title: Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions

eurovoc_concepts:
credit institution
economic analysis
provision of services

text: 26. 5. 2000 EN Official Journal of the European Communities L 126/1 I (Acts whose publication is obligatory) DIRECTIVE 2000/12/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL relating to the taking up and pursuit of the business of credit institutions of 20 March 2000 THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular the first and third sentences of Article 47(2) thereof, Having regard to the proposal from the Commission, Having regard to the opinion of Committee (1), the Economic and Social solvency ratio for December 1989 on a credit institutions (7), Council Directive 92/30/EEC of 6 April 1992 on the supervision of credit institutions on a consolidated basis (8), and Council Directive 92/121/EEC of 21 December 1992 on the monitoring and control of institutions (9) have been large frequently and substantially amended. For reasons of clarity and rationality, therefore, should be codified and combined in a single text. the said Directives exposures of credit (2) Pursuant to the Treaty, any discriminatory treatment with regard to establishment and to the provision of services, based either on nationality or on the fact that an undertaking is not established in the Member State where the services are provided, is prohibited. Acting in accordance with the procedure laid down in Article 251 of the Treaty (2), (3) Whereas: In order to make it easier to take up and pursue the business of credit institutions, it is necessary to eliminate the most obstructive differences between the laws of the Member States as to which these institutions are subject. the rules regards (1) Council Directive 73/183/EEC of 28 June 1973 on the abolition of restrictions on freedom of establishment and freedom to provide services in respect of self-employed activities of banks and other financial institutions (3), first Council Directive (77/780/EEC) of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the institutions (4), Council Directive business of 89/299/EEC of 17 April 1989 on the own funds of credit institutions (5), second Council Directive 89/646/ EEC of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of credit institutions (6), Council Directive 89/647/EEC of 18 the business of credit (1) OJ C 157, 25. 5. 1998, p. 13. (2) Opinion of the European Parliament of 18 January 2000 (not yet Journal) and Council Decision of 13 published in the Official March 2000 (not yet published in the Official Journal). (3) OJ L 194, 16. 7. 1973, p. 1. (4) OJ L 322, 17. 12. 1977, p. 30. Directive as last amended by (4) This Directive constitutes the essential instrument for the achievement of the internal market, a course determined by the Single European Act and set out in timetable form in the Commission’s White Paper, from the point of view of both the freedom of establishment and the freedom to provide credit institutions. field of financial services, in the (5) Measures to coordinate credit institutions must, both in order to protect savings and to create equal conditions of competition between these institutions, apply to all of them. Due regard must be had, where applicable, to the objective differences in their statutes and their proper aims as laid down by national laws. Directive 98/33/EC (OJ L 204, 21. 7. 1998, p. 29). (7) OJ L 386, 30. 12. 1989, p. 14. Directive as last amended by (5) OJ L 124, 5. 5. 1989, p. 16. Directive as last amended by Directive Directive 98/33/EC. 92/30/EEC (OJ L 110, 28. 4. 1992, p. 52). (6) OJ L 386, 30. 12. 1989, p. 1. Directive as last amended by Directive (8) OJ L 110, 28. 4. 1992, p. 52. (9) OJ L 29, 5. 2. 1993, p. 1. Directive as amended by the 1994 Act of 95/26/EC (OJ L 168, 18. 7. 1995, p. 7). Accession. L 126/2 EN Official Journal of the European Communities 26. 5. 2000 (6) The scope of and other issue of bonds those measures should therefore be as broad as possible, covering all institutions whose business is to receive repayable funds from the public, whether in the form of deposits or in other forms such as the continuing comparable securities and to grant credits for their own account. Exceptions must be provided for in the case of certain credit institutions to which this Directive cannot apply. this Directive shall not prejudice The provisions of the application of national laws which provide for special supplementary authorisations permitting credit institutions to carry on specific activities or undertake specific kinds of operations. (7) The approach which has been adopted is to achieve only the essential harmonisation necessary and sufficient to secure the mutual recognition of authorisation and of prudential supervision systems, making possible the granting of a single licence recognised throughout the Community and the application of the principle of home Member State prudential the requirement that a programme of operations must be produced should be seen merely as a factor enabling the competent authorities to decide on the basis of more precise information using objective criteria. A measure of flexibility may none the less be possible as regards the requirements on the legal form of credit institutions of the protection of banking names. supervision. Therefore, credit institutions. Pending further (8) Equivalent financial requirement for credit institutions are necessary to ensure similar safeguards for savers and fair conditions of competition between comparable groups coordination, of appropriate structural ratios should be formulated that framework of will make it possible within the cooperation between national authorities to observe, in the position of accordance with standard methods, comparable types of credit institutions. This procedure should help to bring about the gradual approximation of the systems of coefficients established and applied by the Member States. to make a distinction between coefficients intended to ensure the sound management of credit institutions and those established for the purposes of economic and monetary policy. is necessary, however It grant or should not such as content of (9) The principles of mutual recognition and home Member State supervision require that Member States’ competent should withdraw authorities authorisation where factors the activities programmes, the geographical distribution or the activities actually carried on indicate clearly that a credit institution has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within whose territory it carries on or intends to carry on the greater part of its activities. A credit institution which is a legal person must be authorised in the Member State in which it has its registered office. A credit institution which is not a legal person must have its head office in the Member State in which it has been authorised. In addition, Member States must require that a credit institution’s head office always be situated in its home Member State and that it actually operates there. (10) The competent authorities should not authorise or continue the authorisation of a credit institution where they are liable to be prevented from effectively exercising their supervisory functions by the close links between that institution and other natural or legal persons. Credit institutions already authorised must also satisfy the competent authorities in that respect. The definition of (cid:145)close links(cid:146) in this Directive lays down minimum criteria. That does not prevent Member States from applying it to situations other than those envisaged by the definition. The sole fact of having acquired a significant proportion of a company’s capital does not constitute participation, within the meaning of (cid:145)close links(cid:146), if that holding has been acquired solely as a temporary investment which does not make it possible to exercise influence over the structure or financial policy of the institution. (11) The reference to the supervisory authorities’ effective exercise of their supervisory functions covers supervision on a consolidated basis which must be exercised over a credit institution where the provisions of Community law so provide. In such cases, the authorities applied to for authorisation must be able to identify the authorities competent to exercise supervision on a consolidated basis over that credit institution. (12) The home Member State may also establish rules stricter than those laid down in Article 5(1), first subparagraph and (2), and Articles 7, 16, 30, 51 and 65 for institutions authorised by its competent authorities. (13) The abolition of the authorisation requirement with respect to the branches of Community credit institutions necessitates the abolition of endowment capital. (14) By virtue of mutual recognition, the approach chosen permits credit institutions authorised in their home Member States to carry on, throughout the Community, listed in Annex I by any or all of establishing branches or by providing services. The carrying-on of activities not listed in the said Annex enjoys the right of establishment and the freedom to provide services under the general provisions of the Treaty. the activities 26. 5. 2000 EN Official Journal of the European Communities L 126/3 (15) It is appropriate, however to extend mutual recognition to the activities listed in Annex I when they are carried on by financial institutions which are subsidiaries of credit institutions, provided that such subsidiaries are covered by the consolidated supervision of their parent undertakings and meet certain strict conditions. (16) The host Member State may, require services, in connection with the exercise of the right of establishment and the freedom to provide compliance with specific provisions of its own national laws or regulations on the part of institutions not authorised as credit institutions in their home Member States and with regard to activities not listed in Annex I provided that, on the one hand, such provisions are compatible with Community law and are intended to protect the general good and that, on the other hand, such institutions or such activities are not subject legislation or this regulations of their home Member States. to equivalent rules under (17) The Member States must ensure that to carrying on activities there are no obstacles receiving mutual recognition in the same manner as in the home Member State, as long as the latter do not conflict with legal provisions protecting the general good in the host Member State. (18) There is a necessary link between the objective of this Directive and the liberalisation of capital movements being brought about by other Community legislation. In any case the measures regarding the liberalisation of banking services must be in harmony with the measures liberalising capital movements. conclude account being taken of (19) The rules governing branches of credit institutions having their head office outside the Community should be analogous in all Member States. It is important at the present time to provide that such rules may not be more favourable than those for branches of institutions from another Member State. It should be specified that the agreements with third Community may countries providing for the application of rules which accord such branches the same treatment throughout its territory, the principle of reciprocity. The branches of credit institutions authorised in third countries do not enjoy the freedom to provide services under the second paragraph of Article 49 of the Treaty or the freedom of establishment in Member States other than those in which they are established. However, requests for the authorisation of subsidiaries or of the acquisition of holdings made by undertakings governed by the laws of third countries are subject to a procedure intended to ensure that Community credit institutions receive reciprocal in the third countries in question. treatment (20) The authorisations granted to credit institutions by the competent national authorities pursuant to this Directive have Community-wide, and no longer merely nationwide, application. Existing reciprocity clauses have therefore no effect. A flexible procedure is therefore needed to make it possible to assess reciprocity on a Community basis. The aim of this procedure is not to close the Community’s financial markets but rather, as the Community intends to keep its financial markets open to the rest of the world, the global financial markets in other third countries. To that end, this Directive provides for procedures for negotiating with third countries and, as a last the possibility of taking measures involving the suspension of new applications for authorisation or the restriction of new authorisations. liberalisation of to improve resort, the for (21) It is desirable that agreement should be reached, on the basis of reciprocity, between the Community and third countries with a view to allowing the practical exercise of consolidated largest possible geographical area. supervision over the (22) Responsibility for supervising the financial soundness of a credit institution, and in particular its solvency, rests with the competent authorities of its home Member State. The host Member State’s competent authorities retain responsibility for the supervision of liquidity and monetary policy. The supervision of market risk must be the subject of close cooperation between the competent authorities of the home and host Member States. (23) The smooth operation of the internal banking market requires not only legal rules but also close and regular cooperation between the competent authorities of the Member States. For consideration of problems the concerning individual credit institutions the (cid:145)groupe de (contact group) set up between the banking contact(cid:146) supervisory authorities the most appropriate remains forum. That group is a suitable body for the mutual exchange of information provided for in Article 28. (24) That mutual information procedure does not in any case replace the bilateral collaboration established by Article 28. The competent host Member State authorities can, without prejudice to their powers of proper control, continue either, in an emergency, on their own initiative or the competent home Member State authorities, to verify that the activities of a credit territories comply with the relevant laws and with the principles of sound administrative and accounting procedures and adequate internal control. institution established within their following the initiative of (25) It is appropriate to allow the exchange of information between the competent authorities and authorities or L 126/4 EN Official Journal of the European Communities 26. 5. 2000 their bodies which, by virtue of function, help to strengthen the stability of the financial system. In order to preserve the confidential nature of the information forwarded, the list of addressees must remain within strict limits. (26) Certain behaviour, such as fraud and insider offences, is liable to affect the stability, including the integrity, of the financial system, even when involving institutions other than credit institutions. (27) It is necessary to specify the conditions under which such exchanges of information are authorised. (28) Where it is stipulated that information may be disclosed the competent these may, where appropriate, make their only with the express agreement of authorities, agreement subject to compliance with strict conditions. (32) Such standards must apply to all credit institutions authorised in the Community. (33) The own funds of a credit institutions can serve to absorb losses which are not matched by a sufficient volume of profits. The own funds also serve as an important yardstick for the competent authorities, in particular for the assessment of the solvency of credit institutions and for other prudential purposes. (34) Credit institutions, in an internal banking market, engage in direct competition with each other, and the definitions and standards pertaining to own funds must therefore be equivalent. To that end, the criteria for determining the composition of own funds must not be left solely to Member States. The adoption of common basic standards will be in the best interests of the Community in that it will prevent competition and will of distortions strengthen the Community banking system. (29) Exchanges of information between, on the one hand, the competent authorities and, on the other, central banks and other bodies with a similar function in their capacity as monetary authorities and, where appropriate, other public authorities responsible for supervising payment systems should also be authorised. (35) The definition of own funds laid down in this Directive for a maximum of items and qualifying provides amounts, leaving it to the discretion of each Member State to use all or some of such items or to adopt lower ceilings for the qualifying amounts. (30) For institutions, situation or strengthening the purpose of the prudential supervision of credit institutions and protection of clients it should be stipulated that an of credit auditor must have a duty to report promptly to the competent authorities, wherever, as provided for by this Directive, he becomes aware, while carrying out his tasks, of certain facts which are liable to have a serious effect the administrative and on the financial accounting organisation of a credit institution. Having regard to the aim in view, it is desirable for the Member State to provide that such a duty should apply in all circumstances where such facts are discovered by an in an auditor during the performance of his undertaking which has credit institution. The duty of auditors to communicate, where appropriate, to the competent authorities certain facts and decisions concerning a credit institution which they their tasks in a discover during the performance of non-financial undertaking does not in itself change the nature of their tasks in that undertaking nor the manner in which they must perform those in that undertaking. tasks links with a close tasks (31) Common basic standards for the own funds of credit institutions are a key factor in the creation of an internal banking market since own funds serve to ensure the continuity of credit institutions and to protect savings. Such harmonisation strengthens the supervision of credit institutions and contributes to further coordination in the banking sector. (36) This Directive specifies the qualifying criteria for certain own funds items, and the Member States remain free to apply more stringent provisions. (37) At the initial stage common basic standards are defined the items in broad terms in order to encompass all making up own funds in the different Member States. (38) According to the nature of the items making up own funds, this Directive distinguishes between on the one hand, items constituting original own funds and, on the other, those constituting additional own funds. (39) To reflect the fact that items constituting additional own funds are not of the same nature as those constituting original own funds, the amount of the former included in own funds must not exceed the original own funds. Moreover, the amount of certain items of additional own funds included must not exceed one half of the original own funds. (40) In order to avoid distortions of competition, public credit institutions must not in their own funds include guarantees granted them by the Member States or local authorities. 26. 5. 2000 EN Official Journal of the European Communities L 126/5 (41) Whenever in the course of supervision it is necessary to determine the amount of the consolidated own funds of a group of credit institutions, the calculation shall be effected in accordance with this Directive. mutual recognition of supervision techniques and thus the completion of the internal banking market. of the (42) The precise accounting technique to be used for the calculation of own funds, the solvency ratio, and for the assessment of the concentration of exposures must take of Council Directive account 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other institutions (1), which incorporates certain financial the provisions of Council Directive adaptations of 83/349/EEC of 13 June 1983 based on Article 44(2)(g) of the Treaty on consolidated accounts (2). provisions (43) The provisions on own funds form part of the wider international effort to bring about approximation of the rules in force in major countries regarding the adequacy of own funds. (44) The Commission will draw up a report and periodically examine, with the aim of tightening them, the provisions on own funds and thus achieving greater convergence on a common definition of own funds. Such convergence will credit allow the institutions’ own funds. of Community alignment (45) The provisions on solvency ratios are the outcome of work carried out by the Banking Advisory Committee which is to the responsible for making suggestions Commission with a view to coordinating the coefficients applicable in the Member States. (46) The establishment of an appropriate solvency ratio plays a central role in the supervision of credit institutions. (47) A ratio which weights assets and off-balance-sheet items according to the degree of credit risk is a particularly useful measure of solvency. (48) The development of common standards for own funds in relation to assets and off-balance-sheet items exposed to the credit risk is, accordingly, an essential aspect of the the achievement of harmonisation necessary for (1) OJ L 372, 31. 12. 1986, p. 1. (2) OJ L 193, 18. 7. 1983, p. 1. Directive as last amended by Directive 90/605/EEC (OJ L 317, 16. 11. 1990, p. 60). (49) considered in conjunction with other In that respect, the provisions on a solvency ratio must be specific instruments also harmonising the fundamental techniques of the supervision of credit institutions. (50) In an internal banking market, institutions are required to enter into direct competition with one another and the common solvency standards in the form of a minimum ratio prevent distortions of competition and strengthen the Community banking system. by (51) This Directive provides for different weightings to be financial issued given to guarantees institutions. The Commission accordingly undertakes to taken as a whole examine whether this Directive significantly credit institutions and insurance undertakings and, in the light of that examination, to consider whether any remedial measures are justified. competition different between distorts the in the context of calculation of are obliged to strive (52) Annex III lays down the treatment of off-balance-sheet items credit institutions’ capital requirements. With a view to the the internal market and in smooth functioning of particular with a view to ensuring a level playing field Member States for uniform assessment of contractual netting agreements by their the competent authorities. Annex III takes account of work of an international forum of banking supervisors on the supervisory recognition of bilateral netting, in particular the possibility of calculating the own-funds requirements for certain transactions on the basis of a net rather than a gross amount provided that there are legally binding agreements which ensure that the credit risk is confined to the net amount. For internationally active credit institutions and groups of credit institutions in a wide range of third countries, which compete with Community credit institutions, the rules adopted on the refined level will wider supervisory (OTC) of derivative instruments. This refinement results in a more appropriate compulsory capital cover taking into account the supervisorily recognised contractual netting agreements on potential future credit instruments risks. The clearing of OTC derivative provided by central counterparty plays an important role in certain Member States. It is appropriate to recognise the benefits from such a clearing in terms of a reduction of credit risk and related systemic risk in the prudential treatment of credit risk. It is necessary for the current and potential future exposures arising from cleared OTC derivatives contracts in a over-the-counter risk-reducing effects of clearing houses international treatment acting result as a L 126/6 EN Official Journal of the European Communities 26. 5. 