Proposal for a European Parliament and Council Directive relating to the taking up and pursuit of the business of credit institutions (codified version)
COMMiSSION OF THE EUROPEAN COMMUNITIES *** * * * * * * *** Brussels, 15. 12. 1997 COM(97) 706 final 97 /0357 (COD) Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE relating to the taking up and pursuit of the business of credit institutions (codified version) (presented by the Commission) EXPLANATORY MEMORANDUM 1. In the context of a people's Europe, the Commission attaches great importance to simplifying and clarifying Community law so as to make it clearer and more accessible to the ordinary citizen, thus giving him new opportunities and the chance to make use of the specific rights it gives him. · This aim cannot be achieved so long as nwnerous provisions that have been amended several times, often quite substantially, remain scattered, so that they must be sought partly in the original instrument and partly in later amending ones. Considerable research work, comparing many different instruments, is thus needed to identify the current rules. For this reason a codification of rules that have frequently been amended is _also essential if Community law is to be clear and transparent. 2. On I April 1987 the Commission therefore decided to instruct its staff that all legislative measures should be codified after no more than ten amendments, stressing that this was a minimwn requirement and that departments should endeavour to codify at even shorter intervals the texts for which they were responsible, to ensure that the Community rules were clear and readily understandable. 3. The Conclusions of the Presidency of the Edinburgh European Council (December 1992) confirmed this, stressing the importance of legislative codification as it offers certainty as to the law applicable to a given matter at a given time. It must be undertaken in full compli~ce with the normal Community legislative procedure. Given that no changes of substance may be made to the instruments affected by legislative codification, Parliament, the Council and the Commission have agreed, by an interinstitutional agreement dated 20 December 1994, that an accelerated procedure may be used for the fast-track adoption of codification instruments. 4. The purpose of this proposal< 1) for legislative codification of Council Directives 73/183/EEC of 28 June 1973, on the abolition of restrictions on freedom of establishment and freedom to provide services in respect of self-employed activities of banks and other financial institutions; 77/780/EEC of 12 December 1977, on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions; 89/299/EEC of 17 April 1989, on the own funds of credit institutions; 89/646/EEC of 15 December 1989, on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of business of credit institutions and amending Directive 77/780/EEC; 89/647/EEC of 18 December 1989, on the solvency ratio for credit institutions; 92/30/EEC of 6 April 1992, on the supervision of credit institutions on a consolidated basis; 92/121/EEC of 21 December 1992, on the monitoring and control of large exposures of credit institutions, is to undertake official codification of this type. The new directive will supersede the various directives incorporated in it(2), their content is fully preserved, and they are brought together with only such formal amendments as are required by the codification exercise itself. 4a In order to point out the satisfactory application of the codification of the Directive mentioned above, in so far as it is a purely formal procedure, the term 'Contact Committee' appearing in Recital No. 21 of Directive 89/646/EEC and Recital No. 15 of Directive 77/780/EEC (Recitals No. 23 and 66 respectively, in this consolidated version), is replaced by the term 'Contact Group'. In effect, contrary to the terminology that was mistakenly applied in the relevant Recitals of the above mentioned Directives, the term 'Contact Group' was used from the beginning of the latter activities. 5. This legislative codification proposal was dra,\n up on the basis of the texts of the acts published in the Official Journal, in all the official languages. Although the articles have been given new numbers, the old nwnbering has been retained in the margin for ease of reference; the correlation between the old and new numbers is sho,vn in a table set out in Annex VI, to the codified Directive. ( 1) Entered in the legislative programme for 1994 (2) Sec Annex V, Part A of this Proposal. 2 Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE /. /. /EC of. relating to the taking up and pursuit of the business of credit institutions THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to che Treaty establishing the European Community, and in pa11icular the first and third sentences of Article 57 (2) thereof, Having regard to the proposal from the Commission; Having regard to the opinion of the Economic and Social Committee ( 1 ); Acting in accordance with the procedure laid down in Article 189b of the Treaty (2); (1) Whereas Council Directive 73/183/EEC of 28 June 1973 on the abolition of restrictions on freedom of establishment and freedom to provide services in respect of self-employed activities of banks and other financial institutions (3), Council Directive 77/780/EEC of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (4), Council Directive 89/299/EEC of 17 April 1989 on the own funds of credit institutions (5), Council Directive 89/646/EEC of 15 December I 989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC (6), Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit institutions (7), Council Directive 92/30/EEC of 6 April 1992 on the supervision of credit institutions on a consolidated basis (8), and Council Directive 92/121 /EEC of 21 December 1992 on the monitoring and control of large exposures of credit institutions (9) have been frequently and substantially amended; whereas, reasons of clarity and rationality, the said Directives therefore, should be codified and combined in a single text; for (1) (2). (3) (4) (5) (6) (7) (8) (9) OJNoC OJ No L 194, 16. 7. 1973; p. I. OJ No L 322, 17. 12. 1977, p. 30; Directive as last amended by Directive 96/13/EC (OJ No L 66, 16. 3. 1996, p. 15). OJ No L 124, 5. 5. 1989, p. 16; Directive as last amended by Directive 92/30/EEC (OJ No L 110, 28. 4. 1992, p. 52). OJ No L 386, 30. 12. 1989, p. 1; Directive as last amended by European Parliament and Council Directive 95/26/EC (OJ No L I 68, I 8. 7. I 995, p. 7). OJ No L 386, 30. 12. 1989, p. 14; Directive as last amended by Directive 96/10/EC (OJ No L 85, 3. 4. I 996, p. 17). OJ No L l lO, 28. 4. 1992, p. 52. OJ No L 29, 5. 2. 1993, p. I; Directive as amended by the Act of Accession of Austria, Finland and Sweden. 3 (2) Whereas, pursuant to the Treaty, any discrirninatory treatment with regard to establishment and to the provision of services, based either on nationality or on the fact that an undertaking is not established in the Member State where the services are provided, is prohibited; I. 77/780/EEC (adapted) (3) Whereas, in order to make it easier to take up and pursue the business of credit institutions, it is necessary to eliminate the most obstructive differences between the laws of the Member States as regards the rules to which these institutions are subject; 2. 77/780/EEC 1. 89/646/EEC (adapted) 4. 771780/EEC (4) Whereas this Directive constitute~ the essential instrument for the achievement of the internal market, a course determined by the Single European Act and set out the Commission's White Paper, from the point of view of both the freedom of establishment and the freedom to provide services, in the field of credit institutions; timetable form in in (5) Whereas measures to coordinate credit institutions must, both in order to protect savings and to create equal conditions of competition between these institutions, apply to all of them; whereas due regard must be had, where applicable, to the objective differences in their statutes and their proper aims as laid down by national laws; 4 77/780/EEC (adapted) 5. + 6. 4. 89/646/EEC + 9. + 77/780/EEC (adapted) 11. (adapted) 12. 771780/EEC (adapted) (6) Whereas the scope of those measures should therefore be as broad as possible, covering all institutions whose business is to receive repayable funds from the public, whether in the form of deposits or in other forms such as the continuing issue of bonds and other comparable securities and to grant credits for their own account; whereas exceptions must be provided for in the case of certain credit" institutions to which this Directive cannot apply; whereas the provisions of this Directive shall not prejudice the application of national supplementary authorizations permitting credit institutions to carry on specific activities or undertake specific kinds of operations; laws which provide special for (7) Whereas the approach which has been adopted is to achieve only the essential harmonization necessary and sufficient to secure the mutual recognition of authorization and of prudential supervision systems, making possible the granting of a single licence recognized throughout the Community and the application of the principle of home Member State prudential supervision; whereas, therefore, the requirement that a programme of operations must be produced should therefore be seen merely as a factor enabling the competent authorities to decide on the basis of more precise information using objective criteria; whereas a measure of flexibility may nonetheless be possible as regards the requirements on the legal form of credit institutions and the protection of banking names; (8) Whereas equivalent financial requirements for credit institutions are necessary to ensure similar safeguards for savers and fair conditions of competition between comparable groups of credit institutions; whereas, pending further coordination, appropriate structural ratios should be formulated the that will make frame\vork of cooperation between national authorities to observe, in accordance with standard methods, the position of comparable types of credit institutions; whereas this procedure should help to bring about the gradual approximation of the systems of coefficients established and applied by the Member States; \. \1hereas it is necessary, however, to make a distinction between coefficients intended to ensure the sound management of credit institutions and those established for the purposes of economic and monetary policy; it possible within 5 (9) Whereas the principles of mutual recognition and home Member State supervision require that Member States' competent authorities should not grant or should withdraw ·authorization where factors such as content of the activities programmes, the geographical distribution or the activities actually_ carried on indicate clearly that a credit institution has opted for t~e legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within whose territory it carries on or intends to carry on the greater part of its_ activities; whereas a credit institution which is a legal person must be authorized in the Member State in which it has its registered office; whereas a credit institution which is not a legal person must have its head office in the Member State in which it has been authorized; whereas, in addition, Member States must require that a credit institution's head office always be situated in its home Member State and that it actually operates there; (10) Whereas the competent authorities should not authorize or continue the authorization of a credit institution. where they are liable to be prevented from effectively exercising their supervisory functions by the close links between that ins~itution and other natural or Jega] persons; whereas credit institutions. already authorized must also satisfy the competent authorities in that respect; whereas the definition of 'close links' in this Directive lays down minimum criteria and that does not prevent Member States from applying it to situations other than those envisaged by the definition; whereas the sole fact of having acquired a significant proportion of a company's capital does not constitute participation, within the meaning of 'close links', if that holding has been acquired solely as a temporary investment which does not make it possible to exercise influence over the structure or financial policy of the institution; ( 11) Whereas the reference to the supervisory authorities' effective exercise of their supervisory functions covers supervision on a consolidated basis which must be exercised over a credit institution where the provisions of Community law so provide; whereas, in such cases, the authorities applied to for authorization must be able to identify the authorities competent to exercise supervision on a consolidated basis over that credit institution; 89/646/EEC (adapted) 8. + 7. 