Circular 5/2014 (BA) on the Application of Statements on Principle I, SolvV and GroMiKV to CRD IV and CRR

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Circular 5/2014 (
BA
) on the application of statements on Principle I ( Grundsatz I – GS I), the German Solvency Regulation ( Solvabilitätsverordnung – SolvV ) (old version) and the German Regulation Governing Large Exposures and Loans of EUR 1.5m or More ( Großkredit- und Millionenkreditverordnung – GroMiKV ) (old version) to Directive 2013/36/EU (Capital Requirements Directive IV – CRD IV) and Regulation ( EU ) No 575/2013 (Capital Requirements Regulation – CRR )

10.07.2014

To all credit institutions and all financial services institutions of Groups I, II, IIIa, IIIb and IIIc in the Federal Republic of Germany

I.

Application of statements on Principle I published in explanatory notes, circulars and individual notifications relating to Principle I, to Regulation ( EU ) No 575/2013 ( CRR ).

On 1 January 2007, the German Regulation Governing the Capital Adequacy of Institutions, Groups of Institutions and Financial Holding Groups (Solvency Regulation – SolvV ) of 14 December 2006 entered into force 1 . The SolvV replaced Principle I on the Own Funds of Institutions ( Grundsatz I – GS I) as published in the announcement of 29 October 1997 (Federal Gazette no. 210 of 11 November 1997, p. 13555), last amended by the announcement of 20 July 2000 (Federal Gazette no. 160 of 25 August 2000, p. 17077).

As of 1 January 2007, “interpretative decisions” by BaFin on the SolvV are published on the BaFin website in a compilation of Erläuternde Aussagen zur Solvabilitätsverordnung (Explanatory statements on the Solvency Regulation). It replaces the Erläuterungen zur Bekanntmachung über die Änderungen und Ergänzungen der Grundsätze über das Eigenkapital und die Liquidität der Kreditinstitute (Explanations relating to announcement regarding amendments of and additions to the principles on capital and liquidity position of credit institutions) of 29 October 1997 and 20 July 2000.

Given the frequent recurrence of enquiries relating to previously published statements on GS I, I hereby declare void all my statements on GS I which have been published

in the "Explanations relating to announcement regarding amendments of and additions to the principles on capital and liquidity position of credit institutions" of 29 October 1997 and 20 July 2000, in BaFin circulars and guidance notices and on the BaFin website in the form of individual notifications in compilations of texts or as "interpretative decisions".

This shall apply with the exception of the temporary continuance under Article 500(1)(b) of Regulation ( EU ) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation – CRR ) as described below.

Statements on
GS
I remained valid only up until 31 December 2013 to the application of the transitional provisions for the adequacy and calculation of own funds as stipulated in section 339 (1) and (2) of the SolvV , outside of which they were no longer relevant to the application of the SolvV .

Article 500 of the
CRR also contains transitional provisions according to which institutions which calculate risk-weighted exposure amounts using the internal ratings-based approach ( IRBA ; Chapter 4 of Title II of Part Three of the CRR ) or the Advanced Measurement Approaches ( AMA ) as specified in Chapter 4 of Title III of Part Three of the CRR for the calculation of their own funds requirements for operational risk must comply with a "Basel I floor" until 31 December 2017. In accordance with the provisions of Article 152(1) and (2) of Directive 2006/48/EC of 14 June 2006 which was transposed into national law by section 339(1) and (2) of the SolvV , institutions must, under Article 500(1)(b) of the CRR , hold own funds which are at all times more than or equal to 80% of the total minimum amount of own funds that the institution would be required to hold under Article 4 of Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions and under Directive 2000/12/EC as amended prior to 1 January 2007.

Until 31 December 2017, any statements on
GS
I will therefore only be relevant to the application of GS I in relation to the transitional provisions under Article 500(1)(b) of the CRR .

II.

Application of statements on the

Regulation Governing the Capital Adequacy of Institutions, Groups of Institutions and Financial Holding Groups ( SolvV ) and the Regulation on the Recording, Measuring, Weighting and Reporting of Loans Pursuant to the Provisions of the Banking Act Concerning Large Exposures and Loans of EUR
1.5 Million or More (
GroMiKV
(old version))

to Directive 2013/36/EU (
CRD
IV) and Regulation (
EU
) No 575/2013 (
CRR
)

On 17 July 2013 and 28 June 2013, respectively,

Directive 2013/36/EU of the European Parliament and of the Council of 26 June 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 Regulation ( EU ) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms ( CRR )

entered into force.

