instruments. Collateral shall not be deducted when reporting the notional derivative values.

The total notional amount of OTC derivatives shall be the aggregate of OTC derivatives cleared through a central counterparty and OTC derivatives settled bilaterally.

4.2. Level 3 Assets

The value of Level 3 Assets shall be the value of all assets that are priced on a recurring basis using Level 3 measurement inputs.

4.3. Trading and Available-for-Sale Securities

The Trading and Available-for-Sale Securities shall be the total amount of securities in the held-for-trading and available-for-sale accounting categories less the subset of securities held in those categories that are eligible for classification as high quality liquid assets.

5. Cross-border activity of the group

5.1. Cross-jurisdictional claims

The value of cross-jurisdictional claims shall be the value of all claims over all sectors that, on an ultimate-risk basis, are cross-border claims, local claims of foreign affiliates in foreign currency, or local claims of foreign affiliates in local currency, excluding derivatives activity. Cross-border claims shall extend from an office in one country to a borrower in another country. Local claims of foreign affiliates in foreign and local currency shall extend from the local office of the bank to borrowers in that location.

5.2. Cross-jurisdictional liabilities

Total cross-jurisdictional liabilities shall be the aggregate of the following, less any foreign liabilities to related offices referred to in point (b):

(a) Local liabilities in local currency;

(b) Foreign liabilities (excluding local liabilities in local currency).