95/26/EC (adapted) 3. + 4. + s. 95/26/EC (adapted) (adapted) 6. 95/26/EC (12) Whereas the home Member State may also establish rules stricter than those laid down in Article 5 (1 ), first subparagraph and (2), and Articles 7, 16, 30, 5 l and 65 for institutions authorized by its competent authorities; 9. 89/646/EEC (adapted) 6 ( I 3) Whereas the abolition of the authorization requirement with respect to the branches of Community credit institutions necessitates the abolition of endowment capital; 17. 89/646/EEC (adapted) ( 14) Whereas, by virtue of mutual recogmt1on, the approach chosen permits credit institutions authorized in their home Member States to carry on, throughout the Community, any or all of the activities listed in Annex I by establishing branches or by providing services; whereas the carrying-on of activities not listed in the said Annex enjoys the right of establishment and the freedom to provide services under the general provisions of the Treaty; 12. + 13. 89/646/EEC (adapted) (15) Whereas it is appropriate, however, to extend mutual recognition to the activities listed in Annex I when they are carried on by financial institutions which are subsidiaries of credit institutions, provided that such subsidiaries are covered by the consolidated supervision of their parent undertakings and meet certain strict conditions; 14. 89/646/EEC (adapted) ( 16) Whereas the host Member State may, in connection with the exercise of the right of establishment and the freedom to provide services, require compliance with specific provisions of its own national laws or regulations on the part of institutions not authorized as credit institutions in their home Member States and with regard to activities not listed in Annex I provided that, on the one hand, such provisions are compatible with Community law and are intended to protect the general good and that, on the other hand, such institutions or such activities are not subject to equivalent rules under the legislation or regulations of their home Member States; ( 17) Whereas the Member States must ensure that there are no obstacles to carrying on activities receiving mutual recognition in the same manner as in the home Member State, as long as the latter ao not conflict with legal provisions protecting the general good in the host Member State; 15. 89/646/EEC 16. 89/646/EEC ( 18) Whereas there is a necessary link between the objective of this Directive and the liberalization of capital movements being brought about by other Community legislation; whereas in any case the measures regarding the liberalization of banking services must be in harmony with the-measures liberalizing capital movements; 18. 89/646/EEC (adapted) 7 13. 77/780/EEC + 19. 89/646/EEC (adapted) 20. 89/646/EEC (adapted) (19) Whereas the rules governing branches of credit institutions having their head office outside the Communit-y should be analogous in all Member States; whereas it is important at the present time to provide that such rules may not be more favourable than those for branches · of institutions from another Member State; whereas it should be specified that the Community may conclude agreements with third countries providing for the application of rules which accord such branches the same treatment throughout its territory, account being taken of the principle of reciprocity; whereas the branches of credit institutions authorized in third countries do not enjoy the freedom to provide services under the second paragraph of Article 59 of the Treaty or the freedom of establishment in Member States other than those in which they are established; whereas, however, requests for the authorization of subsidiaries or of the acquisition of holdings made by undertakings governed by the laws of third countries are subject to a procedure intended to ensure that Community credit institutions receive reciprocal treatment in the third countries in question; (20) Whereas the authorizations granted to credit institutions by the competent national authorities pursuant to this Directive have Community-wide, and no longer merely nation-wide, application; whereas existing reciprocity clauses have therefore no effect; whereas a flexible procedure i~ therefore needed to make it possible to assess reciprocity on a Community basis; whereas the aim of this procedure is not to close the Community's financial markets but rather, as the Community intends to keep its financial markets open to the rest of the world, to improve the liberalization of the global financial markets in other third countries; whereas, to that end, this Directive provides for procedures for negotiating with third countries and, as a last resort, for the possibility of taking measures involving the suspension of new applications for authorization or the restriction of new authorizations; (21, Whereas it is desirable that agree~ent should be reached, on the basis of reciprocity, between the Community and third countries with a view to allowing the practical exercise of consolidated supervision over the largest possible geographical area; 12. 92/30/EEC (22) Whereas responsibility for supervising the financial soundness of a credit institution, and in particular its solvency, rests with the competent authorities of its home Member State; whereas the host Member State's competent authorities retain responsibility for the supervision of liquidity and monetary policy; whereas the supervision of market risk must be the subject of close cooperation between the competent authorities of the home and host Member States; 10. 89/646/EEC (adapted) 8 (23) Whereas the smooth operation of the internal banking market requires not only legal rules but also close and regular cooperation between the competent authorities of the Member States; whereas for the consideration of problems concerning individual credit the banking institutions the Contact Group set up between supervisory authorities remains the most appropriate forum; whereas that Group is a suitable body for the mutual exchange of information provided for in Article 28; (24) Whereas that mutual information procedure does not in any case replace the bilateral collaboration established by Article 28; whereas the competent host Member State authorities can, without prejudice to their powers of proper control, continue either, in an emergency, on their own initiative or following the initiative of the competent home Member State authorities, to verify that the activities of a credit institution established within their territories comply with the relevant laws and with the principles of sound administrative and accounting procedures and adequate internal control; (25) Whereas it is appropriate to allow the exchange of information between the competent authorities and authorities or bodies which, by virtue of their function, help to strengthen the stability of the financial system; whereas, in order to preserve the confidential nature of the information forwarded, the list of addressees must remain within strict limits; (26) Whereas certain behaviour, such as fraud and insider offences, are liable to affect the stability, including the integrity, of the financial system, even when than credit institutions; institutions other involving 21. 89/646/EEC (adapted) 22. 89/646/EEC (adapted) 8. 95/26/EC (adapted) 9. 95/26/EC (adapted) (27) Whereas it is necessary to specify the conditions under whicr. such exchanges of information are authorized; 10. 95/26/EC (28) Whereas, where it is stipulated that information may be disclosed only with the express agreement of the competent authorities, these to may, where appropriate, make compliance with strict conditions; their agreement subject 11. 95/26/EC 9 (29) Whereas exchanges of information between, on the one hand, the competent authorities and, on the other, central banks and other bodies with a similar function in their capacity as monetary authorities and, where appropriate, other public authorities responsible for supervising payment systems should also be authorized; (30) Whereas for the purpose of strengthening the prudential supervision of credit institutions and protection of clients of credit institutions, it should be stipulated that an auditor must have a duty to report promptly to the competent authorities, wherever, as provided for by this Directive, he becomes aware, while carrying out his tasks, of certain facts which are liable to have a serious effect on the financial situation or the administrative and accounting· organization of a credit institution; whereas, having regard to the aim in view, it is desirable for the Member State to provide that such a duty should apply in all circumstances where such facts are discovered by an auditor during the performance of his tasks in an undertaking which has close links with a credit institution; whereas the duty of auditors to communicate, where appropriate, to the competent authorities certain facts and decisions concerning a credit institution which they discover during the performance of their tasks in a non financial undertaking does not in itself change the nature of their tasks in that undertaking nor the manner in which they must perform those tasks in that undertaking; (31) Whereas common basic standards for the own funds of credit institutions are a key factor in the creation of an internal banking market since own funds serve to ensure the continuity of credit institutions and to protect savings; whereas such harmonization strengthens the supervision of credit institutions and contributes to further coordination in the banking sector; (32) Whereas such standards must apply to all credit institutions authorized in the Community; (33) Whereas the own funds of a credit institution can serve to absorb losses which are not matched by a sufficient volume of profits; whereas the own funds also serve as an important yardstick for the competent authorities, in particular for the assessment of the solvency of credit institutions and for other prudential purposes; 12. 95/26/EC 15. 95/26/EC (adapted) + 16. (adapted) + 17. (adapted) I. 89/299/EEC (adapted) 2. 89/299/EEC 3. 89/299/EEC 10 (34) Whereas credit institutions, in an internal banking market, engage in direct competition with each other, and the definitions and standards pertai_ning to own funds must therefore be equivalent; whereas, to that end, the criteria for determining the composition of own funds must not be left solely to Member States; whereas the adop. tion of common basic standards will be in the best interests of the Community in that it will prevent distortions of competition and will strengthen the Community banking system; 4. 89/299/EEC (adapted) (35) Whereas the definition of own funds laid down in this Directive provides for a maximum of items and qualifying amounts, leaving it to the discretion of each Member State to use all or some of such items or to adopt lower ceilings for the qualifying amounts; 5. 89/299/EEC (36) Whereas this Directive specifies the qualifying criteria for certain own funds items, and the Member States remain free to apply more stringent provisions; 6. 89/299/EEC (3 7) Whereas at the initial stage common basic standards are defined in broad terms in order to encompass all the items making up own funds in the different Member States; 7. 89/299/EEC (38) Whereas, according to the nature of the items making up own funds, this Directive distinguishes between on the one hand, items constituting original own funds and, on the other, those constituting additional own funds; 8. 89/299/EEC (39) Whereas, to reflect the fact that items constituting additional own funds are not of the same nature as those constituting original own funds, the amount of the former included in own funds must not exceed the original own funds; whereas, moreover, the amount of certain items of additional own funds included must not exceed one half of the original own funds; I 0. 