Share buyback program: amount of upfront deduction

In accordance with Article 30(1)(e) of Commission Delegated Regulation (EU) No 241/2014, institutions are required to submit “ present and forward-looking information on the level and composition of own funds and the level and composition of own funds and eligible liabilities held to ensure compliance, respectively, with the requirements referred to in points (d)(i) to (d)(viii) before and after performing any of the actions listed in Article 77(1) of Regulation (EU) No 575/2013 ”. This provision must be read as requiring institutions to submit information on the maximum amount (in EUR) that they intend to spend on the share buy-back program. This information is key to allow the competent authority to determine the impact of the transaction and to assess the fulfilment of the condition set out in Article 78(1)(b) CRR. When competent authorities grant a permission to reduce own funds pursuant to Article 78(1)(b) CRR, they shall explicitly state the maximum amount (in EUR) that institutions are allowed to spend, regardless of how this amount is allocated among the different CET1 items. Such amount must generally be deducted upfront from the corresponding CET1 items as of the moment the permission is granted, in line with Q&A 3277 . The need to have the upfront deduction of the maximum amount (in EUR) that institutions are allowed to spend in a share buyback program, regardless of the way in which such amount is allocated among CET1 items, is based on the following reasons: An upfront deduction of merely capital instruments and related share premium accounts would not faithfully represent the actual impact on own funds stemming from the reduction. Since the rationale of the upfront deduction is to anticipate the effect of the own funds reduction at the moment of the permission, it does not make sense economically and prudentially to not reflect at this earlier point in time the entire impact but only a portion of it. The competent authority’s assessment under Article 78(1)(b) CRR is made on the basis of the maximum impact on CET1 capital as this is the information used to calculate the institution’s margin over the respective requirements.