2000 as treatment same prudential to be fully collateralised and for the risk of a build-up of the clearing house’s exposures beyond the market value of posted collateral to be eliminated in order for cleared OTC derivatives to be granted for a transitional period the exchange-traded derivatives. The competent authorities must be satisfied as to the level of the initial margins and variation margins required and the quality of and the level of protection provided by the posted collateral. For credit institutions incorporated in the Member States, Annex III creates a similar possibility for the recognition of bilateral netting by the competent authorities and thereby offers them equal conditions of competition. The rules are both further well prudential reinforcement The supervisory measures competent authorities should ensure that is based on effective rather than apparent national amounts. the calculation of add-ons in the Member States application credit institutions. appropriate balanced and the the for to of of (53) The minimum ratio provided for in this Directive in the reinforces Community. A level of 8 % has been adopted following a statistical survey of capital requirements in force at the beginning of 1988. institutions capital of credit the (54) The essential rules for monitoring large exposures of credit institutions should be harmonised. Member States should still be able to adopt provisions more stringent than those provided for by this Directive. (55) The monitoring and control of a credit institution’s exposures is an integral part of its supervision. Excessive concentration of exposures to a single client or group of connected clients may result in an unacceptable risk of loss. Such a situation may be considered prejudicial to the solvency of a credit institution. (56) throughout In an internal banking market, credit institutions are engaged in direct competition with one another and monitoring requirements the Community should therefore be equivalent. To that end, the criteria applied to determining the concentration of exposures must be at Community level and cannot be left entirely to the the Member States. The adoption of discretion of common rules will therefore best serve the Community’s interests, in the conditions of strengthening the Community’s banking system. it will prevent differences legally binding rules competition, while subject of since the risk were devised for credit institutions. That list should therefore be used also for the definition of exposures for the purposes of limits to large exposures. It is not, however, appropriate to refer on principle to the weightings or degrees of risk laid down in the said provisions. Those weightings and the purpose of degrees of establishing a general solvency requirement to cover the In the context of the credit risk of credit institutions. the aim is to limit the regulation of maximum loss institution may incur through any single client or group of connected clients. It is therefore appropriate to adopt a prudent approach in which, as a general rule, account is taken of the nominal value of exposures, but no weightings or degrees of risk are applied. large exposures, that a credit In the field of (58) When a credit institution incurs an exposure to its own parent undertaking or to other subsidiaries of its parent undertaking, particular prudence is necessary. The management of exposures incurred by credit institutions must be carried out in a fully autonomous manner, in sound banking accordance with the principles of management, without regard to any considerations other than those principles. The provision of this Directive require that where the influence exercised by persons directly or indirectly holding a qualifying participation in a credit institution is likely to operate to the detriment of the sound and prudent management of that institution, the competent authorities shall take appropriate measures to put an end to that situation. large exposures, specific standards should also be laid down for institution to its own exposures incurred by a credit group, and in such cases more stringent restrictions are justified than for other stringent restrictions need not, however be applied where the parent undertaking is a financial holding company or a institution or where the other subsidiaries are credit either credit or institutions or undertakings offering ancillary banking services, provided that all such undertakings are covered by the supervision of the credit In such cases the institution on a consolidated basis. consolidated monitoring of the group of undertakings allows for an adequate level of supervision, and does not require the imposition of more stringent limits on exposure. Under this approach banking groups will also be encouraged to organise their structures in such a way as to allow consolidated monitoring, which is desirable because a more comprehensive level of monitoring is possible. exposures. More financial (59) In order to be effective, supervision on a consolidated including basis must be applied to all banking groups, those the parent undertakings of which are not credit institutions. The competent authorities must hold the necessary legal instruments to be able to exercise such supervision. (57) The provisions on a solvency ratio for credit institutions include a list of credit risks which may be incurred by (60) In the case of groups with diversified activities the parent credit undertakings of which control at least one 26. 5. 2000 EN Official Journal of the European Communities L 126/7 institution subsidiary, the competent authorities must be able to assess the financial situation of a credit institution in such a group. Pending subsequent coordination, the Member States may lay down appropriate methods of consolidation for the achievement of the objective of this Directive. The competent authorities must at least have the means of obtaining from all undertakings within a group the information necessary for the performance of function. Cooperation between the authorities their responsible for financial the supervision of different sectors must be established in the case of groups of undertakings carrying on a range of financial activities. considered inappropriate (61) The Member States can, furthermore, refuse or withdraw banking authorisation in the case of certain group structures carrying on banking activities, in particular because such structures could not be supervised effectively. In this respect the competent authorities have the powers mentioned in the first subparagraph of Article 7(1), Article 7(2), point (c) of Article 14(l), and Article 16 of this Directive, in order to ensure the sound and prudent management of credit institutions. for (62) The Member States can equally apply appropriate supervision techniques to groups with structures not covered by this Directive. If such structures become common, this Directive should be extended to cover them. (63) Supervision on a consolidated basis must take in all activities defined in Annex I. All undertakings principally engaged in such activities must therefore be included in supervision on a consolidated basis. As a result, the definition of financial institutions must be widened in order to cover such activities. (64) Directive with together 86/635/EEC, established the Directive 83/349/EEC, consolidation applicable to consolidated accounts published by credit therefore possible to define more institutions. in prudential precisely supervision exercised on a consolidated basis. is the methods to be used rules of It (65) Supervision of credit institutions on a consolidated basis must be aimed at, in particular, protecting the interests of the depositors of the said institutions and ensuring the stability of the financial system. the business of credit institutions requires cooperation between the competent authorities and the Commission within a banking advisory committee, particularly when conducted with a view to closer coordination. The Banking Advisory competent Committee authorities of the Member States does not rule out other forms authorities which supervise the taking up and pursuit of the business of credit institutions and, in particular, cooperation within the (cid:145)groupe de contact(cid:146) (contact group) set up between the banking supervisory authorities. cooperation between the of of (67) Technical modifications to the detailed rules laid down in this Directive may from time to time be necessary to take account of new developments in the banking sector. The Commission shall accordingly make such modifications as are necessary, after consulting the Banking Advisory Committee, within the limits of the implementing powers conferred on the Commission by the Treaty. The measures necessary for this Directive should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures implementing powers the exercise of conferred on the Commission (1). the implementation of for in the case of (68) Article 36(1) of this Directive permits joint and several credit commitments of borrowers institutions organised as cooperative societies or funds to be treated as own funds items under Article 34(2)(7). The Danish Government has expressed a strong interest in having its few mortgage credit institutions organised as funds converted into public cooperative societies or to facilitate the limited liability companies. conversion or temporary derogation allowing them to include part of their joint and several commitments as own funds is required. This affect derogation should not temporary competition between credit institutions. In order it possible, to make adversely a (69) The application of a 20 % weighting to credit institutions’ holdings of mortgage bonds may unsettle a national financial market on which such instruments play a preponderant role. In this case, provisional measures are taken to apply a 10 % risk weighting. The market for securitisation is undergoing rapid development. is therefore desirable that the Commission should examine treatment of with the Member States the prudential asset-backed securities and put forward, before 22 June 1999, proposals aimed at adapting existing legislation in order to define an appropriate prudential treatment for asset-backed securities. The competent authorities may secured by authorise mortgages on offices or on multipurpose commercial premises until 31 December 2006. The property to a 50 % weighting to assets It (66) The examination of problems connected with matters covered by this Directive as well as by other Directive on (1) OJ L 184, 17. 7. 1999, p. 23. L 126/8 EN Official Journal of the European Communities 26. 5. 2000 criteria which the mortgage relates must be subject to rigorous revaluation to take and regular assessment account of the developments in the commercial property market. The property must be either occupied or let by the owner. Loans for property development are excluded from this 50 % weighting. (71) Moreover, the harmonisation of the conditions relating to the reorganisation and winding-up of credit institutions is also proceeding. (72) The arrangements necessary for the supervision of liquidity risks will also have to be harmonised. (70) to ensure harmonious application of In order the provisions on large exposures, Member States should be allowed to provide for the two-stage application of the new limits. For institutions, a longer transitional period may be warranted inasmuch as too rapid an application of the 25 % rule could reduce their lending activity too abruptly. smaller credit (73) This Directive must no affect the Member States concerning the deadlines for transposition set out in Annex V, Part B, to obligations of HAVE ADOPTED THIS DIRECTIVE: 26. 5. 2000 EN Official Journal of the European Communities L 126/9 CONTENTS DEFINITIONS AND SCOPE. Definitions. Scope. Prohibition for undertakings other than credit institutions from carrying on the business. of taking deposits or other repayable funds from the public REQUIREMENTS FOR ACCESS TO THE TAKING UP AND PURSUIT OF THE BUSINESS OF CREDIT INSTITUTIONS. Authorisation. Initial capital. Management body and place of the head office of credit institutions. Shareholders and members. Programme of operations and structural organisation. Economic needs. Authorisation refusal. Notification of the authorisation to the Commission. Prior consultation with the competent authorities of other Member States. Branches of credit institutions authorised in another Member State. Withdrawal of authorisation. Name. Qualifying holding in a credit institution. Procedures and internal control mechanisms. PROVISIONS CONCERNING THE FREEDOM OF ESTABLISHMENT AND THE FREEDOM TO PROVIDE SERVICES. Credit institutions. Financial institutions. Exercise of the right of establishment. Exercise of the freedom to provide services. Power of the competent authorities of the host Member State. Page 12 12 14 15 16 16 16 16 17 17 17 17 17 17 18 18 18 18 19 19 19 19 20 21 21 RELATIONS WITH THIRD COUNTRIES. 22 Notification of the subsidiaries of third countries’ undertakings and conditions of access to the markets of these countries. Branches of credit institutions having their head offices outside the Community. Cooperation with third countries’ competent authorities regarding supervision on a. consolidated basis TITLE I Article 1 Article 2 Article 3 TITLE II Article 4 Article 5 Article 6 Article 7 Article 8 Article 9 Article 10 Article 11 Article 12 Article 13 Article 14 Article 15 Article 16 Article 17 TITLE III Article 18 Article 19 Article 20 Article 21 Article 22 TITLE IV Article 23 Article 24 Article 25 TITLE V PRINCIPLES AND TECHNICAL INSTRUMENTS FOR PRUDENTIAL SUPERVISION Chapter 1 Principles of prudential supervision. Article 26 Article 27 Article 28 Competence of control of the home Member State. Competence of the host Member State. Collaboration concerning supervision. 22 23 23 24 24 24 24 24 L 126/10 EN Official Journal of the European Communities 26. 5. 2000 Article 29 Article 30 Article 31 Article 32 Article 33 On-the-spot verification of branches established in another Member State. Exchange of information and professional secrecy. Duty of persons responsible for the legal control of annual and consolidated accounts. Power of sanction of the competent authorities. Right to apply to the courts. Page 24 24 26 27 27 Chapter 2 Technical instruments of prudential supervision. 27 Section 1 Article 34 Article 35 Article 36 Article 37 Article 38 Article 39 Section 2 Article 40 Article 41 Article 42 Article 43 Article 44 Article 45 Article 46 Article 47 Section 3 Article 48 Article 49 Article 50 Section 4 Article 51 Own funds. General principles. Other items. Other provisions concerning own funds. Calculation of own funds on a consolidated basis. Deductions and limits. Provision of proof to the competent authorities. Solvency ratio. General principles. The numerator: own funds. The denominator: risk-adjusted assets and off-balance-sheet items. Risk weightings. Weighting of claims for regional governments or local authorities of the Member States. Other weighting. Administrative bodies and non-commercial undertakings. Solvency ratio level. Large exposures. Reporting of large exposures. Limits on large exposures. Supervision on a consolidated or unconsolidated basis of large exposures. Qualifiying holdings outside the financial sector. Limits to non-financial qualifying holdings. Chapter 3 Supervision on a consolidated basis. Article 52 Article 53 Article 54 Article 55 Article 56 TITLE VI Article 57 Article 58 Article 59 Supervision on a consolidated basis of credit institutions. Competent authorities responsible for exercising supervision on a consolidated basis. Form and extent of consolidation. Information to be supplied by mixed-activity holding companies and their subisidiaries. Measures to facilitate supervision on a consolidated basis. BANKING ADVISORY COMMITTEE. Composition and tasks of the Banking Advisory Committee. Examination of the requirements for authorisation. Observation ratios. 27 27 28 29 29 30 30 30 30 30 30 31 33 33 33 33 34 34 34 36 36 36 37 37 38 39 39 40 41 41 41 41 26. 5. 2000 EN Official Journal of the European Communities L 126/11 TITLE VII Article 60 POWERS OF EXECUTION. Technical adaptations. TITLE VIII TRANSITIONAL AND FINAL PROVISIONS. Chapter 1 Transitional provisions. Article 61 Article 62 Article 63 Article 64 Article 65 Transitional provisions regarding Article 36. Transitional provisions regarding Article 43. Transitional provisions regarding Article 47. Transitional provisions regarding Article 49. Transitional provisions regarding Article 51. Chapter 2 Final provisions. Article 66 Article 67 Article 68 Article 69 ANNEX I ANNEX II Commission information. Repealed Directives. Implementation. Addressees. List of activities subject to mutual recognition. Classification of off-balance-sheet items. ANNEX III The treatment of off-balance-sheet items. ANNEX IV Types of off-balance-sheet items. ANNEX V Part A Repealed Directives, together with their successive amendments (referred to in Article 67) ANNEX V Part B Deadlines for implementation (referred to in Article 67). ANNEX VI Correlation table. Page 42 42 42 42 42 43 44 44 45 45 45 45 45 45 46 47 48 52 53 54 55 L 126/12 EN Official Journal of the European Communities 26. 5. 2000 TITLE I DEFINITIONS AND SCOPE Article 1 Definitions For the purpose of this Directive: 1. institution(cid:146) (cid:145)credit shall mean an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account. the purposes of applying the supervision on a For credit considered as shall be consolidated basis, institution, a credit institution according to the first paragraph and any private or public undertaking which corresponds to the definition in the first paragraph and which has been authorised in a third country. a For the purposes of applying the supervision and control shall be considered as a credit of large exposures, institution according to the first institution, a credit paragraph, including branches of a credit institution in third countries and any private or public undertaking, including to the its branches, which corresponds definition in the first paragraph and which has been authorised in a third country; 6. 7. 8. 9. 10. (cid:145)home Member State(cid:146) shall mean the Member State in which a institution has been authorised in accordance with Articles 4 to 11; credit (cid:145)host Member State(cid:146) shall mean the Member State in which a credit institution has a branch or in which it provides services; (cid:145)control(cid:146) shall mean the relationship between a parent undertaking and a subsidiary, as defined in Article 1 of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking; for supervision on a the purposes of (cid:145)participation(cid:146) consolidated basis shall mean the ownership, direct or indirect, of 20 % or more of the voting rights or capital of an undertaking; shall mean a direct or (cid:145)qualifiying holding(cid:146) indirect holding in an undertaking which represents 10 % or more of the capital or of the voting rights or which makes it the possible to exercise a significant management of the undertaking in which a holding subsists. influence over 11. (cid:145)initial capital(cid:146) shall mean capital as defined in Article 34(2)(1) and (2); 2. issued in any (cid:145)authorisation(cid:146) shall mean an instrument form by the authorities by which the right to carry on the business of a credit institution is granted; 12. (cid:145)parent undertaking(cid:146) shall mean a parent undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC. 3. (cid:145)branch(cid:146) shall mean a place of business which forms a legally dependent part of a credit institution and which carries out directly all or the transactions inherent in the business of credit institutions; any number of places of business set up in the same Member State by a credit institution with headquarters in another Member State shall be regarded as a single branch; some of It shall, for the purposes of supervision on a consolidated basis and control of large exposures, mean a parent undertaking within the meaning of Article 1(1) of Directive 83/349/EEC and any undertaking which, in the opinion of the competent authorities, effectively exercises a dominant influence over another undertaking; 4. (cid:145)competent authorities(cid:146) shall mean the national authorities which are empowered by law or regulation to supervise credit institutions; 5. (cid:145)financial institution(cid:146) shall mean an undertaking other than a credit institution, the principal activity of which is to acquire holdings or to carry on one or more of the activities listed in points 2 to 12 of Annex I; 13. (cid:145)subsidiary(cid:146) shall mean a subsidiary undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC. It shall, for the purposes of supervision on a consolidated basis and control of large exposures, mean a subsidiary undertaking within the meaning of Article 1(1) of Directive 83/349/EEC and any undertaking over which, in the opinion of the competent authorities, a parent undertaking effectively exercises a dominant influence. 26. 5. 2000 EN Official Journal of the European Communities L 126/13 All subsidiaries of subsidiary undertakings shall also be considered subsidiaries of the undertaking that is their original parent; either exclusively or mainly credit institutions or financial institutions, one at least of such subsidiaries being a credit institution; 14. full members countries which are (cid:145)Zone A(cid:146) shall comprise all the Member States and all other the Organisation for Economic Cooperation and Development (OECD) and those countries which have concluded special lending arrangements with the International Monetary associated with Fund general (IMF) the to borrow (GAB). Any country which arrangements reschedules is, however, precluded from Zone A for a period of five years; sovereign debt its external Fund’s of 15. (cid:145)Zone B(cid:146) shall comprise all countries not in Zone A; 16. authorised institutions(cid:146) the Member shall mean all credit (cid:145)Zone A credit in institutions in accordance with Article 4, including their branches in third countries, and all private and public undertakings covered by the definitions in point 1, first subparagraph and authorised in other Zone A countries, including their branches; States, 17. (cid:145)Zone B credit institutions(cid:146) shall mean all private and public undertakings authorised outside Zone A covered by the definition in point 1, first subparagraph, including their branches within the Community; 18. 19. 20. 21. (cid:145)non-bank sector(cid:146) shall mean all borrowers other than credit institutions as defined in points 16 and 17, central governments and central banks, regional governments and local authorities, the European and multilateral Investment development banks as defined in point 19; the European Communities, Bank (EIB) banks(cid:146) development shall mean the Asian Development Bank, (cid:145)multilateral the International Bank for Reconstruction and Development, the International Finance Corporation, the Inter-American Development Bank, the the Council of Europe African Development Bank, the Resettlement Fund, the European Bank for Caribbean Development Bank, Reconstruction European Investment Fund and the Inter-American Investment Corporation; the Nordic Investment Bank, Development, and the (cid:147)medium-risk(cid:148), (cid:145)(cid:147)full-risk(cid:148), and (cid:147)low-risk(cid:148) off-balance-sheet items(cid:146) shall mean the items described in Article 43(2) and listed in Annex II; (cid:147)medium/low-risk(cid:148) (cid:145)financial holding company(cid:146) institution, financial the subsidiary undertakings of which are shall mean a 22. (cid:145)mixed-activity holding company(cid:146) shall mean a parent undertaking, other than a financial holding company or a credit institution the subsidiaries of which include at least one credit institution; 23. (cid:145)ancillary banking services undertaking(cid:146) shall mean an undertaking the principal activity of which consists in owning or managing property, managing data-processing services, or any other similar activity which is ancillary to the principal activity of one or more credit institutions; 24. (cid:145)exposures(cid:146) for the purpose of applying Articles 48, 49 and 50 shall mean the assets and off-balance-sheet items referred to in Article 43 and in Annexes II and IV thereto, without application of the weightings or degrees of risk there provided for; the risks referred to in Annex IV must be calculated in accordance with one of the methods set out in Annex III, without application of the weightings for counterparty risk; all elements entirely covered by own funds may, with the agreement of the competent authorities, be excluded from the definition of exposures provided that such own funds are not included in the calculation of the solvency ratio or of other monitoring in this Directive and in other ratios provided for Community acts; exposures shall not include: (cid:151) in the case of transactions, course of exposures settlement during the 48 hours following payment, or foreign exchange in the ordinary incurred (cid:151) in the case of transactions for the purchase or sale of securities, exposures incurred in the ordinary course of settlement during the five working days following payment or delivery of the securities, whichever is the earlier; 25. (cid:145)group of connected clients(cid:146) shall mean: (cid:151) two or more natural or legal persons who, unless it is shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other or others or (cid:151) two or more natural or legal persons between whom there is no relationship of control as defined in the first indent but who are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, the other or all of the others would be likely to encounter repayment difficulties; L 126/14 EN Official Journal of the European Communities 26. 5. 2000 26. (cid:145)close links(cid:146) shall mean a situation in which two or more natural or legal persons are linked by: The institutions permanently excluded by paragraph 3, with the exception, however, of the Member States’ central banks, shall be treated as financial institutions for the purposes of Articles 25 and 52 to 56. (a) participation, which shall mean the ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an undertaking, or (b) control, which shall mean the relationship between a parent undertaking and a subsidiary, in all the cases referred to in Article 1(1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking; any subsidiary undertaking of a subsidiary undertaking shall also be considered a subsidiary of the parent undertaking which those at undertakings. head the of is A situation in which two or more natural or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons. 27. (cid:145)recognised exchanges(cid:146) shall mean exchanges recognised by the competent authorities which: (i) function regularly, (ii) have rules, issued or approved by the appropriate authorities of the home country of the exchange, which define the conditions for the operation of the exchange, the conditions of access to the exchange as well as the conditions that must be satisfied by a contract before it can effectively be dealt on the exchange, (iii) have a clearing mechanism that provides for contracts listed in Annex IV to be subject to daily an appropriate margin providing protection in the opinion of competent the authorities. requirements Article 2 Scope 1. This Directive concerns the taking up and pursuit of the business of credit institutions. This Directive shall apply to all credit institutions. 