Exemption / Solvency requirements on an individual basis
Credit institutions must in principle fulfil solvency requirements on an individual and a consolidated basis. Consequently credit Institutions should guarantee the availability of a minimum amount of regulatory capital in relation to the amount of assets. These regulations therefore make an important contribution towards reducing the risk of an insolvency.
A possible exemption from these solvency requirements in any case exists for credit institutions that are also subject to consolidated supervision. This section describes the details relating to the procedure and the application process for exemption (a waiver) from the application of the solvency requirements on an individual basis.
Credit institutions must, if they wish to make use of a waiver, receive the approval of the relevant competent supervisory authority (the European Central Bank or the Financial Market Authority) for a waiver regarding solvency requirements on an individual basis.
The exemption comprises of the following provisions as set out in Article 7 (1) of Regulation (EU) No 575/2013 (CRR):
- Own funds (Part Two CRR)
- Own funds requirements (Part Three CRR)
- Large exposures (Part Four CRR)
- Exposures to transferred credit risks (Part Five CRR)
- Disclosure by institutions (Part Eight CRR)
According to Article 30b BWG an exemption on an individual basis applies solely to the conditions of the CRR, and not, however to the provisions of the BWG.
Duration of the procedure
A timeframe of six months shall generally apply for this procedure from the date of submission of the complete application.
Simultaneous submission of this application (solvency waiver) with an application for exemption from liquidity requirements on an individual basis
If the institution also intends to apply for an exemption in accordance with Article 30c BWG in conjunction with Article 8 CRR then this should if possible be applied for at the same time as this procedure.
Reporting requirements continue to exist
An approval in accordance with Article 7 CRR does not constitute an exemption from reporting requirements pursuant to Article 100 CRR – additional reporting requirements (e.g. repurchase agreements and encumbrance of assets) as well as Article 101 CRR – specific reporting obligations (e.g. losses from exposures to immovable property).
Waiver only for domestic, fully consolidated subsidiaries
A waiver in accordance with Article 7 (1) CRR can only be approved for domestic, fully consolidated subsidiaries (see definition Article 4 no. 16 CRR in conjunction with Article 18 (1) CRR), provided that the superordinated institution holds more than 50 % of the voting rights attached to the units or shares of the subsidiary or is entitled to appoint or remove the majority of the members of the management body of the subsidiary (cf. Article 30 para. 1 nos. 1-3 BWG).
Subsidiaries, which have been excluded from the scope of consolidation pursuant to Article 19 CRR (“de minimis”) are not entitled to apply for an exemption. A waiver pursuant to Article 7 (3) CRR (exemption for parent institutions) can only be granted for domestic parent institutions.
Possible conditions for approval: Prior checking of the group recovery plan
An approval in accordance with Article 7 CRR can be made conditional by the Financial Market Authority on the group recovery plan to be drawn up in accordance with Article 15 BaSAG having been checked. In this case the group recovery plan must be submitted as an annex to the application for approval in accordance with Article 7 CRR.
Submission of complete documentation by the parent institution (in the case of a horizontal group of entities, by the consolidating entity) should be via the Incoming Platform – please note that the time period for the procedure shall only begin once all documentation has been submitted. The documentation to be submitted consists of:
- The application form
- A clear representation of the relationships of the entities and units within the group (listed by Commercial Register number) including ownership relationships as well as the effective control as at the last balance-sheet date as well as the two preceding balance-sheet dates – confirmed by the external auditor;
- Contractual agreements (an agreement between the parent and subsidiary institution with regard to the compliance with requirements on a consolidated basis, including the signatures of the responsible persons from all institutions making the application);
- Submission of a hard letter of comfort by the parent entity with the subsidiary institution as beneficiary and the subsidiary’s creditors. The hard letter of comfort is a promissory contract, in which the parent institution acts as guarantor for all the subsidiary’s obligations. Both the subsidiary and the creditors of the subsidiary are the beneficiaries of this contract;
- A filled-out list of questions/templates (to be supplied upon request), including information about stress test results, business continuity plans, the consolidated risk situation, relevant key figures, e.g. key figures for individual entities within the groups;
- Definite proof of being able to fulfil increased reporting requirements (c.f. Article 70 para. 4b BWG) – reporting of capital requirements on a monthly basis from the time of submission until the procedure ends;
- A brief overview of the risk evaluation, measurement and control procedures of the superordinated parent institution, or, in the case of a horizontal group of entities of the consolidating institution, as well as information about the contractual basis, upon which the risk management for the group as a whole can be controlled by the relevant steering entity;
- Submission of the contractual basis for the centralisation of the risk management and a brief overview of the material provisions;
- Statement about the issuing of instructions and available sanctions to be imposed against the entities within the group in the form of a legal opinion, which certifies conformity with legislation;
- Confirmation that all entities within the group have their registered office in the same member state;
- An overview of the entities within the group, that do not have their registered office in the same Member State, including a listing of key figures for each entity in the group;
- How financing arrangements work for entities that have fallen into financial difficulties, including information about ensuring guaranteeing funds that are available at will and are transferrable.
Calculations are to be carried out both on an individual basis as well as on a consolidated basis.
The FMA reserves the right to place additional requirements or to request additional proof from the institutions during the authorisation process.