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No. 700/2024
7 June 2024

REGULATION

on the minimum requirement for own funds and eligible liabilities.

Article 1. Scope and definitions.

This Regulation applies to the minimum requirement for own funds and eligible liabilities of undertakings and entities under Chapter IV of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020.

In this Regulation, words and terms have the same meaning as in the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020.

References in this Regulation to “Regulation (EU) No. 575/2013” are references to Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and securities firms, as implemented in this country with subsequent amendments on the basis of Article 1 c of the Act on Financial Undertakings, No. 161/2002.

Article 2. Minimum requirement for own funds and eligible liabilities.

Undertakings and entities shall at all times comply with the requirements arising from the minimum requirement for own funds and eligible liabilities determined by the resolution authority when drawing up resolution plans. The resolution authority's decision shall be based on the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, this Regulation and other administrative instructions.

The minimum requirement pursuant to paragraph 1 shall, in accordance with Articles 10-12, as applicable, be calculated as a percentage of:

• the risk base of the party concerned, which shall be calculated in accordance with Article 92(3) of Regulation (EU) No. 575/2013, and

• the total risk exposure measure of the party concerned, which shall be calculated in accordance with Article 429 and Article 429a of Regulation (EU) No. 575/2013.

Article 3. Eligible liabilities of resolution entities.

Liabilities shall only be counted towards the amount of own funds and eligible liabilities of resolution entities if they meet the conditions of the following provisions of Regulation (EU) No. 575/2013:

• Article 72a,

• Article 72b, with the exception of paragraph 2, point (d), and

• Article 72c.

Liabilities arising from debt instruments with embedded derivatives, such as structured debt securities, which meet the conditions in paragraph 1, with the exception of paragraph 2, point (l) of Article 72a of Regulation (EU) No. 575/2013, shall only be included in the amount of own funds and eligible liabilities if either of the following conditions is met:

• the principal of the liability arising from the debt instrument is known at the date of issue, is fixed or increasing and is not affected by the embedded derivative component. Furthermore, that the total amount of the liability arising from the debt instrument, including the embedded derivative, can be valued daily by reference to an active market for buying and selling a comparable instrument without credit risk, in accordance with Articles 104 and 105 of Regulation (EU) No. 575/2013, or

• the debt instrument includes contractual terms specifying that the value of the claim, upon resolution or winding-up of the issuer, is fixed or increasing and does not exceed the original, paid-in amount of the liability.

Debt instruments pursuant to paragraph 2, including their embedded derivatives, shall not be subject to a right of set-off and the valuation of such instruments shall not fall under paragraph 2 of Article 59 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020.

Liabilities pursuant to paragraph 2 shall only be included in the amount of own funds and eligible liabilities in respect of that part of the liability which corresponds to the principal referred to in paragraph 2, point (a), or to the fixed or increasing amount referred to in paragraph 2, point (b).

If this Regulation refers to the requirements in Article 92a or Article 92b of Regulation (EU) No. 575/2013, in respect of those Articles, eligible liabilities shall consist of eligible liabilities as defined in Article 72k of Regulation (EU) No. 575/2013 and determined in accordance with Chapter 5a of Title I of Part Two of Regulation (EU) No. 575/2013.

Article 4. Liabilities within a resolution group.

If a subsidiary established within the European Economic Area issues liabilities to an existing shareholder that is not part of the same resolution group, and the aforementioned subsidiary is part of the same resolution group as the resolution entity, those liabilities shall be included in the amount of own funds and eligible liabilities of the resolution entity, if all of the following conditions are met:

• they are issued in accordance with Article 15(5), point (a),

• the exercise of the power of write-down or conversion in connection with those liabilities in accordance with Article 27 or Article 29 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, does not affect the resolution entity's control over the subsidiary, and

• these liabilities do not exceed the amount determined by subtracting point (i) from point (ii):

  • The sum of issued liabilities, which are issued to and purchased by the resolution entity either directly or indirectly through other parties in the same resolution group, of that amount of own funds issued in accordance with Article 15(5), point (b).

  • The amount required in accordance with Article 15(1)-(4).

Article 5. Risk-unweighted requirement for subordination due to total liabilities.

Without prejudice to the minimum requirement in accordance with Article 11, the resolution authority shall ensure that part of the requirement referred to in Article 14, corresponding to 8% of total liabilities, including own funds, is met by resolution entities that are global systemically important financial institutions or resolution entities pursuant to Article 11 by using own funds, subordinated eligible instruments or liabilities as referred to in Article 4. The resolution authority may permit that less than 8% of total liabilities, including own funds, but more than the amount resulting from the application of the formula (1 - (X1/X2)) × 8% of total liabilities, including own funds, is met by resolution entities that are global systemically important financial institutions or resolution entities referred to in Article 11 by using own funds, eligible subordinated instruments or liabilities as referred to in Article 4, provided that all the conditions set out in the third paragraph of Article 72b of Regulation (EU) No. 575/2013 are met, where, in view of the reduction possible under the third paragraph of Article 72b of that Regulation:

X1 = 3.5% of the risk exposure amount, calculated in accordance with the third paragraph of Article 92 of Regulation (EU) No. 575/2013, and X2 = the sum of 18% of the risk exposure amount, calculated in accordance with the third paragraph of Article 92 of Regulation (EU) No. 575/2013, and the amount of the combined capital buffer requirement.

If the application of the first paragraph, in respect of resolution entities that do not fall under Article 92a of Regulation (EU) No. 575/2013 and that are part of a resolution group with total assets exceeding EUR 100 billion, results in a requirement higher than 27% of the total risk exposure amount, the resolution authority shall, in respect of the resolution entity concerned, limit the part of the requirement referred to in Article 14, to be met by using own funds, eligible subordinated instruments or liabilities as referred to in Article 4, to an amount equal to 27% of the total risk exposure amount, if the resolution authority has assessed that:

• access to a resolution financing arrangement is not considered to be an option to resolve that resolution entity in the resolution plan, and

• if point (a) does not apply, the requirement referred to in Article 14 enables the resolution entity to meet the requirements referred to in the third paragraph of Article 57 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, as applicable.

When making the assessment, the resolution authority shall also take into account the risk of disproportionate impact on the business model of the resolution entity concerned. This paragraph shall not apply in respect of resolution entities that fall under the third paragraph of Article 11 of this Regulation.

The resolution authority may require that the condition referred to in Article 14 be met by resolution entities that are global systemically important financial institutions or resolution entities that fall under the first paragraph or third paragraph of Article 11 by using own funds, eligible subordinated instruments or liabilities as referred to in Article 4, to the extent that the sum of those own funds, instruments and liabilities, due to the resolution entity's obligation to comply with the combined capital buffer requirement and the requirements referred to in Article 92a of Regulation (EU) No. 575/2013, the first paragraph of Article 11 and Article 2, is not higher than the higher of:

• 8% of the entity's total liabilities, including own funds, or

• the amount resulting from the application of the formula A x 2 + B x 2 + C, where A, B and C are the following amounts: A = the amount resulting from the requirement referred to in point (c) of the first paragraph of Article 92 of Regulation (EU) No. 575/2013, B = the amount resulting from the requirement referred to in point 1 of the third paragraph of Article 104a of the Act on Financial Undertakings No. 161/2002, C = the amount resulting from the combined capital buffer requirement.