3. This Directive shall not apply to: (cid:151) the central banks of Member States, (cid:151) post office giro institutions, (cid:151) in Belgium, de RØescompte Garantie/Herdiscontering- en Waarborginstituut(cid:146), (cid:145)Institut the et de (cid:151) in Denmark, (cid:145)Danmarks Realkreditfond(cid:146), the (cid:145)Dansk Eksportfinansieringsfond(cid:146), and Skibskreditfond(cid:146), the Landbrugs (cid:145)Dansk the which (cid:145)Kreditanstalt (cid:151) in Germany, f(cid:252)r Wiederaufbau(cid:146), undertakings the under as bodies of State (cid:145)Wohnungsgemeinn(cid:252)tzigkeitsgesetz(cid:146) housing policy and are not mainly engaged in banking transactions, and undertakings recognised under that law as non-profit housing undertakings, recognised are (cid:151) in Greece, the (cid:145)Ekkgmij(cid:222) Sq(cid:220)pefa Biolgvamij(cid:222)y Amaps(cid:253)nexy,(cid:146), the (cid:145)Sale(cid:223)o (Elliniki Trapeza Viomichanikis Anaptyxeos), Paqajasahgj(cid:254)m jai Dame(cid:223)xm(cid:146) (Tamio Parakatathikon kai Danion), and the (cid:145)Savtdqolij(cid:252) Saliets(cid:222)qio(cid:146) (Tachidromiko Tamieftirio), (cid:151) in Spain, the (cid:145)Instituto de CrØdito Oficial(cid:146), (cid:151) in France, the (cid:145)Caisse des dØp(cid:244)ts et consignations(cid:146), (cid:151) in Ireland, credit unions and the friendly societies, (cid:151) in Italy, the (cid:145)Cassa depositi e prestiti(cid:146), (cid:151) in the Netherlands, the (cid:145)Netherlandse Investeringsbank (cid:145)NV Noordelijke voor Ontwikkelingslanden NV(cid:146), Ontwikkelingsmaatschappij(cid:146), Industriebank the Limburgs Instituut voor Ontwikkeling en Financiering(cid:146) and the (cid:145)Overijsselse Ontwikkelingsmaatschappij NV(cid:146), (cid:145)NV the 2. Articles 25 and 52 to 56 shall also apply to financial holding companies and mixed-activity holding companies which have their head offices in the Community. (cid:151) in Austria, undertakings recognised as housing associations in the public interest and the (cid:145)(cid:214)sterreichische Kontrollbank AG(cid:146), 26. 5. 2000 EN Official Journal of the European Communities L 126/15 (cid:151) in Portugal, (cid:145)Caixas Econ(cid:243)micas(cid:146) existing on 1 January 1986 with the exception of those incorporated as limited companies and of the (cid:145)Caixa Econ(cid:243)mica Montepio Geral(cid:146), Credit institutions operating locally which are affiliated, subsequent to 15 December 1977, to a central body within the meaning of the first subparagraph, may benefit from the conditions they constitute normal additions to the network belonging to that central body. laid down therein if (cid:151) in Finland, the (cid:145)Teollisen yhteisty(cid:246)n rahasto Oy/Fonden f(cid:246)r industriellt samarbete AB(cid:146), and the (cid:145)Kera Oy/Kera Ab(cid:146), (cid:151) in Sweden, the (cid:145)Svenska Skeppshypotekskassan(cid:146), (cid:151) in the United Kingdom, the National Savings Bank, the Commonwealth Development Finance Company Ltd, the Agricultural Mortgage Corporation Ltd, Scottish Agricultural Securities Corporation Ltd, the Crown Agents for overseas governments credit unions and municipal banks. and administrations, the 4. The Council, acting on a proposal from the Commission, which, for this purpose, shall consult the Committee referred to in Article 57 (hereinafter the (cid:145)Banking Advisory Committee(cid:146)) shall decide on any amendments to the list in paragraph 3. referred to as Credit institutions situated in the same Member State and 5. permanently affiliated, on 15 December 1977, to a central body which supervises them and which is established in that same Member State, may be exempted from the requirements of Articles 6(1), 8 and 59 if, no later than 15 December 1979, national law provides that: the central body and affiliated (cid:151) the commitments of joint the and several its affiliated institutions are entirely institutions are commitments of guaranteed by the central body, liabilities or (cid:151) the solvency and liquidity of the central body and of all the affiliated institutions are monitored as a whole on the basis of consolidated accounts, (cid:151) the management of the central body is empowered to issue affiliated the management the to of instructions institutions. In the case of credit institutions other than those which are set up in areas newly reclaimed from the sea or have resulted from scission or mergers of existing institutions dependent or answerable to the central body, the Council, acting on a proposal from the Commission, which shall for this purpose, consult the Banking Advisory Committee, may lay down additional rules for the application of the second subparagraph including the repeal of exemptions provided for in the first subparagraph, where it is of the opinion that the affiliation of new institutions benefiting from the arrangements laid down in the second subparagraph might have an adverse effect on competition. The Council shall decide by a qualified majority. A credit 6. institution which, as defined in the first subparagraph of paragraph 5, is affiliated to a central body in the same Member State may also be exempted from the provisions of Article 5, and also Articles 40 to 51, and 65 provided that, without prejudice to the application of those provisions to the central body, the whole as constituted by the central body together with its affiliated institutions is subject to the abovementioned provisions a consolidated basis. In case of exemption, Articles 13, 18, 19, 20(1) to (6), 21 and 22 shall apply to the whole as constituted by the central body together with its affiliated institutions. Article 3 Prohibition for undertakings other than credit institutions from carrying on the business of taking deposits or other repayable funds from the public The Member States shall prohibit persons or undertakings that are not credit institutions from carrying on the business of taking deposits or other repayable funds from the public. This prohibition shall not apply to the taking of deposits or other funds repayable by a Member State or by a Member State’s regional or local authorities or by public international bodies of which one or more Member States are members or to cases expressly covered by national or Community legislation, provided that those activities are subject to regulations and controls intended to protect depositors and investors and applicable to those cases. L 126/16 EN Official Journal of the European Communities 26. 5. 2000 TITLE II REQUIREMENTS FOR ACCESS TO THE TAKING UP AND PURSUIT OF THE BUSINESS OF CREDIT INSTITUTIONS Article 4 Authorisation shall to obtain require credit Member States authorisation before commencing their activities. They shall lay down the requirements to Articles 5 to 9, and notify them to both the Commission and the Banking Advisory Committee. such authorisation subject institutions for Article 5 Initial capital 3. A credit institution’s own funds may not fall below the amount of initial capital required by paragraphs 1 and 2 at the time of its authorisation. 4. The Member States may decide that credit institutions already in existence on 1 January 1993, the own funds of which do not attain the levels prescribed for initial capital in paragraphs 1 and 2, may continue to carry on their activities. In that event, their own funds may not fall below the highest level reached with effect from 22 December 1989. If control of a credit 5. institution falling within the category referred to in paragraph 4 is taken by a natural or than the person who controlled the legal person other institution previously, the own funds of that institution must attain at in the level prescribed for paragraphs 1 and 2. initial capital least 1. Without prejudice to other general conditions laid down the competent authorities shall not grant by national law, authorisation when the credit institution does not possess separate own funds or in cases where initial capital is less than EUR 5 million. Member States may decide that credit institutions which do not fulfil the requirement of separate own funds and which were in existence on 15 December 1979 may continue to carry on their business. They may exempt such credit institutions from complying with the requirement contained in the first subparagraph of Article 6(1). 6. In certain specific circumstances and with the consent of the competent authorities, where there is a merger of two or more credit institutions falling within the category referred to in paragraph 4, the own funds of the institution resulting from the merger may not fall below the total own funds of the merged institutions at the time of the merger, as long as the appropriate levels pursuant to paragraphs 1 and 2 have not been attained. 7. If, in the cases referred to in paragraphs 3, 4 and 6, the own funds should be reduced, the competent authorities may, where the circumstances justify it, allow an institution a limited period in which to rectify its situation or cease its activities. The Member States shall, however, have the option of credit than that 2. granting authorisation to particular institutions prescribed in paragraph 1. In such cases: the initial capital of which is categories of less Article 6 (a) the initial capital shall not be less than EUR 1 million, Management body and place of the head office of credit institutions (b) the Member States concerned must notify the Commission of their reasons for making use of the option provided for in this paragraph, 1. The competent authorities shall grant an authorisation to the credit institution only when there are at least two persons who effectively direct the business of the credit institution. (c) when the list referred to in Article 11 is published, the name of each credit institution that does not have the minimum capital prescribed in paragraph 1 shall be annotated to that effect. Moreover, the authorisation if repute or lack sufficient experience to perform such duties. authorities grant these persons are not of sufficiently good concerned shall not 26. 5. 2000 EN Official Journal of the European Communities L 126/17 2. Each Member State shall require that: (cid:151) any credit institution which is a legal person and which, under its national law, has a registered office have its head office in the same Member State as its registered office, (cid:151) any other credit institution have its head office in the Member State which issued its authorisation and in which it actually carries on its business. Article 7 Shareholders and members 1. The competent authorities shall not grant authorisation for the taking-up of the business of credit institutions before they have been informed of the identities of the shareholders or members, whether direct or legal persons, that have qualifying holdings, and of the amounts of those holdings. indirect, natural or For the purpose of the definition of qualifying holding in the context of this Article, the voting rights referred to in Article 7 of Council Directive 88/627/EEC (1) shall be taken into consideration. 2. The competent authorities shall refuse authorisation if, taking into account the need to ensure the sound and prudent management of a credit institution, they are not satisfied as to the shareholders or members. abovementioned suitability of the 3. Where close links exist between the credit institution and other natural or legal persons, the competent authorities shall the grant authorisation only if effective exercise of their supervisory functions. those links do not prevent The competent authorities shall require credit institutions to provide them with the information they require to monitor compliance with the conditions referred to in this paragraph on a continuous basis. Article 8 Programme of operations and structural organisation Member States shall require applications for authorisation to be accompanied by a programme of operations setting out, inter alia, the types of business envisaged and the structural organisation of the institution. Article 9 Economic needs States may Member for authorisation to be examined in terms of the economic needs of the market. application require not the Article 10 Authorisation refusal receipt of Reasons shall be given whenever an authorisation is refused and the applicant shall be notified thereof within six months latter be of incomplete, within six months of the applicant’s sending the information required for the decision. A decision shall, in any case, be taken within 12 months of the application. the application or, the receipt of should the Article 11 Notification of the authorisation to the Commission institution shall be Every authorisation shall be notified to the Commission. Each entered in a list which the credit Commission shall publish in the Official Journal of the European Communities and shall keep up to date. The competent authorities shall also refuse authorisation if the laws, regulations or administrative provisions of a non-member country governing one or more natural or legal persons with which the credit institution has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions. Article 12 Prior consultation with the competent authorities of other Member States (1) Council Directive 88/627/EEC of 12 December 1988 on the information to be published when a major holding in a listed company is acquired or disposed of (OJ L 348, 17. 12. 1988, p. 62). There must be prior authorities of authorisation of a credit institution which is: competent consultation with the the other Member State involved on the L 126/18 EN Official Journal of the European Communities 26. 5. 2000 (cid:151) a subsidiary of a credit institution authorised in another Member State, or (cid:151) a subsidiary of the parent undertaking of a credit institution authorised in another Member State, or (cid:151) controlled by the same persons, whether natural or legal, institution authorised in another as control a credit Member State. Article 13 Branches of credit institutions authorised in another Member State authorisation or Host Member States may not endowment institutions capital authorised in other Member States. The establishment and supervision of such branches shall be effected as prescribed in Articles 17, 20(l) to (6) and Articles 22 and 26. branches of require credit for Article 14 Withdrawal of authorisation The competent 1. authorities may withdraw the authorisation issued to a credit institution only where such an institution: (a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased to engage in business for more than six months, the Member State concerned has made no provision for the authorisation to lapse in such cases; if (b) has obtained the authorisation through false statements or any other irregular means; (c) no longer fulfils the conditions under which authorisation was granted; (d) no longer possesses sufficient own funds or can no longer be relied on to fulfil its obligations towards its creditors, and in particular no longer provides security for the assets entrusted to it; (e) falls within one of provides for withdrawal of authorisation. the other cases where national law Reasons must 2. of authorisation and those concerned informed thereof; such withdrawal shall be notified to the Commission. any withdrawal given for be Article 15 Name in the host Member State, use throughout For the purpose of exercising their activities, credit institutions may, notwithstanding any provisions concerning the use of the (cid:145)savings bank(cid:146) or other banking names which words (cid:145)bank(cid:146), the may exist territory of the Community the same name as they use in the Member State in which their head office is situated. In the event of the host there being any danger of confusion, Member State may, for the purposes of clarification, require accompanied by certain explanatory that particulars. the name be Article 16 Qualifiying holding in a credit institution to hold, directly or The Member States shall require any natural or legal 1. person who proposes indirectly a qualifying holding in a credit institution first to inform the competent authorities, telling them of the size of the intended holding. Such a person must likewise inform the competent authorities if he proposes to increase his qualifying holding so that the proportion of the voting rights or of the capital held by him would reach or exceed 20 %, 33 % or 50 % or so that the credit institution would become his subsidiary. the Without prejudice to the provisions of paragraph 2, competent authorities shall have a maximum of three months from the date of the notification provided for in the first subparagraph to oppose such a plan if, in view of the need to credit ensure institution, they are not satisfied as to the suitability of the person referred to in the first subparagraph. If they do not oppose the plan referred to in the first subparagraph, they may fix a maximum period for its implementation. sound and prudent management of the 2. If the acquirer of the holdings referred to in paragraph 1 is a credit institution authorised in another Member State or the parent undertaking of a credit institution authorised in another Member State or a natural or legal person controlling a credit institution authorised in another Member State and if, as a result of that acquisition, the institution, in which the acquirer proposes to hold a holding would become a the subsidiary or subject assessment of the acquisition must be the subject of the prior consultation referred to in Article 12. to the control of the acquirer, 3. The Member States shall require any natural or legal person who proposes to dispose, directly or indirectly, of a qualifying holding in a credit institution first to inform the competent authorities, telling them of the size of his intended holding. Such a person must likewise inform the competent 26. 5. 2000 EN Official Journal of the European Communities L 126/19 authorities if he proposes to reduce his qualifying holding so that the proportion of the voting rights or of the capital held by him would fall below 20 %, 33 % or 50 % or so that the credit institution would cease to be his subsidiary. them, credit On becoming aware of institutions shall 4. inform the competent authorities of any acquisitions or disposals of holdings in their capital that cause holdings to exceed or fall below one of the thresholds referred to in paragraphs 1 and 3. They shall also, at least once a year, inform them of the names of shareholders and members possessing qualifying holdings and the sizes of such holdings as shown, for example, by the information received at the annual general meetings of shareholders and members or as a result of compliance with the listed on stock exchanges. to companies regulations relating to the detriment of 5. The Member States shall require that, where the influence exercised by the persons referred to in paragraph 1 is likely to operate and sound management of the institution, the competent authorities shall take appropriate measures to put an end to that situation. Such measures may consist for example in injunctions, sanctions against directors and managers, or the suspension of the prudent the exercise of the voting rights attaching to the shares held by the shareholders or members in question. Similar measures shall apply to natural or legal persons failing to comply with the obligation to provide prior information, as laid down in paragraph 1. If a holding is acquired despite the opposition of the competent authorities, the Member States shall, regardless of any other sanctions to be adopted, provide either for exercise of the corresponding voting rights to be suspended, or for the nullity of votes cast or for the possibility of their annulment. 6. For the purposes of the definition of qualifying holding and other levels of holding set out in this Article, the voting rights referred to in Article 7 of Directive 88/627/EEC shall be taken into consideration. Article 17 Procedures and internal control mechanisms credit Home Member State competent authorities shall require that and every accounting control mechanisms. sound administrative adequate institution have procedures internal and TITLE III PROVISIONS CONCERNING THE FREEDOM OF ESTABLISHMENT AND THE FREEDOM TO PROVIDE SERVICES Article 18 Credit institutions The Member States shall provide that the activities listed in in Annex I may be carried on within their accordance with Articles 20(1) to (6), 21(1) and (2), and 22, either by the establishment of a branch or by way of the provision of services, by any credit institution authorised and supervised by the competent authorities of another Member such activities are covered by the State, provided that authorisation. territories, Article 19 Financial institutions accordance with Articles 20(1) to (6), 21(1) and (2), and 22, either by the establishment of a branch or by way of the provision of services, by any financial institution from another Member State, whether a subsidiary of a credit institution or the jointly-owned subsidiary of two or more credit institutions, the memorandum and articles of association of which permit the carrying on of those activities and which fulfils each of the following conditions: (cid:151) the parent undertaking or undertakings must be authorised as credit institutions in the Member State by the law of which the subsidiary is governed, (cid:151) the activities in question must actually be carried on within the territory of the same Member State, (cid:151) the parent undertaking or undertakings must hold 90 % or more of the voting rights attaching to shares in the capital of the subsidiary. The Member States shall also provide that the activities listed in in Annex I may be carried on within their territories, (cid:151) the parent undertaking or undertakings must satisfy the competent authorities regarding the prudent management of the subsidiary and must have declared, with the consent L 126/20 EN Official Journal of the European Communities 26. 5. 2000 of the relevant home Member State competent authorities, that they jointly and severally guarantee the commitments entered into by the subsidiary, (a) the Member State within the territory of which it plans to establish a branch; (cid:151) the effectively included, subsidiary must be the activities in question in particular, in the consolidated supervision of the parent undertaking, or of each of the parent undertakings, in accordance with Articles 52 to 56, in particular for the calculation of the solvency ratio, for large exposures and for purposes of the the control of limitation of holdings provided for in Article 51. for Compliance with these conditions must be verified by the competent authorities of the home Member State and the latter must supply the subsidiary with a certificate of compliance which must form part of the notification referred to in Articles 20(1) to (6), and 21(1) and (2). The competent authorities of the home Member State shall ensure the supervision of the subsidiary in accordance with Articles 5(3), 16, 17, 26, 28, 29, 30, and 32. The provisions mentioned in this Article shall apply mutatis mutandis to subsidiaries, subject to the necessary modifications. In particular, the words (cid:145)credit institution(cid:146) should be read as (cid:145)financial institution fulfilling the conditions laid down in Article 19(cid:146) and the word (cid:145)authorisation(cid:146) as (cid:145)memorandum and articles of association(cid:146). The second subparagraph of Article 20(3) shall read: (cid:145)The home Member State competent authorities shall also communicate the amount of own funds of the subsidiary financial institution and the consolidated solvency ratio of the credit institution which is its parent undertaking(cid:146). If a financial institution eligible under this Article should cease to fulfil any of the conditions imposed, the home Member State shall notify the competent authorities of the host Member State and the activities carried on by that institution in the host Member State become subject to the legislation of the host Member State. Article 20 Exercise of the right of establishment 1. A credit institution wishing to establish a branch within the territory of another Member State shall notify the competent authorities of its Member State. 2. The Member State shall require every credit institution wishing to establish a branch in another Member State to provide the following notification referred to in paragraph 1: information when effecting the (b) a programme of operations setting out, inter alia, the types of business envisaged and the structural organisation of the branch; (c) the address documents may be obtained; in the host Member State from which (d) the names of those responsible for the management of the branch. 3. Unless the competent authorities of the home Member State have reason to doubt the adequacy of the administrative structure or the financial situation of the credit institution, taking into account the activities envisaged, they shall within three months of receipt of the information referred to in paragraph 2 communicate that information to the competent authorities of the host Member State and shall inform the institution accordingly. The home Member State competent authorities shall also communicate the amount of own funds and the solvency ratio of the credit institution. the to communicate Where the competent authorities of the home Member State information referred to in refuse paragraph 2 to the competent authorities of the host Member State, they shall give reasons for their refusal to the institution concerned within three months of the information. That refusal or failure to reply shall be subject to a right to apply to the courts in the home Member State. receipt of all 4. Before the branch of a credit institution commences its activities the competent authorities of the host Member State shall, within two months of information mentioned in paragraph 3, prepare for the supervision of the credit institution in accordance with Article 22 and if necessary indicate the conditions under which, in the interest of the general good, those activities must be carried on in the host Member State. receiving the 5. On receipt of a communication from the competent authorities of the host Member State, or in the event of the expiry of the period provided for in paragraph 4 without receipt of any communication from the latter, the branch may be established and commence its activities. In the event of a change in any of 6. the particulars communicated pursuant to paragraph 2(b), (c) or (d), a credit institution shall give written notice of the change in question to the competent authorities of the home and host Member States at least one month before making the change so as to enable the competent authorities of the home Member State to take a decision pursuant to paragraph 3 and the competent authorities of the host Member State to take a decision on the change pursuant to paragraph 4. 26. 5. 