Delegated Regulations on Liquidity Coverage Requirement and Leverage Ratio - Clarifications on the Disciplinary Applicable to SIMs and SIM Groups

Delegated Regulations on Liquidity Coverage Requirement and Leverage Ratio - Clarifications on the Disciplinary Applicable to SIMs and SIM Groups.

On January 17 last, the Delegated Regulation of the Commission No. 61/2015 on the Liquidity Coverage Requirement (LCR) for banks and the Delegated Regulation of the Commission No. 62/2015 on the Leverage Ratio (LR) for banks and investment firms were published in the Official Journal of the European Union.

The new liquidity requirement – applicable only to banks and banking groups – entered into force on October 1, 2015. This discipline integrates and, in part, modifies the liquidity risk discipline contained in Regulation No. 575/2013 (CRR), which provided exclusively for reporting obligations.

The discipline introduced by the Delegated Regulation on the leverage ratio – applicable to banks and investment firms – entered into force as of January 1, 2015. In line with the CRR, the Regulation does not introduce an obligatory requirement, but aligns the leverage ratio calculation rules with the provisions of the Basel Committee of January 2014.

With the issuance of the 14th update of Circular No. 285/2013 "Supervisory Provisions for Banks", the prudential discipline for banks has been updated to take into account the modifications made to the regulatory framework by these delegated regulations.

Without prejudice to what is provided by the Bank of Italy Communication of March 31, 2014, according to which - among other things - SIMs apply, where relevant, what is provided for banks in Circular No. 285 of December 17, 2013 (1), some clarifications are provided below regarding the modifications made to the aforementioned Circular with the 14th update.

Liquidity Coverage Requirement

Given that Delegated Regulation No. 61/2015 on LCR applies only to banks and banking groups, the modifications made to Chapter 11 of Circular 285/2013 with the 14th update do not apply to SIMs and SIM groups.

Consequently, any reference that the discipline applicable to SIMs and SIM groups makes to the provisions of Chapter 11 "Liquidity" of Circ. 285/2013 must be understood as referring to the provisions in the version prior to the cited update.

To facilitate the use of regulatory texts, an excerpt of Chapter 11 in the version applicable to SIMs and SIM groups is therefore published on the Bank of Italy website together with this communication.

(1) See Communication of March 31, 2014 "SIMs and SIM groups: application of the new European prudential legislation", Supervision Bulletin No. 3, March 2014.

1

Monitoring of the Leverage Ratio Index

Delegated Regulation No. 62/2015 introduces some modifications in the calculation methods of the leverage ratio index for the purposes of the reporting introduced, also for SIMs, in implementation of the CRR (2).

Consistent with the scope of application of the Delegated Regulation and with the provisions of the Communication of March 31, 2014, SIMs and SIM groups are therefore subject to the modifications made to Chapter 12 of Circular 285/2013.

(2) In particular, it notes the exclusion - for the purposes of reporting on the leverage ratio index - of exposures towards subjects within the group of belonging having a seat in Italy that benefit from the preferential treatment for credit risk purposes under art. 113(6) CRR.

2

Supervisory Provisions for Banks Circular No. 285 of December 17, 2013

Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and Groups of SIMs: application of the new European prudential legislation"

Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and Groups of SIMs: application of the new European prudential legislation"

SUPERVISORY PROVISIONS FOR BANKS Part Two – Application in Italy of the CRR Chapter 11 – Liquidity

PART TWO Chapter 11 LIQUIDITY Circular No. 285 of December 17, 2013 Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and SIM groups: application of the new European prudential legislation"

SUPERVISORY PROVISIONS FOR BANKS Part Two – Application in Italy of the CRR Chapter 11 – Liquidity Section I – Regulatory Sources

