EBA · 2020_5129 Final Q&A

Need of prior permission to include minority interest arising from Common Equity Tier 1 instruments issued by subsidiaries located in EU member state and third countries in consolidated CET1 capital of parent institutions established in the EU.

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
26, para. 3
Topic
Own funds
Submitted by
Competent authority
Submitted
2020-02-17
Answered
2020-12-04
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

According to Article 26(3) CRR, as amended by Regulation (EU) 2019/876 (CRR2), is a prior permission by the competent authority required in order for a parent institution located in the EU to include in consolidated CET1 capital minority interests, arising from CET1 instruments, issued by subsidiaries located (a) in an EU Member State, or (b) in a third country? The answer should also clarify whether before granting a permission pursuant to Article 26(3) CRR (if such permission is required), the competent authority is required to consult the EBA (as per the third subparagraph of Article 26(3) CRR), as the instruments issued by the subsidiaries in third countries would not be included in the EBA CET1 instruments list.

Background

Article 26(3) CRR requires that institutions classify issuances of capital instruments as CET1 only after prior permission is granted by competent authorities. It should be clarified whether this prior permission is required in order for the parent undertaking located in the EU to be allowed to include in consolidated CET1 capital, pursuant to Articles 81 and 84 CRR, instruments that are issued by subsidiaries located both in an EU Member State and in a third country.

Answer

A prior permission on a consolidated basis according to Article 26(3) CRR, as amended by Regulation (EU) 2019/876 (CRR2), is not required in order to include minority interests stemming from capital instruments issued by a subsidiary, irrespective of whether it is located in an EU member state or in a third country. The parent undertaking has to ensure that those instruments are fully compliant with the eligibility criteria set out in Article 28 CRR or, where applicable, Article 29 CRR. As no prior permission pursuant to Article 26(3) CRR is required on a consolidated basis there is no obligation for the competent authority of the parent undertaking to consult the EBA on new forms of capital issued by subsidiaries, located either in the EU or in a third country, and classified as CET1 instruments.

Original source: European Banking Authority, Q&A ID 2020_5129

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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