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Circular CSSF 15/610: Ad hoc reporting
within the framework of the Banking
Recovery and Resolution Directive
The purpose of Circular CSSF 15/610 (the “Circular”) is to collect information
from Luxembourg credit institutions, as well as Luxembourg branches of
credit institutions having their head office in a third country (i.e. outside the
EU), with a view to prepare the work of the CSSF as future national Resolution
Authority within the framework of Directive 2014/59/EU (“Banking Recovery
and Resolution Directive”, in short “BRRD”).
22 April 2015
The information collected will serve as a basis for:


the preparation of resolution plans in accordance with articles 10 and 12
of the BRRD;
computing the minimum requirements for own funds and eligible
liabilities (MREL) under article 45 of the BRRD.
What’s in it?
By way of introduction, the Circular confirms that CSSF will be Luxembourg’s
Resolution Authority for so-called “less significant” Luxembourg banks under the
Single Supervisory Mechanism1. The BRRD foresees the possibility for a supervisor
(Competent Authority) to also act as a Resolution Authority so long as adequate
structural arrangements (Chinese walls) are put in place.
It is important to note that for those institutions that meet the criteria for direct
supervision by the European Central Bank (there were 6 in Luxembourg as of
31 December 2014, but there are also many others that are subsidiaries of Eurozone
banking groups), the upcoming Single Resolution Board (SRB) will take this role.
As a result, for the majority of Luxembourg credit institutions, CSSF will be in charge
of drafting resolution plans based on the information provided by banks in scope.
The Circular requires banks to provide a wide set of information with two separate but
interconnected objectives:


1
gather information in view of the establishment of resolution plans (also
known as “living wills” or “orderly wind down” plans);
gather information relating to the liabilities eligible for MREL calculation
(a new type of prudential ratio trying to measure how much creditors – and
not just shareholders – could contribute to losses in a resolution scenario).
See following link for a full list of all Eurozone credit institutions and how they are categorised either as
‘significant’ or ‘less significant’(the list is updated several times per year):
https://www.bankingsupervision.europa.eu/banking/list/who/html/index.en.html
Who does it impact?
This Circular is applicable to Luxembourg credit institutions and branches of credit
institutions having their head office in a third country (e.g. Luxembourg branches of
Brazilian, Chinese, Swiss etc. banks), collectively the “Banks”.
Luxembourg branches of EU Banks are thus not in scope.
What is therefore important to note is that Banks in scope of the Circular are in greater
number than those that have been recently asked to produce a Recovery Plan by CSSF.
As we will see later, this is of great importance, as a significant subset of the
information to report emanates from the said Recover Plans.
Luxembourg-based subsidiaries of EU banks have for the majority not been asked to
produce a local Recovery Plan. It is therefore important for them to consult with their
groups to seek and obtain some of the information required by the present Circular.
What are the main requirements?
The Circular, to be read together with the BRRD, details the information to be
provided by Banks on attached standardised EBA templates as summarised below.
1.
Disclosures for the establishment of resolution plans
Banks are requested to provide information in the following areas, based on their
situation and available figures at 31 December 2014:
Topic
Typical information source
(PwC suggestion for illustration purposes only –
non exhaustive list)
I
Organisational structure
Long Form Report
II
Governance and Management
Internal Governance Framework, Long Form Report
III
Critical functions and core
business lines
Recovery Plan
IV
Critical counterparties
ICAAP, Recovery Plan, BCP/DRP, Pillar 3 disclosure
report (where existing), COREP (Large Exposures)
V
Liabilities structure
ICAAP, ILAAP (where existing), Recovery Plan
VI
Funding sources
ICAAP, ILAAP (where existing), Recovery Plan
VII
Off-balance sheet
ICAAP, FINREP, COREP
VIII
Payment systems
Long Form Report
IX
Information systems
Long Form Report, Internal Governance Framework
X
Interconnectedness
Long Form Report, Internal Governance
Framework, Outsourcing arrangements
XI
Authorities
CSSF, European Central Banks, Application file
XII
Legal impacts of resolution
Recovery plan
2.
Information relating to the liabilities eligible for MREL
calculation
As briefly mentioned above, the MREL will be a new type of prudential ratio trying to
measure how much creditors – and not just shareholders – could contribute to losses
in a resolution scenario. This ratio will not be a fixed figure identical for all Banks, but
is to be set on a case-by-case basis by resolution authorities. The objective of the MREL
will be to prevent institutions from structuring their liabilities in a way that would
hamper the effectiveness of bail-in (i.e. the sharing of losses between shareholders and
some categories of creditors) or other resolution tools (such as the sale of business or
the asset separation tools).
The Circular focuses on “eligible liabilities” instruments (definition and exclusions are
outlined in the Circular) for MREL calculation as per the BRRD criteria listed
hereafter:
a)
the instrument is issued and fully paid;
b)
it is not a commitment to the institution itself or guaranteed by the latter;
c)
the purchase of the instrument is not funded directly or indirectly by the
institution;
d)
the liability/commitment has a remaining maturity of at least one year;
e)
the liability/commitment is not the result of a derivative instrument;
f)
the liability/commitment is not the result of a deposit having a preference rank
in the national insolvency regime hierarchy pursuant to article 108 of the
BRRD.
It is also emphasised the difference of treatment, in terms of eligibility, of
commitments governed by EU country law and those under non EU country law.
Based on the above, Banks are required to provide an inventory of all eligible liabilities
that meet the conditions specified in subparagraphs a) to f) above, differentiating by
residual maturity and whether they are governed by the laws of a third country, and if
so, which country, based on their situation and available figures at 31 December 2014.
What’s next?
All Banks subject to the Circular shall transmit (via E-file or SOFiE) the required
information by 30 May 2015 at the latest.
It is important to note that the information to provide as requested by the Circular will
become the ground for resolution authorities to start establishing resolution plans.
Institutions that are not being proactive at this stage might be imposed more drastic
resolution plans than those which have submitted accurate and well thought out
information. We can only encourage Banks to take this exercise very seriously.
Given the importance of this ad hoc reporting for its future work, the CSSF explicitly
requests that a member of authorised management endorses the completed
tables before they are submitted. This is an unusual request and testifies one more
time of the importance of the required information.
How can we help?
We can help you to conceptually, strategically and operationally make sense of and
apply the Circular. Our services are based on a modular approach, allowing you to
decide in a very flexible manner which services you would like to benefit from. This
may notably include:
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
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organising informational workshops to raise awareness on the key contents of
the Circular;
diagnosis (including advice on disclosure, analysis of your commitments and
eligibility assessment, recommendations); and
implementation and onsite support.
For more information, please contact us:
…………………………………………………………………………………………………………………….
Emmanuelle Henniaux
Partner
+352 49 48 48 2111
[email protected]
Jean-Philippe Maes
Director
+352 49 48 48 2874
[email protected]
Andreas Drossel
Director
+352 49 48 48 2765
[email protected]
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