The provisions of the
CRD
IV must be transposed into national law by the EU Member States and apply as of 31 December 2016. The CRR rules are directly applicable to the institutions as of 1 January 2014.

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions ( OJ L 177, 30.6.2006, p.
1) and Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (
OJ
L 177, 30.6.2006, p.
201) were joined in two new legislative acts. These new legislative acts form the legal framework for the access to the activity of, the supervisory framework for and the supervisory rules for credit institutions and investment firms. Capital adequacy and large exposure limits are regulated by the provisions of the
CRR as of 1 January 2014 which are directly applicable in the Federal Republic of Germany.

Subsequently, the German Solvency Regulation of 14 December 2006 (Federal Law Gazette I, p.
2926), last amended by Article 6 of the Regulation of 20 September 2013 (Federal Law Gazette I, p.
3672), and the German Regulation Governing Large Exposures and Loans of EUR
1.5 Million or More of 14 December 2006 (Federal Law Gazette I,
p.
3065), last amended by Article 2 of the Regulation of 26 October 2011 (Federal Law Gazette I, p.
2103), were recast. The amended
SolvV
(
SolvV
(new version)) entered into force on 1 January 2014 and contains more detailed procedural provisions on the application and notification requirements laid down in the CRD IV as well as more detailed provisions where discretionary leeway exists under the CRR . It also lays down the national implementation of the CRD provisions (benchmarking of internal approaches, detailed provisions on capital buffers). A separate regulation exists which contains the provisions on capital adequacy for housing enterprises with savings schemes (Wohnungsunternehmen-Solvabilitätsverordnung – WuSolvV ). The scope of the recast GroMiKV ( GroMikV (new version)), which also entered into force on 1 January 2014, is limited to the application of national discretions with regard to the large exposure provisions.

This circular therefore acts as clarification that

the statements in circulars and guidance notices, as far as they were made concerning the Solvency Regulation of 14 December 2006 or the Regulation Governing Large Exposures and Loans of EUR
1.5 Million or More of 14 December 2006 and
the statements published on the
BaFin website in the form of individual notifications in compilations of texts or as "interpretative decisions", to the extent that they concern the Solvency Regulation of 14 December 2006 or the Regulation Governing Large Exposures and Loans of EUR
1.5 Million or More of 14 December 2006

do not apply to circumstances regulated by the CRR . As a result of the recasting of the SolvV and the GroMiKV , the aforementioned statements have lost their immediate point of reference and thus their legal basis. A general application of these statements to the CRR is not permitted.

In the interest of making the adjustment as smooth as possible, the application of the CRR in Germany will, for the time being, follow the corresponding national administrative practice valid until the end of 2013, in so far as this is compatible with the wording or regulatory context of the CRR or any published statement concluding the EBA Q&A process and adopted by BaFin .

For the purposes of the WuSolvV, the statements on the SolvV continue to apply unless they contradict the wording of the WuSolvV or the existing administrative practice with regard to the supervision of housing enterprises with savings schemes.

In contrast, the provisions of the
CRD
IV must still be transposed into national law so that, in principle, there is no change from the situation prior to 1 January 2014. Interpretative letters and other explanatory statements relating to the laws into which the provisions have thus far been transposed, i.e. particularly relating the German Banking Act (Kreditwesengesetz – KWG ), are therefore not generally void as of 1 January 2014. Rather, what matters is whether, as a result of the transposition of the CRD IV into national law, there are changes to the contents of a provision which is the subject of an interpretation or explanation.

Given that the Q&A process also covers fundamental questions on the interpretation and application of the CRD IV, however, it may be the case in these instances that, in the future, interpretative letters and explanatory statements will have to be amended in terms of content or revoked due to EBA interpretative decisions/guidelines or binding technical standards on certain articles of the CRD IV.

1
Solvency Regulation of 14 December 2006 (Federal Law Gazette I p.
2926), last amended by Article 6 of the Regulation of 20 September 2013 (Federal Law Gazette I, p.
3672).

The list of the affected documents can be found in the German original version of this circular.

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