The resolution authority may exercise the power referred to in the fourth paragraph of this Article, in respect of resolution entities that are global systemically important financial institutions or that fall under the first paragraph or third paragraph of Article 11 and that meet one of the conditions set out in the sixth paragraph, for a maximum of 30% of the total number of all resolution entities that are global systemically important financial institutions or that fall under the first paragraph or third paragraph of Article 11 and for which the resolution authority determines the requirement referred to in Article 8 of this Regulation.

The resolution authority shall take the conditions referred to in the fifth paragraph into consideration as follows:

• significant impediments to resolvability have been identified in the previous resolvability assessment and either:

  • no remedial actions have been taken after the measures referred to in the third paragraph of Article 15 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, within the time period required by the resolution authority, or

  • the identified, significant impediments cannot be addressed by taking the measures referred to in the third paragraph of Article 15 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, and the exercise of the power referred to in the third paragraph would wholly or partially offset the negative effects of significant impediments to resolvability,

• the resolution authority considers the resolution strategy chosen by the resolution entity not to be realistic and credible, taking into account the size of the entity, its interconnectedness, the nature, scope, risk and complexity of its activities, its legal form and its shareholder structure, or

• the requirement referred to in point 1 of the third paragraph of Article 104a of the Act on Financial Undertakings, No. 161/2002, reflects the fact that a resolution entity that is a global systemically important financial institution or that falls under the first paragraph or third paragraph of Article 11 is, in terms of risk, among the top 20% of financial undertakings for which the resolution authority determines the requirement referred to in the first paragraph of Article 2 of this Regulation.

For the percentage referred to in the fifth and sixth paragraphs, the resolution authority shall round the number resulting from the calculation up to the nearest whole number.

Article 6. Power to determine a subordination requirement for smaller financial undertakings.

In respect of resolution entities that are neither global systemically important financial institutions nor resolution entities referred to in Article 11, the resolution authority may determine that part of the requirement referred to in Article 14, up to 8% of the entity's total liabilities, including own funds, or the outcome of the formula referred to in the second paragraph, whichever is higher, be met with own funds, eligible subordinated instruments or liabilities as referred to in Article 4, provided that the following conditions are met:

• liabilities that are not subordinated and referred to in Article 3 have the same position in the order of priority of claims for resolution and winding-up proceedings as those liabilities that are excluded from the application of write-down in accordance with the first paragraph of Article 56 or the second paragraph of Article 56, cf. also the first paragraph of Article 57 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020,

• there is a risk, due to the intended application of write-down to liabilities that are not subordinated and that are not excluded from the application of write-down in accordance with the first paragraph of Article 56 or the second paragraph of Article 56, cf. also the first paragraph of Article 57 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, that creditors with claims arising from these liabilities would suffer greater losses than in winding-up proceedings,

• the amount of own funds and other subordinated liabilities does not exceed the amount necessary to ensure that the creditors referred to in point (b) do not suffer losses greater than the losses they would otherwise suffer in winding-up proceedings.

The amount to be used for the first paragraph is obtained by the formula: A x 2 + B x 2 + C, where A, B and C include the following amounts:

A = The claim referred to in point (c) of the first paragraph of Article 92 of Regulation (EU) No. 575/2013, B = The claim referred to in the first item of the third paragraph of Article 107(a) of the Act on Financial Undertakings, No. 161/2002, C = The combined capital buffer requirement.

When the resolution authority determines that within a class of liabilities that comprises eligible liabilities, the amount of liabilities that are excluded or are likely to be excluded from the application of write-down, in accordance with the first paragraph of Article 56 or the second paragraph of Article 56, cf. also the first paragraph of Article 57 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, is greater than 10% of that class, the resolution authority shall assess the risk referred to in point (b) of the first paragraph.

Article 7. Treatment of derivative liabilities and own funds for risk-unweighted capital requirements.

For the purposes of Articles 5 and 6, derivative liabilities shall be calculated as part of total liabilities provided that full account has been taken of the counterparty's right of set-off.

Own funds of a resolution entity used to meet the combined capital buffer requirement may be used to meet the requirements under Articles 5 and 6.

Article 8. Criteria for decisions on subordination.

When the resolution authority takes a decision under Article 6, it shall take into account:

• the depth of the market for own funds instruments and subordinated eligible instruments of the resolution entity, the pricing of such instruments, if available, and the time required to execute the necessary transactions to comply with the decision,

• the amount of instruments of eligible liabilities that meet all the conditions referred to in Article 72(a) of Regulation (EU) No. 575/2013 with a residual maturity of less than one year from the date of the decision, taking into account adjusting the requirements referred to in the first paragraph and third paragraph of Article 5,

• whether the undertaking or entities have instruments available that meet all the conditions referred to in Article 72(a) of Regulation (EU) No. 575/2013, other than in point (d) of the second paragraph of Article 72(b) of that Regulation, and their amount,

• whether the amount of liabilities that are excluded from the application of write-down in accordance with the first paragraph of Article 56 or the second paragraph of Article 56, cf. also the first paragraph of Article 57, of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, and that, in winding-up proceedings, rank equally with or after the most senior eligible liabilities in the order of priority, is significant compared to the own funds and eligible liabilities of the resolution entity. If the amount of excluded liabilities does not exceed 5% of the amount of own funds and eligible liabilities of the resolution entity, the excluded amount shall be considered not significant. If those thresholds are exceeded, the resolution authority shall assess the significance of the excluded liabilities,

• the business model of the resolution entity, its funding model and risk profile, together with its stability and ability to support the economy, and

• the effects of potential restructuring costs on the refinancing of the resolution entity.

Article 9. Determination of the minimum requirement for own funds and eligible liabilities.

The resolution authority shall determine the requirement under the first paragraph of Article 2 on the basis of the following factors:

• the need to ensure that resolution of a resolution group can be completed by applying resolution tools to the resolution entity, including and where applicable the write-down tool, in a manner consistent with the objectives of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020,

• the need to ensure, where applicable, that the resolution entity and its subsidiaries, which are undertakings or entities but are not resolution entities, have sufficient own funds and eligible liabilities to ensure that they can absorb the losses from the application of the write-down tool or the write-down and conversion powers, where applicable, to them and that it is possible to restore the total capital ratio and, where appropriate, the leverage ratio of the entities concerned to the level necessary for them to continue to meet the conditions for authorisation and to continue to carry on authorised activities,

• the need to ensure that, if the resolution plan provides for the possibility that certain classes of eligible liabilities will be excluded from write-down, under the second paragraph of Article 56 and the first paragraph of Article 57 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, or will be transferred in full to another party where a partial transfer of assets, rights or liabilities takes place, the resolution entity has sufficient own funds and other eligible liabilities to absorb losses and to restore its total capital ratio and, where appropriate, its leverage ratio, to the level necessary for it to continue to meet the conditions for authorisation and to continue to carry on authorised activities,

• the size, business model, funding model and risk profile of the entity,

• the extent to which the failure of the entity would have adverse effects on financial stability, including through contagion to other institutions or entities resulting from the entity's interconnectedness with other institutions or entities or with other parts of the financial system.

If the resolution plan provides that a resolution action must be taken or that the power to write down and convert capital instruments and eligible liabilities must be exercised, in accordance with Article 27 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, in accordance with the scenario referred to in point 2 of the first paragraph of Article 9 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, the claim referred to in the first paragraph of Article 2 shall be equal to an amount sufficient to ensure that:

• the entity can fully absorb the estimated loss,

• the resolution entity and its subsidiaries, which are undertakings or entities but are not resolution entities, are recapitalised to the extent necessary to enable them to continue to meet the conditions for authorisation and to continue to carry on authorised activities, within an appropriate time that is not longer than one year.

If the resolution plan provides that an entity is to be wound up, the resolution authority shall assess whether it is justified to limit the claim referred to in the first paragraph of Article 2 for the entity so that it does not exceed an amount sufficient to absorb losses in accordance with point (a) of the second paragraph.

In its assessment, the resolution authority shall in particular assess the limitation referred to in the third paragraph with regard to the potential impact on financial stability and the risk of contagion in the financial system.

If the decision concerns resolution groups pursuant to point (b) of point 34 of the first paragraph of Article 3 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, the resolution authority shall determine, taking into account the characteristics of the system for the group and the preferred resolution strategy, which entities in the resolution group are to be required to comply with the requirements to ensure that the resolution group as a whole complies with the first and second paragraphs and how such entities are to do so in accordance with the resolution strategy.

Article 10.

Calculation of the amount for the minimum requirement for own funds and eligible liabilities of resolution entities.

For resolution entities, the amount referred to in the second paragraph of Article 9 shall be as follows:

• for the calculation of the requirement referred to in the first paragraph of Article 2, in accordance with point (a) of the second paragraph of Article 2, the sum of:

  • the amount of loss absorption at resolution corresponding to the requirements referred to in point (c) of the first paragraph of Article 92 of Regulation (EU) No. 575/2013 and the fourth paragraph of Article 107 a of the Act on Financial Undertakings, No. 161/2002, for the resolution entity at the consolidated level of the resolution group, and

  • the amount of recapitalisation that enables the resolution group, due to the resolution, to again meet the requirement for the total capital ratio referred to in point (c) of the first paragraph of Article 92 of Regulation (EU) No. 575/2013 and its requirement referred to in the fourth paragraph of Article 107 a of the Act on Financial Undertakings, No. 161/2002, at the consolidated level of the resolution group after the preferred resolution strategy has been implemented, and

• for the calculation of the requirement referred to in the first paragraph of Article 2, in accordance with point (b) of the second paragraph of Article 2, the sum of:

  • the amount of loss absorption at resolution corresponding to the leverage ratio requirement of the resolution entity referred to in point (d) of the first paragraph of Article 92 of Regulation (EU) No. 575/2013 at the consolidated level of the resolution group and

  • the amount of recapitalisation that enables the resolution group, due to the resolution, to again meet the leverage ratio requirement referred to in point (d) of the first paragraph of Article 92 of Regulation (EU) No. 575/2013 at the consolidated level of the resolution group after the preferred resolution strategy has been implemented.

The requirement referred to in the first paragraph of Article 2 shall, with regard to point (a) of the second paragraph of Article 2, be expressed as a percentage as the amount calculated in accordance with point (a) of the first paragraph divided by the risk base.

The requirement referred to in the first paragraph of Article 2 shall, with regard to point (b) of the second paragraph of Article 2, be expressed as a percentage as the amount calculated in accordance with point (b) of the first paragraph divided by the total risk exposure measure.

The resolution authority shall, when determining the individual requirements in point (b) of the first paragraph, take into account the requirements referred to in the third paragraph of Article 57 and the first paragraph of Article 79 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020.

The resolution authority shall, when determining the amounts of recapitalisation referred to in the first to fourth paragraphs:

• use the most recent value of the risk base or total risk exposure measure, adjusted for changes resulting from resolution actions set out in the resolution plan, and

• adjust the amount corresponding to the current requirement referred to in the fourth paragraph of Article 107 a of the Act on Financial Undertakings, No. 161/2002, downwards or upwards to determine the requirement to apply to the resolution entity after the preferred resolution strategy has been implemented.

The resolution authority shall be able to increase the requirement in point (ii) of point (a) of the first paragraph by an appropriate amount necessary to ensure that the entity can, after resolution, maintain adequate market confidence for the required period, which shall not last longer than one year.

If the sixth paragraph applies, the amount referred to in that provision shall be equal to the combined capital buffer requirement to apply after the resolution tools have been applied, less the amount of the countercyclical buffer at any given time, cf. Part C of Chapter X of the Act on Financial Undertakings, No. 161/2002.

The amount referred to in the sixth paragraph shall be adjusted downwards if the resolution authority determines that it would be expedient and feasible for a lower amount to be sufficient to maintain market confidence and to ensure both the continuation of the necessary activities of the undertaking or entity and their access to funding without receiving extraordinary public financial support other than contributions from a resolution fund, in accordance with the third paragraph of Article 57 and Article 87 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, after the resolution strategy has been implemented. That amount shall be adjusted upwards if the resolution authority determines that a higher amount is necessary to maintain adequate market confidence and to ensure both the continuation of the necessary activities of the undertaking or entity and their access to funding without obtaining extraordinary public financial support other than contributions from the resolution fund, in accordance with Article 57(3) and Article 87 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, for an appropriate period which shall not exceed one year.

Article 11. Minimum requirement for subordination.

For resolution entities that do not fall under Article 92a of Regulation (EU) No. 575/2013 and that are part of a resolution group with total assets exceeding EUR 100 billion, the scope of the requirement referred to in Article 10 shall be at least equal to:

• 13.5% when calculated in accordance with point (a) of Article 2(2), and

• 5% when calculated in accordance with point (b) of Article 2(2).

Notwithstanding Articles 3–8, resolution entities referred to in paragraph 1 shall meet the requirement referred to in paragraph 1 equal to 13.5% when calculated in accordance with point (a) of Article 2(2) and 5% when calculated in accordance with point (a) of Article 2(2) by using own funds, eligible subordinated instruments or liabilities as referred to in Article 4.

The resolution authority may decide to apply the requirements laid down in paragraph 1 of this Article to a resolution entity that does not fall under Article 92a of Regulation (EU) No. 575/2013 and that is part of a resolution group with total assets lower than EUR 100 billion and which the resolution authority has assessed as reasonably likely to pose a systemic risk if it were to fail.