Chapter 11 LIQUIDITY SECTION I REGULATORY SOURCES The matter is directly regulated by: — RMVU; — RQMVU; — CRR, in particular from Part Six and arts. 8, 20 and 21; — regulations of the European Commission containing regulatory technical standards to establish: o supervisory reporting of entities (art. 415, para. 3 CRR); o the list of currencies for which there is an extremely restrictive definition of availability at the central bank (art. 416, para. 5 CRR); o the list of currencies for which the justified need for liquid assets exceeds the availability of such assets (art. 419, para. 4 CRR); o derogations for currencies with insufficient availability of liquid assets (art. 419, para. 5 CRR); o further objective criteria to be met for the application of preferential outflow rates to certain types of intra-group relationships (art. 422, para. 10 CRR); o conditions for the application of the notion of "relevance" and methods for measuring additional cash outflows on derivative instruments, financing transactions and other contracts if relevant (art. 423, para. 3, second paragraph CRR); o further objective criteria to be met for the application of preferential inflow rates on certain types of intra-group relationships (art. 425, para. 6 CRR). — EBA guidelines on the treatment of retail deposits subject to different outflow rates (art. 421, para. 3 CRR) issued on December 6, 2013. The matter is also governed by the following articles of the TUB: o arts. 51 and 66, concerning informational supervision of banks and subjects included in the scope of consolidated supervision; o art. 53, para. 1, lett. a), b) and d), which attributes to the Bank of Italy, in accordance with the resolutions of the CICR, the power to issue provisions having as object capital adequacy, risk containment in its various Circular No. 285 of December 17, 2013 Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and SIM groups: application of the new European prudential legislation"

SUPERVISORY PROVISIONS FOR BANKS Part Two – Application in Italy of the CRR Chapter 11 – Liquidity Section I – Regulatory Sources configurations as well as corporate governance, administrative and accounting organization, internal controls and remuneration and incentive systems; o art. 53, para. 3, which attributes, among other things, to the Bank of Italy the power to adopt, where the situation requires it, specific measures against individual banks for the matters indicated in para. 1; o art. 67, para. 1, lett. a), b) and d), para. 2-ter and para. 3-bis, which, in order to achieve consolidated supervision, provides that the Bank of Italy, in accordance with the resolutions of the CICR, issues to the parent company or components of the banking group, with measures of a general or particular nature, provisions having as object capital adequacy, risk containment in its various configurations as well as corporate governance, administrative and accounting organization, internal controls and remuneration and incentive systems. The Basel 2 documents, Basel III: International framework for liquidity risk measurement, standards and monitoring of December 2010 and Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools of January 2013 are also relevant.

Circular No. 285 of December 17, 2013 Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and SIM groups: application of the new European prudential legislation"

SUPERVISORY PROVISIONS FOR BANKS Part Two – Application in Italy of the CRR Chapter 11 – Liquidity Section II – Administrative Procedures

SECTION II ADMINISTRATIVE PROCEDURES The following administrative procedures relating to this Chapter are indicated below: — authorization for the derogation of the application on an individual basis of the requirements of Part Six CRR if the entities of the liquidity sub-group are authorized in more Member States (art. 8, para. 1 and art. 21 CRR; term: 6 months); — authorization for the derogation of the application on an individual basis of art. 86 CRD IV for banks of the liquidity sub-group if they have been authorized for the derogation under art. 8, paras. 1 or 2 CRR (art. 8, para. 5 CRR; term: 6 months); — authorization for the use of preferential outflow and/or inflow percentages for specific intra-group relationships for banks authorized in Italy (art. 422, para. 8 and art. 425, para. 4 CRR; term: 120 days); — authorization for the use of preferential outflow and/or inflow percentages for specific intra-group relationships for banks authorized in Italy and other Member States (art. 422, para. 9, art. 425, para. 5 and art. 20 CRR, term: 6 months); — authorization for total or partial exemption from the 75% inflow limit deriving from a parent company or a subsidiary of the entity or another subsidiary of the same parent company or connected (art. 425, para. 1 CRR, term: 6 months).

Circular No. 285 of December 17, 2013 Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and SIM groups: application of the new European prudential legislation"

SUPERVISORY PROVISIONS FOR BANKS Part Two – Application in Italy of the CRR Chapter 11 – Liquidity Section III – Exercise of National Discretions

SECTION III EXERCISE OF NATIONAL DISCRETIONS

1. Derogation from the application of liquidity rules on an individual basis Pursuant to art. 8 para. 2 CRR, the application on an individual basis of the provisions of Part Six CRR is derogated for Italian banks, belonging to a banking group. The parent company respects the provisions of Part Six CRR on a consolidated basis and, where relevant, at the level of the liquidity sub-group. In the event that the derogation affects entities authorized in more Member States, the European Central Bank and the Bank of Italy may derogate, in whole or in part, the application on an individual basis of the provisions of Part Six CRR towards a bank and one or more subsidiaries thereof and subject them to supervision as a single liquidity sub-group, in compliance with what is provided by art. 8, para. 1 CRR. The procedures provided for in art. 21 CRR apply. The European Central Bank and the Bank of Italy may derogate, in whole or in part, the application on an individual basis of art. 86 CRD IV (art. 8, para. 5 CRR) towards banks benefiting from the derogation from the application of liquidity rules on an individual basis under this paragraph.