89/299/EEC (40) Whereas, in order to avoid distortions of competition, public credit institutions must not include in their own funds guarantees granted them by the Member States or local authorities; · 11. 89/299/EEC (adapted) I I ( 41) Whereas whenever in the course of supervision it is necessary to determine the amount of the consolidated own funds of a group of credit institutions, that calculation shall be effected in accordance with this Directive; 12. 89/299/EEC (adapted) ( 42) Whereas the precise accounting technique to be used for the calculation of own funds, the solvency ratio, and for the assessment of the concentration of exposures must take account of the provisions of Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other incorporates certain adaptations of the provisions of Council Directive 83/349/EEC of 13 June 1983 based on Article 54 (3) (g) of the Treaty on consolidated acco. unts (2); (1) ~ which institutions financial 13. 89/299/EEC (adapted) + 12. 89/647/EEC (adapted) + 7. 92/121/EEC (adapted) (43) Whereas the prov1s1ons on own funds form part of the wider international effort to bring about approximation of the rules in force in major countries regarding the adequacy of own funds; 14. 89/299/EEC (adapted) ( 44) Whereas the Commission will draw up a report and periodically examine, with the aim of tightening them, the provisions on own funds and thus achieving greater convergence on a common definition of own funds; whereas such convergence will allow the alignment of Community credit institutions' own funds; 16. 89/299/EEC (adapted) ( 45) Whereas the provisions on solvency ratios are the outcome of work carried out by is responsible for making suggestions to the Commission with a view to coordinating the coefficients applicable in the Member States; the Banking Advisory Committee which 1. 89/647/EEC (adapted) ( 46) Whereas the establishment of an appropriate solvency ratio plays a 2. 89/647/EEC central role in the supervision of credit institutions; (47) Whereas a ratio which weights assets and off-balance-sheet items according to the degree of credit risk is a particularly useful measure of solvency; 3. 89/647/EEC ( 48) Whereas the development of common standards for own funds in relation to assets and off-balance-sheet items exposed to credit risk is, accordingly, an essential aspect of the harmonization necessary for the achievement of the mutual recognition of supervisio11 techniques and thus the completion of the internal banking market; 4. 89/647/EEC. / (I) OJ No L 372, 31. 12. 1986, p. I. (2) OJ No L 193. I 8. 7. 1983, p. I; Directive as last amended by Directive 90/605/EEC (OJ No L 317, 16. 11. 1990, p. 60). 12 (49) Whereas, in that respect, the provisions on a solvency ratio must be considered in conjunction with other specific instruments also harmonizing the fundamental techniques of the supervision of credit institutions; 5. 89/647/EEC (adapted) (50) Whereas, in an internal banking market, institutions are required to enter into direct competition with one another and whereas the common solvency standards in the form of a minimum ratio prevent distortions of competition and strengthen the Community banking system; (51) Whereas this Directive provides for different weightings to be given to guarantees issued by different financial institutions; whereas the Commission accordingly undertakes to examine whether this Directive taken as a whole significantly distorts competition between credit institutions and insurance undertakings and, in the light of that examination, to consider whether any remedial measures are justified; (52) Whereas Annex III lays down the treatment of off-balance-sheet items concerning interest and foreign-exchange rates in the context of the calculation of credit institutions' capital requirements; whereas with a view to the smooth functioning of the internal market and in particular with a view to ensuring a level playing field Member States are obliged to strive for uniform assessment of contractual netting agreements by their competent authorities; whereas Annex III takes account of the work of an international forum of banking supervisors on the supervisory recognition of bilateral netting, in particular the possibility of calculating the own funds requirements for certain transactions on the basis of a net rather than a gross amount provided that there are legally binding agreements which ensure that the credit risk is confined to the net amount; whereas the supervisory the rules contemplated for recognition of netting at a wider international level will lead to the possibility of reducing the capital requirements for internationally active credit institutions and groups of credit institutions in a wide range of non-member countries' credit institutions which compete with Community credit institutions; whereas for credit institutions incorporated in the Member States, Annex III creates a similar possibility for the recognition of bilateral netting by the competent authorities and thereby offers them equal conditions of competition; whereas the rules are both well balanced and appropriate for the further reinforcement of the application of prudential supervisory measures to credit institutions; whereas the competent authorities in the Member States should ensure that the calculation of add-ons is based on effective rather than apparent notional amounts; 7. 89/647/EEC (adapted) 8. 89/647/EEC (adapted) 96/10/EC (adapted) I. + 2. + 3. + 4. + 5. + 6. 13 (53) Whereas the minimum ratio provided for in this Directive reinforces the capital of credit institutions in the Community; whereas a level of 8 % has been adopted following a· statistical survey of capital requirements in force at the beginning of 1988; 9. 89/647/EEC (54) Whereas the essential rules for monitoring large exposures of credit institutions should be harmonized; whereas Member States should still be able to adopt provisions more stringent than those provided for by this Directive; 2. 92/121/EEC 4. 92/121/EEC 6. 92/121/EEC (adapted) 8. 92/121/EEC (adapted) (55) Whereas the monitoring and control of a credit institution's exposures is an integral parf of its supervision; whereas an excessive concentration of exposures to a single client or group of connected clients may result in an unacceptable risk of loss; whereas such a situation may be considered prejudicial to the solvency of a credit institution; the Community should (56) Whereas, in an internal banking market, credit institutions are engaged in direct competition with one another and monitoring requirements throughout therefore be equivalent; whereas, to that end, the _criteria applied to determining the concentration of exposures must be the · subject of legally binding rules at Community level and cannot be left entirely to the discretion of the Member States; whereas the adoption of common rules will therefore best serve the Community's interests, since it will prevent differences in the conditions of competition, while strengthening the Community's banking system; (57) Whereas the provisions on a solvency ratio for credit institutions include a list of credit risks which may be incurred by credit institutions; whereas that list should therefore be used also for the definition of exposures for the purposes of limits to large exposures; whereas it is not, however, appropriate to refer on principle to the weightings or degrees of risk laid down in the said provisions; whereas those weightings and degrees of risk were devised for the purpose of establishing a general solvency requirement to cover the credit risk of credit institutions; whereas, in the context of the regulation of large exposures, the aim is to limit the maximum loss that a credit institution may incur through any single client or group of connected clients; whereas it is therefore appropriate to adopt a prudent approach in which, as a general rule, accoun~ is taken of the nominal value of exposures, but no weightings or degrees of risk are applied; 14 9. 92/121/EEC (adapted) 2. 92/30/EEC 3. 92/30/EEC (58) Whereas, when a credit institution incurs an exposure to its own parent undertaking or to other subsidiaries of its parent undertaking, particular prudence is necessary; whereas the management of exposures incurred by credit institutions must be carried out in a fully autonomous manner, in accordance with the principles of sound banking management, without regard to any considerations other than those principles; whereas the provisions of this Directive require that where the· influence exercised by persons directly or indirectly holding a qualifying participation in a credit institution is likely to operate to the detriment of the sound and prudent management of that institution, the competent authorities shall take appropriate measures to put an end to that situation; whereas, in the field of large exposures, specific standards should also be laid down for exposures incurred by a credit institution to its own group, and in such cases more stringent restrictions are justified than for other exposures; whereas more stringent restrictions need not, however, be applied where the parent undertaking is a financial holding company or a credit institution or where the other subsidiaries are either credit or financial institutions or undertakings offering ancillary banking services, provided that all such undertakings are covered by the supervision of the credit institution on a consolidated basis; whereas in such cases the consolidated monitoring of the group of undertakings allows for an adequate level of supervision, and does not require the imposition of more stringent limits on exposure; whereas under this approach banking groups will also be encouraged to organize their structures in such a way as to allow consolidated monitoring, which is desirable because a more comprehensive level of monitoring is possible; (59) Whereas, in order to be effective, supervision on a consolidated basis must be applied to all banking groups, including those the parent undertakings of which are not credit institutions; where. s the competent authorities must hold the necessary legal instruments to be able to exercise such supervision; least one credit (60) Whereas, in the case of groups with diversified activities the parent institution undertakings of which control at subsidiary, the competent authorities must be able to assess the financial situation of a credit institution in such a group; whereas, pending subsequent coordination, the Member States may lay down appropriate methods of consolidation for the achievement of the objective of this Directive; whereas the competent authorities must at least have the means of obtaining from all undertakings within a group the information necessary for the performance of their function; whereas cooperation between the authorities responsible for the supervision o( different financial sectors must be established in the case of groups of undertakings carrying on a range of financial activities; 15 (61) Whereas the Member States can, furthermore, refuse or withdraw banking authorization in the case of certain group structures considered inappropriate for carrying on banking activities, in particular because such structures · could not be supervised effectively, whereas in this respect the competent authorities have the powers mentioned in the first subparagraph of Article 7 (1), Article 7 (2), point ( c) of Article. 14 (I), and Article 16 of this Directive, in order to ensure the sound and prudent management of credit institutions; ( 62) Whereas the Member States can equally apply appropriate supervision techniques to groups with structures not covered by this Directive; whereas, if such structures become common, this Directive should be extended to cover them; (63) Whereas supervision on a consolidated basis must take in all activities defined in Annex I; whereas all undertakings principally engaged in such activities must therefore be included in supervision on a consolidated basis; whereas, as a result, the definition of financial institutions must ~ widened in order to cover such activities; (64) Whereas Directive 86/635/EEC, together with Directive 83/349/EEC, established the rules of consolidation. applicable to consolidated accounts published by credit institutions; whereas it is therefore possible to define more precisely the methods to be used in prudential supervision exercised on a consolidated basis; 5. 