When the resolution authority takes a decision as referred to in paragraph 3, it shall take into account:

• the share of deposits and the lack of debt instruments in the funding model,

• the extent to which access to capital markets for eligible liabilities is limited,

• the extent to which the resolution entity relies on Common Equity Tier 1 to meet the requirement referred to in Article 14.

The absence of a decision under paragraph 3 shall not affect decisions under Article 6.

Article 12.

Calculation of the amount for the minimum requirement for own funds and eligible liabilities of entities that are not resolution entities.

For entities that are not themselves resolution entities, the amount referred to in Article 9(2) shall be as follows:

• for the calculation of the requirement referred to in Article 2(1), in accordance with point (a) of Article 2(2), the sum of:

  • the amount of loss absorption corresponding to the requirements of the entity referred to in point (c) of Article 92(1) of Regulation (EU) No. 575/2013 and Article 107a(4) of the Act on Financial Undertakings, No. 161/2002, and

  • the amount of recapitalisation that enables the entity to again meet the total capital ratio requirement referred to in point (c) of Article 92(1) of Regulation (EU) No. 575/2013 and the requirement referred to in Article 107a(4) of the Act on Financial Undertakings, No. 161/2002, after the application of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 27 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, or after the resolution of the resolution group, and

• for the calculation of the requirement referred to in Article 2(1), in accordance with point (b) of Article 2(2), the sum of:

  • the amount of loss absorption corresponding to the leverage ratio requirement of the entity referred to in point (d) of Article 92(1) of Regulation (EU) No. 575/2013, and

  • the amount of recapitalisation that enables the entity to again meet the leverage ratio requirement referred to in point (d) of Article 92(1) of Regulation (EU) No. 575/2013 after the application of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 27 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, or after the resolution of the resolution group.

The requirement referred to in Article 2(1) shall, as regards point (a) of Article 2(2), be expressed as a percentage as the amount calculated in accordance with point (a) of paragraph 1 divided by the amount of the total risk exposure amount.

The requirement referred to in Article 2(1) shall, as regards point (b) of Article 2(2), be expressed as a percentage as the amount calculated in accordance with point (b) of paragraph 1 divided by the total exposure measure.

The resolution authority shall, when determining individual requirements in point (b) of paragraph 1, take into account the requirements referred to in Article 57(3) and Article 79(1) of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020.

The resolution authority shall, when determining the amounts of recapitalisation referred to in paragraphs 1–4:

• use the most recent value of the risk exposure amount or total exposure measure, adjusted for changes resulting from resolution actions set out in the resolution plan, and

• adjust the amount corresponding to the applicable requirement referred to in Article 107a(4) of the Act on Financial Undertakings No. 161/2002 downwards or upwards to determine the requirement to apply to the entity concerned after the application of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 27 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, or after the resolution of the resolution group.

The resolution authority may increase the requirement in point (ii) of point (a) of paragraph 1 by the appropriate amount necessary to ensure that the entity can, after the application of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with Article 27 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, maintain adequate market confidence for an appropriate period, which shall not exceed one year.

If paragraph 6 applies, the amount referred to in that provision shall be equal to the combined capital buffer requirement to apply after the application of the power referred to in Article 27 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, or after the resolution of the resolution group, minus the amount of the countercyclical buffer at any given time, cf. Part C of Chapter X of the Act on Financial Undertakings, No. 161/2002.

The amount referred to in paragraph 6 shall be adjusted downwards if the resolution authority determines that it would be expedient and feasible for a lower amount to be sufficient to maintain market confidence and to ensure both the continuation of the essential activities of the institution or entity and their access to funding without obtaining extraordinary public financial support other than contributions from the resolution fund, in accordance with paragraph 3 of Article 57 and Article 87 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, after the application of the power referred to in Article 27 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, or after the resolution of the resolution group. That amount shall be adjusted upwards if the resolution authority determines that a higher amount is necessary to maintain adequate market confidence and to ensure both the continuation of the most critical activities of the institution or entity and their access to funding without obtaining extraordinary public financial support other than contributions from the resolution fund, in accordance with paragraph 3 of Article 57 and Article 87 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, within an appropriate time period which shall not exceed one year.

Article 13. Effects of restrictions on write-down.

If the resolution authority expects that certain classes of eligible liabilities are more likely to be fully, or partially, excluded from write-down pursuant to paragraph 2 of Article 56 and paragraph 1 of Article 57 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, or might be fully transferred to another legal person where a partial transfer of assets, rights or liabilities takes place, the requirement referred to in paragraph 1 of Article 2 shall be met by using own funds or other eligible liabilities sufficient to:

• cover the amount of excluded liabilities that have been identified in accordance with paragraph 2 of Article 56 and paragraph 1 of Article 57 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020,

• ensure that the conditions referred to in paragraphs 2–4 of Article 9 are met.

Article 14. Minimum requirement for own funds and eligible liabilities on a consolidated basis.

Resolution entities shall comply with the requirements laid down in Articles 3–13 on a consolidated basis of the resolution group.

When determining the requirement referred to in paragraph 1 of Article 2, the resolution authority shall assess the requirements for resolution entities within the resolution group in accordance with Article 17, on the basis of the requirements laid down in Articles 3–13 and, where applicable, whether subsidiaries of the group in countries outside the European Economic Area will, according to the resolution plan, be resolved separately.

Article 15.

Minimum requirement for own funds and eligible liabilities on a consolidated basis for entities that are not resolution entities.

Institutions that are subsidiaries of a resolution entity or of an entity in a country outside the European Economic Area but are themselves not resolution entities shall comply with the requirements laid down in Articles 9–13 on an individual basis.

The resolution authority may decide to apply the requirement laid down in this Article to an entity that is a subsidiary of a resolution entity but is itself not a resolution entity.

Notwithstanding paragraph 1, parent undertakings in the European Economic Area, which are themselves not resolution entities but are subsidiaries of a resolution entity in a country outside the European Economic Area, shall comply with the requirements laid down in Articles 9–13 on a consolidated basis. In the case of resolution groups referred to in point (b) of item 34 of paragraph 1 of Article 3 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, those credit institutions which are permanently affiliated with a central institution but are themselves not resolution entities, central institutions which are themselves not resolution entities as well as all resolution entities that do not fall under the requirement referred to in paragraph 5 of Article 9, shall comply with Article 12 on an individual basis.

The requirement referred to in paragraph 1 of Article 2 shall be determined, with respect to the entities dealt with in this Article, in accordance with Article 17 of this Regulation and paragraphs 3–4 of Article 89 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, as applicable, and on the basis of the requirements laid down in Articles 9–13.