2000 EN Official Journal of the European Communities L 126/21 7. in Branches which have commenced their activities, accordance with the provisions in force in their host Member States, before 1 January 1993, shall be presumed to have been subject to the procedure laid down in paragraphs 1 to 5. They shall be governed, abovementioned date, by paragraph 6, and by Articles 18, 19, 22 and 29. from the Article 21 Exercise of the freedom to provide services 1. Any credit institution wishing to exercise the freedom to provide services by carrying on its activities within the territory of another Member State for the first time shall notify the competent authorities of the home Member State, of the activities on the list in Annex I which it intends to carry on. The competent authorities of the home Member State the notification send that notification to the 2. shall, within one month of mentioned in paragraph 1, competent authorities of the host Member State. receipt of This Article shall not affect rights acquired by credit 3. institutions providing services before 1 January 1993. Article 22 Power of the competent authorities of the host Member State credit Host Member States may, for statistical purposes, require 1. that all institutions having branches within their territories shall report periodically on their activities in those host Member States to the competent authorities of those host Member States. responsibilities In discharging the imposed on them in Article 27, host Member States may require that branches of credit institutions from other Member States provide the same information as they require from national credit institutions for that purpose. 3. If the institution concerned fails to take the necessary steps, the competent authorities of the host Member State shall inform the competent authorities of the home Member State accordingly. The competent authorities of the home Member State shall, at take all appropriate measures to ensure that the institution concerned puts an end to that irregular situation. The nature of those measures shall be communicated to the competent authorities of the host Member State. the earliest opportunity, 4. If, despite the measures taken by the home Member State or because such measures prove inadequate or are not available in the Member State in question, the institution persists in violating the legal rules referred to in paragraph 2 in force in the host Member State, the latter State may, after informing the competent authorities of the home Member State, take appropriate measures to prevent or to punish further irregularities and, in so far as is necessary, to prevent that institution from initiating further transactions within its territory. The Member States shall ensure that within their territories it is possible to serve the legal documents necessary for these measures on credit institutions. 5. The provisions of paragraph 1 to 4 shall not affect the power of host Member States to take appropriate measures to prevent or to punish irregularities committed within their territories which are contrary to the legal rules they have adopted in the interest of the general good. This shall include the possibility of preventing offending institutions from initiating any further transactions within their territories. Any measure adopted pursuant to paragraph 3, 4 and 5 6. involving penalties or the freedom to provide services must be properly justified and communicated to the institution concerned. Every such measure shall be subject to a right of appeal to the courts in the Member State the authorities of which adopted it. restrictions on the exercise of 7. Before following the procedure provided for in paragraph 2, 3 and 4, the competent authorities of the host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of depositors, investors and others to whom services are provided. The Commission and the the other Member States concerned must be informed of such measures at the earliest opportunity. authorities of competent The Commission may, competent authorities of the Member States concerned, decide that the Member State in question must amend or abolish those measures. consulting after the 2. Where the competent authorities of a host Member State ascertain than an institution having a branch or providing services within its territory is not complying with the legal provisions adopted in that State pursuant to the provisions of this Directive involving powers of the host Member State’s competent authorities, require the institution concerned to put an end to that irregular situation. those authorities shall Host Member States may exercise the powers conferred 8. on them under this Directive by taking appropriate measures to prevent or to punish irregularities committed within their territories. This shall include the possibility of preventing institutions from initiating further transactions within their territories. L 126/22 EN Official Journal of the European Communities 26. 5. 2000 9. In the event of the withdrawal of authorisation the the host Member State shall be competent authorities of informed and shall take appropriate measures to prevent the institution concerned from initiating further transactions within its territory and to safeguard the interests of depositors. Every two years the Commission shall submit a report on such cases to the Banking Advisory Committee. 10. The Member States shall inform the Commission of the number and type of cases in which there has been a refusal pursuant to Article 20(1) to (6) or in which measures have been taken in accordance with paragraph 4 of this Article. Every two years the Commission shall submit a report on such cases to the Banking Advisory Committee. Nothing in this Article shall prevent credit institutions 11. with head offices in other Member States from advertising their services through all available means of communication in the host Member State, subject to any rules governing the form and the content of such advertising adopted in the interest of the general good. TITLE IV RELATIONS WITH THIRD COUNTRIES Article 23 Notification of the subsidiaries of third countries’ undertakings and conditions of access to the markets of these countries carrying-on of banking activities, and the acquisition of holdings in third-country credit institutions. The Commission shall submit those reports to the Council, together with any appropriate proposals. The competent authorities of the Member States shall 1. inform the Commission: (a) of any authorisation of a direct or indirect subsidiary one or more parent undertakings of which are governed by the laws of a third country. The Commission shall inform the Banking Advisory Committee accordingly; (b) whenever such a parent undertaking acquires a holding in a Community credit institution such that the latter would become its subsidiary. The Commission shall inform the Banking Advisory Committee accordingly. When authorisation is granted to the direct or indirect subsidiary of one or more parent undertakings governed by the law of third countries, the structure of the group shall be specified in the notification which the competent authorities shall address to the Commission in accordance with Article 11. The Member States shall inform the Commission of any 2. general difficulties encountered by their credit institutions in establishing themselves or carrying on banking activities in a third country. credit 4. Whenever it appears to the Commission, either on the basis of the reports referred to in paragraph 3 or on the basis that a third country is not granting of other information, Community access institutions comparable to that granted by the Community to credit the Commission may third country, institutions from that submit proposals to the Council for the appropriate mandate for negotiation with a comparable competitive opportunities for Community credit institutions. The Council shall decide by a qualified majority. view to obtaining effective market 5. Whenever it appears to the Commission, either on the basis of the reports referred to in paragraph 3 or on the basis of other information that Community credit institutions in a third country do not receive national treatment offering the same competitive opportunities as are available to domestic credit institutions and the conditions of effective market access are not fulfilled, the Commission may initiate negotiations in order to remedy the situation. In the circumstances described in the first subparagraph, it may also be decided at any time, and in addition to initiating negotiations, in accordance with the procedure laid down in Article 60(2), that the competent authorities of the Member States must limit or suspend their decisions regarding requests pending at the moment of the decision or future requests for authorisations and the acquisition of holdings by direct or indirect parent undertakings governed by the laws of the third country in question. The duration of the measures referred to may not exceed three months. 3. The Commission shall periodically draw up a report examining the treatment accorded to Community credit in the terms referred to in institutions in third countries, regards establishment and the paragraphs 4 and 5, as Before the end of that three-month period, and in the light of the results of the negotiations, the Council may, acting on a proposal from the Commission, decide by a qualified majority whether the measures shall be continued. 26. 5. 2000 EN Official Journal of the European Communities L 126/23 Such limitations or suspension may not apply to the setting up of subsidiaries by credit institutions or their subsidiaries duly authorised in the Community, or to the acquisition of holdings in Community credit institutions by such institutions or subsidiaries. with one or more third countries, agree to apply provisions which, on the basis of the principle of reciprocity, accord to branches of a credit institution having its head office outside the Community identical treatment throughout the territory of the Community. 6. Whenever it appears to the Commission that one of the situations described in paragraphs 4 and 5 obtains, the Member States shall inform it at its request: Article 25 (a) of any request for the authorisation of a direct or indirect subsidiary one or more parent undertakings of which are governed by the laws of the third country in question; (b) whenever they are informed in accordance with Article 16 that such an undertaking proposes to acquire a holding in a Community credit institution such that the latter would become its subsidiary. This obligation to provide information shall lapse whenever an agreement is reached with the third country referred to in paragraph 4 or 5 or when the measures referred to in the second and third subparagraphs of paragraph 5 cease to apply. 7. Measures taken pursuant to this Article comply with the Community’s obligations under any international agreements, bilateral or multilateral, governing the taking-up and pursuit of the business of credit institutions. Article 24 Branches of credit institutions having their head offices outside the Community 1. Member States shall not apply to branches of credit institutions having their head office outside the Community, when commencing or carrying on their business, provisions which result in more favourable treatment than that accorded to branches of credit institutions having their head office in the Community. 2. The competent authorities shall notify the Commission and the Banking Advisory Committee of all authorisations for branches granted to credit institutions having their head office outside the Community. Cooperation with third countries’ competent authorities regarding supervision on a consolidated basis The Commission may submit proposals to the Council, 1. either at the request of a Member State or on its own initiative, for the negotiation of agreements with one or more third countries regarding the means of exercising supervision on a consolidated basis over: (cid:151) credit institutions the parent undertakings of which have their head offices situated in a third country, and (cid:151) credit institutions situated in third countries the parent undertakings of which, whether credit institutions or financial holding companies, have their head offices in the Community. The agreements referred to in paragraph 1 shall 2. particular seek to ensure both: in to obtain the information necessary (cid:151) that the competent authorities of the Member States are able the supervision, on the basis of their consolidated financial situations, of financial holding companies situated in the Community and which have as subsidiaries credit institutions situated outside the Community, or holding participation in such institutions, institutions or institutions or financial credit for (cid:151) that the competent authorities of third countries are able to obtain the information necessary for the supervision of parent undertakings the head offices of which are situated within their territories and which have as subsidiaries credit institutions or financial institutions situated in one or more Member States or holding participation in such institutions. 3. Without prejudice to paragraph 1, the Community may, through agreements concluded in accordance with the Treaty 3. The Commission and the Banking Advisory Committee shall examine the outcome of the negotiations referred to in paragraph 1 and the resulting situation. L 126/24 EN Official Journal of the European Communities 26. 5. 2000 TITLE V PRINCIPLES AND TECHNICAL INSTRUMENTS FOR PRUDENTIAL SUPERVISION CHAPTER 1 Article 29 PRINCIPLES OF PRUDENTIAL SUPERVISION On-the-spot verification of branches established in another Member State Article 26 Competence of control of the home Member State a The prudential 1. institution, supervision of including that of the activities it carries on accordance with Articles 18 and 19, the the home Member State, without competent authorities of prejudice to those provisions of this Directive which give responsibility to the authorities of the host Member State. shall be the responsibility of credit 2. Paragraph 1 shall not prevent consolidated basis pursuant to this Directive. supervision on a Article 27 Competence of the host Member State the liquidity of Host Member States shall retain responsibility in cooperation with the competent authorities of the home Member State for the branches of credit the supervision of institutions pending further coordination. Without prejudice to the measures necessary for the reinforcement of the European Monetary System, host Member States shall retain complete responsibility from the implementation of their monetary policies. Such measures may not provide for discriminatory or restrictive treatment based on the fact that a credit institution is authorised in another Member State. the measures resulting for Article 28 Collaboration concerning supervision 1. Host Member States shall provide that, where a credit institution authorised in another Member State carries on its activities through a branch, the competent authorities of the home Member State may, after having first informed the competent authorities of the host Member State, carry out they themselves or the appoint information referred to in Article 28. through the intermediary of persons that purpose on-the-spot verification of for 2. The competent authorities of the home Member State may also, for purposes of the verification of branches, have recourse to one of the other procedures laid down in Article 56(7). This Article shall not affect the right of the competent 3. in the the host Member State to carry out, authorities of discharge of this Directive, responsibilities under their on-the-spot verifications of branches established within their territory. Article 30 Exchange of information and professional secrecy The Member States shall provide that all persons working 1. or who have worked for the competent authorities, as well as auditors or experts acting on behalf of the competent authorities, shall be bound by the obligation of professional information which secrecy. This means that no confidential they may receive in the course of their duties may be divulged to any person or authority whatsoever, except in summary or collective form, such that institutions cannot be identified, without prejudice to cases covered by criminal law. individual The competent authorities of the Member States concerned shall collaborate closely in order to supervise the activities of credit institutions operating, in particular by having established branches there, in one or more Member States other than that in which their head offices are situated. They shall supply one another with all information concerning the management and ownership of such credit institutions that is likely to facilitate their supervision and the examination of the conditions for their authorisation, and all information likely to facilitate the in particular with regard to monitoring of such institutions, liquidity, solvency, deposit guarantees, large the limiting of exposures, administrative and accounting procedures and internal control mechanisms. Nevertheless, where a credit institution has been declared bankrupt or is being compulsorily wound up, confidential information which does not concern third parties involved in attempts to rescue that credit institution may be divulged in civil or commercial proceedings. Paragraph 1 shall not prevent the competent authorities 2. of the various Member States from exchanging information in accordance with this Directive and with other Directives applicable to credit information shall be institutions. That subject to the conditions of professional secrecy indicated in paragraph 1. 26. 5. 2000 EN Official Journal of the European Communities L 126/25 3. Member States may conclude cooperation agreements, providing for exchanges of information, with the competent authorities of third countries or with authorities or bodies of third countries as defined in paragraphs 5 and 6 only if the information disclosed is subject to guarantees of professional secrecy at least equivalent to those referred to in this Article. Such exchange of information must be for the purpose of performing the supervisory task of the authorities or bodies mentioned. (cid:151) persons responsible for carrying out statutory audits of the financial and other institutions credit accounts of institutions, their supervisory functions, and the in the discharge of to bodies which administer deposit-guarantee disclosure schemes of their functions. The information received shall be subject to the conditions of professional secrecy indicated in paragraph 1. information necessary to the exercise of Where the information originates in another Member State, it may not be disclosed without the express agreement of the competent authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their agreement. 6. Notwithstanding paragraphs 1 to 4, Member States may authorise exchanges of information between, the competent authorities and: 4. Competent authorities receiving confidential information under paragraphs 1 or 2 may use it only in the course of their duties: (cid:151) the authorities responsible for overseeing the bodies, involved in the liquidation and bankruptcy of credit institutions and other similar procedures, or (cid:151) to check that the conditions governing the taking-up of the business of credit institutions are met and to facilitate monitoring, on a non-consolidated or consolidated basis, of the conduct of such business, especially with regard to the monitoring of liquidity, solvency, large exposures, and administrative and accounting procedures and internal control mechanisms, or (cid:151) to impose sanctions, or (cid:151) in an administrative appeal against a decision of the competent authority, or (cid:151) in court proceedings initiated pursuant to Article 33 or to special provisions provided for in this in other Directives adopted in the field of credit institutions. 5. Paragraphs 1 and 4 shall not preclude the exchange of information within a Member State, where there are two or more competent authorities in the same Member State, or between Member States, between competent authorities and: (cid:151) authorities entrusted with the public duty of supervising other financial organisations and insurance companies and the authorities responsible for the supervision of financial markets, (cid:151) bodies involved in the liquidation and bankruptcy of credit institutions and in other similar procedures, (cid:151) the authorities responsible for overseeing persons charged the accounts of investment with carrying out statutory audits of insurance undertakings, firms and other financial institutions. institutions, credit Member States which have recourse to the provisions of the the following first subparagraph shall require at conditions are met: least that (cid:151) the information shall be for the purpose of performing the supervisory task referred to in the first subparagraph, (cid:151) information received in this context shall be subject to the conditions of professional secrecy imposed in paragraph 1, (cid:151) where the information originates in another Member State, it may not be disclosed without the express agreement of the competent authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their agreement. Member States shall communicate to the Commission and to the other Member States the name of the authorities which may receive information pursuant to this paragraph. Notwithstanding paragraphs 1 to 4, Member States may, 7. with the aim of strengthening the stability, including integrity, of the financial system, authorise the exchange of information between the competent authorities and the authorities or bodies and investigation of breaches of company law. responsible detection law for under the L 126/26 EN Official Journal of the European Communities 26. 5. 2000 Member States which have recourse to the provision in the the following first subparagraph shall require at conditions are met: least that (cid:151) the information shall be for the purpose of performing the task referred to in the first subparagraph, 9. In addition, notwithstanding the provisions referred to in paragraphs 1 and 4, the Member States may, by virtue of provisions laid down by law, authorise the disclosure of certain information to other departments of their central government administrations responsible for legislation on the supervision of credit institutions financial institutions, investment services and insurance companies and to inspectors acting on behalf of those departments. (cid:151) information received in this context shall be subject to the conditions of professional secrecy imposed in paragraph 1, However, such disclosures may be made only where necessary for reasons of prudential control. (cid:151) where the information originates in another Member State, it may not be disclosed without the express agreement of the competent authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their agreement. Where, in a Member State, the authorities or bodies referred to in the first subparagraph perform their task of detection or investigation with the aid, in view of their specific competence, of persons appointed for that purpose and not employed in the public sector, the possibility of exchanging information provided for in the first subparagraph may be extended to such persons under the conditions stipulated in the second subparagraph. to implement the third indent of In order the second subparagraph, the authorities or bodies referred to in the first subparagraph shall communicate to the competent authorities which have disclosed the information, the names and precise responsibilities of the persons to whom it is to be sent. Member States shall communicate to the Commission and to the other Member States the names of the authorities or bodies which may receive information pursuant to this paragraph. Before 31 December 2000, the Commission shall draw up a report on the application of the provisions of this paragraph. This Article shall not prevent a competent authority from 8. transmitting: (cid:151) to central banks and other bodies with a similar function in their capacity as monetary authorities, (cid:151) where appropriate to other public authorities responsible for overseeing payment systems, information intended for the performance of their task, nor shall it prevent such authorities or bodies from communicating to the competent authorities such information as they may need for the purposes of paragraph 4. Information received in this context shall be subject to the conditions of professional secrecy imposed in this Article. However, the Member States shall provide that information received under paragraphs 2 and 5 and that obtained by means of the on-the-spot verification referred to in Article 29(1) and (2) may never be disclosed in the cases referred to in the this paragraph except with the express consent of competent authorities which disclosed the information or of the competent authorities of the Member State in which on-the-spot verification was carried out. their Member States’ markets if 10. This Article shall not prevent the competent authorities from communicating the information referred to in paragraphs 1 to 4 to a clearing house or other similar body recognised under national law for the provision of clearing or settlement services for one of they consider that it is necessary to communicate the information in order to ensure the proper functioning of those bodies in relation to defaults or potential defaults by market participants. The information received in this context shall be subject to the conditions of professional secrecy imposed in paragraph 1. The Member States shall, however, ensure that information received under paragraph 2 may not be disclosed in the circumstances referred to in this paragraph without the express consent of the competent authorities which disclosed it. Article 31 Duty of persons responsible for the legal control of annual and consolidated accounts 1. Member States shall provide at least that: (a) any person authorised within the meaning of Council Directive 84/253/EEC (1), performing in a credit institution the task described in Article 51 of Council Directive 78/660/EEC (2), or Article 37 of Council Directive (1) Eighth Council Directive (84/253/EEC) of 10 April 1984 based on the Treaty on the approval of persons the statutory audits of accounting Article 44(2)(g) of responsible for carrying out documents (OJ L 126, 12. 5. 1984, p. 20). (2) Fourth Council Directive (78/660/EEC) of 25 July 1978 based on Article 44(2)(g) of the Treaty on the annual accounts of certain types of companies (OJ L 222, 14. 