92/30/EEC (adapted) 6. 92/30/EEC 7. 92/30/EEC (adapted) 9. 92/30/EEC (adapted) (65) Whereas supervision of credit institutions on a consolidated basis must be aimed at, in particular, protecting the interests of the depositors of the said institutions and ensuring the stability of the financial system; 11. 92/30/EEC (adapted) (66) Whereas the examination of problems connected with matters covered by this Directive as well as by other Directives on the business of credit institutions requires cooperation between the competent authorities and the Commission within a Banking Advisory Committee, particularly when conducted with a view to closer coordination; whereas the Banking Advisory Committee of the competent authorities of the Member States does not rule out other forms of cooperation between authorities which supervise the taking up and pursuit of the business of credit institutions and, in particular, cooperation within the Contact Group set up between the banking supervisory authorities, 14. 77/780/EEC (adapted) + 15. (adapted) 16 (67) Whereas technical modifications to the detailed rules laid down in this Directive may from time to time be necessary to take account of new developments in the banking sector; whereas the Commission shall accordingly make such modifications as are necessary, after consulting the Banking Advisory Committee, within the limits of the:· implementing powers conferred on the Commission by the Treaty; whereas 'Regulatory Committee', according to the rules of procedure laid down in Article 2 (Procedure III, Variant (b)) of Council Decision 87/373/EEC of 13 July 1987 laying down the procedures for the exercise of implementing powers conferred on the Commission ( 1 ); that Committee shall act as a (68) Whereas Article 36 (I) of this Directive pennits joint and several commitments of borrowers in the case of credit institutions organized as cooperative societies or funds to be treated as own funds items under Article 34 (2), point 7; whereas the Danish Government has expressed a strong interest in having its few mortgage credit institutions organized as cooperative societies or funds converted into public limited liability companies; whereas, in order to facilitate the conversion or to make it possible, a temporary derogation allowing them to include part of their joint commitments as own funds is required; whereas this temporary derogation should not adversely affect competition between credit institutions; 23. 89/646/EEC + (adapted) 14. 89/64 7 /EEC + 5. 92/16/EEC (adapted) + 12. 92/121/EEC (adapted) I. + 92/16/EEC (adapted) 2. (adap~ed) (69) Whereas the application of a 20 % weighting to credit institutions' holdings of mortgage bonds may unsettle a national financial market on which such instruments play a preponderant role; whereas, in this case, provisional measures are taken to apply a I O % risk weighting; 13. 89/647/EEC (70) Whereas, in order to ensure hannonious application of the provisions on ·large exposures, Member States should be allowed to provide for the two-stage application of the new limits; whereas, for smaller credit institutions, a longer transitional period ma~· be warranted inasmuch as too rapid an application of the 25 % rule could reduce their lending activity too abruptly; 10. 92/121/EEC (adapted) (71) Whereas, moreover, the hannonization of the conditions relating to the reorganization and winding-up of credit institutions is also proceeding; 6. 89/646/EEC (72) Whereas the arrangements necessary for the supervision of the liquidity risks will also have to be harmonized; 7. 89/646/EEC (adapted) (73) Whereas this Directive must not affect the obligations of the Member States concerning the deadlines for transposition set out in Annex V, Part B, HA VE ADOPTED THIS DIRECTIVE: (l) OJ No L 197, 18. 7. 1987, p. 33. 17 TABLE OF CONTENTS TITLE I DEFINITIONS AND SCOPE. 21 ·· Article 1 Ar. :icle2 Article 3 Definitions. 21 Scope. 24 Prohibition for undertakings other than credit institutions from carrying on the business of taking deposits or other repayable funds from the public. 27 TITLE II REQUIREMENTS FOR AC<;ES~ TO THE TAKING-UP AND PURSUIT OF THE BUSINESS OF CREDIT INSTITUTIONS. 27 Article 4 Article 5 Article 6 Article 7 Article 8 Article 9 Article 10 Article 11 Article 12 Article 13 Article 14 Article 15 Article 16 Article 17 Authorization. l. 27 Initial capital. ,. 27 Management body and place of the head office of credit institutions. 28 Shareholders and members. 29 Programme of operations and structural organization. 29 Economic needs. 30 Authorization refusal. 30 Notification of the authorization to the Commission. 30 Prior consultation with the competent authorities ofother Member States. 30 Branches of credit institutions authorized in another Member State. 30 Withdrawal of authorization. 31 Name. 31 Qualifying holding in a credit institution. 32 · Procedures and internal control mechanisms. 33 TITLE III PROVISIONS CONCERNING THE FREEDOM OF ESTABLISHMENT AND THE FREEDOM TO PROVIDE SERVICES. 33 Article 18 Article 19 Article 20 Article 21 Article 22 Credit institutions. 33 Financial institutions. 34 Exercise of the right of establishment. 35 Exercise of the freedom to provide services. 36 Power of the competent authorities of the host Member State. 36 TITLE IV RELATIONS WITH THIRD COUNTRIES. 38 Article 23 Article 24 Article 25 Notification of the subsidiaries of third countries' undertakings and conditions of access to the markets of these countries. 3 8 Branches of credit institutions having their head offices outside the Community. 40 Cooperation with third countries' competent authorities regarding supervision on a consolidated basis. 40 TITLE V PRINCIPLES AND TECHNICAL INSTRUMENTS FOR PRUDENTIAL SUPERVISION. 41 Chapter 1 Principles of prudential supervision. 41 Article 26 Article 27 Article 28 Article 29 Article 30 Article 31 Article 32 Article 33 Competence of control of the home Member State. 41 · Competence of the host Member State. 41 Collaboration concerning supervision. 42 On the spot verification of branches established in another Member State. 42 Exchange of information and professional secrecy. 43 Duty of persons responsible for the legal control of annual and consolidated accounts. 4 7 Power of sanction of the competent authorities. 47 Right to apply to the courts. 48 18 Chapter 2 Technical instruments of prudential supen,ision. 48 Section 1 Own funds. 48 Article 34 General principles. 48 Article 35 Other items. :. 50 Article 36 Other provisions concerning own funds·. 51 Article 3 7 Calculation ofown funds on a consolidated basis. 52 Article 38 Deductions and limits. 53 Article 39 Provision of proof to the competent authorities. 53 Section 2 Solvency ratio. 53 Article 40 General principles. 53 Article 41 The numerator: own funds. 54 Article 42 The denominator: risk-adjusted assets and off-balance-sheets items. 54 Article 43 Risk weightings. 55 _ Article 44 Weighting of claims for regional governments or local authorities of the Member States. 58 Article 45 Other weighting. 59 Article 46 Administrative bodies and non-commercial undertakings. ;. 59 Article 4 7 Solvency ratio level. 59 Section 3 Large exposures. 60 Article 48 Reporting of large exposures. 60 Article 49 Limits on large exposures. 61 Article 50 Supervision on a consolidated or unconsolidated basis of large exposures. 65 Section 4 Qualifying holdings outside the financial sector. 66 Article 51 Limits to non-financial qualifying holdings. 66 Chapter 3 Supervision on a consolidated basis. 67 Article 52 Article 53 Article 54 Article 55 Article 56 Supervision on a consolidated basis of credit institutions. 67 Competent authorities responsible for exercising supervision on a consolidated basis. 69 Fom1 and extent of consolidation. 70 Information to be supplied by mixed-activity holding companies and their subsidiaries. 71 Measures to facilitate supervision on a consolidated basis. 72 TITLE VI BANKING ADVISORY COMMITTEE. 73 Article 57 Article 58 Article 59 Composition and tasks of the Banking Advisory Committee. 73 Examination of the requirements for authorization. 74 Observation ratios. 74. TITLE VII POWERS OF EXECUTION. 75 Article 60 Technical adaptations. 75 19 TITLE VIII TRANSITIONAL AND FINAL PROVISIONS. 76 Chapter 1 Transitional provisions. ~. _. 76 Article 61 Article 62 Article 63 Article 64 Article 65 Transitional provisions regarding Article 36. 76 Transitional provisions regarding Article 43. 77 Transitional provisions regarding Article 47. 78 Transitional provisions regarding Article 49. 78 Transitional provisions regarding Article 51. 80 Chapter 2 Final provisions. 80 ~ Article 66 Repealed Directives. 80 Article 67 Imp-lementation. 80 Article 68 Addressees. 80 ANNEX I List of activities subject to mutual recognition. 81 ANNEX II Classification of off-balance-sheet items. 82 ANNEX III The treatment of off-balance-sheet items concerning interest rates and foreign-exchange rates. 83 ANNEX IV Types of off-balance-sheet items concerning interest rates and foreign-exchange rates. 86 ANNEX V - Part A Repealed Directives. 87 ANNEX V - Part B Deadlines for implementation. ~. 88 ANNEX VI Correlation Table. 89 20 TITLE I DEFINITIONS AND SCOPE Article I Definitions For the purpose of this Directive: 1. "Credit institution " shall mean an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account. For the purposes of applying the supervision on a consolidated basis, shall be considered as a credit institution, a credit institution according to the first paragraph and any private or public in the first undertaking which corresponds to the definition paragraph and which has been authorized in a third country. For the purposes of applying the supervision and control of large exposures, shall be considered as a credit institution, a credit institution according to the first paragraph, including branches of a credit institution in third countries and any private or public undertaking, including its branches, which corresponds to the definition in the first paragraph and w~ich has been authorized in a third country; 77/780/EEC Article 1, 1st indent -92/30/EEC Article 1, 1st indent (adapted) 92/121/EEC Article 1 (a) (adapted) 1. 3. 4. 5. 6. 1. 8. "Authorization" shall mean an instrument issued in any form by the authorities by which the right to carry on the business of a credit institution is granted; 77/780/EEC Article 1, 2nd indent "Branch" shall mean a place of business which forms a legally dependent part of a credit institution and which carries out directly all or some of the transactions inherent in the business of credit institutions; any number of places of business set up in the same Member State by a credit institution with headquarters in another Member State shall be regarded as a single branch; 89/646/EEC Article 1 (3) 89/646/EEC Article 1 (5) to (9) (as amended by 92/30/EEC, Article 10 (3)) "Competent authorities" shall mean the national authorities which are empowered by law or regulation to supervise credit institutions; "Financial institution " shall mean an undertaking other than a credit institution, the principal activity of which is to acquire holdings or to carry on one or more of the activities listed in points 2 to 12 of Annex I; "Home Member State" shall mean the Member State in which a credit institution has been authorized in accordance with Articles 4 to 11; "Host Member State" shall mean the Member State in which a credit institution has a branch or in which it provides services; "Control" shall mean the relationship between a parent undertaking and a subsidiary, as defined in Article I of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking; 21 9. •~Participation for tl,e purposes of supervision on a consolidated basis" shall mean the ownership, direct or indirect, of 20 % or more of the voting rights or capital of an undertaking; 92/30/EEC Article 1, 6th indent (adapted) 10. "Qualifying holding" shall mean a direct or indirect holding in an undertaking which represents 10 · % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the undertaking in which a holding subsists. ___ · 89/646/EEC Article 1 (10) to (12) 11. "Initial capital" shall mean capital as defined in Article 34 (2) points 1 and2; __ _ 12. "Parent undertaking" shall mean a parent undertaking as defined in Articles l and 