The requirement referred to in paragraph 1 of Article 2 with respect to the entities referred to in paragraphs 1–4 shall be met by one or more of the following:

• liabilities:

  • which are issued to and bought by the resolution entity either directly or indirectly through other entities in the same resolution group that bought the liabilities from the entity falling under this Article, or which are issued to and bought by an existing shareholder that is not part of the same resolution group provided that the application of write-down or conversion powers in accordance with Articles 27–29 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, does not affect the resolution entity's control over the subsidiary,

  • which meet the eligibility criterion referred to in Article 72a of Regulation (EU) No. 575/2013, with the exception of points (b), (c), (k), (l) and (m) of paragraph 2 of Article 72b and paragraphs 3–5 of Article 72b of that Regulation,

  • which rank lower in the order of priority, in normal insolvency proceedings, than liabilities that do not meet the conditions referred to in point (i) and which are not eligible due to own funds requirements,

  • which are subject to write-down and conversion powers in accordance with Articles 27–29 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020, in accordance with the resolution strategy of the resolution group, and do not affect the resolution entity's control over the subsidiary,

  • which the entity falling under this Article did not fund the holding of, directly or indirectly,

  • which are not subject to terms that indicate, directly or indirectly, that the entity falling under this Article will buy, redeem, repay or repurchase before maturity, as applicable, in circumstances other than the insolvency of that entity and the entity does not otherwise specify this,

  • which are not subject to terms that give the holder the right to accelerate the scheduled payment of interest or principal in the future except in cases of insolvency of the entity falling under this Article,

  • where the amount of interest or dividend payments, as applicable, that are due is not altered on the basis of the creditworthiness of the entity falling under this Article or its parent undertaking,

• own funds base, as follows:

  • common equity tier 1 capital, and

  • other equity fund that: is issued to and purchased by parties that are in the same resolution group or is issued to and purchased by parties that are not in the same resolution group, provided that the application of write-down or conversion instruments in accordance with Articles 27-29 of the Act on the resolution of credit institutions and investment firms, No. 70/2020, does not affect the resolution authority's control over the subsidiary.

With regard to subsidiaries pursuant to this provision, the resolution authority may, if the conditions set out in points (a) and (b) of paragraph 1 of Article 16 are met, authorise that the claim referred to in paragraph 1 of Article 2 be met in full or in part by a guarantee from the resolution entity, which meets the following conditions:

• the guarantee is provided for an amount that is at least equal to the amount of the claim which it replaces,

• the guarantee is triggered when the subsidiary is unable to pay its debts or other obligations when they fall due, or a decision has been taken in accordance with paragraph 1 of Article 27 of the Act on the resolution of credit institutions and investment firms, No. 70/2020, with regard to the subsidiary, whichever occurs first,

• the guarantee is secured by a financial collateral agreement as such agreements are defined in the Act on financial collateral arrangements, No. 46/2005, for at least 50% of the amount of the guarantee,

• the collateral underlying the guarantee meets the requirements of Article 197 of Regulation (EU) No 575/2013, which, after appropriate prudent deductions, is sufficient to cover the secured amount as referred to in point (c),

• the collateral underlying the guarantee is unencumbered and in particular is not used as collateral to secure other liabilities,

• the collateral has an effective maturity that meets the same remaining maturity conditions as those referred to in paragraph 1 of Article 72c of Regulation (EU) No 575/2013, and

• there are no legal or regulatory or operational impediments to the transfer of the collateral from the resolution entity to the relevant subsidiary, including in the event that resolution action is taken with regard to the resolution entity.

The resolution entity shall, with regard to point (g) of paragraph 6 and at the request of the resolution authority, provide an independent, written and reasoned legal opinion or otherwise demonstrate in a satisfactory manner that there are no legal or regulatory or operational impediments to the transfer of the collateral from the resolution entity to the relevant subsidiary.

Article 16. Exemptions from entity-by-entity requirements for a consolidated basis.

The resolution authority may refrain from applying Article 15 to a subsidiary that is not a resolution entity when:

• both the subsidiary and the resolution entity are established in this country and are part of the same resolution group,

• the resolution entity complies with the requirement referred to in Article 14,

• there are no current or foreseeable material operational or legal impediments to the rapid transfer of the equity fund or the repayment of liabilities from the resolution entity to the subsidiary in respect of which a decision has been taken in accordance with paragraph 1 of Article 27 of the Act on the resolution of credit institutions and investment firms, No. 70/2020, in particular if resolution action is taken with regard to the resolution entity,

• the resolution entity meets the conditions of the Financial Supervisory Authority for the prudent management of the subsidiary and has given a statement, with the approval of the Financial Supervisory Authority, that it assumes responsibility for the subsidiary's liabilities, or the subsidiary's risk is considered immaterial,

• the resolution entity's methods for assessing, measuring and monitoring risk cover the subsidiary,

• the resolution entity controls more than 50% of the voting rights attaching to the shares in the subsidiary or has the right to appoint or dismiss the majority of the members of the subsidiary's board of directors.

The resolution authority may also refrain from applying Article 15 to a subsidiary that is not a resolution entity when:

• both the subsidiary and its parent undertaking are established in this country and are part of the same resolution group,

• the parent undertaking, on a consolidated basis, meets the claim referred to in paragraph 1 of Article 2,

• there are no current or foreseeable operational or legal impediments to the rapid transfer of the equity fund or the repayment of liabilities from the parent undertaking to the subsidiary in respect of which a decision has been taken in accordance with paragraph 1 of Article 27 of the Act on the resolution of credit institutions, No. 70/2020, in particular if resolution action or the instruments referred to in paragraph 2 of Article 27 of the Act on the resolution of credit institutions and investment firms, No. 70/2020, are taken with regard to the parent undertaking,

• the parent undertaking meets the conditions of the Financial Supervisory Authority for the prudent management of the subsidiary and has given a statement, with the approval of the Financial Supervisory Authority, that it assumes responsibility for the subsidiary's liabilities, or the subsidiary's risk is considered immaterial,

• the parent undertaking's methods for assessing, measuring and monitoring risk cover the subsidiary,

• the parent undertaking controls more than 50% of the voting rights attaching to the shares in the subsidiary or has the right to appoint or dismiss the majority of the members of the subsidiary's board of directors.

Article 17. Procedure on a consolidated basis.

When taking a joint decision on the minimum requirement for the equity fund and eligible liabilities for a group that provides services in another Member State or on a subsidiary that operates in another Member State, the procedure shall be in accordance with Article 19 of the Act on the resolution of credit institutions and investment firms, No. 70/2020.

In a joint decision of the resolution authority with other resolution authorities pursuant to paragraph 1, it may be stipulated, if this is consistent with the resolution plan and the resolution entity has not purchased, directly or indirectly, a sufficient number of instruments that meet the requirements of paragraph 5 of Article 15, that the requirements referred to in Article 12 be met in part by the subsidiary in accordance with paragraph 5 of Article 15 with instruments that are issued to and purchased by parties that do not belong to the resolution group.

The resolution authority shall not refer cases to the EFTA Surveillance Authority, cf. paragraph 4 of Article 19 of the Act on the resolution of credit institutions and investment firms, No. 70/2020, after the expiry of the four-month consultation period stipulated in paragraph 2 of Article 19 of the Act on the resolution of credit institutions and investment firms, No. 70/2020.

