EBA published final draft technical standards specifying the methods of prudential consolidation

The European Banking Authority (EBA) recently published its final draft Regulatory Technical Standards (RTS) specifying the conditions according to which consolidation shall be carried out in line with the Capital Requirements Regulation (CRR). In particular, this initiative has been undertaken according to Article 18(9) of Regulation (EU) No 575/2013 (CRR), which mandates the EBA to ‘specify conditions in accordance with which consolidation shall be carried out in the cases referred to in paragraphs 3 to 6 and paragraph 8’ of Article 18 of this Regulation.

The aim of the draft RTS is to ensure that the appropriate method of prudential consolidation is applied for the calculation of the CRR requirements on a consolidated basis. These final draft RTS specify the conditions for the application of the different methods of prudential consolidation. The entities to be included in the scope of prudential consolidation are, in particular, institutions, financial institutions and ancillary services undertakings.

The draft RTS have been revised in order to reflect the changes introduced in the CRR and in the Capital Requirements Directive (CRD), as well as the feedback received during the public consultation. In particular, the main changes deal with the newly introduced Article 18(8) of the CRR, allowing competent authorities to extend prudential consolidation also to certain non-financial undertakings in a case where there is a substantial risk of step-in. They include step-in risk indicators, to be considered by competent authorities in assessing whether an undertaking should be fully or proportionally consolidated for prudential purposes. Moreover the drafts have taken into consideration the Guidelines on the identification and management of step-in risk published by the Basel Committee on Banking Supervision (BCBS). They  have also been revised to reflect the amendments introduced as part of the Risk Reduction Measures Package adopted by the European legislators.

The final standards have been sent to the European Commission for adoption as EU Regulations that will be directly applicable throughout the EU.

For more information please speak with Ioannis Sidiropoulos or your usual contact in Elias Neocleous & Co LLC.