2 of Directive 83/349/EEC. It shall, for the purposes of supervision on a consolidated basis and control of large exposures, mean a parent undertaking within the meaning of Article I (I) of Directive 83/349/EEC and any undertaking which, in the opinion of the competent authorities, effectively exercises a dominant influence over another undertaking; 92/30/EEC Article 1, 7th indent (adapted) 92/121/EEC Article 1 (c) (adapted) 13. "Subsidiary" shall mean a subsidiary undertaking as defined in Articles I and 2 of Directive 83/349/EEC; 89/646/EEC Article 1 (13) 1 92/30/EEC Article 1, 8th indent (adapted) 92/121/EEC Article 1 (d) (adapted) 89/646/EEC Article 1 (13) 92/30/EEC Article 1, 8th indent 92/121/EEC Article 1 ( d) 89/647/EEC Article 2 (1), 2nd to 5th indents (as amended by 95/15/EC, Article 1) It shall, for the purposts of supervision on a consolidated basis and control of large exposures, mean a subsidiary undertaking within the meaning of Article 1 (I) of Directive 83/349/EEC and any undertaking over which, in the opinion of the competent authorities, a parent undertaking effectively exercises a dominant influence. All subsidiaries of subsidiary undertakings shall also be consi_dered subsidiaries of the undertaking that is their original parent; 14. '"Zone A" shall comprise all the Member States and all other countries which are full members of the Organization for Economic Cooperation and Development (OECD) and those countries which have concluded special lending arrangements with the International Monetary Fund (IMF) associated with the Fund's General Arrangements to Borrow (GAB). Any country which reschedules its external sovereign debt is, however, precluded from Zone A for a period of 5 years; 15. "Zone B" shall comprise all countries not in Zone A; 16. "Zone A credit institutions" shall mean all credit institutions authorized in the Member States, in accordance with Article 4, including their branches in third countries, and all private and public undertakings in point 1, first subparagraph and covered by the definition authorized in other Zone A countries, including their branches; 11. "Zone B credit institutions" shall mean all private and public undertakings authorized outside Zone A covered by the definition in point 1, first subparagraph, including their branches within the Community; 22 18. "Non-bank sector" shall mean all borrowers other than credit institutions as defined in points 16 and 17, central governments and central banks, regional governments and local authorities, the European Communities, the European Investment Bank (EIB) and multilateral development banks as defined in point 19; 89/647/EEC Article 2 (1 ), 6th to 8th indents the and Development, Inter-American Development Bank, 19. "Multilateral development banks" shal] mean the International Bank for Finance Reconstruction Corporation, the Asian Development Bank, the African Development Bank, the Council of E~rope Resettlement Fund, the Nordic Investment Bank, the Caribbean Development Bank, the European Bank for Reconstruction and Development, the European Investment Fund and the Inter-American Investment Corporation; International the (as amended by 91/31/EEC, 94/7/EC and 9S/67/EC) 20. "'Full-risk', 'medium-risk', 'low-risk' off balance-sheet items" shall mean the items described in Article 43 (2) and listed in Annex II; 'medium/low-risk' and 21. "Financial holding company" shall mean a financial institution, the subsidiary undertakings of which are either exclusively or mainly credit institutions or financial institutions, one at least of such subsidiaries being a credit institution; 92/30/EEC Article 1, 3rd to 5th indents 22. "Mixed-activity holding company" shall mean a parent undertaking, other than a financial holding company or a credit institution the subsidiaries of which include at least one credit institution; 23. "Ancillary banking services undertaking" shall mean an undertaking the principal activity of which consists in owning or managing property, managing data-processing services, or any other similar activity which is ancillary to the principal activity of o'le or more credit institutions; 24. "Exposures for the purpose of applyi11g Articlt:s 48, 49 and 50" shall mean the assets and off-balance-sheet items referred to in Article 43 and in Annexes II and IV thereto, without application of ,he weightings or degrees of risk there provided for; the risks referred to in Annex IV must be calculated in accordance with one of the methods set out in Annex III, without application of the weightings for counter-party risk; all elements entirely covered by own funds may, with the agreement of the competent authorities, be excluded from the definition of exposures provided that such own funds are not included in the calculation of the solvency ratio or of other monitoring ratios provided for in Community acts; exposures shall not include: - in the case of foreign exchange transactions, exposures incurred in the ordinary course of settlement during the 48 hours following payment, or in the case of transactions for the purchase or sale of securities, exposures incurred in the ordinary course of settlement during the five working days following payment or delivery of the securities, whichever is the earlier; 92/121/EEC Article l (h) (adapted) 23 25. •~Group of connected clients" shall mean: 92/121/EEC Article 1 (m) - ~o or more natural or legal persons who, unless it is shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other or others; or two or more natural or legal persons between whom there is no relationship of control as defined in the first indent but who are to be regarded as constituting a single risk because they are so interconnected that, if one · of them were to experience financial problems, the other or all of the others would be likely to encounter repayment difficulties; 26. "Clos~ links" shall mean a situation in which two or more natural or legal persons are linked by: (a) participation, which shall mean the ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an undertaking, or (b) control, which shall mean the relationship between a parent undertaking and a subsidiary, in all the cases referred to in Article I (1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking; any subsidiary undertaking of a subsidiary undertaking shall also be considered a subsidiary of the parent undertaking which is at the head of those undert~kings. · A situation in which two or more natural or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons. Article 2 Scope 1. This Directive concerns taking up and pursuit of the business of credit institutions. This Directive shall apply to all credit institutions. 77/780/EEC Article 1, 5th indent (as amended by 95/26/EC, Article 2 (1)) 77/780/EEC Article 2(1) 89/646/EEC Article 2 (1) 89/647/EEC Article 1 (1) 2. Articles 25 and 52 to 56 shall also apply to financial holding companies and mixed-activity holding companies which have their head offices in the Community. 92/30/EEC Article 2 (adapted) The institutions permanently excluded by paragraph 3, with the exception, however, of the Member States' central banks, shall be treated as financial institutions for the purposes of Articles 25 and 52 to 56. 24 3. This Directive shall not apply to: - the central banks of Member States, - post office giro institutions, 77n80/EEC Article 2 (2) (as amended by 96/13/EC, Article 1) (adapted) - in Belgium, the 'lnstitut de Reescompte et de Garantie/Herdiscontering- en Waarborginstituut', - in Denmark, the 'Dansk Eksportfinansieringsfond', the 'Danmarks Skibskreditfond', and 'Dansk Landbrugs Realkreditfond ', - in Germany, the 'Kreditanstalt filr Wiederaufbau', undertakings which are recognized under the 'Wohnungsgemeinniltzigkeitsgesetz' as bodies of State housing policy and are not mainly engaged in banking transactions, and undertakings recognized under that law as non-profit housing undertakings, - in Greece, the "Aeec;ieel:> CnOMcea Aei'ic;+aieel:>6 Afa06yiau6" "(JaiaB'i (Elliniki Trapeza Viomichanikis Anaptyxeos), E>atiaMoaec;epi Me AaiaBui" (Tamio Parakatathikon kai Danion), and the "(Ja+oatii'ieeu Caieao61:>M'i" (Tachidromiko Tamieftirio ), the - in Spain, the 'Institute de Credito Oficial ', - in France, the 'Caisse des depots et consignations', - in Ireland, credit unions and the friendly societies, - in Italy, the 'Cassa Depositi et Prestiti', - in the 'Nederlandse lnvesteringsbank voor the Netherlands, Noordelijke Ontwikkelingslanden Ontwikkelingsmaatschappij', Industriebank Limburgs Instituut voor Ontwikkeling en Financiering' and the 'Overijsselse Ontwikkelingsmaatschappij NV', the 'NV NV', 'NV the - in Austria, undertakings recognized as housing associations in the public interest and the 'Osterreichische Kontrollbank AG', - in Portugal, 'Caixas Econ6micas' existing on 1 January 1986 with the exception of those incorporated as limited companies and of the 'Caixa Econ6mica Montepio Geral', - in Finland, the 'Teollisen yhteistyon rahasto Oy/Fonden for industriellt samarbete Ab', and the 'Kera Oy/Kera Ab', - in Sweden, the 'Svenska Skeppshypotekskassan ', 25 - in. the United Kingdom, the the National Savings Bank, Commonwealth Development Finance Company Ltd, the Agricultural Mortgage Corporation Ltd, the Scottish Agricultural Securities Corporation Ltd, for overseas governments and administrations, credit unions and municipal banks. the Crown Agents 77/780/EEC Article 2 (2) (as amended by 96/13/EC, Article I) 4. The Council, acting on a proposal from the Commission, which, for this purpose, shall consult the Committee ref erred to in Article 57 (hereinafter referred to as the 'Banking Advisory Committee') shall decide on any amendments to the list in paragraph 3. 77/780/EEC Article 2 (3) (adapted) 5. in institutions situated Credit the same Member State · and pennanently affiliated, on 15 December 1977, to a central body which supervises them and which is established in that same Member State, may be exempted from the requirements of Articles 6 (1), 8, and 59 if, no later than 15 December 1979, national law provides that: 77/780/EEC Article 2 (4) (a), (b) and (c) (adapted) - the commitments of the central body and affiliated institutions are joint and several liabilities or the commitments of its affiliated institutions are entirely guaranteed by the central body, - the solvency and liquidity of the central body and of all the affiliated institutions are monitored as a whole on the basis of consolidated accounts, - the management of the central body is empowered to issue instructions to the management of the affiliated institutions. Credit institutions operating locally which are affiliated, subsequent to 15 December 1977, to a central body within the meaning of the first subparagraph, may benefit from the conditions laid down therein if they constitute normal additions to the network belonging to that central body. the Council, acting on a proposal In the case of credit institutions other than those which are set up in areas newly reclaimed from the sea or have resulted from scission or mergers of existing institutions dependent or answerable to the central body, the Commission, which shall for this purpose, consult the Banking the Advisory Committee, may application of the second subparagraph including the repeal of exemptions provided for in the first subparagraph, where it is of the opinion that the affiliation of new institutions benefiting from the arrangements laid down in the second subparagraph might have an adverse effect on competition. The Council shall decide by a qualified majority. lay down additional rule;; for from 6. A credit institution which, as defined in the first subparagraph of paragraph (5), is affiliated to a central body in the same Member State may also be exempted from the provisions of Articles 5 (3) to (7), 40 to 51, and 65 provided that, without prejudice to the application of those provisions to the central body, the whole as constituted by the central body together with its affiliated institutions is subject to the abovementioned provisions on a consoiidated basis. 89/646/EEC Article 2 (3) 89/647/EEC Article 1 (3) 92/121/EEC Article 2 (2) (b) (adapted) In case of exemption, Articles 13, 18, 19, 20 (1) to (6), 21 and 22 shall apply to the whole as constituted by the central body together with its affiliated institutions. 