The resolution authority shall not refer cases to the EFTA Surveillance Authority if a joint decision pursuant to paragraph 1 has been taken.

The resolution authority shall not refer cases to the EFTA Surveillance Authority if the difference between its decision and the decisions of other resolution authorities:

• is less than 1% of the risk base calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013, and

• is in accordance with Article 12.

If more than one entity belonging to the same globally systemically important financial institution are resolvable entities, the resolution authority shall consult with the resolution authorities concerned, cf. Article 19 of Act No. 70/2020 on the resolution of credit institutions and securities firms, and, as appropriate and in accordance with the resolution strategy of the globally systemically important financial institution, agree on the application of Article 72e of Regulation (EU) No 575/2013 and all adjustments to minimise or eliminate the difference between the sum of the amounts referred to in point (a) of Article 26(4) of this Regulation and Article 12 of Regulation (EU) No 575/2013 in respect of individual resolvable entities and the sum of the amounts referred to in point (b) of Article 26(4) of this Regulation and Article 12 of Regulation (EU) No 575/2013.

Such an adjustment may be made subject to the following:

• the adjustment may be made in connection with differences in the calculation of the total risk base between the Member States concerned by adapting the claim,

• the adjustment shall not be used to eliminate differences arising from risk exposures between resolution groups.

The sum of the amounts referred to in point (a) of Article 26(4) of this Regulation and Article 12 of Regulation (EU) No 575/2013 in respect of individual resolvable entities shall not be lower than the sum of the amounts referred to in point (b) of Article 26(4) of this Regulation and Article 12 of Regulation (EU) No 575/2013.

If a decision of the EFTA Surveillance Authority, or, as the case may be, the European Banking Authority, has not been taken within one month of the case concerning a joint decision on the minimum requirement for own funds and eligible liabilities being referred to them, the decision of the resolution authority shall apply, notwithstanding that a joint decision pursuant to paragraph 1 has not been taken.

Article 18. Reporting and public disclosure.

Entities and units falling within the requirement referred to in Article 2(1) shall send the resolution authority a report on the following:

• the amounts of own funds which, as the case may be, meet the conditions in Article 15(5)(b) and the amounts of eligible liabilities and the presentation of those amounts in accordance with Article 2(2) after all applicable deductions in accordance with Articles 72e–72j of Regulation (EU) No 575/2013,

• the amounts of other subordinated liabilities,

• as regards the points referred to in points (a) and (b):

  • their composition, including their repayment profile,

  • their ranking in resolution or insolvency proceedings, and

  • whether they are governed by the law of a State outside the European Economic Area and, if so, which State and whether they include the contractual provisions referred to in Article 23 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, or points (p) and (q) of the first paragraph of Article 52 and points (n) and (o) of Article 63 of Regulation (EU) No. 575/2013.

The obligation to report the amounts of other subordinated liabilities referred to in point (b) of the first paragraph shall not apply to entities that, on the date on which this information is notified, have an amount of own funds and eligible liabilities of at least 150% of the requirement referred to in the first paragraph of Article 2 based on information according to point (a) of the first paragraph.

The entities referred to in the first paragraph shall provide the information referred to in point (a) of the first paragraph at least semi-annually and the information referred to in points (b) and (c) of the first paragraph at least annually. The entities shall, however, provide the resolution authority with the information more frequently if the resolution authority requests it.

The entities referred to in the first paragraph shall publicly disclose the following information at least annually:

• the amounts of own funds that, where applicable, meet the conditions in point (b) of the fifth paragraph of Article 15 and the amounts of eligible liabilities,

• the composition of the items referred to in point (a), including their maturity profile and ranking in resolution or winding-up,

• the applicable requirement referred to in Article 14 or Article 15, presented in accordance with the second paragraph of Article 2.

The provisions of the first, second and fourth paragraphs shall not apply to entities with a resolution plan that provides that they will be wound up.

If resolution actions have been implemented or if the write-down and conversion power referred to in Article 27 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, has been applied, the requirements for public disclosure referred to in the fourth paragraph shall apply from the date of the time limits determined in accordance with Article 23.

Article 19. Reporting to the European Banking Authority.

The resolution authority shall inform the European Banking Authority of decisions on minimum requirements for own funds and eligible liabilities for entities and entities subject to its supervision, cf. Article 22 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020.

Article 20. Restrictions on distributions.

An entity or entity that meets the combined capital buffer requirement under the Act on Financial Undertakings, No. 161/2002, but not the combined capital buffer requirement in addition to the minimum requirement for own funds and eligible liabilities pursuant to Articles 9–13 shall notify the resolution authority thereof without delay.

An entity or entity is prohibited, cf. the first paragraph of Article 21 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, from taking the following measures before the maximum distributable amount has been calculated:

• Make a distribution pursuant to the first paragraph of Article 86m of the Act on Financial Undertakings, No. 161/2002.

• Incur obligations to pay bonuses or pay bonuses if obligations to pay them were incurred at the time when the undertaking or entity did not meet the combined capital buffer requirement.

• Pay out on an instrument that qualifies as an additional Tier 1 capital instrument.

An undertaking or entity that does not meet the combined capital buffer requirement under the Act on Financial Undertakings, No. 161/2002, in addition to the minimum requirement for own funds and eligible liabilities pursuant to Articles 9–13, is prohibited from taking a measure pursuant to items 1–3 of paragraph 2 if such a measure amounts to an amount exceeding the maximum distributable amount.

The resolution authority shall, without undue delay, upon receiving a notification pursuant to paragraph 1 or when it otherwise discovers that an undertaking or entity does not meet the requirements pursuant to paragraph 1, assess in consultation with the Financial Supervisory Authority the impact of the restriction on distributions, taking into account all of the following factors:

• the reasons why the requirements are not met, how long the requirements have not been met, and the extent and impact on the resolvability of the undertaking or entity,

• the development of the financial position of the party and how likely it is that it will be considered, in the foreseeable future, to be failing, cf. Article 34 of the Act on Resolution of Credit Institutions and Securities Firms, No. 70/2020,

• the prospects for the party to ensure that it complies with the requirements referred to in paragraph 1 within a reasonable time,

• if the party cannot replace liabilities that no longer meet the eligibility or maturity criteria set out in Articles 72b and 72c of Regulation (EU) No. 575/2013, or in Articles 3–8 or paragraph 2 of Article 15, whether this inability is due to the specific circumstances of the resolution entity or due to a disruption in the market as a whole, and

• whether the restriction is the most appropriate and proportionate way to address the situation of the party, taking into account the potential impact on both the funding conditions and the resolvability of the party concerned.

While the assessment pursuant to paragraph 4 is ongoing, the resolution authority may grant the undertaking or entity a deferral to comply with the requirements pursuant to paragraph 1 on the basis of Articles 22–23. The resolution authority shall repeat its assessment at least monthly while the party is in the situation referred to in paragraph 1.