8. 1978, p. 11). Directive as last amended by Directive 1999/60/EC (OJ L 62, 26. 6. 1999, p. 65). 26. 5. 2000 EN Official Journal of the European Communities L 126/27 83/349/EEC, or Article 31 of Directive 85/611/EEC (1), or any other statutory task, shall have a duty to report promptly to the competent authorities any fact or decision concerning that institution of which he has become aware while carrying out that task which is liable to: administrative provisions adopted in accordance with this Directive may be subject to the right to apply to the courts. The same shall apply where no decision is taken within six its submission in respect of an application for months of authorisation which contains all the information required under the provisions in force. (cid:151) constitute a material breach of the laws, regulations or administrative provisions which lay down the conditions or which specifically govern pursuit of the activities of credit institutions, or authorisation governing CHAPTER 2 (cid:151) affect the continuous functioning of the credit TECHNICAL INSTRUMENTS OF PRUDENTIAL SUPERVISION institution, or (cid:151) lead to refusal to certify the accounts or to the expression of reservations; (b) that person shall likewise have a duty to report any fact and decisions of which he becomes aware in the course of carrying out a task as described in (a) in an undertaking having close links resulting from a control relationship with the credit institution within which he is carrying out the abovementioned task. 2. The disclosure in good faith to the competent authorities, by persons authorised within the meaning of Directive 84/253/EEC, of any fact or decision referred to in paragraph 1 shall not constitute a breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision and shall not involve such persons in liability of any kind. Article 32 Power of sanction of the competent authorities Without prejudice to the procedures for the withdrawal of authorisations and the provisions of criminal law, the Member States shall provide that their respective competent authorities may, as against credit institutions or those who effectively control the business of credit institutions which breach laws, the administrative provisions regulations or supervision or pursuit of their activities, adopt or impose in respect of them penalties or measures aimed specifically at ending observed breaches or the causes of such breaches. concerning Article 33 Right to apply to the courts Member States shall ensure that decisions taken in respect of a regulations and credit institution in pursuance of laws, (1) Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 375, 31. 12. 1985, p. 3). Directive as last amended by Directive 95/26/EC (OJ L 168, 18. 7. 1995, p. 7). S e c t i o n 1 Own funds Article 34 General principles 1. Wherever a Member State lays down by law, regulation or administrative action a provision in implementation of Community legislation concerning the prudential supervision of an operative credit institution which uses the term or refers to the concept of own funds, it shall bring this term or concept into line with the definition given in paragraphs 2, 3 and 4 and Articles 35 to 38. Subject to the 2. the unconsolidated own funds of credit institutions shall consist of the following items: imposed in Article 38, limits (1) capital within the meaning of Article 22 of Directive 86/635/EEC, in so far as it has been paid up, plus share premium accounts but excluding cumulative preferential shares; (2) reserves within the meaning of Article 23 of Directive 86/635/EEC and profits and losses brought forward as a result of the application of the final profit or loss. The Member States may permit inclusion of interim profits before a formal decision has been taken only if these profits have been verified by persons responsible for the auditing of is proved to the satisfaction of the competent authorities that the amount thereof has been evaluated in accordance with the principles set out in Directive 86/635/EEC and is net of any foreseeable charge or dividend; the accounts and if it (3) funds for general banking risks within the meaning of Article 38 of Directive 86/635/EEC; L 126/28 EN Official Journal of the European Communities 26. 5. 2000 (4) revaluation reserves within the meaning of Article 33 of Directive 78/660/EEC; institutions which are included in the consolidation. This provision shall apply to all the prudential rules harmonised by Community acts. (5) value adjustments within the meaning of Article 37(2) of Directive 86/635/EEC; (6) other items within the meaning of Article 35; (7) (8) the commitments of the members of credit institutions set up as cooperative societies and the joint and several commitments of the borrowers of certain institutions organised as funds, as referred to in Article 36(1); fixed-term subordinated loan capital as referred to in Article 36(3). preferential cumulative shares and The following items shall be deducted in accordance with Article 38: (9) own shares at book value held by a credit institution; (10) intangible assets within the meaning of Article 4(9) ((cid:145)Assets(cid:146)) of Directive 86/635/EEC; (11) material losses of the current financial year; (12) holdings credit in other to more and financial institutions amounting capital, subordinated claims and the instruments referred to in Article 35 which a credit institution holds in respect of credit and financial institutions in which it has holdings exceeding 10 % of the capital in each case. than 10 % of their Where shares in another credit or financial institution are held temporarily for the purposes of a financial assistance designed operation that the competent authority may waive this institution, provision; reorganise save and to (13) holdings in other credit and financial institutions of up to 10 % of their capital, the subordinated claims and the instruments referred to in Article 35 which a credit institution holds in respect of credit and financial institutions other than those referred to in point (12) in the total of such holdings, respect of subordinated claims and instruments which exceed 10 % of that credit institution’s own funds calculated before the deduction of items in point (12) and in this point. the amount of subsequent coordination of the provisions on Pending consolidation, Member States may provide that, the calculation of unconsolidated own funds, parent companies subject to supervision on a consolidated basis need not deduct financial credit their holdings institutions or in other for those items and the fixing of The concept of own funds as defined in points (1) to (8) 3. of paragraph 2 embodies a maximum number of items and amounts. The use of lower ceilings, and the deduction of items other than those listed in points (9) to (13) of paragraph 2 shall be left to the discretion the Member States. Member States shall nevertheless be of obliged to consider increased convergence with a view to a common definition of own funds. To that end, the Commission shall, by 1 January 1996 at the latest, submit a report to the European Parliament and to the Council on the application of this Article and Articles 35 to 39, accompanied, where appropriate, by such proposals for later than 1 amendment as it shall deem necessary. Not January 1998, the European Parliament and the Council shall, acting in accordance with the procedure laid down in Article 251 of the Treaty and after consultation of the Economic and Social Committee, examine the definition of own funds with a view to the uniform application of the common definition. The items listed in points (1) to (5) of paragraph 2 must 4. institution for unrestricted and be available to a credit immediate use to cover risks or losses as soon as these occur. The amount must be net of any foreseeable tax charge at the moment of its calculation or be suitably adjusted in so far as such tax charges reduce the amount up to which these items may be applied to cover risks or losses. Article 35 Other items 1. The concept of own funds used by a Member State may include other items provided that, whatever their legal or accounting designations might be, they have the following characteristics: (a) they are freely available to the credit institution to cover normal banking risks where revenue or capital losses have not yet been identified; (b) their existence is disclosed in internal accounting records; (c) their amount is determined by the management of the credit institution, verified by independent auditors, made known to the competent authorities and placed under the supervision of the latter. Securities 2. other instruments that fulfil the following conditions may also be accepted as other items: indeterminate duration and of 26. 5. 2000 EN Official Journal of the European Communities L 126/29 (a) they may not be reimbursed on the bearer’s initiative or without the prior agreement of the competent authority; Subordinated loan capital must also fulfil the following criteria: (b) the debt agreement must provide for the credit institution to have the option of deferring the payment of interest on the debt; (c) the lender’s claims on the credit institution must be wholly subordinated to those of all non-subordinated creditors; (d) the documents governing the issue of the securities must to be such as to institution in a provide for debt and unpaid interest absorb losses, whilst position to continue trading; leaving the credit (e) only fully paid-up amounts shall be taken into account. To these may be added cumulative preferential shares other than those referred to in point 8 of Article 34(2). Article 36 Other provisions concerning own funds The commitments of the members of credit institutions 1. set up as cooperative societies referred to in point 7 of Article 34(2), shall comprise those societies’ uncalled capital; together with the legal commitments of those additional non-refundable societies cooperative payments should the credit institution incur a loss, in which case it must be possible to demand those payments without delay. the members of to make The joint and several commitments of borrowers in the case of credit institutions organised as funds shall be treated in the same way as the preceding items. All such items may be included in own funds in so far as they are counted as the own funds of institutions of this category under national law. 2. Member States shall not include in the own funds of public credit institutions guarantees which they or their local authorities extend to such entities. 3. Member States or the competent authorities may include fixed-term cumulative preferential shares referred to in point (8) of Article 34(2) and subordinated loan capital referred to in that provision in own funds, if binding agreements exist under in the event of the bankruptcy or liquidation of the which, they rank after the claims of all other credit institution, creditors and are not to be repaid until all other debts outstanding at the time have been settled. (a) only fully paid-up funds may be taken into account; (b) the loans involved must have an original maturity of at least five years, after which they may be repaid; if the maturity of the debt is not fixed, they shall be repayable only subject to five years’ notice unless the loans are no longer considered as own funds or unless the prior consent of the competent authorities is specifically required for early repayment. The competent authorities may grant permission for the early repayment of such loans provided the request is made at the initiative of the issuer and the solvency of institution in question is not affected; the credit (c) the extent to which they may rank as own funds must be gradually reduced during at least the last five years before the repayment date; (d) the loan agreement must not include any clause providing that in specified circumstances, other than the winding-up of the credit institution, the debt will become repayable before the agreed repayment date. Article 37 Calculation of own funds on a consolidated basis 1. Where the calculation is to be made on a consolidated basis, the consolidated amounts relating to the items listed under Article 34(2) shall be used in accordance with the rules laid down in Articles 52 to 56. Moreover, the following may, when they are credit items, be regarded as ((cid:145)negative(cid:146)) consolidated reserves for the calculation of own funds: (cid:151) any minority interests within the meaning of Article 21 of integration global the Directive 83/349/EEC, where method is used, (cid:151) the first consolidation difference within the meaning of Articles 19, 30 and 31 of Directive 83/349/EEC, (cid:151) the translation differences included in consolidated reserves in accordance with Article 39(6) of Directive 86/635/EEC, (cid:151) any difference resulting from the inclusion of certain in accordance with the method participating interests prescribed in Article 33 of Directive 83/349/EEC. 2. Where the above are debit ((cid:145)positive(cid:146)) items, they must be deducted in the calculation of consolidated own funds. L 126/30 EN Official Journal of the European Communities 26. 5. 2000 Article 38 Deductions and limits The solvency ratios of credit 3. institutions which are parent undertakings shall be calculated on a consolidated basis in accordance with the methods laid down in this Directive and in Directive 86/635/EEC. The items referred to in points (4) to (8) of Article 34(2), 1. shall be subject to the following limits: (a) the total of the items in points (4) to (8) may not exceed a maximum of 100 % of the items in points (1) plus (2) and (3) minus (9), (10) and (11); (b) the total of the items in points (7) and (8) may not exceed a maximum of 50 % of the items in points (1) plus (2) and (3) minus (9), (10) and (11); (c) the total of the items in points (12) and (13) shall be deducted from the total of the items. The competent 2. credit institutions to exceed the limit laid down in paragraph 1 in temporary and exceptional circumstances. authorities may authorise also 4. The competent authorities responsible for authorising and supervising a parent undertaking which is a credit institution may a require subconsolidated or unconsolidated ratio in respect of that parent undertaking and of any of its subsidiaries which are subject to authorisation and supervision by them. Where such monitoring of the satisfactory allocation of capital within a banking group is not carried out, other measures must be taken to attain that end. calculation the of 5. Without prejudice to credit institutions’ compliance with the requirements of paragraphs 2, 3 and 4, and of Article 52(8) and (9), the competent authorities shall ensure that ratios are calculated not less than twice each year, either by credit institutions themselves, which shall communicate the results and competent authorities, or by the competent authorities, using data supplied by the credit institutions. component required to the data any The valuation of assets and off-balance-sheet items shall 6. be effected in accordance with Directive 86/635/EEC. Article 39 Article 41 Provision of proof to the competent authorities The numerator: own funds Compliance with the conditions laid down in Article 34(2), (3) and (4) and Articles 35 to 38 must be proved to the satisfaction of the competent authorities. Own funds as defined in this Directive shall numerator of the solvency ratio. form the S e c t i o n 2 Solvency ratio Article 40 General principles Article 42 The denominator: risk-adjusted assets and off-balance-sheet items of credit Degrees 1. percentage risk, weightings, shall be assigned to asset items in accordance with Articles 43 and 44, and exceptionally Articles 45, 62 and 63. The balance-sheet value of each asset shall then be multiplied by the relevant weighting to produce a risk-adjusted value. expressed as 1. The solvency ratio expresses own funds, as defined in Article 41, as a proportion of total assets and off-balance-sheet items, risk-adjusted in accordance with Article 42. The solvency ratios of credit 2. institutions which are neither parent undertakings as defined in Article 1 of Directive 83/349/EEC, nor subsidiaries of such undertakings shall be calculated on an individual basis. In the case of the off-balance-sheet items listed in Annex 2. II, a two-stage calculation as prescribed in Article 43(2) shall be used. In the case of the off-balance-sheet items referred to in 3. Article 43(3), the potential costs of replacing contracts in the event of counterparty default shall be calculated by means of one of the two methods set out in Annex III. Those costs shall be multiplied by the relevant counterparty weightings in Article 43(1), except the 100 % weightings as provided for 26. 5. 2000 EN Official Journal of the European Communities L 126/31 there shall be replaced by 50 % weightings risk-adjusted values. to produce (3) asset items constituting claims carrying the explicit guarantee of the EIB; 4. The total of the risk-adjusted values of the assets and off-balance-sheet items mentioned in paragraphs 2 and 3 shall be the denominator of the solvency ratio. (4) asset items constituting claims carrying the explicit guarantees of multilateral development banks; Article 43 Risk weightings 1. The following weightings shall be applied to the various categories of asset items, although the competent authorities may fix higher weightings as they see fit: (a) Zero weighting (1) cash in hand and equivalent items; (2) asset items constituting claims on Zone A central governments and central banks; (3) asset items constituting claims on the European Communities; (4) asset items constituting claims carrying the explicit guarantees of Zone A central governments and central banks or of the European Communities; (5) asset items constituting claims on Zone B central governments and central banks denominated and funded in the national currencies of the borrowers; (5) asset items constituting claims on Zone A regional to authorities, subject local or governments Article 44; (6) asset items constituting claims carrying the explicit guarantees of Zone A regional governments or local authorities, subject to Article 44; (7) asset items constituting claims on Zone A credit institutions but not constituting such institutions’ own funds; (8) asset items constituting claims with a maturity of one year or less, on Zone B credit institutions, other than securities issued by such institutions which are recognised as components of their own funds; (9) asset items carrying the explicit guarantees of Zone A credit institutions; (10) asset items constituting claims with a maturity of one year or less carrying the explicit guarantees of Zone B credit institutions; (11) asset items to the secured, competent authorities, by collateral securities development banks; the in the form of issued by the EIB or by multilateral satisfaction of (6) asset items constituting claims carrying the explicit guarantees of Zone B central governments and central banks denominated and funded in the national currency common to the guarantor and the borrower; (c) 50 % weighting (12) cash items in the process of collection; (7) asset items satisfaction of secured to the the competent authorities, by collateral in the form of Zone A central government or central bank securities or securities issued by the European Communities or by cash deposits placed with the lending institution or by certificates of deposit or similar instruments issued by and lodged with the latter; (b) 20 % weighting (1) asset items constituting claims on the EIB; (2) asset items development banks; constituting claims on multilateral the competent (1) loans fully and completely secured, to the satisfaction of authorities, by mortgages on residential property which is or will be occupied or let fully and completely by the borrower, and loans secured, competent satisfaction the authorities, by shares in Finnish residential housing companies, operating in accordance with the Finnish subsequent Housing Company Act of 1991 or equivalent legislation, in respect of residential property which is or will be occupied or let by the borrower; the to of if (cid:145)mortgage-backed securities(cid:146) which may be treated as loans referred to in the first subparagraph or in Article 62(1), the competent authorities consider, having regard to the legal framework in force in each Member State, that they are equivalent in the light of the credit risk. Without prejudice to the types of securities which L 126/32 EN Official Journal of the European Communities 26. 5. 2000 may be included in and are capable of fulfilling the conditions in this point 1, (cid:145)mortgage-backed securities(cid:146) instruments within the meaning of may include the Annex to Council Section B(1)(a) and (b) of Directive 93/22/EEC (1). The competent authorities must in particular be satisfied that: (6) holdings of shares, participation and other components of the own funds of other credit institutions which are not deducted from the own funds of the lending institutions; (7) all other assets except where deducted from own funds. (i) such securities are fully and directly backed by a pool of mortgages which are of the same nature as those defined in the first subparagraph or in Article 62(1) the mortgage-backed securities are created; performing when fully and are (ii) an charge acceptable high-priority the on underlying mortgage-asset is held either directly by investors in mortgage-backed securities or on their behalf by a trustee or mandated representative in the same proportion to the securities which they hold; items to the weighting (2) prepayments and accrued income: these assets shall be corresponding to the subject counterparty where a credit institution is able to determine it in accordance with Directive 86/635/EEC. the Otherwise, where counterparty, it shall apply a flat-rate weighting of 50 %; to determine is unable it the medium/low-risk items, while the value of 2. The following treatment shall apply to off-balance-sheet items other than those covered in paragraph 3. They shall first be grouped according to the risk groupings set out in Annex II. The full value of the full-risk items shall be taken into account, 50 % of the value of the medium-risk items and 20 % of low-risk items shall be set at zero. The second stage shall be to multiply the off-balance-sheet values, adjusted as described above, by the weightings attributable to the relevant counterparties in accordance with the treatment of asset items prescribed in In the case of asset sale and paragraph 1 and Article 44. repurchase agreements and outright the weightings shall be those attaching to the assets in question and not to the counterparties to the transactions. The portion of unpaid capital subscribed to the European Investment Fund may be weighted at 20 %. forward purchases, The methods set out in Annex III shall be applied to the 3. off-balance-sheet items listed in Annex IV except for: (d) 100 % weighting (cid:151) contracts traded on recognised exchanges, (1) asset items constituting claims on Zone B central governments except where denominated and funded in the national currency of the borrower; central banks and (2) asset items constituting claims on Zone B regional governments or local authorities; (3) asset items constituting claims with a maturity of more than one year on Zone B credit institutions; (4) asset items constituting claims on the Zone A and Zone B non-bank sectors; (cid:151) foreign-exchange contracts (except contracts concerning gold) with an original maturity of 14 calendar days or less. the competent authorities of Until 31 December 2006, Member States may exempt the from the application of methods set out in Annex III over-the-counter (OTC) contracts cleared by a clearing house where the latter acts as the legal counterparty and all participants fully collateralise on a daily basis the exposure they present to the clearing house, thereby providing a protection covering both the current exposure and the potential future exposure. The competent authorities must be satisfied that the posted collateral gives the same level of protection as collateral which complies with paragraph 1(a)(7) the clearing house’s and that exposures beyond the market value of posted collateral is eliminated. Member States shall inform the Commission of the use they make of this option. the risk of a build-up of (5) tangible (cid:145)Assets(cid:146) within the meaning of Article 4(10) of Directive 86/635/EEC; (1) Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (OJ L 141, 11. 6. 1993, p. 27). Directive as last amended by Directive 97/9/EC (OJ L 84, 26. 3. 1997, p. 22). 4. Where off-balance-sheet items carry explicit guarantees, they shall be weighted as if they had been incurred on behalf the guarantor rather than the counterparty. Where the of potential exposure arising from off-balance-sheet transactions is fully and completely secured, the competent authorities, by any of the asset items recognised as collateral in paragraph 1(a)(7) and (b)(11), weightings of 0 % or 20 % shall apply depending on the collateral in question. to the satisfaction of 26. 5. 2000 EN Official Journal of the European Communities L 126/33 apply States may a 50 % weighting The Member to off-balance-sheet items which are sureties or guarantees having the character of credit substitutes and which are fully guaranteed, to the satisfaction of the competent authorities, by mortgages meeting the conditions set out in paragraph 1(c)(1), to such subject collateral. to the guarantor having a direct right items are given a 5. Where asset and off-balance-sheet lower weighting because of the existence of explicit guarantees or collateral acceptable to the competent authorities, the lower weighting shall apply only to that part which is guaranteed or which is fully covered by the collateral. Article 44 Weighting of claims for regional governments or local authorities of the Member States 1. Notwithstanding the requirements of Article 43(1)(b), the Member States may fix a weighting of 0 % for their own regional governments and local authorities if there is no difference in risk between claims on the latter and claims on their central governments because of the revenue-raising powers of the regional governments and local authorities and the existence of specific institutional arrangements the effect of which is to reduce the chances of default by the latter. A zero-weighting fixed in accordance with these criteria shall apply to claims on and off-balance-sheet items incurred on behalf of the regional governments and local authorities in question and claims on others and off-balance-sheet items incurred on behalf of others and guaranteed by those regional to the governments satisfaction of concerned, by collateral in the form of securities issued by those regional governments or local authorities. authorities or and local competent authorities secured, the 2. The Member States shall notify the Commission if they believe a zero-weighting to be justified according to the criteria laid down in paragraph 1. The Commission shall circulate that the credit information. Other Member States may offer institutions competent their authorities the possibility of applying a zero-weighting where they undertake business with the regional governments or in question or where they hold claims local authorities guaranteed by the latter, in the form of securities. including collateral supervision of under the to the satisfaction of secured, the competent authorities in the form of securities issued by concerned, by collateral Zone A regional governments or local authorities, by deposits placed with Zone A credit institutions other than the lending institution, or by certificates of deposit or similar instruments issued by such credit institutions. The Member States may apply a weighting of 10 % to 2. specialising in the inter-bank and claims on institutions public-debt markets in their home Member States and subject to close supervision by the competent authorities where those asset items are fully and completely secured, to the satisfaction of the competent authorities of the home Member States, by a combination of asset items mentioned in Article 43(1)(a) and (b) recognised by the latter as constituting adequate collateral. The Member States shall notify the Commission of any 3. provisions adopted pursuant to paragraphs 1 and 2 and of the grounds for such provisions. The Commission shall forward that information to the Member States. The Commission shall periodically examine the implications of those provisions in order to ensure that they do not result in any distortions of competition. Article 46 Administrative bodies and non-commercial undertakings authorities For the purposes of Article 43 (1)(b), the competent authorities may include within the concept of regional governments and local bodies responsible to regional governments or local authorities or in the view of the competent authorities, authorities which, exercise and local authorities. non-commercial responsibilities administrative regional same the as The competent authorities may also include within the concept of regional governments and local authorities, churches and religious communities constituted in the form of a legal person under public law, in so far as they raise taxes in accordance with legislation conferring on them the right to do so. However, in this case the option set out in Article 44 shall not apply. Article 45 Other weighting Article 47 Solvency ratio level 1. Without prejudice to Article 44(1) the Member States items which are may apply a weighting of 20 % to asset Credit institutions 1. shall be required permanently to maintain the ratio defined in Article 40 at a level of at least 8 %. L 126/34 EN Official Journal of the European Communities 26. 5. 2000 Notwithstanding paragraph 1, the competent authorities they consider 2. may prescribe higher minimum ratios as appropriate. event giving rise to the dispensation, so that the competent authorities may establish whether it is justified. If the ratio falls below 8 % the competent authorities shall 3. ensure that the credit institution in question takes appropriate measures to restore the ratio to the agreed minimum as quickly as possible. Article 49 Limits on large exposures S e c t i o n 3 Large exposures Article 48 Reporting of large exposures 1. A credit institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10 % of its own funds. A credit 2. institution shall report every large exposure within the meaning of paragraph 1 to the competent authorities. Member States shall provide that reporting is to be carried out, at their discretion, in accordance with one of the following two methods: (cid:151) reporting of all large exposures at least once a year, combined with reporting during the year of all new large exposures and any increases in existing large exposures of at least 20 % with respect to the previous communication, (cid:151) reporting of all large exposures at least four times a year. 3. Exposures exempted under Article 49(7)(a), (b), (c), (d), (f), (g) and (h) need not, however, be reported as laid down in paragraph 2. The reporting frequency laid down in the second indent to paragraph 2 may be reduced to twice a year for the exposures referred to in Article 49(7)(e) and (i), and also in paragraphs 8, 9 and 10. have sound administrative 4. The competent authorities shall require that every credit accounting institution procedures and adequate internal control mechanisms for the purpose of identifying and recording all large exposures and subsequent changes to them, as defined and required by this Directive, and for that of monitoring those exposures in the light of each credit institution’s own exposure policies. and 1. A credit institution may not incur an exposure to a client or group of connected clients the value of which exceed 25 % of its own funds. the credit 2. Where that client or group of connected clients is the parent undertaking or institution subsidiary of and/or one or more subsidiaries of that parent undertaking, the percentage laid down in paragraph 1 shall be reduced to 20 %. Member States may, however, exempt the exposures incurred to such clients from the 20 % limit if they provide for specific monitoring of such exposures by other measures or procedures. They shall inform the Commission and the Banking Advisory Committee of the content of such measures or procedures. A credit institution may not incur large exposures which 3. in total exceed 800 % of its own funds. 4. Member States may impose limits more stringent than those laid down in paragraphs 1, 2 and 3. 5. A credit institution shall at all times comply with the limits laid down in paragraphs 1, 2 and 3 in respect of its If in an exceptional case exposures exceed those exposures. limits, fact must be reported without delay to the competent authorities which may, where the circumstances warrant it, allow the credit institution a limited period of time in which to comply with the limits. that institution to its parent undertaking, 6. Member States may fully or partially exempt from the application of paragraphs 1, 2 and 3 exposures incurred by a to other credit subsidiaries of to its own that parent undertaking or subsidiaries, in so far as those undertakings are covered by the supervision on a consolidated basis to which the credit institution itself is subject, in accordance with this Directive or with equivalent standards in force in a third country. 7. Member States may fully or partially exempt the following exposures from the application of paragraphs 1, 2 and 3: (a) asset items constituting claims on Zone A central governments or central banks; Where a credit institution invokes paragraph 3, it shall keep a record of the grounds advanced for at least one year after the (b) asset items Communities; constituting claims on the European 26. 5. 2000 EN Official Journal of the European Communities L 126/35 (c) asset items constituting claims explicit guarantees of Zone A central governments or central banks or of the European Communities; carrying the (d) other exposures attributable to, or guaranteed by, Zone A central governments or central banks or the European Communities; (e) asset items constituting claims on and other exposures to Zone B central governments or central banks which are denominated and, where applicable, funded in the national currencies of the borrowers; (f) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of Zone A central government or central bank securities, or securities issued by the European Communities or by Member State regional or local authorities for which Article 44 lays down a zero weighting for solvency purposes; (g) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of cash deposits placed with the lending institution or with a credit institution which is the parent undertaking or a subsidiary of the lending institution; (h) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of certificates of deposit issued by the lending institution or by a credit institution which is the parent undertaking or a subsidiary of the lending institution and lodged with either of them; (i) (j) asset items constituting claims on and other exposures to credit institutions, with a maturity of one year or less, but not constituting such institutions’ own funds; asset items constituting claims on and other exposures to those institutions which are not credit institutions but which fulfil the conditions referred to in Article 45(2), with a maturity of one year or less, and secured in accordance with the same paragraph; 40 % of the own funds of the credit institution acquiring such a holding; (n) asset items constituting claims on regional or central credit institutions with which the lending institution is associated in a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network; (o) exposures secured, to the satisfaction of the competent in the form of securities other authorities, by collateral than those referred to in (f) provided that those securities are not issued by the credit institution itself, its parent company or one of their subsidiaries, or by the client or group of connected clients in question. The securities used as collateral must be valued at market price, have a value that exceeds the exposures guaranteed and be either traded on a stock exchange or effectively negotiable and regularly quoted on a market operated under the auspices of recognised professional operators and allowing, to the satisfaction of the competent authorities of the Member State of origin of the establishment of an objective price such that the excess value of the securities may be verified at any time. The excess value required shall be 100 % it shall, however, be 150 % in the case of shares and 50 % in the case of debt securities institutions, Member State regional or local authorities other than those referred to in Article 44, and in the case of debt securities issued by the EIB and multilateral development banks. Securities used as collateral may not constitute credit institutions’ own funds; issued by credit institution, credit the for (p) secured, the competent to the satisfaction of loans authorities, by mortgages on residential property or by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation and leasing transactions under which the lessor retains full ownership of the residential property leased for as long as the lessee has not exercised his option to purchase, in all cases up to 50 % of the value of the residential property concerned. to the The value of satisfaction of the competent authorities, on the basis of strict valuation standards laid down by law, regulation or administrative provisions. Valuation shall be carried out at least once a year. For the purposes of this point residential property shall mean a residence to be occupied or let by the borrower; the property shall be calculated, (k) bills of trade and other similar bills, with a maturity of one year or less, bearing the signatures of other credit institutions; (q) 50 % of the medium/low-risk off-balance-sheet items referred to in Annex II; (l) debt securities as defined in Article 22(4) of Directive 85/611/EEC; (r) (m) pending the insurance companies referred to in Article 51(3) up to coordination, subsequent holdings in to the competent authorities’ agreement, subject guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions, their amount. to a weighting of 20 % of subject L 126/36 EN Official Journal of the European Communities 26. 5. 2000 Member States shall inform the Commission of the use they make of this option in order to ensure that it does not result in distortions of competition; treatment of interbank exposures provided for in paragraphs 7(i), 9 and 10. The Council shall decide on any changes to be made on a proposal from the Commission. (s) the low-risk off-balance-sheet items referred to in Annex II, to the extent that an agreement has been concluded with the client or group of connected clients under which the exposure may be incurred only if it has been ascertained that it will not cause the limits applicable under paragraphs 1, 2 and 3 to be exceeded. Article 50 Supervision on a consolidated or unconsolidated basis of large exposures 8. For the purposes of paragraphs 1, 2 and 3, Member items States may apply a weighting of 20 % to asset constituting claims on Member State regional and local authorities and to other exposures to or guaranteed by such authorities; subject to the conditions laid down in Article 44, however, Member States may reduce that rate to 0 %. exposures claims on and other 9. For the purposes of paragraphs 1, 2 and 3, Member States may apply a weighting of 20 % to asset items to credit constituting institutions with a maturity of more than one but not more than three years and a weighting of 50 % to asset items constituting claims on credit institutions with a maturity of more than three years, provided that the latter are represented by debt instruments that were issued by a credit institution and that those debt instruments are, in the opinion of the competent authorities, effectively negotiable on a market made up of professional operators and are subject to daily quotation on that market, or the issue of which was authorised by the competent authorities of the Member State of origin of the issuing credit institutions. In no case may any of these items constitute own funds. 10. By way of derogation from paragraphs 7(i) and 9, Member States may apply a weighting of 20 % to asset items constituting to credit claims on and other institutions, regardless of their maturity. exposures 1. If the credit institution is neither a parent undertaking nor a subsidiary, compliance with the obligations imposed in Articles 48 and 49 or in any other Community provision applicable an shall this unconsolidated basis. be monitored area on to 2. In the other cases, compliance with the obligations imposed in Articles 48 and 49 or in any other Community provision applicable to this area shall be monitored on a consolidated basis in accordance with Articles 52 to 56. 3. Member States may waive monitoring on an individual or subconsolidated basis of compliance with the obligations imposed in Articles 48 and 49 or in any other Community provision applicable to this area by a credit institution which, as a parent undertaking, to monitoring on a consolidated basis and by any subsidiary of such a credit to their authoritisation and institution which is supervision and is covered by monitoring on a consolidated basis. subject subject is Member States also waive such monitoring where the parent undertaking is a financial holding company established in the institution, provided that same Member State as the credit company is credit subject institutions. same monitoring as to the 11. Where an exposure to a client is guaranteed by a third in the form of securities issued by a party, or by collateral third party under the conditions laid down in paragraph 7(o), Member States may: In the cases referred to in the first and second subparagraphs measures must be taken to ensure the satisfactory allocation of risks within the group. (cid:151) treat the exposure as having been incurred to the third party rather than to the client, if the exposure is directly and unconditionally guaranteed by that third party, to the satisfaction of the competent authorities, S e c t i o n 4 Qualifying holdings outside the financial sector (cid:151) treat the exposure as having been incurred to the third party rather than to the client, if the exposure defined in the paragraph 7(o) conditions there laid down. is guaranteed by collateral under Article 51 Limits to non-financial qualifying holdings 12. the basis of a report By 1 January 1999 at the latest, the Council shall, on from the Commission, examine the 1. amount of which exceeds 15 % of No credit institution may have a qualifying holding the its own funds in an 26. 5. 2000 EN Official Journal of the European Communities L 126/37 undertaking which is neither a credit institution, nor a financial institution, nor an undertaking carrying on an activity referred to in the second subparagraph of Article 43(2)(f) of Directive 86/635/EEC. CHAPTER 3 SUPERVISION ON A CONSOLIDATED BASIS institution’s qualifying The total amount of a credit 2. institutions, in undertakings other holdings financial institutions or undertakings carrying on activities referred to in the second subparagraph of Article 43(2)(f) of Directive 86/635/EEC may not exceed 60 % of its own funds. than credit Article 52 Supervision on a consolidated basis of credit institutions 3. The Member States need not apply the limits laid down in paragraphs 1 and 2 to holdings in insurance companies as Directive defined 79/267/EEC (2). 73/239/EEC (1), Directive and in a institution as subsidiary or which holds 1. Every credit institution which has a credit institution or a a financial participation in such institutions shall be subject, to the extent and in the manner prescribed in Article 54, to supervision on the basis of Such supervision shall be exercised at least in the areas referred to in paragraphs 5 and 6. consolidated financial situation. its Shares held temporarily during a financial reconstruction 4. or course of rescue operation or during the normal underwriting or in an institution’s own name on behalf of others shall not be counted as qualifying holdings for the purpose of calculating the limits laid down in paragraphs 1 and 2. Shares which are not financial fixed assets as defined in Article 35(2) of Directive 86/635/EEC shall not be included. Every credit institution the parent undertaking of which 2. is a financial holding company shall be subject, to the extent and in the manner prescribed in Article 54, to supervision on the basis of the consolidated financial situation of that financial holding company. Such supervision shall be exercised at least referred to in paragraphs 5 and 6. The in the areas consolidation of the financial situation of the financial holding company shall not the competent authorities are required to play a supervisory role in relation to the financial holding company standing alone. in any way imply that The limits laid down in paragraphs 1 and 2 may be 5. In such cases, exceeded only in exceptional circumstances. however, require a credit the competent authorities institution either to increase its own funds or to take other equivalent measures. shall The Member States may provide that the competent 6. authorities shall not apply the limits laid down in paragraphs 1 and 2 if they provide that 100 % of the amounts by which a credit institution’s qualifying holdings exceed those limits must be covered by own funds and that the latter shall not be included in the calculation of the solvency ratio. If both the limits laid down in paragraphs 1 and 2 are exceeded, the amount to be covered by own funds shall be the greater of the excess amounts. (1) First Council Directive 73/239/EEC of 24 July 1973 on the laws, regulations and administrative provisions coordination of relating to the taking-up and pursuit of the business of direct insurance other than life assurance (OJ L 228, 16. 8. 1973, p. 3). Directive as last amended by Directive 95/26/EC. (2) First Council Directive 79/267/EEC of 5 March 1979 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct life assurance (OJ L 63, 13. 3. 1979, p. 1). Directive as last amended by Directive 95/26/EC. the States or competent The Member 3. authorities responsible for exercising supervision on a consolidated basis pursuant to Article 53 may decide in the cases listed below that a credit institution or auxiliary financial banking services undertaking which is a subsidiary or in which a participation is held need not be included in the consolidation: institution, (cid:151) if the undertaking that should be included is situated in a impediments to the third country where there are legal transfer of the necessary information, (cid:151) if, in the opinion of the the competent authorities, should be included is of negligible undertaking that interest only with respect to the objectives of monitoring credit institutions and in all cases if the balance-sheet total of the undertaking that should be included is less than the smaller of the following two amounts: EUR 10 million or 1 % of the balance-sheet total of the parent undertaking or If several the undertaking that holds the participation. undertakings meet they must the nevertheless be included in the consolidation where collectively they are of non-negligible interest with respect to the aforementioned objectives, or criteria, above (cid:151) if, in the opinion of the competent authorities responsible the for exercising supervision on a consolidated basis, L 126/38 EN Official Journal of the European Communities 26. 5. 2000 consolidation of the financial situation of the undertaking should be included would be inappropriate or that misleading as far as the objectives of the supervision of credit institutions are concerned. 8. Where a credit institution the parent of which is a credit institution has been authorised and is situated in another Member State, the competent authorities which granted that authorisation shall apply the rules laid down in paragraph 5 to that institution on an individual or, when appropriate, a subconsolidated basis. 4. When the competent authorities of a Member State do not include a credit institution subsidiary in supervision on a consolidated basis under one of the cases provided for in the second and third indents of paragraph 3, the competent authorities of the Member State in which that credit institution subsidiary is situated may ask the parent undertaking for information which may facilitate their supervision of that credit institution. 5. Supervision of solvency, and of the adequacy of own funds to cover market risks and control of large exposures shall be exercised on a consolidated basis in accordance with this Article and Articles 53 to 56. Member States shall adopt to include any measures necessary, where financial holding companies in consolidated supervision, in accordance with paragraph 2. appropriate, Compliance with the limits set in Article 51(1) and (2) shall be supervised and controlled on the basis of the consolidated or subconsolidated financial situation of the credit institution. The competent authorities shall ensure that, 6. in all the undertakings included in the scope of the supervision on a consolidated basis that is exercised over a credit institution in implementation of paragraphs 1 and 2, there are adequate internal control mechanisms for the production of any data and information which would be relevant for the purposes of supervision on a consolidated basis. as credit institution that, 7. Without prejudice to specific provisions contained in other directives, Member States may waive application, on an individual or subconsolidated basis, of the rules laid down in paragraph 5 to a a parent undertaking, is subject to supervision on a consolidated basis, and to any subsidiary of such a credit institution which is subject to their authorisation and supervision and is included the credit in the supervision on a consolidated basis of institution which is the parent company. The same exemption option shall be allowed where the parent undertaking is a financial holding company which has its head office in the same Member State as the credit institution, provided that it is subject to the same supervision as that exercised over credit institutions, and in particular the standards laid down in paragraph 5. In both cases set out in the first subparagraph, steps must be taken to ensure that capital is distributed adequately within the banking group. If the competent authorities apply those rules individually to such credit the purpose of calculating own funds, make use of the provision in the last subparagraph of Article 3(2). institutions, they may, for for authorities authorising Notwithstanding the requirements of paragraph 8, the 9. the responsible competent subsidiary of a parent undertaking which is a credit institution may, by bilateral agreement, delegate their responsibility for supervision to the competent authorities which authorised and supervise they assume responsibility for supervising the subsidiary in accordance with this Directive. The Commission must be kept informed of the existence and content of such agreements. forward such information to the competent authorities of the other Member States and to the Banking Advisory Committee. the parent undertaking so that It shall for exercising shall provide that their competent 10. Member States authorities supervision on a responsible consolidated basis may ask the subsidiaries of a credit institution or a financial holding company which are not included within the scope of supervision on a consolidated basis for the information referred to in Article 55. In such a transmitting and verifying the case, information laid down in that Article shall apply. the procedures for Article 53 Competent authorities responsible for exercising supervision on a consolidated basis 1. Where a parent undertaking is a credit institution, supervision on a consolidated basis shall be exercised by the competent authorities that authorised it under Article 4. 2. Where the parent of a credit institution is a financial holding company, supervision on a consolidated basis shall be exercised by the competent authorities which authorised that credit institution under Article 4. However, where credit institutions authorised in two or more Member States have as their parent the same financial holding company, shall be exercised by the competent authorities of the credit institution authorised in the Member State in which the financial holding company was set up. supervision on a consolidated basis If no credit institution subsidiary has been authorised in the Member State in which the financial holding company was set up, the competent authorities of the Member States concerned (including those of the Member State in which the financial holding company was set up) shall seek to reach agreement as 26. 5. 2000 EN Official Journal of the European Communities L 126/39 them will In the exercise absence of to who amongst supervision on a such agreement, consolidated basis. supervision on a consolidated basis shall be exercised by the competent authorities that authorised the credit institution with the greatest balance-sheet total; if that figure is the same, supervision on a consolidated basis shall be exercised by the competent authorities which first gave the authorisation referred to in Article 4. The competent authorities concerned may by common 3. agreement waive the rules laid down in the first and second subparagraph of paragraph 2. 4. The agreements referred to in the third subparagraph of paragraph 2 and in paragraph 3 shall provide for procedures for cooperation and for the transmission of information such that the objectives of supervision on a consolidated basis can be attained. 5. Where Member States have more than one competent authority for the prudential supervision of credit institutions and financial the institutions, Member States requisite measures to organise coordination between such authorities. shall take Article 54 Form and extent of consolidation The competent authorities 1. responsible for exercising supervision on a consolidated basis must, for the purposes of supervision, credit institutions and financial institutions which are subsidiaries of a parent undertaking. consolidation of require full the all However, proportional consolidation may be prescribed where, in the opinion of the competent authorities, the liability of a parent undertaking holding a share of the capital is limited to that share of the capital because of the liability of the other shareholders or members whose solvency is satisfactory. The liability of the other shareholders and members must be clearly established, signed commitments. if necessary by means formal of institutions and financial 2. The competent authorities responsible for carrying out supervision on a consolidated basis must, in order to do so, require the proportional consolidation of participations in credit institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where the those undertakings’ capital they hold. liability is limited to the share of 3. those referred to in paragraphs 1 and 2, In the case of participations or capital ties other than the competent authorities shall determine whether and how consolidation is to be carried out. In particular, they may permit or require use the equity method. That method shall not, however, of constitute in inclusion of supervision on a consolidated basis. the undertakings concerned 4. Without prejudice to paragraphs 1, 2 and 3, competent authorities consolidation is to be carried out in the following cases: the shall determine whether and how (cid:151) where, in the opinion of the competent authorities, a credit institution exercises a significant influence over one institutions, but or more credit institutions or financial without holding a participation or other capital ties in these institutions, (cid:151) where two or more financial credit institutions are placed under single management other than pursuant to a contract or clauses of their memoranda or articles of association, institutions or (cid:151) where two or more have financial institutions or supervisory bodies with the same persons constituting a majority. administrative, management institutions or credit In particular, the competent authorities may permit, or require use of, the method provided for in Article 12 of Directive 83/349/EEC. That method shall not, however, constitute inclusion of the undertakings concerned in consolidated supervision. 5. Where consolidated supervision is required pursuant to Article 52(1) and (2), ancillary banking services undertakings shall be included in consolidations in the cases, and in accordance with the methods laid down in paragraphs 1 to 4 of this Article. Article 55 Information to be supplied by mixed-activity holding companies and their subsidiaries States Pending further coordination of consolidation methods, 1. the parent that, where Member shall provide credit a institutions undertaking of one or more the competent authorities mixed-activity holding company, those responsible for the authorisation and supervision of credit institutions shall, by approaching the mixed-activity holding company and its subsidiaries either directly or via institution subsidiaries, require them to supply any credit for the purpose of information which would be relevant supervising the credit institution subsidiaries. is 2. Member States competent shall provide authorities may carry out, or have carried out by external their that L 126/40 EN Official Journal of the European Communities 26. 5. 2000 inspectors, on-the-spot to verify information inspections received from mixed-activity holding companies and their subsidiaries. If the mixed-activity holding company or one of its subsidiaries is an insurance undertaking, the procedure laid down in Article 56(4) may also be used. If a mixed-activity holding company or one of its subsidiaries is situated in a Member State other than that in which the credit institution subsidiary is situated, on-the-spot verification of information shall be carried out in accordance with the procedure laid down in Article 56(7). Article 56 Measures to facilitate supervision on a consolidated basis legal there are no impediments 1. Member States shall take the necessary steps to ensure that the undertakings included within the scope of supervision on a consolidated basis, mixed-activity holding companies and their subsidiaries, or subsidiaries of the kind covered in Article 52(10), from exchanging amongst themselves any information which would be relevant for the purposes of supervision in accordance with Articles 52 to 55 and this Article. preventing 2. Where a parent undertaking and any of its subsidiaries that are credit institutions are situated in different Member States, the competent authorities of each Member State shall communicate to each other all relevant information which may allow or aid the exercise of supervision on a consolidated basis. the Member State in Where the competent authorities of which a parent undertaking is situated do not themselves exercise supervision on a consolidated basis pursuant to Article 53, they may be invited by the competent authorities responsible for exercising such supervision to ask the parent undertaking for any information which would be relevant for the purposes of supervision on a consolidated basis and to transmit it to these authorities. 3. Member States shall authorise the exchange between their competent authorities of the information referred to in paragraph 2, on the understanding that, in the case of financial holding companies, financial institutions or ancillary banking services collection or possession of information shall not in any way imply that the competent authorities are required to play a supervisory role in relation to those institutions or undertakings standing alone. undertakings, the Similarly, Member States shall authorise their competent authorities to exchange the information referred to in Article 55 on the understanding that the collection or possession of information does not in any way imply that the competent in relation to the supervisory role authorities play a mixed-activity holding company and those of its subsidiaries which are not credit institutions, or to subsidiaries of the kind covered in Article 52(10). or are companies 4. Where a credit institution, financial holding company or a mixed-activity holding company controls one or more subsidiaries which other insurance undertakings providing investment services which are subject to authorisation, the competent authorities and the authorities entrusted with the public task of supervising insurance undertakings or those other undertakings providing investment services shall cooperate closely. Without prejudice to their respective responsibilities, those authorities shall provide one another with any information likely to simplify their task and to allow supervision of financial situation of the undertakings they supervise. the activity and overall 5. Information received, in the framework of supervision on a consolidated basis, and in particular any exchange of information between competent authorities which is provided to the obligation of for in this Directive, shall be subject professional secrecy defined in Article 30. The competent authorities responsible for supervision on 6. a consolidated basis shall establish lists of the financial holding companies referred to in Article 52(2). Those lists shall be communicated to the competent authorities of the other Member States and to the Commission. the in applying this Directive, 7. Where, competent authorities of one Member State wish in specific cases to verify the information concerning a credit institution, a financial holding company, a financial institution, an ancillary banking services undertaking, a mixed-activity holding company, a subsidiary of the kind covered in Article 55 or a subsidiary of the kind covered in Article 52(10), situated in another Member State, they must ask the competent authorities of that other Member State to have that verification carried out. The authorities which receive such a request must, within the framework of their competence, act upon it either by carrying the verification themselves, by allowing the authorities out who made the request to carry it out, or by allowing an auditor or expert to carry it out. regulation or administrative provisions 8. Without prejudice to their provisions of criminal law, Member States shall ensure that penalties or measures aimed at ending observed breaches or the causes of such breaches may be imposed on financial holding companies and mixed-activity holding companies, or their effective managers, that infringe laws, enacted to implement Articles 52 to 55 and this Article. In certain cases, such measures may require the intervention of the courts. The competent authorities shall cooperate closely to ensure that the abovementioned penalties or measures produce the desired results, especially when the central administration or main establishment of a financial holding company or of a mixed-activity holding company is not its head office. located at 26. 5. 2000 EN Official Journal of the European Communities L 126/41 TITLE VI BANKING ADVISORY COMMITTEE Article 57 Composition and tasks of the Banking Advisory Committee Articles 5(1) and 6(1), any other requirements which the Member States apply and the information which must be included in the programme of operations, and shall, where appropriate, make suggestions to the Commission with a view to a more detailed coordination. A Banking Advisory Committee of 1. competent authorities of the Member States shall be set up alongside the Commission. the The tasks of the Banking Advisory Committee shall be to 2. assist the Commission in ensuring the proper implementation of this Directive. Further it shall carry out the other tasks prescribed by this Directive and shall assist the Commission in the preparation of new proposals to the Council concerning further coordination in the sphere of credit institutions. The Banking Advisory Committee shall not concern itself credit relating individual problems concrete to 3. with institutions. Article 59 Observation ratios for the shall, Pending subsequent coordination, the purposes of observation and, competent 1. authorities if necessary, in addition to such coefficients as may be applied by them, establish ratios between the various assets and/or liabilities of credit institutions with a view to monitoring their solvency and liquidity and the other measures which may serve to ensure that savings are protected. 4. The Banking Advisory Committee shall be composed of not more than three representatives from each Member State and from the Commission. These representatives may be accompanied by advisers from time to time and subject to the prior agreement of the Committee. The Committee may also invite qualified persons and experts to participate in its meetings. The secretariat shall be provided by the Commission. To this end, the Banking Advisory Committee shall decide on the content of the various factors of the observation ratios referred to in the first subparagraph and lay down the method to be applied in calculating them. and elect The Banking Advisory Committee shall adopt its rules of 5. from among the chairman procedure It shall meet at regular representatives of Member States. intervals The the Commission may ask the Committee to hold an emergency meeting if it considers that the situation so requires. and whenever demands. situation a The Banking Advisory Committee’s discussions and the except when the 6. outcome shall be thereof Committee decides otherwise. confidential Where appropriate, the Banking Advisory Committee shall be guided by technical consultations between the supervisory authorities of the categories of institutions concerned. The observation ratios 2. paragraph 1 shall be calculated at least every six months. established in pursuance of Article 58 The Banking Advisory Committee shall examine the 3. results of analyses carried out by the supervisory authorities referred to in the third subparagraph of paragraph 1 on the basis of the calculations referred to in paragraph 2. Examination of the requirements for authorisation The Banking Advisory Committee shall examine the content given by the competent authorities to requirements listed in 4. The Banking Advisory Committee may make suggestions to the Commission with a view to coordinating the coefficients applicable in the Member States. L 126/42 EN Official Journal of the European Communities 26. 5. 2000 TITLE VII POWERS OF EXECUTION Article 60 Technical adaptations 1. Without prejudice, regarding own funds, to the report referred to in the second subparagraph of Article 34(3), the technical adaptations in the following areas shall be adopted in accordance with the procedure laid down in paragraph 2: (cid:151) clarification of the definitions in order to take account in this Directive of developments on the application of financial markets, (cid:151) the areas in which the competent authorities must exchange information as listed in Article 28, (cid:151) amendment of the definitions of the assets listed in Article 43 in order to take account of developments on financial markets, (cid:151) the list and classification of off-balance-sheet items in Annexes II and IV and their treatment in the calculation of the ratio as described in Articles 42, 43 and 44 and Annex III, (cid:151) clarification ensure application of this Directive in the Community, definitions the to of uniform (cid:151) a temporary reduction in the minimum ratio prescribed in Article 47 or the weighting prescribed in Article 43 in order to take account of specific circumstances, (cid:151) the alignment of terminology on and the framing of definitions in accordance with subsequent acts on credit institutions and related matters, (cid:151) the definition of (cid:145)Zone A(cid:146) in Article 1(14), (cid:151) the definition of Article 1(19), (cid:145)multilateral development banks(cid:146) in (cid:151) alteration of the amount of initial capital prescribed in in the Article 5 to take account of developments economic and monetary field, (cid:151) expansion of the content of the list referred to in Articles 18 and 19 and set out in Annex I or adaptation of the terminology used in that account of list developments on financial markets, to take (cid:151) clarification of exemptions provided for in Article 49(5) to (10). 2. The Commission shall be assisted by a committee. Where reference is made to this paragraph, Articles 5 and 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof. The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months. The Committee shall adopt its rules of procedure. TITLE VIII TRANSITIONAL AND FINAL PROVISIONS CHAPTER 1 TRANSITIONAL PROVISIONS Article 61 Transitional provisions regarding Article 36 include joint and several commitments of members, or of borrowers as referred to in Article 36(1) claims on whom are treated in the and several commitments, in their own funds, subject to the following limits: such joint same way as (a) the basis for calculation of the part of joint and several commitments of borrowers shall be the total of the items those referred to in Article 34(2)(1) and (2), minus referred to in Article 34(2)(9), (10) and (11); Denmark may allow its mortgage credit institutions organised as cooperative societies or funds before 1 January 1990 and converted into public limited liability companies to continue to (b) the basis if converted at a later date, on the date on conversion, shall for calculation on 1 January 1991 or, 26. 5. 2000 EN Official Journal of the European Communities L 126/43 be the maximum basis for calculation. The basis for calculation may never exceed the maximum basis for calculation; (c) the maximum basis for calculation shall, from 1 January 1997, be reduced by half of the proceeds from any issue of new capital, as defined in Article 34(2)(1), made after that date; and (d) the maximum amount of joint and several commitments of borrowers to be included as own funds must never exceed: 50 % in 1991 and 1992, 45 % in 1993 and 1994, 40 % in 1995 and 1996, 35 % in 1997, 30 % in 1998, 20 % in 1999, 10 % in 2000, and The property shall be revalued at least once a year by one valuer. For loans not exceeding EUR 1 million and 5 % of the own funds of the credit institution, the property shall be revalued at least every three years by one valuer; (b) 50 % of the market value of the property or 60 % of the mortgage lending value, whichever is lower, in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions. The mortgage lending value shall means the value of the property as determined by a valuer making a prudent assessment of the future marketability of the property by taking into account long-term sustainable aspects of the property, the normal and local market conditions, the current use and alternative appropriate uses of the property. Speculative elements shall not be taken into account in the assessment of the mortgage lending value. The mortgage lending value shall be documented n a transparent and clear manner. At least every three years or if the market falls by more than 10 % the mortgage lending value and in particular the underlying assumptions concerning the development be reassessed. relevant market, shall the of 0 % after 1 January 2001, of the basis for calculation. Article 62 Transitional provisions regarding Article 43 In both (a) and (b) (cid:145)market value(cid:146) shall mean the price at which the property could be sold under private contract between a willing seller and an arm’s-length buyer on the date of valuation, it being assumed that the property is publicly exposed to the market, that market conditions permit orderly disposal and that a normal period, having regard to the nature of the property, is available for the negotiation of the sale; 1. Until 31 December 2006, the competent authorities of the Member States may authorise their credit institutions to apply a 50 % risk weighting to loans fully and completely secured to their satisfaction by mortgages on offices or on multi-purpose situated within the territory of those Member States that allow the 50 % risk weighting, subject to the following conditions: commercial premises (ii) the 100 % risk weighting applies to the part of the loan that exceeds the limits set out in (i); (iii) the property must be either used or let by the owner. (i) the 50 % risk weighting applies to the part of the loan that does not exceed a limit calculated according to either (a) or (b): (a) 50 % of the market value of the property in question. subparagraph shall not prevent The first the competent authorities of a Member State, which applies a higher risk weighting in its territory, from allowing, under the conditions defined above, the 50 % risk weighting to apply for this type of lending in the territories of those Member States that allow the 50 % risk weighting. The market value of the property must be calculated by two independent valuers making independent assessments at the time the loan is made. The loan must be based on the lower of the two valuations. The competent authorities of the Member States may allow their credit institutions to apply a 50 % risk weighting to the the loans outstanding on 21 July 2000 provided that L 126/44 EN Official Journal of the European Communities 26. 5. 2000 conditions listed in this paragraph are fulfilled. In this case the property shall be valued according to the assessment criteria laid down above not later than 21 July 2003. (cid:151) Sweden, before 1 June 1996, and (cid:151) United Kingdom, before 30 April 1996. For loans granted before 31 December 2006, the 50 % risk weighting remains applicable until their maturity, if the credit institution is bound to observe the contractual terms. Article 63 Until 31 December 2006, the competent authorities of the Member State may also authorise their credit institutions to apply a 50 % risk weighting to the part of the loans fully and completely secured to their satisfaction by shares in Finnish housing companies operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation, provided that the conditions laid down in this paragraph are fulfilled. Member States shall inform the Commission of the use they make of this paragraph. 2. Member States may apply a 50 % risk weighting to property leasing transactions concluded before 31 December 2006 and concerning assets for business use situated in the the head office and governed by statutory country of provisions whereby the lessor retains full ownership of the rented asset until the tenant exercises his option to purchase. Member States shall inform the Commission of the use they make of this paragraph. Article 43(3) shall not affect the competent authorities’ for novation concluded 3. recognition of bilateral contracts concerning: (cid:151) Belgium, before 23 April 1996, (cid:151) Denmark, before 1 June 1996, (cid:151) Germany, before 30 October 1996, (cid:151) Greece, before 27 March 1997, (cid:151) Spain, before 7 January 1997, (cid:151) France, before 30 May 1996, (cid:151) Ireland, before 27 June 1996, (cid:151) Italy, before 30 July 1996, (cid:151) Luxembourg, before 29 May 1996, (cid:151) the Netherlands, before 1 July 1996, (cid:151) Austria, before 30 December 1996, (cid:151) Portugal, before 15 January 1997, (cid:151) Finland, before 21 August 1996, Transitional provisions regarding Article 47 1. A credit institution, the minimum ratio of which has not reached the 8 % prescribed in Article 47(1), by 1 January 1991, must gradually approach that level by successive stages. It may not allow the ratio to fall below the level reached before that objective has been attained. Any fluctuation should be temporary and the competent authorities should be apprised of the reasons for it. 2. For not more than five years after 1 January 1993, the Member States may fix a weighting of 10 % for the bonds defined in Article 22(4) of Directive 85/611/EEC and maintain if for credit institutions when and if they consider it necessary, to avoid grave disturbances in the operation of their markets. Such exceptions shall be reported to the Commission. 3. For not more than seven years after 1 January 1993, Article 47(1) shall not apply to the Agricultural Bank of Greece. However, the latter must approach the level prescribed in Article 47(1) by successive stages according to the method described in paragraph 1 of this Article. Article 64 Transitional provisions regarding Article 49 1. If, on 5 February 1993, a credit institution had already incurred an exposure or exposures exceeding either the large exposure limit or the aggregate large exposure limit laid down in Article 49, the competent authorities shall require the credit institution concerned to take steps to have that exposure or those exposures brought within the limits laid down in Article 49. 2. The process of having such an exposure or exposures brought within authorised limits shall be devised, adopted, implemented and completed within the period which the competent authorities consider consistent with the principle of sound administration and fair competition. The competent authorities shall inform the Commission and the Banking Advisory Committee of the schedule for the general process adopted. 3. A credit institution may not take any measure which would cause the exposures referred to in paragraph 1 to exceed their level on 5 February 1993 26. 5. 2000 EN Official Journal of the European Communities L 126/45 4. The period applicable under paragraph 2 shall expire no than 31 December 2001. Exposures with a longer later maturity, for which the lending institution is bound to observe the contractual terms, may be continued until their maturity. 5. Until 31 December 1998, Member States may increase the limit laid down in Article 49(1) to 40 % and the limit laid down in Article 49(2) to 30 %. In such cases and subject to paragraphs 1 to 4, the time limit for bringing the exposures existing at the end of this period within the limit laid down in Article 49 shall expire on 31 December 2001. 