26 89/646/EEC Article 3 Article 3 Prohibition for undertakings other than credit institutions from carrying on the business of taking deposits or other repayable funds from the public The Member States shall prohibit persons or undertakings that are not credit institutions from carrying on the business of taking deposits or other repayable funds from the public. This prohibition shall not apply to the taking of deposits or other funds repayable by a Member State or by a Member State's regional or local authorities or by public international bodies of which one or more Member States are members or to cases expressly covered by national or Community legislation, provided that those activities. • are subject to regulations and controls intended to protect depositors and investors and applicable to those cases. TITLE II REQUIREMENTS FOR ACCESS TO THE TAKING UP AND PURSUIT OF THE BUSINESS OF CREDIT INSTITUTIONS Article 4 Authorization Member States shall require credit institutions to obtain authorization before commencing their activities. They shall lay down the requirements for such authorization subject to Articles 5 to 9, and notify them to both the Commission and the Banking Advisory Committee. 77/780/EEC Article 3 (1) (adapted) Article 5 Initial capital l. Without prejudice to other conditions of general application laid down by national the competent authorities shall not grant authorization when the credit institution does not possess separate own funds and in cases where initial capital is less than ECU 5 million. law, 77/780/EEC Article 3 (2) (adapted) 89/646/EEC Article 4 (1) (adapted) Member States may decide that credit institutions which do not fulfil the requirement of separate own funds and which were in existence on 15 December 1979 may continue to carry on their business. They may exempt such undertakings from complying with the requirement contained in the first subparagraph of Article 6 (1 ). 77/780/EEC Article 10 (1) 3rd subparagraph (adapted) 2. The Member States shall, however, have the option of granting authorization to particular categories of credit institutions the initial capital of which is less than that prescribed in paragraph 1. In such cases: 89/646/EEC Article 4 (2) (adapted) (a) the initial capital shall not be less than ECU 1 million; (b) the Member States concerned must notify the Commission of their reasons for making use of the option provided for in this paragraph; ( c) when the list referred to in Article 1 I is published, the name of each credit institution that does not have the minimum capital prescribed in paragraph 1 shall be annotated to that effect; 27 (d) Within a period of five years starting from 1 January 1993, the Commission shall draw up a report on the application of this paragraph in the Member States, for the attention of the Banking Advisory Committee. 89/646/EEC Article 4 (2) (adapted) 89/646/EEC Article 10 (1) to (5) (adapted) 3. A credit institution's own funds may not fall below the amount of initial capital required by paragraph 1, at the time of its authorization. 4. The Member States may decide that credit institutions already in existence on 1 January 1993 the own funds of which do not attain the levels prescribed for initial capital in paragraphs 1 and 2, may continue to carry on their activities. In that event, their own funds may not fall below the highest level reached with effect from 22 December 1989. 5. If control of a credit institutioq falling within the category referred to in paragraph 4 is taken by a natural or legal person other than the person who controlled the institution previously, the own funds of that institution must attain at least the level prescribed for initial capital in paragraphs 1 and 2. 6. __ In certain specific circumstances and with the consent of the competent authorities, where there is a merger of two or more credit institutions falling within the category referred to in paragraph 4, the own funds of the institution resulting from the merger may not fall below the total own funds of the merged institutions at the time of the merger, as long as the appropriate levels pursuant to paragraphs 1 and 2 have not been attained. 7. __ If, in the cases referred to in paragraphs 3, 4 and 6, the own funds should be reduced, the competent authorities may, where the circumstances justify it, allow an institution a limited period in which to rectify its situation or cease its activities. Article 6 Management body and place of the head office of credit institutions 1. The competent authorities shall grant an authorization the undertaking only when there are at least two persons who effectively direct the business of the credit institution. to 77/780/EEC Article 3 (2) (adapted) Moreover, the authorities concerned shall not grant authorization if these persons ____ are not of sufficiently good repute or lack sufficient experience to perform such duties. 2. Each Member State shall require that: - - any credit institution which is a legal person and which, under its national law, has a registered office have its head office in the same Member State as its registered office, any other credit institution have its head office in the Member State which issued its authorization and in which it actually carries on its business. 77/780/EEC Article 3 (2) (a) (as amended by 95/26/EC, Article 3 (2)) 28 Article 7 Shareholders and members 1. The competent authorities shall not grant authorization,for the taking-up of the business of credit institutions before they have been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings, and of the amounts of those holdings. 89/646/EEC Article 5, I st paragraph For the purpose of the definition of qualifying holdings in the context of this Article, the voting rights referred to in Article 7 of Council Directive 88/627/EEC ( 1) shall be taken into consideration. 89/646/EEC Article I (10), 2nd subparagraph (adapted) 2. The com~etent authorities shall refuse authorization if, taking into account the need to ensure the sound and prudent management of a credit institution, they are not satisfied as to the suitability of the abovementioned shareholders or members. 89/646/EEC Article 5, 2nd paragraph 3. _ _ Where close links exist between the credit institutions and other natural or legal persons, the competent authorities shall grant authorization only if those links do not prevent the effective exercise of their supervisory functions. 77/780/EEC Article 3 (2) (as amended by 95/26/EC, Article 2 (2)) (adapted) The competent authorities shall also refuse authorization if the laws, regulations or administrative provisions of a non-member country governing one or more natural or legal persons with which the credit institution has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions. The competent authorities shall require credit institutions to provide them with the information they require to monitor compliance with the conditions referred to in this paragraph on a continuous basis. Article 8 Programme of operations and structural organization Member States shall __ require applications for authorization to be accompanied by a programme of operations setting out inter alia the types of business envisaged and the structural organization of the institution. 77/780/EEC Article 3 (4) (adapted) (I) OJ No L348, 17. 12. 1988, p. 62. 29 Article 9 Economic needs Member States may not require the application for authorization to be examined in terms of the economic needs of the market. 77/780/EEC Article 3 (3) (a) (adapted) Article JO Authorization refusal Reasons shall be given whenever ·an authorization is refused and the applicant shall be notified thereof within six months of receipt of the application or, should the latter be incomplete, within six months of the applicant's sending the information required for the decision. A decision shall, in any case, be taken within 12 months of the receipt of the application. 77/780/EEC Article 3 (6) Article 11 Notification of the authorization to the Commission Every authorization shall be notified to the Commission. Each credit institution shall be entered in a list which the Commission shall publish in the Official Journal of the European Communities and shall keep up to date. 77/780/EEC Article 3 (7) Article 12 Prior consultation with the competent authorities of other Member States There must be prior consultation with the competent authorities of the other Member State involved on the authorization of a credit institution which is: 89/646/EEC Article 7 a subsidiary of a credit institution authorized_ in another Member State, or a subsidiary of the parent undertaking of a credit institution authorized in another Member State, or controlled by the same persons, whether natural or legal, as control a credit institution authorized in another Member State. Article 13 Branches of credit institutions authorized in another Member State Host Member States may not __ require authorization or endowment capital for branches of credit institutions authorized in other Member States. The establishment and supervision of such branches shall be effected as prescribed in Articles 17, 20 (1) to (6) and Articles 22 and 26. 89/646/EEC Article 6 (1) (adapted) 30 Article 14 Withdrawal of authorization I. The competent authorities may withdraw the authorization issued to a credit institution ____ only where such an institution: __ _ _ 77/780/EEC Article 8 (l) (adapted) (a) does not make use of the authorization within 12 months, expressly renounces the authorization or has ceased to engage in business for more than six months, if the Member State concerned has made no provision for the authorization to lapse in such cases; (b) has obtained the authorization through false statements or any other irregular means; (c) no longer fulfils the conditions under which authorization was granted; (d) no longer possesses sufficient own funds or can no longer be relied upon to fulfil its obligations towards its creditors, and in particular no longer provides security for the assets entrusted to it; (e) falls within one of the other cases w:iere national law provides for withdrawal of authorization. 2. Reasons must be given for any withdrawal of authorization and those concerned informed thereof; such withdrawal shall be notified to the Commission. 77/780/EEC Article 8 (5) Article 15 Name For the purpose of exercising their activities, credit institutions __ may, notwithstanding any provisions concerning the use of the words 'bank', 'saving bank' or other banking names which may exist in the host Member State, use throughout the territory of the Community the same name as they use in the Member State in which their head office is situated. In the event of there being any danger of confusion, the host Member State may, for the purposes of clarification, require that the name be accompanied by certain explanatory particulars. 77/780/EEC Article 5 (adapted) 31 89/646/EEC Article 11 (Corrigendum, OJ No L 311, 14. 11. 1997, p. 34) Article 16 · Qualifying holding in a credit institution l. The Member States shall require any natural or legal person who proposes to hold, directly or indirectJy a qualifying holding in a credit institution first to inform the competent authorities, telling them of the size of the intended holding. Such a person must likewise inform the competent authorities if he proposes to increase his qualifying holding so that the proportion of the voting rights or of the capital held by him would reach or exceed 20 %, 33 % or 50 % or so that the credit institution would become his subsidiary. Without prejudice to the provisions of paragraph 2, the competent authorities shall have a maximum of three months from the date of the notification provided for in the first subparagraph to oppose such a plan if, in view of the need to ensure sound and prudent management of the credit institution, they are not satisfied as to the suitability of the person referred to in the first subparagraph. If they do not oppose the plan referred to in the first subparagraph, they may fix a maximum period for its implementation. If the acquirer of the holdings referred to in paragraph I is a credit 2. institution authorized in another Member State or the parent undertaking of a credit institution authorized in another Member State or a natural or legal person controlling a credit institution authorized in another Member State and if, as a result of that acquisition, the institution in which the acquirer proposes to hold a holding would become a subsidiary or subject to the control of the acquirer, the assessment of the acquisition must be the subject of the prior consultation referred to in Article 12. 