After nine months from the date a party sends a notification that it does not meet the requirements pursuant to paragraph 1, the restriction on distributions shall be applied, after consultation with the Financial Supervisory Authority, unless the resolution authority concludes that at least two of the following conditions are met:

• the requirements are not met due to a serious disruption of the functioning of financial markets that leads to widespread stress across financial markets,

• the disruption referred to in point (a) causes not only increased price volatility of the party's own funds instruments and eligible liabilities instruments or increased costs for the party, but also leads to a complete closure of markets or a partial closure that prevents the party from issuing own funds instruments and eligible liabilities instruments in those markets,

• the market closure referred to in point (b) concerns not only the party concerned but also several other parties,

• the disruption referred to in point (a) prevents the party concerned from issuing own funds instruments and eligible liabilities instruments sufficient to remedy the failure to meet the requirements, or

• the exercise of the power referred to in paragraph 1 leads to negative spillover effects on part of the banking sector and thereby potentially undermines financial stability.

The resolution authority shall assess monthly whether the exemption pursuant to paragraph 6 applies.

Article 21. Maximum distributable amount.

The maximum distributable amount shall be determined by multiplying the sum referred to in paragraph 2 by the factor referred to in paragraph 3. From the maximum distributable amount shall be deducted the amount resulting from measures pursuant to paragraph 2 of Article 20.

The sum for the maximum distributable amount shall consist of:

• profits according to an interim report that are not included in Common Equity Tier 1 pursuant to paragraph 2 of Article 26 of Regulation (EU) No. 575/2013, less distributions due to measures pursuant to paragraph 2 of Article 86 m,

• plus the profit for the year that is not included in Common Equity Tier 1 pursuant to paragraph 2 of Article 26 of Regulation (EU) No. 575/2013, less distributions due to measures pursuant to paragraph 2 of Article 86 m

• and less the amount that would be paid in tax if the profit referred to in points (a) and (b) were retained.

The factor referred to in paragraph 1 is determined as follows:

• if Common Equity Tier 1, which the party maintains and is not used to meet the requirements in Article 92a of Regulation (EU) No. 575/2013 and Articles 9–13, expressed as a percentage of the risk exposure amount, is within the first (i.e. lowest) quartile of the combined capital buffer requirement, the factor shall be 0,

• if Common Equity Tier 1, which the party maintains and is not used to meet the requirements in Article 92a of Regulation (EU) No. 575/2013 and Articles 9–13, expressed as a percentage of the risk exposure amount, is within the second quartile of the combined capital buffer requirement, the factor shall be 0.2,

• if Common Equity Tier 1, which the party maintains and is not used to meet the requirements in Article 92a of Regulation (EU) No. 575/2013 and Articles 9–13, expressed as a percentage of the risk exposure amount, is within the third quartile of the combined capital buffer requirement, the factor shall be 0.4,

• if Common Equity Tier 1, which the party maintains and is not used to meet the requirements in Article 92a of Regulation (EU) No. 575/2013 and Articles 9–13, expressed as a percentage of the risk exposure amount, is within the fourth (i.e. highest) quartile of the combined capital buffer requirement, the factor shall be 0.6,

The lower and upper limits of the combined capital buffer requirement for each quartile shall be calculated as follows:

where "Qn" = the ordinal number of the relevant quartile.

Article 22.

Temporary transitional periods for the minimum requirement for own funds and eligible liabilities.

The resolution authority is permitted, cf. the second paragraph of Article 22 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, to grant a company or entity a temporary adjustment period to comply with the requirements of this Regulation.

If the resolution authority grants a company or entity a deferral pursuant to the first paragraph, the resolution authority is permitted to determine interim targets for the party concerned to comply with the requirements. Such interim targets shall ensure a linear build-up of own funds and eligible liabilities to comply with the requirements.

When determining a deferral pursuant to the first paragraph, account shall be taken of the following for the company or entity:

• The proportion of deposits and the lack of debt instruments in the funding model.

• Access to the capital market for eligible liabilities.

• The extent to which the resolution entity relies on Common Equity Tier 1 to comply with the minimum requirement.

• The development of the party's financial position.

• Expectations that the party will be able to ensure that the requirements in Article 14 or Article 15 will be complied with within a reasonable timeframe or the requirement resulting from the application of Articles 5 and 6.

• Whether the party can replace liabilities that no longer meet the eligibility or maturity criteria set out in Article 72b and Article 72c of Regulation (EU) No. 575/2013 and Articles 3–8 or the fifth paragraph of Article 15, and if not, whether that inability is specific to the party concerned and individual or due to a disruption affecting the market as a whole.

The requirements pursuant to Article 5 and Article 11, as applicable, shall not apply for three years after the resolution entity or the group of which it is part has been identified as a global systemically important financial institution or after Article 11 has been applied for the first time to the resolution entity.

If the resolution authority grants a deferral, it shall notify the company or entity of the planned minimum requirement for own funds and eligible liabilities for each twelve-month period while the deferral lasts, to facilitate the gradual build-up of the party's capacity to absorb losses and to recapitalise. At the end of the period, the minimum requirement for own funds and eligible liabilities shall be equal to the amount determined pursuant to Article 5, Article 6, Article 11, Article 14 or Article 15, as applicable.

Article 23. Specific adjustment deferrals after the application of resolution actions.

The resolution authority is permitted, cf. the second paragraph of Article 22 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, to grant a company or entity specific time limits to comply with the requirements of this Regulation if resolution actions have been taken.

The minimum requirements referred to in Article 11 shall not apply for a two-year period after:

• the resolution authority has applied the write-down tool or

• the resolution entity has itself applied tools in accordance with point 2 of the first paragraph of Article 35 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, where capital instruments and other liabilities have been written down or converted into Common Equity Tier 1 instruments or where write-down or conversion powers, in accordance with Article 27 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, have been applied in respect of that resolution entity, to recapitalise the resolution entity without applying resolution tools.

Notwithstanding the first paragraph of Article 2, the resolution authority shall determine an appropriate transition period to comply with the requirements in Article 14 or Article 15 or a requirement resulting from Article 5 or Article 6, as applicable, for a company or entity to which a resolution tool or write-down and conversion powers pursuant to Article 27 of the Act on the Resolution of Credit Institutions and Securities Firms, No. 70/2020, has been applied.

When determining a deferral pursuant to the first paragraph, account shall be taken of the following for the company or entity:

• The proportion of deposits and the lack of debt instruments in the funding model.

• Access to the capital market for eligible liabilities.

• The extent to which the resolution entity relies on Common Equity Tier 1 to comply with the minimum requirement.

If the resolution authority grants a deferral pursuant to the first paragraph, it shall notify the company or entity of the planned minimum requirement for own funds and eligible liabilities for each twelve-month period while the deferral lasts, to facilitate the gradual build-up of its capacity to absorb losses and to recapitalise. At the end of the period, the minimum requirement for own funds and eligible liabilities shall be equal to the amount determined pursuant to Article 5, Article 6, Article 11, Article 14 or Article 15, as applicable.