2. Liquidity Coverage Requirement Pursuant to art. 412, para. 5 CRR, until the introduction of harmonized liquidity requirements in the Union under art. 460, the Bank of Italy may issue provisions aimed at defining the national application of the liquidity coverage requirement or imposing a higher liquidity requirement up to 100%. In the cases provided for in art. 414 CRR, the Bank of Italy may establish that the reports provided for by the same article are carried out with less frequency or longer deadlines, based on the individual situation of the bank, taking into account the size and complexity of the assets of the bank in question. Pursuant to art. 416, para. 1, second paragraph CRR, the Bank of Italy may issue provisions aimed at specifying the criteria that banks use in the definition and identification of liquid assets under the same article. Pursuant to art. 420, para. 2 CRR, off-balance sheet products related to trade finance under art. 429 and Annex I are subject to a 5% outflow rate. Banks identify and subject retail deposits to different outflows in compliance with what is provided by the guidelines issued by the EBA under art. 421, para. 3 CRR. Pursuant to art. 422, para. 4, second paragraph CRR, the Bank of Italy, pending a uniform definition of outflows on other liabilities, may provide general guidelines that banks use to identify deposits maintained by the depositor in the context of an established operational relationship, for the purposes provided for by the same article. In specific cases, the Bank of Italy may allow banks authorized in Italy to apply to the liabilities under art. 422, para. 7 CRR, an outflow percentage lower than that provided for in the ordinary way, if the conditions indicated in para. 8 of the same article are met. Banks authorized in Italy wishing to avail themselves of this preferential treatment submit a specific authorization request to the European Central Bank or the Bank of Italy, attesting to compliance with the conditions indicated in art. 422, para. 8 CRR. Pursuant to art. 422, para. 9 CRR, the Bank of Italy may allow derogation from compliance with the condition under art. 422, para. 8, lett. d) CRR (1). In such cases, the procedure under art. 20, para. 1, lett. b) CRR applies. Pursuant to art. 425, para. 1 CRR, banks wishing to exempt in whole or in part from the 75% limit the inflows deriving from an entity that is a parent company or a subsidiary of the entity or another subsidiary of the same parent company or connected to the entity via a relationship under art. 12, para. 1 of Directive 83/349/CEE, make a request to the European Central Bank or the Bank of Italy, indicating the nature of the partial or total exemption and the types of relationships affected. In specific cases, the Bank of Italy may allow banks authorized in Italy to apply to credit and liquidity lines an inflow percentage higher than that provided for in the ordinary way, if the conditions indicated in art. 425, para. 4 CRR are met. Banks authorized in Italy wishing to avail themselves of the preferential treatment mentioned above submit a specific authorization request to the European Central Bank or the Bank of Italy, attesting to compliance with the conditions indicated in art. 425, para. 4 CRR. Pursuant to art. 425, para. 5 CRR, the Bank of Italy may allow derogation from compliance with the condition under art. 425, para. 4, lett. d) CRR (2). In such cases, the procedure under art. 20, para. 1, lett. b) CRR applies.

3. Stable Funding Requirement Pursuant to art. 413 CRR, until the introduction of binding minimum standards on the stable funding ratio, the Bank of Italy may introduce provisions on the matter. In the cases provided for in art. 414 CRR, the Bank of Italy may establish that the reports provided for by the same article are carried out with less frequency or longer deadlines, based on the individual situation of an entity, taking into account the size and complexity of the assets of the entity in question.

(1) Namely that the bank and the depositing subject have their seat in Italy. (2) Namely that the bank and the subject that issued the credit and/or liquidity line have their seat in Italy.

Circular No. 285 of December 17, 2013 Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and SIM groups: application of the new European prudential legislation"

SUPERVISORY PROVISIONS FOR BANKS Part Two – Application in Italy of the CRR Chapter 11 – Liquidity Section III – Exercise of National Discretions

4. Liquidity Reports Pursuant to art. 415, para. 3, third paragraph CRR, until the introduction of binding requirements on liquidity, the Bank of Italy may continue to collect information and data through monitoring tools in order to control compliance with current regulations on liquidity.

---

Circular No. 285 of December 17, 2013 Excerpt applicable to SIMs and SIM groups, pursuant to the Communication of March 31, 2014 "SIMs and SIM groups: application of the new European prudential legislation"