EBA欧洲银行-EBA-CET1-report-Q2-2017_25页_1mb

EBA Report on the Monitoring of CET1 Instruments Issued by EU Institutions (May 2017)

Executive Summary

The EBA report on CET1 instruments is published in accordance with Article 80 of the Capital Requirements Regulation (CRR) and aims to provide stakeholders with:

• Further guidance on the content and objectives of the CET1 list;
• Clarity on the consequences of an instrument's inclusion or exclusion from the list;
• Feedback on the EBA's monitoring work across the EU.

This report is the first to accompany the fifth update of the CET1 list, which was published on 1 December 2016. It is distinct from the EBA's regular monitoring report on Additional Tier 1 (AT1) instruments.

Content of the Report and Main Findings

The EBA has compiled a list of CET1 instruments across the EU, which includes:

• 10 new forms of CET1 instruments issued after the CRR came into force (28 June 2013);
• Pre-CRR instruments that have been modified to comply with the new regulations.

The report outlines the legal basis for the CET1 list, including:

• Article 26(3) and Article 80 of the CRR, which require the EBA to maintain and publish the list and to monitor the quality of CET1 instruments.
• Commission Delegated Regulation (EU) No 241/2014 and subsequent amendments, which incorporate the EBA's Regulatory Technical Standards (RTS) on own funds.

The EBA has assessed instruments based on the following criteria:

• Permanence
• Loss absorption
• Flexibility of payments

These criteria are central to determining whether an instrument meets CET1 eligibility. The EBA has requested amendments in several cases, particularly related to payment flexibility, voting rights, and distribution policies.

Purpose and Content of the CET1 List

Legal Mandate

The EBA is legally mandated to:

• Maintain and publish a list of all forms of CET1 instruments in each EU Member State;
• Monitor the quality of CET1 instruments and notify the Commission of any significant evidence that they do not meet the eligibility criteria under Article 28 or Article 29 of the CRR.

Publications of the List

• The list was first published on 28 May 2014, based on pre-CRR instruments.
• It has been updated five times up to the date of this report.
• Each update includes:
  • New forms of CET1 instruments that have been assessed as eligible (highlighted in yellow);
  • Deletions or amendments to existing forms (highlighted in orange);
  • Reassessments of instruments that have undergone changes since their initial inclusion.

Content and Features of the List

The CET1 list contains the following information:

The EBA has identified that non-voting shares are generally limited to 50% of share capital in most jurisdictions, with some jurisdictions prohibiting them entirely. Additionally, the payment of share capital at inception and over time varies by jurisdiction, with some requiring full payment within 5 years.

Number of Types of Instruments Listed

As of the fifth update of the CET1 list, the EBA has reported a total of 130 forms of CET1 instruments across the 28 EU Member States:

• 65 are fully eligible under Article 28 (joint stock companies);
• 35 are fully eligible under Article 29 (non-joint stock companies);
• 10 are grandfathered state aid instruments;
• 19 are grandfathered non-state aid instruments;
• 1 is a state aid instrument subscribed by public authorities in emergency situations.

EBA Role in CET1 Monitoring

Exhaustiveness of the List

The CET1 list is intended to be exhaustive, meaning it should include all forms of CET1 instruments that meet the CRR and RTS requirements. However, the EBA's role is not to create the list but to monitor and review it, with the power to remove instruments that do not meet the criteria. If a competent authority approves an instrument but the EBA finds it non-eligible, the EBA may require further explanation.

Process Followed

The EBA has established a standardised format for competent authorities to report on CET1 instruments, ensuring consistency and transparency. This format includes:

• Standardised tables with information on the instrument's terms and conditions;
• Documentation review by the EBA, up to the Board of Supervisors, to approve changes to the list.

State Aid versus Non-State Aid Instruments

• State aid instruments issued under Article 31 of the CRR are included in the list if deemed equivalent to CET1 instruments by competent authorities.
• However, their inclusion does not imply that they should be extended to other institutions in the same jurisdiction.
• The grandfathering of state aid instruments under Article 483 of the CRR will expire at the end of 2017, after which they will no longer be eligible for CET1.

Lessons Learnt from CET1 Issuances

• The EBA has identified that payment flexibility is a key area requiring attention, particularly regarding:
  • Preference in the order of payments;
  • Distribution policies;
  • Reinstatement of voting rights in the absence of dividends;
  • Covenants or side agreements that may restrict flexibility.
• Loss absorption and permanence are also critical criteria for CET1 eligibility.
• The EBA has provided guidance on these aspects to help future issuances align with regulatory expectations.

Q&As and Other Issues

• The EBA has addressed various Q&A issues related to CET1 instruments, including:
  • The meaning of 'additional' CET1 instruments;
  • The impact of non-voting shares;
  • The application of CRR provisions to different types of institutions.
• The report also references an Opinion on Own Funds published by the EBA, which touches on similar issues.

Annex: Legal References

The report includes legal references from the CRR and related delegated regulations, providing the regulatory framework for CET1 eligibility and the EBA's monitoring role.