Article 24. Capital requirements and minimum requirement for own funds and eligible liabilities.

It is not permitted to count Common Equity Tier 1 that a financial undertaking holds towards meeting the combined capital buffer requirement to the minimum requirement for own funds and eligible liabilities, when it is calculated on a risk basis.

When the resolution authority takes decisions regarding the minimum requirement for own funds and eligible liabilities, it shall consult the Financial Supervisory Authority.

The Financial Supervisory Authority shall notify the resolution authority of a requirement for a higher own funds base pursuant to point 1 of the third paragraph of Article 107a and notification of a capital surcharge pursuant to Article 107b of the Act on Financial Undertakings, No. 161/2002, cf. the fifth paragraph of Article 107a of the same Act. The resolution authority shall review its assessment regarding the minimum requirement for own funds and eligible liabilities without undue delay so that it reflects at any given time all changes in the scope of the requirement referred to in point 1 of the third paragraph of Article 107a of the Act on Financial Undertakings, No. 161/2002.

If a resolution entity at the group level of a resolution group is not obliged to comply with the requirement referred to in point 1 of the third paragraph of Article 107a of the Act on Financial Undertakings, No. 161/2002, and the combined capital buffer requirement, the resolution authority's determination of the minimum requirement for own funds and eligible liabilities shall be based on an approach to how such requirements could be estimated.

Article 25. Exemption of mortgage credit institutions from the minimum requirement for own funds and eligible liabilities.

The resolution authority shall, notwithstanding Article 2, exempt mortgage credit institutions that are funded by covered bonds and are not authorised by law to receive deposits, from the requirement laid down in paragraph 1 of Article 2 of this Regulation, provided that all of the following conditions are met:

• these institutions are to be wound up due to insolvency or other treatment provided for such institutions and which is implemented in accordance with Article 41, 46 or 51 of Act No. 70/2020 on the resolution of credit institutions and securities firms, and

• the treatments referred to in point (a) ensure that the creditors of these institutions, including holders of covered bonds where applicable, will bear the loss in a manner that meets the objectives of the resolution.

Institutions that are exempt from the requirement laid down in paragraph 1 of Article 2 shall not be part of the group referred to in paragraph 1 of Article 14.

Article 26.

Globally systemically important financial institutions and significant subsidiaries within the European Economic Area where the parent undertakings are globally systemically important financial institutions outside the EEA.

The requirement pursuant to Article 2, in respect of a resolution entity that is a globally systemically important financial institution or part of a globally systemically important financial institution, shall consist of the following:

• the requirements referred to in Articles 92a and 494 of Regulation (EU) No. 575/2013, and

• any additional requirements for own funds and eligible liabilities that the resolution authority has determined specifically in relation to that entity in accordance with paragraph 3 of this Article.

The requirement referred to in Article 2, in respect of a significant subsidiary within the EEA where the parent undertaking is a globally systemically important financial institution outside the EEA, shall consist of the following:

• the requirements referred to in Articles 92b and 494 of Regulation (EU) No. 575/2013, and

• any additional requirements for own funds and eligible liabilities that the resolution authority has determined specifically in relation to that significant subsidiary in accordance with paragraph 3 of this Article, which must be met using own funds and liabilities that meet the conditions in Article 15 of this Regulation and Articles 88–91 of Act No. 70/2020 on the resolution of credit institutions and securities firms.

The resolution authority shall only impose an additional requirement for own funds and eligible liabilities referred to in point (b) of paragraph 1 and point (b) of paragraph 2:

• if the requirement referred to in point (a) of paragraph 1 or point (a) of paragraph 2 is not sufficient to meet the conditions set out in Article 9, and

• to the extent necessary to ensure that the conditions set out in Article 9 are met.

If more than one entity belonging to the same globally systemically important financial institution are resolution entities, the resolution authority shall, as applicable pursuant to Article 17, calculate the amount referred to in paragraph 3:

• for each resolution entity, and

• for the parent undertaking within the EEA as if it were the only resolution entity in the globally systemically important financial institution.

Any decision of the resolution authority to impose an additional requirement for own funds and eligible liabilities pursuant to point (b) of paragraph 1 or point (b) of paragraph 2 shall contain the reasons for that decision, including a full assessment of the factors referred to in paragraph 3, and the resolution authority shall review it without undue delay to reflect any changes in the scope of that requirement referred to in the first paragraph of Article 104a(3) of the Act on Financial Undertakings that applies to a resolution group or a significant subsidiary within the EEA where the parent undertaking is a globally systemically important financial institution outside the EEA.

Article 27. Specification of reasons for decisions of the resolution authority.

All decisions of the resolution authority to set a minimum requirement for own funds and eligible liabilities under this Regulation shall specify the reasons for that decision, including a full assessment of the factors referred to in Articles 9–12, and the resolution authority shall review them without undue delay so that they reflect any changes in the scope of the requirement referred to in Article 107a(4) of the Act on Financial Undertakings No. 161/2002.

Article 28.

Exemption for a central body and credit institutions permanently affiliated with a central body.

The resolution authority may grant an exemption in whole or in part from the application of Article 15 in respect of a central body or a credit institution permanently affiliated with a central body, if all of the following conditions are met:

• the credit institution and the central body are subject to supervision by the Financial Supervisory Authority, are established in Iceland and are part of the same resolution group,

• the liabilities of the central body and the credit institutions permanently affiliated with it are joint or the central body fully guarantees the liabilities of the credit institutions permanently affiliated with it,

• the minimum requirement for own funds and eligible liabilities and the solvency and liquidity position of the central body and all credit institutions permanently affiliated with it are supervised on a consolidated basis on the basis of the consolidated accounts of these institutions,

• in the case of an exemption for a credit institution permanently affiliated with a central body, the management of the central body has the power to issue instructions to the management of the permanently affiliated institutions,

• the relevant resolution group complies with the requirement referred to in Article 9, and

• that there are no existing or foreseeable material operational or legal impediments to the rapid transfer of own funds or repayment of liabilities between the central body and the credit institutions permanently affiliated with it, in the event of resolution.

Article 29. Entry into force.

This Regulation, which is issued on the basis of Article 22a of the Act on the resolution of credit institutions and securities firms, No. 70/2020, shall enter into force immediately, with the exception of paragraph 4 of Article 18.

The provisions of paragraph 4 of Article 18 shall enter into force after the general time limit for adapting to the minimum requirement for own funds and eligible liabilities has expired.

Transitional provisions.

The general time limit for undertakings and entities to adapt to the requirements pursuant to Articles 5, 6 and 14 is 1 August 2026.

Ministry of Finance and Economic Affairs, 7 June 2024.
F. h. r.
Guðrún Þorleifsdóttir.
Eggert Páll Ólason.