Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

Preamble

THE EUROPEAN COMMISSION,

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

Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, and in particular the fourth subparagraph of Article 443 thereof,

Whereas:

  1. (1)

    Pursuant to the first subparagraph of Article 443 of Regulation (EU) No 575/2013, the European Banking Authority (EBA) issued guidelines on the disclosure of encumbered and unencumbered assets on 27 June 2014 (the "EBA Disclosure Guidelines"). The second subparagraph of Article 443 of Regulation (EU) No 575/2013 provides that EBA is to develop draft regulatory technical standards to specify disclosure of the balance sheet value per exposure class broken down by asset quality and the total amount of the balance sheet value that is unencumbered, taking into account Recommendation ESRB/2012/2 of the European Systemic Risk Board of 20 December 2012 on funding of credit institutions ("Recommendation ESRB/2012/2") and conditional on EBA considering in its report that such additional disclosure offers reliable and meaningful information. The EBA report on asset encumbrance concluded that disclosure of encumbrance in the Union is vitally important as it allows market participants to better understand and analyse the liquidity and solvency profiles of institutions and compare those profiles across Member States in a clear and consistent manner. Based on those conclusions, the EBA developed draft regulatory technical standards in order to ensure a fully harmonised approach to asset encumbrance disclosure.

  2. (2)

    The EBA Disclosure Guidelines cover both encumbered and unencumbered assets. This is because the first subparagraph of Article 443 of Regulation (EU) No 575/2013 requires that Recommendation ESRB/2012/2 and, in particular, Recommendation D — Market transparency on asset encumbrance ("Recommendation D") be taken into account. Point 1(a) of Recommendation D recommends disclosure of encumbered and unencumbered assets. The second subparagraph of Article 443 of Regulation (EU) No 575/2013 also provides that Recommendation ESRB/2012/2 is to be taken into account when developing the draft regulatory technical standards referred to in that subparagraph. Furthermore, encumbered assets need to be included in such standards to ensure that the disclosure offers reliable and meaningful information. Therefore, both encumbered and unencumbered assets should be disclosed.

  3. (3)

    The EBA was advised in Recommendation D to ensure, in developing the EBA Disclosure Guidelines, that the level and evolution of assets encumbered to central banks, as well as the amount of liquidity assistance given by central banks, cannot be detected. That advice has also been taken into consideration in this Regulation.

  4. (4)

    Encumbered assets or collateral received and other off-balance-sheet items may be pledged to secure funding. Therefore, in order to allow market participants to better understand and analyse the liquidity and solvency profiles of institutions and access information about the availability of assets to secure funding, institutions should disclose the encumbrance of all on-balance-sheet assets and the encumbrance of all off-balance-sheet items separately. The disclosure should relate to all collateral received, arising from all on-balance-sheet and off-balance-sheet transactions regardless of their maturity, including all operations with central banks. While assets disclosed as encumbered assets include assets encumbered as a result of all operations with any counterparty (including central banks), it is not necessary to disclose the encumbrance resulting from operationswith centralbanks separately from the encumbrance resulting from operations with other counterparties. This is without prejudice to the freedom for central banks to establish the modalities for the disclosure of emergency liquidity assistance.

  5. (5)

    In order to ensure consistency and promote comparability and transparency, the provisions relating to the disclosure templates on encumbrance should be based on the reporting requirements on encumbrance provided for in Commission Implementing Regulation (EU) No 680/2014. However, to avoid unintended consequences (such as the ability to identify emergency central bank funding) some deviations are needed. In particular, and taking into account Recommendation D, the disclosure of information relating to the amount of encumbered and unencumbered assets should be based on median values rather than point-in-time values as required in Annex XVII to Implementing Regulation (EU) No 680/2014. Similarly, the level of granularity of the information to be disclosed for specific values and transactions should be less than that of the reporting requirements set out in Implementing Regulation (EU) No 680/2014. Furthermore, since asset encumbrance depends heavily on the risk profile and business model of the institution concerned, the quantitative data should be supplemented with narrative information.

  6. (6)

    The disclosure requirements for encumbered and unencumbered assets and, in particular, the disclosure requirements regarding transferred assets, pledged assets and off-balance sheet collateral received and posted, should apply in addition to any existing disclosure requirements under the applicable accounting framework.

  7. (7)

    In order to ensure the proportionate application of the disclosure requirements set out in Article 443 of Regulation (EU) No 575/2013 to smaller institutions which do not have material levels of asset encumbrance, information on the quality of encumbered and unencumbered assets should not be required from such smaller institutions. Information on the quality of encumbered and unencumbered assets ("asset quality indicators") is based on the asset quality properties attributed to assets of extremely high liquidity and credit quality and assets of high liquidity and credit quality, as defined in Commission Delegated Regulation (EU) 2015/61. As investment firms that do not form part of a banking group are not covered by that Delegated Regulation and, given that, where investment firms form part of a banking group, the relevant information is disclosed on a consolidated basis, it is appropriate to also exempt investment firms from disclosing information on the quality of encumbered and unencumbered assets, to avoid incurring disproportionate costs.

  8. (8)

    Given the novelty of the requirement to provide information on the asset quality indicators, the application of the provisions on the disclosure of such indicators should be deferred by 1 year, to allow institutions to develop the necessary IT systems.

  9. (9)

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

  10. (10)

    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 Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council,

HAS ADOPTED THIS REGULATION: