CSSF Regulation No 16-14 on the Reciprocity of the 1% Systemic Risk Buffer Rate Adopted by the Central Bank of Estonia

CSSF Regulation No 16-14 on the Reciprocity of the Systemic Risk Buffer Rate of 1% Adopted by the Central Bank of Estonia (Mémorial A – No. 285 of December 27, 2016)

Having regard to Article 108bis of the Constitution;

Having regard to the Law of December 23, 1998 establishing a Commission for the Supervision of the Financial Sector ("CSSF"), and in particular Article 9, paragraph 2;

Having regard to the Law of April 5, 1993 relating to the financial sector ("LSF"), and in particular Article 59-11, paragraph 1, which attributes to the CSSF, in its capacity as the designated authority, the recognition of systemic risk buffer rates set in other Member States;

Having regard to the Recommendation of the European Systemic Risk Board (ESRB) of December 15, 2015 on the assessment of cross-border effects and voluntary reciprocity of macroprudential policy measures (CERS/2015/2), as amended, and in particular Recommendation C, paragraph 1, recommending that relevant authorities apply by reciprocity macroprudential policy measures adopted by other relevant authorities for which the ESRB recommends reciprocal application;

Having regard to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC ("CRD IV"), and in particular Article 134, paragraph 1, authorizing the recognition of the systemic risk buffer rate set in accordance with Article 133 and its application to authorized institutions at the national level for exposures located in the Member State introducing this buffer rate;

Having regard to the measure taken by the Central Bank of Estonia pursuant to Article 133 of CRD IV, and notified on April 26, 2016 to the ESRB, to impose a systemic risk buffer rate of 1% applicable to the national exposures of all credit institutions authorized in Estonia;

Having regard to the opinion of the Systemic Risk Committee (SRC/2016/008) of November 28, 2016 regarding the reciprocity of the 1% systemic risk buffer rate adopted by the Eesti Pank (Central Bank of Estonia);

Having regard to the opinion of the Prudential Regulation Advisory Committee;

The Management of the Commission for the Supervision of the Financial Sector,

Hereby decides:

Article 1 Recognition and application to credit institutions authorized in Luxembourg of the systemic risk buffer rate set in accordance with Article 133 of CRD IV for exposures located in Estonia

The measure taken by the Central Bank of Estonia to apply a systemic risk buffer rate of 1% to all exposures of credit institutions authorized in Estonia in accordance with Article 133 of CRD IV is recognized by the CSSF pursuant to Article 59-11, paragraph 1, of the LSF and applies with immediate effect to any Luxembourg credit institution, the individual exposures of which, established on the basis of its consolidated situation, vis-à-vis Estonia exceed the threshold of 200 million euros.

Article 2 Publication

This Regulation shall be published in the Mémorial and on the website of the Commission for the Supervision of the Financial Sector.

Luxembourg, December 19, 2016

COMMISSION FOR THE SUPERVISION OF THE FINANCIAL SECTOR Jean-Pierre FABER Françoise KAUTHEN Claude SIMON Director Simone DELCOURT Claude MARX Director General

Appendix: Opinion of the Systemic Risk Committee of November 28, 2016 regarding the reciprocity of the one percent systemic risk buffer rate adopted by the Eesti Pank (Central Bank of Estonia) (SRC/2016/008)

Appendix: OPINION OF THE SYSTEMIC RISK COMMITTEE of November 28, 2016 regarding the reciprocity of the one percent systemic risk buffer rate adopted by the Eesti Pank (Central Bank of Estonia) (SRC/2016/008)

THE SYSTEMIC RISK COMMITTEE,

Having regard to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC ("CRD IV Directive"),

Having regard to the amended Law of April 5, 1993 relating to the financial sector ("LSF Law"), and in particular Article 59-11,

Having regard to the Law of April 1, 2015 establishing a Systemic Risk Committee and amending the amended Law of December 23, 1998 relating to the monetary status and the Central Bank of Luxembourg ("SRC Law"), and in particular Article 2, points c) and i),