3. The Member States shall require any natural or legal person who proposes to dispose, directly or indirectly, of a qualifying holding in a credit institution first to inform the competent authorities, telling them of the size of his intended holding. Such a person must likewise inform the competent authorities if he proposes to reduce his qualifying holding so that the proportion of the voting rights or of the capital held by him would fall below 20 %, 33 % or 50 % or so that the credit institution would cease to be his subsidiary. 4. On becoming aware of them, credit institutions shall inform the competent authorities of any acquisitions or disposals of holdings in their capital that cause holdings to exceed or fall below one of the thresholds referred to in paragraphs l and 3. They shall also, at least once a year, inform them of the names of shareholders and members possessing qualifyi_ng holdings and the sizes of such holdings as shown, for example, by the information received at the annual general meetings of shareholders and members or as a result of compliance with the regulations relating to companies listed on stock exchanges. 32 89/646/EEC Article 11 Corrigendum (OJ No L 311, 14. 11. 1997, p. 34) 5. The Member States shall require that, where the influence exercised by the persons referr~d to in paragraph I is likely to operate to the detriment of the prudent and sound management of the institution, the competent authorities shall take appro·priate measures to put an end to that situation. Such measures may consist for example in injunctions, sanctions against directors and managers, or the suspension of the exercise of the voting rights attaching to the shares held by the shareholders or members in question. Similar measures shall apply to natural or legal persons failing to comply with the obligation to provide prior information, as laid down in paragraph I. If a holding is acquired despite the opposition of the competent authorities, the Member States shall, regardless of any other sanctions to be adopted, provide either for exercise of the corresponding voting rights to be suspended, or for the nullity of votes cast or for the possibility of their annulment. 6. For the purposes of the definition of qualifying holding and other levels of holding set out in this Article, the voting rights referred to in Article 7 of Directive 88/627/EEC shall be taken into consideration. 89/646/EEC Article 1 (10), 2nd subparagraph (acJapted) Article 17 Procedures and internal control mechanisms Home Member State competent authorities shall require that every credit institution have sound administrative and accounting procedures and adequate internal control mechanisms. 89/646/EEC Article 13 (2) TITLE III PROVISIONS CONCERNING THE FREEDOM OF ESTABLISHMENT AND THE FREEDOM TO PROVIDE SERVICES Article 18 Credit institutions The ~1ember States shall provide that the activities listed in Annex I may be carried on within their territories, in accordance with Articles 20 (1) to (6), 21 (1) and (2), and 22, either by the establishment of a branch or by way of the provision of services, by any credit institution authorized and supervised by the competent authorities of another Member State, __ provided that such activities are covered by the authorization. 89/646/EEC Article 18 (1) (adapted) 33 89/646/EEC Article 18 (2) (as amended by 92/30/EEC, Article 10 (2), 2nd indent) Article 19 Financial institutions The Member States shall also provide that the activities listed in Annex I may be carried on with'in their territories, in accordance with Articles 20 (1) to (6), 21 (l) and (2), and 22, either by the establishment of a branch or by way of the provision of services, by any financial institution from another Member State, whether a subsidiary of a credit institution or the jointly-owned subsidiary of two or more credit institutions, the memorandum and articles of association of which permit the carrying on of those activities and which fulfils each of the following conditions: - - - - the parent undertaking or undertakings must be authorized as credit institutions in the Member State by the law of which the subsidiary is governed, the activities in question must a~tually be carried on within the territory of the same Member State, the parent undertaking or undertakings must hold 90 % or more of the voting rights attaching to shares in the capital of the subsidiary, the parent undertaking or undertakings must satisfy the competent authorities regarding the prudent management of the subsidiary and must have declared, with the consent of the relevant home Member State competent authorities, that they jointly and severally guarantee the commitments entered into by the subsidiary, the subsidiary must be effectively included, for the activities in question in particular, in the consolidated supervision of the parent undertaking, or of each of the parent undertakings, in accordance ,vith Articles 52 to 56, in particular for the calculation of the solvency ratio, for the control of large exposures and for purposes of the limitation of holdings provided for in Article 51. Compliance with these conditions must be verified by the competent authorities of the home Member State and the latter must supply the subsidiary with a certificate of compliance which must fom1 part of the notification referred to in Articles 20 (l) to (6), and 21 (l) and (2). The competent authorities of the home Member State shall ensure the supervision of the subsidiary in accordance with Articles 5 (3), 16, 17, 26, 28, 29, 30, and 32. The provisions of this Article shall apply mutatis muta11dis to subsidiaries, subject to the necessary modifications. In particular, the words 'credit institution' should be read as 'financial institution fulfilling the conditions laid down in Article 19' and the word 'authorization' as 'memorandum and articles of association'. The second subparagraph of Article 20 (3) shall read: 'The home Member State competent authorities shall also communicate the amount of own funds of t~e subsidiary financial institution and the consolidated solvency ratio of the credit institution which is its parent undertaking'. If a financial institution eligible under this Article should cease to fulfil any of the conditio-ns imposed, the home Member State shall notify the competent authorities of the host Member State and the activities carried on by that institution in the host Member State shall become subject to the legislation of the host Member State. 34 Article 10 Exercise of the right of establishment I. A credit institution wishing to establish a branch within the territory of another Member State shall notify the competent authorities of its home Member State. 89/646/EEC Article 19 (adapted) 2. The Member State shall require every credit institution wishing to establish a branch in another Member State to provide the following information when effecting the notification referred to in paragraph I: (a) (b) (c) the Member State within the territory of which it plans to establish a branch; a programme of operations setting out inter alia the types of business envisaged and the structural organization of the branch; the address in the host Member State from which documents may be obtained; ( d) the names of those responsible for the management of the branch. 3. Unless the competent authorities of the home Member State have reason to doubt the adequacy of the administrative structure or the financial situation of the credit institution, taking into account the activities envisaged, they shall within three months of receipt of the information referred to in paragraph 2 communicate that information to the competent authorities of the host Member State and shall inform the institution concerned accordingly. The home Member State competent authorities shall also communicate the amount of own funds and the solvency ratio of the credit institution __ Where the competent authorities of the home Member State refuse to communicate the information referred to in paragraph 2 to the competent authorities of the host Member State, they shall give reasons for their refusal to the institution concerned within three months of receipt of all the information. That refusal or failure to reply shall be subject to a right to apply to the courts in the home Member State. 4. Before the branch of a credit institution commences its activities the competent authorities of the host Member State shall, within two months of receiving the information mentioned in paragraph 3, prepare for the institution in accordance with Article 22 and if supervision of the credit necessary indicate the conditions under which, in the interest of the general good, those activities must be carried on in the host Member State. 5. On receipt of a communication from the competent authorities of the host Member State, or in the event of the expiry of the period provided for in paragraph 4 without receipt of any communication from the latter, the branch may be established and commence its activities. 35 6. In the event of a change in any of the particulars communicated pursuant to paragraph 2 (b), (c) or (d) or in the deposit-guarantee scheme referred to in paragraph 3 a credit institution shall give written notice of tl•t~ change in question to the competent authorities of the home and host Member States at least one month before making the change so as to enable the competent authorities of the home Member State to take a decision pursuant to paragraph 3 and the competent authorities of the host Member State to take a decision on the change pursuant to paragraph 4. 89/646/EEC Article 19 7. Branches which have commenced their activities, in accordance with the provisions in force in their host Member States, before 1 January 1993, shall be presumed to have been subject to the procedure laid down in paragraphs (I) to (5). They shall be governed, from the abovementioned date, by paragraph 6, and by Articles 18, 19, 22 and 29. __ 89/646/EEC Article 23 (1) (adapted) ~ Article 21 Exercise of the freedom to provide services I. Any credit institution wishing to exercise the freedom to provide services by carrying on its activities within the territory of another Member State for the first time shall notify the competent authorities of the home Member State of the activities on the list in Annex I which it intends to c. : 1 yon. 89/646/EEC Article 20 2. The competent authorities of the home Member State shall, within one month of receipt of the notification mentioned in paragraph I, send that notification to the competent authorities of the host Member State. 3. This Article shall not affect rights acquired by credit institutions providing services before 1 January 1993. 89/646/EEC Article 23 (2) (adapted) Article 22 Power of the competent authorities of the host Member State I. Host Member States may, for statistical purposes, require that all credit institutions having branches within their territories shall report periodically on their activities in those host Member States to the competent authorities of those host Member States. 89/646/EEC Article 21 (adapted) In discharging the responsibilities imposed on them m Article 27, host Member States may require that branches of credit institutions· from other Member States provide the same information as they require from national credit institutions for that purpose. 2. Where the competent authorities of a host Member State ascertain that an institution having a branch or providing services within its territory is not complying with the legal provisions adopted in that State pursuant to the provisions of this Directive involving powers of the host Member State's institution those authorities shall competent authorities, concerned to put an end to that irregular situation. require the 36 3. If the institution concerned fails to take the necessary steps, the competent authorities of the host Member State shall inform the competent authorities of the home Member State accordingly. The competent authorities of the home Member State shall, at the earliest opportunity, take all appropriate measures to ensure that the institution concerned puts an end to that irregular situation. The nature of those measures shall be communicated to the competent authorities of the host Member State. 