6. In the case of credit institutions the own funds of which do not exceed EUR 7 million and only in the case of such institutions, Member States may extend the time limits laid down in paragraph 5 by five years. Member States that avail themselves of the option provided for in this paragraph shall take steps to prevent distortions of competition and shall inform the Commission and the Banking Advisory Committee thereof. In the cases referred to in paragraphs 5 and 6, an 7. exposure may be considered a large exposure if its value is equal to or exceeds 15 % of own funds. Until 31 December 2001 Member States may substitute a 8. frequency of at the frequency of twice a year notification of large exposures referred to in the second indent of Article 48(2). least for 9. Member States may fully or partially exempt from the application of Article 49(1), (2) and (3) exposures incurred by a credit institution consisting of mortgage loans as defined in Article 62(1) concluded before 1 January 2002 as well as property leasing transactions as defined in Article 62(2) concluded before 1 January 2002, in both cases up to 50 % of the value of the property concerned. The same treatment applies to loans secured, to the satisfaction of the competent authorities, by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation which are similar to the mortgage loans referred to in the first subparagraph. CHAPTER 2 FINAL PROVISIONS Article 66 Commission information Member States shall communicate to the Commission the texts of the main laws, regulations and administrative provisions which they adopt in the field covered by this Directive. Article 67 Repealed Directives 1. Directives 73/183/EEC, 77/780/EEC, 89/299/EEC, 89/646/ EEC, 89/647/EEC, 92/30/EEC and 92/121/EEC, as amended by the Directives set out in Annex V, Part A, are hereby repealed the Member States without prejudice to the obligations of concerning the deadlines said Directives listed in Annex V, Part B. transposition of the for References to the repealed Directives shall be construed to this Directive and should be read in 2. as accordance with the correlation table in Annex VI. references Article 68 Implementation This Directive shall enter into force on the 20th day following the European its publication in the Official Communities. Journal of Article 69 Addressees Article 65 This Directive is addressed to the Member States. Transitional provisions regarding Article 51 Done at Brussels, 20 March 2000. Credit institutions which, on 1 January 1993, exceeded the limits laid down in Articles 51(1) and (2) shall have until 1 January 2003 to comply with them. For the European Parliament The President N. FONTAINE For the Council The President J. GAMA L 126/46 EN Official Journal of the European Communities 26. 5. 2000 ANNEX I LIST OF ACTIVITIES SUBJECT TO MUTUAL RECOGNITION 1. Acceptance of deposits and other repayable funds 2. Lending (1) 3. Financial leasing 4. Money transmission services 5. Issuing and administering means of payment (e. g. credit cards, travellers’ cheques and bankers’ drafts) 6. Guarantees and commitments 7. Trading for own account or for account of customers in: (a) money market instruments (cheques, bills, certificates of deposit, etc. ) (b) foreign exchange; (c) financial futures and options; (d) exchange and interest-rate instruments; (e) transferable securities 8. Participation in securities issues and the provision of services related to such issues 9. Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings 10. Money broking 11. Portfolio management and advice 12. Safekeeping and administration of securities 13. Credit reference services 14. Safe custody services (1) Including, inter alia: (cid:151) consumer credit, (cid:151) mortgage credit, (cid:151) factoring, with or without recourse, (cid:151) financing of commercial transactions (including forfeiting). 26. 5. 2000 EN Official Journal of the European Communities L 126/47 ANNEX II CLASSIFICATION OF OFF-BALANCE-SHEET ITEMS Full risk (cid:151) Guarantees having the character of credit substitutes, (cid:151) Acceptances, (cid:151) Endorsements on bills not bearing the name of another credit institution, (cid:151) Transactions with recourse, (cid:151) Irrevocable standby letters of credit having the character of credit substitutes, (cid:151) Assets purchased under outright forward purchase agreements, (cid:151) Forward forward deposits, (cid:151) The unpaid portion of partly-paid shares and securities, (cid:151) Other items also carrying full risk. Medium risk (cid:151) Documentary credits issued and confirmed (see also medium/low risk), (cid:151) Warranties and indemnities (including tender, performance, customs and tax bonds) and guarantees not having the character of credit substitutes, (cid:151) Asset sale and repurchase agreements as defined in Article 12(3) and (5) of Directive 86/635/EEC, (cid:151) Irrevocable standby letters of credit not having the character of credit substitutes, (cid:151) Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of more than one year, (cid:151) Note issuance facilities (NIFs) and revolving underwriting facilities (RUFs), (cid:151) Other items also carrying medium risk. Medium/low risk (cid:151) Documentary credits in which underlying shipment acts as collateral and other self-liquidating transactions, (cid:151) Other items also carrying medium/low risk. Low risk (cid:151) Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of up to and including one year or which may be cancelled unconditionally at any time without notice, (cid:151) Other items also carrying low risk. they have agreed to include a new The Member States undertake to inform the Commission as off-balance-sheet item in any of the last indents under each category of risk. Such items will be definitively classified at Community level once the procedure laid down in Article 60 has been completed. soon as L 126/48 EN Official Journal of the European Communities 26. 5. 2000 ANNEX III THE TREATMENT OF OFF-BALANCE-SHEET ITEMS 1. CHOICE OF THE METHOD To measure the credit risks associated with the contracts listed in points 1 and 2 of Annex IV, credit institutions may choose, subject to the consent of the competent authorities, one of the methods set out below. Credit institutions which have to comply with Article 6(1) of Directive 93/6/EEC (1) must use method 1 set out below. To measure the credit risks associated with the contracts listed in point 3 of Annex IV all credit institutions must use method 1 set out below. 2. METHODS Method 1: the (cid:145)mark to market(cid:146) approach Step (a): Step (b): by attaching current market values to contracts (mark to market), the current replacement cost of all contracts with positive values is obtained. to obtain a figure for potential future credit exposure (2), the notional principal amounts or underlying values are multiplied by the following percentages: TABLE 1 (a) (b) Residual maturity (c) Interest-rate contracts Contracts concerning foreign-exchange rates and gold Contracts concerning equities Contracts concerning precious metals except gold Contracts concerning commodities other than precious metals One year or less Over one year, less than five years Over five years 0 % 0,5 % 1,5 % 1 % 5 % 7,5 % 6 % 8 % 10 % 7 % 7 % 8 % 10 % 12 % 15 % (a) Contracts which do not fall within one of the five categories indicated in this table shall be treated as contracts concerning commodities other than precious metals. (b) For contracts with multiple exchanges of principal, the percentages have to be multiplied by the number of remaining payments (c) still to be made according to the contract. For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be equal to the time until the next reset date. In the case of interest-rate contracts that meet these criteria and have a remaining maturity of over one year, the percentage shall be no lower than 0,5 %. For the purpose of calculating the potential future exposure in accordance with step (b) the competent authorities may allow credit institutions until 31 December 2006 to apply the following percentages instead of those prescribed in Table 1 provided that the institutions make use of the option set out in Article 11a of Directive 93/6/EEC for contracts within the meaning of paragraph 3(b) and (c) of Annex IV: TABLE 1a Residual maturity Precious metals (except gold) Base metals Agricultural products (softs) Other, including energy products One year or less Over one year, less than five years Over five years 2 % 5 % 7,5 % 2,5 % 4 % 8 % 3 % 5 % 9 % 4 % 6 % 10 % (1) Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions (OJ L 141, 11. 6. 1993, p. 1). Directive amended by Directive 98/33/EC (OJ L 204, 21. 7. 1998, p. 29). (2) Except in the case of single-currency (cid:145)floating/floating(cid:146) interest rate swaps in which only the current replacement cost will be calculated. 26. 5. 2000 EN Official Journal of the European Communities L 126/49 Step (c): the sum of current replacement cost and potential future credit exposure is multiplied by the risk weightings allocated to the relevant counterparties in Article 43. Method 2: the (cid:145)original exposure(cid:146) approach Step (a): the notional principal amount of each instrument is multiplied by the percentages given below: TABLE 2 Original maturity (1) Interest-rate contracts Contracts concerning foreign-exchange rates and gold One year or less More than one year but not exceeding two years Additional allowance for each additional year 0,5 % 1 % 1 % 2 % 5 % 3 % (1) In the case of interest-rate contracts, credit institutions may, subject to the consent of their competent authorities, choose either original or residual maturity. Step (b): the original exposure thus obtained is multiplied by the risk weightings allocated to the relevant counterparties in Article 43. For methods 1 and 2 the competent authorities must ensure that the notional amount to be taken into account is an the contract provides for a in the contract. Where, appropriate yardstick for the risk inherent multiplication of cash flows, the notional amount must be adjusted in order to take into account the effects of the multiplication on the risk structure of that contract. for instance, 3. CONTRACTUAL NETTING (CONTRACTS FOR NOVATION AND OTHER NETTING AGREEMENTS) (a) Types of netting that competent authorities may recognise For the purpose of this point 3 (cid:145)counterparty(cid:146) means any entity (including natural persons) that has the power to conclude a contractual netting agreement. The competent authorities may recognise as risk-reducing the following types of contractual netting: (i) bilateral contracts for novation between a credit institution and its counterparty under which mutual claims and obligations are automatically amalgamated in such a way that this novation fixes one single net amount each time novation applies and thus creates a legally binding, single new contract extinguishing former contracts; (ii) other bilateral agreements between a credit institution and its counterparty. (b) Conditions for recognition The competent authorities may recognise contractual netting as risk-reducing only under the following conditions: (i) a credit institution must have a contractual netting agreement with its counterparty which creates a single legal obligation, covering all included transactions, such that, in the event of a counterparty’s failure to perform owing to default, bankruptcy, liquidation or any other similar circumstance, the credit institution would have a claim to receive or an obligation to pay only the net sum of the positive and negative mark-to-market values of included individual transactions; L 126/50 EN Official Journal of the European Communities 26. 5. 2000 (ii) a credit institution must have made available to the competent authorities written and reasoned legal opinions to the effect that, in the event of a legal challenge, the relevant courts and administrative authorities would, in the cases described under (i), find that the credit institution’s claims and obligations would be limited to the net sum, as described in (i), under: (cid:151) the law of the jurisdiction in which the counterparty is incorporated and, if a foreign branch of an undertaking is involved, also under the law of the jurisdiction in which the branch is located, (cid:151) the law that governs the individual transactions included, and (cid:151) the law that governs any contract or agreement necessary to effect the contractual netting; (iii) a credit institution must have procedures in place to ensure that the legal validity of its contractual netting is kept under review in the light of possible changes in the relevant laws. The competent authorities must be satisfied, if necessary after consulting the other competent authorities concerned, that the contractual netting is legally valid under the law of each of the relevant jurisdictions. If any of the competent authorities are not satisfied in that respect, the contractual netting agreement will not be recognised as risk-reducing for either of the counterparties. The competent authorities may accept reasoned legal opinions drawn up by types of contractual netting. No contract containing a provision which permits a non-defaulting counterparty to make limited payments only, or no payments at all, to the estate of the defaulter, even if the defaulter is a net creditor (a (cid:145)walkaway(cid:146) clause), may be recognised as risk-reducing. recognise competent authorities may The covering foreign-exchange contracts with an original maturity of 14 calendar days or less written options or similar off-balance-sheet items to which this Annex does not apply because they bear only a negligible or no credit risk. If, depending on the positive or negative market value of these contracts, their inclusion in another netting agreement can result in an increase or decrease of the capital requirements, competent authorities must oblige their credit institution to use a consistent treatment. contractual-netting risk-reducing agreements as (c) Effects of recognition (i) Contracts for novation The single net amounts fixed by contracts for novation, rather than the gross amounts involved, may be weighted. Thus, in the application of method 1, in (cid:151) step (a): the current replacement cost, and in (cid:151) step (b): the notional principal amounts or underlying values may be obtained taking account of the contract for novation. In the application of method 2, in step (a) the notional principal amount may be calculated taking account of the contract for novation; the percentages of Table 2 must apply. (ii) Other netting agreements In application of method 1: (cid:151) in step (a) the current replacement cost for the contracts included in a netting agreement may be obtained by taking account of the actual hypothetical net replacement cost which results from the agreement; in the case where netting leads to a net obligation for the credit institution calculating the net replacement cost, the current replacement cost is calculated as (cid:145)0(cid:146), 26. 5. 2000 EN Official Journal of the European Communities L 126/51 (cid:151) in step (b) the figure for potential future credit exposure for all contracts included in a netting agreement may be reduced according to the following equation: PCEred = 0,4 * PCEgross + 0,6 * NGR * PCEgross where: (cid:151) PCEred = the reduced figure for potential future credit exposure for all contracts with a given counterparty included in a legally valid bilateral netting agreement, (cid:151) PCEgross = the sum of the figures for potential future credit exposure for all contracts with a given counterparty which are included in a legally valid bilateral netting agreement and are calculated by multiplying their notional principal amounts by the percentages set out in Table 1, (cid:151) NGR = (cid:145)net-to-gross ratio(cid:146): at the discretion of the competent authorities either: (i) the quotient of separate calculation: for all contracts included in a legally valid bilateral netting agreement with a given counterparty (numerator) and the gross replacement cost for all contracts included in a legally valid bilateral netting agreement with that counterparty (denominator), or the net replacement cost (ii) aggregate calculation: the quotient of the sum of the net replacement cost calculated on a bilateral basis for all counterparties taking into account the contracts included in legally valid netting agreements (numerator) and the gross replacement cost for all contracts included in legally valid netting agreements (denominator). If Member States permit credit institutions a choice of methods, the method chosen is to be used consistently. For the calculation of the potential future credit exposure according to the above formula perfectly matching contracts included in the netting agreement may be taken into account as a single contract with a notional principal equivalent to the net receipts. Perfectly matching contracts are forward foreign-exchange contracts or similar contracts in which a notional principal is equivalent to cash flows if the cash flows fall due on the same value date and fully or partly in the same currency. In the application of method 2, in step (a) (cid:151) perfectly matching contracts included in the netting agreement may be taken into account as a single contract with a notional principal equivalent to the net receipts, the notional principal amounts are multiplied by the percentages given in Table 2, (cid:151) for all other contracts included in a netting agreement, the percentages applicable may be reduced as indicated in Table 3: TABLE 3 Original maturity (1) Interest-rate contracts Foreign-exchange contracts One year or less More than one year but not more than two years Additional allowance for each additional year 0,35 % 0,75 % 0,75 % 1,50 % 3,75 % 2,25 % (1) In the case of interest-rate contracts, credit institutions may, subject to the consent of their competent authorities, choose either original or residual maturity. L 126/52 EN Official Journal of the European Communities 26. 5. 2000 ANNEX IV TYPES OF OFF-BALANCE-SHEET ITEMS 1. Interest-rate contracts: (a) single-currency interest rate swaps; (b) basis-swaps; (c) forward rate agreements; (d) interest-rate futures; (e) interest-rate options purchased; (f) other contracts of similar nature. 2. Foreign-exchange contracts and contracts concerning gold: (a) cross-currency interest-rate swaps; (b) forward foreign-exchange contracts; (c) currency futures; (d) currency options purchased; (e) other contracts of a similar nature; (f) contracts concerning gold of a nature similar to (a) to (e). 3. Contracts of a nature similar to those in points 1(a) to (e) and 2(a) to (d) concerning other reference items or indices concerning: (a) equities; (b) precious metals except gold; (c) commodities other than precious metals; (d) other contracts of a similar nature. 26. 5. 2000 EN Official Journal of the European Communities L 126/53 ANNEX V PART A REPEALED DIRECTIVES TOGETHER WITH THEIR SUCCESSIVE AMENDMENTS (referred to in Article 67) Council Directive 73/183/EEC Council Directive 77/780/EEC Council Directive 85/345/EEC Council Directive 86/137/EEC Council Directive 86/524/EEC Council Directive 89/646/EEC Directive 95/26/EC of the European Parliament and of the Council, only Article 1, first indent, Article 2(1), first indent and (2), first indent, Article 3(2), Article 4(2), (3) and (4), as regards references to Directive 77/780/EEC, and (6), and Article 5, first indent Council Directive 96/13/EC Directive 98/33/EC of the European Parliament and of the Council Council Directive 89/299/EEC Council Directive 91/633/EEC Council Directive 92/16/EEC Council Directive 92/30/EEC Council Directive 89/646/EEC Council Directive 92/30/EEC Directive 95/26/EC of the European Parliament and of the Council only Article 1, first indent Council Directive 89/647/EEC Commission Directive 91/31/EEC Council Directive 92/30/EEC Commission Directive 94/7/EC Commission Directive 95/15/EC Commission Directive 95/67/EC Directive 96/10/EC of the European Parliament and of the Council Directive 98/32/EC of the European Parliament and of the Council Directive 98/33/EC of the European Parliament and of the Council (Article 2) Council Directive 92/30/EEC Council Directive 92/121/EEC L 126/54 EN Official Journal of the European Communities 26. 5. 2000 PART B DEADLINES FOR IMPLEMENTATION (referred to in Article 67) Directive Deadline for implementation Article 6(2), other provisions 73/183/EEC (OJ L 194, 16. 7. 1973, p. 1) 77/780/EEC (OJ L 322, 17. 12. 1977, p. 30) 85/345/EEC (OJ L 183, 16. 7. 1985, p. 19) 86/137/EEC (OJ L 106, 23. 4. 1986, p. 35) 86/524/EEC (OJ L 309, 4. 11. 1986, p. 15) 89/299/EEC (OJ L 124, 5. 5. 1989, p. 16) 89/646/EEC (OJ L 386, 30. 12. 1989, p. 1) 89/647/EEC (OJ L 386, 30. 12. 1989, p. 14) 91/31/EEC (OJ L 17, 23. 1. 1991, p. 20) 91/633/EEC (OJ L 339, 11. 12. 1991, p. 16) 92/16/EEC (OJ L 75, 31. 3. 1992, p. 48) 92/30/EEC (OJ L 110, 28. 4. 1992, p. 52) 92/121/EEC (OJ L 29, 5. 2. 1993, p. 1) 94/7/EC (OJ L 89, 6. 4. 1994, p. 17) 95/15/EC (OJ L 125, 8. 6. 1995, p. 23) 95/26/EC (OJ L 168, 18. 7. 1995, p. 7) 95/67/EC (OJ L 314, 28. 12. 1995, p. 72) 96/10/EC (OJ L 85, 3. 4. 1996, p. 17) 96/13/EC (OJ L 66, 16. 3. 1996, p. 15) 98/32/EC (OJ L 204, 21. 7. 1998, p. 26) 98/33/EC (OJ L 204, 21. 7. 1998, p. 29) 2. 1. 1975 (1) 15. 12. 1979 15. 7. 1985 (cid:151) 31. 12. 1986 1. 1. 1993 1. 1. 1990 1. 1. 1993 1. 1. 1991 31. 3. 1991 31. 12. 1992 31. 12. 1992 31. 12. 1992 31. 12. 1993 25. 11. 1994 30. 9. 1995 18. 7. 1996 1. 7. 1996 30. 6. 1996 15. 4. 1996 21. 7. 2000 21. 7. 2000 (1) However, as regards the abolition of the restriction referred to in Article 3(2)(g), the Netherlands was allowed to defer implementation until 2 July 1977. (See: Article 8, second subparagraph of Directive 73/183/EEC). ANNEX VI CORRELATION TABLE This Directive Directive 77/780/EEC Directive 89/299/EEC Directive 89/646/EEC Directive 89/647/EEC Directive 92/30/EEC Directive 92/121/EEC Directive 96/10/EC Article 1(1) Article 1, first indent Article 1, first indent Article 1(a) Article 1, second indent Article 1(2) Article 1(3) Article 1(4) to (8) Article 1(9) Article 1(10) and (11) Article 1(12) Article 1(13) Article 1(14) to (17) Article 1(18) to (20) Article 1(21) to (23) Article 1(24) Article 1(25) Article 1(26) Article 1, fifth indent Article 1(27) Article 1(3) Article 1(5) to (9) Article 1(10) and (11) Article 1(12) Article 1(13) Article 1, sixth indent Article 1, seventh indent Article 1, eighth indent Article 1(c) Article 1(d) Article 1, third to fifth indents Article 1(h) Article 1(m) Article 2(1), second to fifth indents Article 2(1), sixth to eighth indents Article 2(1), ninth indent Article 2(1) Article 2(1) Article 2(1) Article 1(1) Article 2(2) Article 2(3) Article 2(2) Article 2. 2 6 5 2 0 0 0 E N O f f i c i a l J o u r n a l o f t h e E u r o p e a n C o m m u n i t i e s L 1 2 6 / 5 5 This Directive Directive 77/780/EEC Directive 89/299/EEC Directive 89/646/EEC Directive 89/647/EEC Directive 92/30/EEC Directive 92/121/EEC Directive 96/10/EC Article 2(4) Article 2(3) Article 2(5), first, second and third subparagraph Article 2(4)(a), (b) and (c) Article 2(6) Article 3 Article 4 Article 3(1) Article 5(1), first subparagraph Article 3(2), first subparagraph Article 5(1), second subparagraph Article 10(1), third subparagraph Article 5(2) Article 5(3) to (7) Article 6(1) Article 3(2), first subparagraph, third indent and second subparagraph Article 6(2) Article 3(2)a Article 7(1) and (2) Article 3(2) third, fourth and fifth subparagraphs Article 3(4) Article 3(3)(a) Article 3(6) Article 3(7) Article 7(3) Article 8 Article 9 Article 10 Article 11 Article 12 Article 13 Article 2(3) Article 1(3) Article 2(2)(b) Article 3 Article 4(1) Article 4(2), introductory sentence, (a), (b) and (c) Article 10(1) to (5) Article 1(10), second subparagraph and Article 5(1) and (2) Article 7 Article 6(1) L 1 2 6 / 5 6 E N O f f i c i a l J o u r n a l o f t h e E u r o p e a n C o m m u n i t i e s. 2 6 5 2 0 0 0 This Directive Directive 77/780/EEC Directive 89/299/EEC Directive 89/646/EEC Directive 89/647/EEC Directive 92/30/EEC Directive 92/121/EEC Directive 96/10/EC Article 14(1) Article 14(2) Article 15 Article 16(1) to (5) Article 16(6) Article 17 Article 18 Article 19 Article 20(1) to (6) Article 20(7) Article 21(1) and (2) Article 21(3) Article 22 Article 23(1) Article 23(2) to (7) Article 24 Article 25 Article 26 Article 27 Article 28 Article 29 Article 8(1) Article 8(5) Article 5 Article 9 Article 7(1) Article 30(1) to (5) Article 12(1) to (5) Article 30(6) Article 30(7) Article 30(8) Article 30(9) Article 12(5a) Article 12(5b) Article 12(6) Article 12(7) Article 30(10) Article 12(8) Article 11(1) to (5) Article 1(10), second subparagraph Article 13(2) Article 18(1) Article 18(2) Article 19 Article 23(1) Article 20 Article 23(2) Article 21 Article 8 Article 9 Article 13(1) and (3) Article 14(2) Article 15 Article 8. 2 6 5 2 0 0 0 E N O f f i c i a l J o u r n a l o f t h e E u r o p e a n C o m m u n i t i e s L 1 2 6 / 5 7 This Directive Directive 77/780/EEC Directive 89/299/EEC Directive 89/646/EEC Directive 89/647/EEC Directive 92/30/EEC Directive 92/121/EEC Directive 96/10/EC Article 12a Article 13 Article 31 Article 32 Article 33 Article 34(1) Article 34(2) to (4) Article 35 Article 36 Article 37 Article 38 Article 39 Article 40 Article 41 Article 42 Article 43 Article 44 Article 45 Article 46 Article 47 Article 48 Article 49 Article 50 Article 51(1) to (5) Article 51(6) Article 52(1) to (7) Article 17 Article 1(1) Article 2(1) to (3) Article 3 Article 4 Article 5 Article 6(1) and (4) Article 7 Article 3(1) to (4), (7) and (8) Article 4 Article 5 Article 6 Article 7 Article 8 Article 2(2) Article 10 Article 3 Article 4(1) to (7)(r), second subparagraph, first sentence, and (7)(s) to (12) Article 5(1) to (3) Article 12(1) to (5) Article 12(8) Article 3(1) to (7) L 1 2 6 / 5 8 E N O f f i c i a l J o u r n a l o f t h e E u r o p e a n C o m m u n i t i e s. 2 6 5 2 0 0 0 This Directive Directive 77/780/EEC Directive 89/299/EEC Directive 89/646/EEC Directive 89/647/EEC Directive 92/30/EEC Directive 92/121/EEC Directive 96/10/EC Article 52(8) and (9) Article 52(10) Article 53 Article 54 Article 55 Article 56 Article 57 Article 58 Article 59 Article 60 Article 61 Article 62(1) and (2) Article 62(3) Article 63 Article 64 Article 65 Article 66 Article 67 Article 68 Article 69 Annex I Annex II Annex III Annex IV Annex V Annex VI Article 3(5) and (6) Article 3(8) and (9) Article 5(4) and (5) Article 3(10) Article 4 Article 5 Article 6 Article 7 Article 11 Article 3(5) Article 6 Article 8 Article 4a Article 22 Article 9 Article 7 Article 11(4) and (5) Article 11(1) to (3) Article 2 Article 6(1) to (9) Article 14(2) Article 9(2) Article 24(3) Article 12(2) Article 12(7) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) Annex (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) Annex I Annex II Annex III (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151) (cid:151). 2 6 5 2 0 0 0 E N O f f i c i a l J o u r n a l o f t h e E u r o p e a n C o m m u n i t i e s L 1 2 6 / 5 9