Having regard to the Recommendation of the European Systemic Risk Board (ESRB) of December 15, 2015 on the assessment of cross-border effects and voluntary reciprocity of macroprudential policy measures (CERS/2015/2), and in particular Recommendation C.1,

Having regard to the notification from the Eesti Pank addressed to the European Systemic Risk Board on April 26, 2016, and the soundness of its request for reciprocity,

Having regard to the Recommendation of the European Systemic Risk Board (CERS/2016/4) of June 24, 2016 amending Recommendation CERS/2015/2 and in particular its first section and the annex to said recommendation,

Considering the following:

(1) The analyses conducted by the Eesti Pank have revealed structural vulnerabilities in the financial sector and the real economy of Estonia in the event of the emergence of external shocks.

(2) The vulnerabilities of the Estonian financial sector are explained by a very high degree of concentration within the banking sector as well as by the significance of common exposures of credit institutions to economic activity sectors. These structural vulnerabilities led the Eesti Pank to activate Article 133 of the CRD IV Directive and to set the systemic risk buffer rate at 1%. This rate applies to all exposures of credit institutions authorized in Estonia.

(3) The need for recognition is justified by the structure of the Estonian financial sector, where the share of branches of foreign banks and direct cross-border financing of the real sector are relatively high. In order to guarantee the effectiveness of this measure, and in accordance with the ESRB recommendation (CERS/2015/2), the Eesti Pank requested the recognition of the systemic risk buffer rate by the relevant authorities of other Member States of the European Union.

(4) The reciprocity of the measure taken by the Eesti Pank having been endorsed by the ESRB in its recommendation of June 24, 2016 (CERS/2016/4), a materiality threshold for exposures vis-à-vis Estonia has been set at 200 million euros. The materiality threshold is assessed individually for each bank on the basis of its consolidated situation.

HAS ADOPTED THIS OPINION:

Part I: Recognition of the 1% systemic risk buffer rate adopted by the Eesti Pank

1. This opinion is addressed to the Commission for the Supervision of the Financial Sector (CSSF) in its capacity as the designated authority as referred to in Article 59-2 (10) of the LSF Law.

2. The Systemic Risk Committee is of the opinion that the designated authority should apply by reciprocity the measure taken by the Eesti Pank.

3. The Systemic Risk Committee is of the opinion that the designated authority should ensure that any Luxembourg bank, the individual exposures of which established on the basis of its consolidated situation vis-à-vis Estonia exceed the threshold of 200 million euros, applies a systemic risk buffer rate of 1% on all its exposures vis-à-vis Estonia.

4. The Systemic Risk Committee invites the designated authority to monitor, on an annual basis, the exposures of Luxembourg banks vis-à-vis Estonia and to ensure that any bank whose individual exposures established on the basis of its consolidated situation exceed the threshold of 200 million euros applies a systemic risk buffer rate of 1% on all exposures vis-à-vis Estonia.

Part II: Implementation and monitoring of the opinion of the Systemic Risk Committee

1. Interpretation The terms used in this recommendation have the same meaning as in the LSF Law.

2. Notifications On the basis of this opinion, the Systemic Risk Committee invites the CSSF to ensure the monitoring of the notifications provided for in paragraph 2 of Article 59-11 of the LSF Law.

3. Publication The Systemic Risk Committee invites the committee secretariat to proceed with the publication of this opinion on the committee's website1.

4. Monitoring The Systemic Risk Committee invites the CSSF, as the recipient, to communicate to the Systemic Risk Committee, via its secretariat, the measures taken in reaction to this opinion before December 9, 2016.

5. Control and Evaluation

1. The secretariat of the Systemic Risk Committee: a) provides its assistance to the CSSF, with a view to facilitating the implementation of this opinion; and b) prepares a report on the follow-up given by the CSSF to this opinion and reports it to the Systemic Risk Committee.
2. The Systemic Risk Committee evaluates the responses provided by the CSSF to this opinion.

Done in Luxembourg, November 28, 2016.

For the Systemic Risk Committee Pierre Gramegna President

1 Given that the SRC website is under construction, the opinion will be published on the BCL website.