89/646/EEC Article 21 (adapted) If, despite the measures taken by the home Member State or because such 4. measures prove inadequate or are not available in the Member State in question, the institution persists in violating the legal rules referred to in paragraph 2 in force in the host Member State, the latter State may, after informing the competent authorities of the home Member State, take appropriate measures to prevent or to punish further irregularities and, initiating further transactions within its territory. The Member States shall ensure that within their territories it is possible to serve the legal documents necessary for these measures on credit institutions. · insofar as is necessary, to prevent that institution from 5. The provisions of paragraphs 1 to 4 shall not affect the power of host Member States to take appropriate measures to prevent or to punish irregularities committed within their territories which are contrary to the legal rules they have adopted in the interest of the general good. This shal1 include the possibility of preventing offending institutions from initiating any further transactions within their territories. 6. Any measure adopted pursuant to paragraphs 4 and 5 involving penalties or restrictions on the exercise of the freedom to provide services must be properly justified and communicated to the institution concerned. Every such measure shall be subject to a right of appeal to the courts in the Member State the authorities of which adopted it. 7. Before following the procedure provided for in paragraphs 2, 3 and 4, the competent authorities of the host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of depositors, investors and others to whom services are provided. The Commission and the competent authorities of the other Member States concerned must be informed of such measures at the earliest opportunity: The Commission may, after consulting the competent authorities of the Member States concerned, decide that the Member State in question must amend or abolish those measures. 8. Host Member States may exercise the powers conferred on them under this Directive by taking appropriate measures to prevent or to punish irregularities committed within their territories. This shall include the possibility of preventing institutions from initiating further transactions within their territories. 37 9. In the event of the withdrawal of authorization the competent authorities of the host Member State shall be infonned and shall take appropriate measures to prevent the initiating further transactions within its territory and to safeguard the interests of depositors. Every two years the Commission shall submit a report on such cases to the Banking Advisory Committee. institution concerned from 89/646/EEC Article 21 (adapted) I 0. The Member States shall infonn the Commission of the number and type of cases in which there has been a r~fusal pursuant to ArticJe 20 (1) to (6) or in which measures have been take~ in accordance with paragraph 4 of this Article. Every two years the Commission shall submit a report on such cases to the Banking Advisory Committee. 11. Nothing in this Article shall prevent credit institutions with head offices in other Member States from advertising their services through all available means of communication in the host Member State, subject to any rules governing the fonn and the content of such advertising adopted in the interest of the general good. TITLE IV RELATIONS WITH THIRD COUNTRIES Article 23 Notification of the subsidiaries of third countries' undertakings and conditions of access to the markets of these countries 1. The competent authorities of the Member States shall inform the Commission: (a) of any authorization of a direct or indirect subsidiary one or more parent undertakings of which are governed by the laws of a third country. The Commission shall the Banking Advisory Committee accordingly; inform (b) whenever such a parent undertaking acquires a holding in a Community credit institution such that the latter would become its subsidiary. The Commission shall inform the Banking Advisory Committee accordingly. When authorization is ·granted to the direct or indirect subsidiary of one or more parent undertakings governed by the law of third countries, the structure of the group shall be specified in the notification which the competent authorities shall address to the Commission in accordance with Article 11. - - - - - - 89/646/EEC Article 8 (adapted) 2. The Member States shall inform the Commission of any general difficulties encountered by their credit institutions in establishing themselves or carrying on banking activities in a third country. 89/646/EEC Article 9 (adapted) 3. __ The Commission shall periodically draw up a report examining the treatment accorded to Community credit institutions in third countries, in the terms referred to in paragraphs 4 and 5, as regards establishment and the carrying-on of banking activities, and the acquisition of holdings in third country credit institutions. The Commission shall submit those reports to the Council, together with any appropriate proposals. 38 89/646/EEC Article 9 (adapted) 4. Whenever it appears to the Commission, either on the basis of the reports referred to in paragraph 3 or on the basis of other information, that a third country is not granting Community credit institutions effective market access comparable to that granted by the Community to credit institutions from that third country, the Commission may submit proposals to the Council for the appropriate mandate for negotiation with a view to obtaining comparable competitive opportunities for Community credit institutions. The Council shall decide by a qualified majority. 5. Whenever it appears to the Commission, either on the basis of the reports referred to in paragraph 3 or on the basis of other information that Community credit institutions in a third country do not receive national treatment offering the same competitive opportunities as are available to domestic credit institutions and the conditions of effective market access are not fulfilled, the Com. mission may initiate negotiations in order to remedy the situation. In the circumstances described in the first subparagraph, it may also be decided at any time, and in addition to initiating negotiations, in accordance with the procedure laid down in Article 60 (2), that the competent authorities of the Member States must limit or suspend their decisions regarding requests pending at the moment of the decision or future requests for authorizations and the acquisition of holdings by direct or indirect parent undertakings governed by the laws of the third country in question. The duration of the measures referred to may not exceed three months. Before the end of that three-month period, and in the light of the results of the negotiations, the Commission, decide by a qualified majority whether the measures shall be continued. the Council may, acting on a proposal from Such limitations or suspension may not apply to the setting up of subsidiaries by credit institutions or their subsidiaries duly authorized in the Community, or to the acquisition of holdings in Community credit institutions by such institutions or subsidiaries. 6. Whenever it appears to the Commission that one of the situations described in paragraphs 4 and 5 obtains, the Member States shall inform it at its request: (a) of any request for the authorization of a direct or indirect subsidiary one or more parent undertakings of which are governed by the laws of the third country in question; (b) whenever they are informed in accordance with Article 16 that such an undertaking proposes to acquire a holding in a Community credit institution such that the latter would become its subsidiary. 39 This obligation to provide infonnation shall lapse whenever an agreement is reached with the third country referred to in paragraph 4 or S or when the measures referred to in the second and third subparagraphs of paragraph 5 cease to apply. 89/646/EEC Article 9 (adapted) taken pursuant 7. Measures the Community's obligations under any international agreements, bilateral or multilateral, governing the taking-up and pursuit of the business of credit institutions. this Article shall comply with to · Article 24 Branches of credit institutions having their head offices outside the Community I. Member States shall not apply to branches of credit institutions having their head office outside the Community, when commencing or carrying on their business, provisions which result in more favourable treatment than that accorded to branches of credit institutions having their head office in the Community. 77/780/EEC Article 9- 2. The competent authorities shall notify the Commission and the Banking Advisory Committee of all authorizations for branches granted to credit institutions having their head office outside the Community. to paragraph I,• the Community may, 3. Without prejudice through agreements concluded in accordance with the Treaty with one or more third countries, agree to apply provisions which, on the basis of the principle of reciprocity, accord to branches of a credit institution having its head office outside the Community identical treatment throughout the territory of the Community. Article 25 Cooperation with third countries' competent authorities regarding supervision on a consolidated basis 1. The Commission may submit proposals to the Council, either at the request ·of a Member State or on its own initiative, for the negotiation of agreements" with one or more third countries regarding the means of exercising supervision on a consolidated basis over: 92/30/EEC Article 8 (adapted) credit institutions the parent undertakings of which have their head offices situated in a third country, and credit institutions situated in third countries the parent undertakings of which, whether credit institutions or financial holding companies, have their head offices in the Community. 40 2. The agreements referred to in paragraph 1 sha11 in particular seek to ensure both: 92/30/EEC Article 8 (adapted) that the competent authorities of the Member States are able to obtain the information necessary for the supervision, on the basis of their consolidated financial situations, of credit institutions or financial holding companies situated in the Community and which have as subsidiaries credit institutions or financial institutions situated outside the Community, or holding participation in such institutions, that the competent authorities of'third countries are ab]e to obtain the information necesrnry for the supervision of parent undertakings the head offices of which are situated within their territories and which have as subsidiaries credit institutions or financial institutions situated in one or more Member States, or holding participation in such institutions. 3. The Commission and the Banking Advisory Committee _ __ shall examine the outcome of the negotiations referred to in paragraph 1 and the resulting situation. TITLE V PRINCIPLES AND TECHNICAL INSTRUMENTS FOR PRUDENTIAL SUPERVISION Chapter 1 Principles of prudential supervision Article 26 Competence o! control of the home Member State 1. The prudential supervision of a credit institution, includin6 that of the activities it carries on in accordance with Articles 18 and 19, shall be the responsibility of the competent authorities of the home Member State, without prejudice those provisions of this Directive which give responsibility to the authorities of the host Member State. to 89/646/EEC Article 13 (as amended by by Directive 92/30/EEC, Article 10 (2)) 2. Paragraph l __ shall not prevent supervision on a consolidated basis pursuant to this Directive. 89/646/EEC Article 13 (3) (as amended by 92/30/EEC, Article 10 (2), 2nd indent) (adapted) Article 27 Competence of the host Member State Host Member States shall retain responsibility in cooperation with the competent authorities of the home Member State for the supervision of the liquidity of the branches of credit institutions pending further coordination. Without prejudice to the measures necessary for the reinforcement of the European Monetary System, host Member States shall retain complete responsibility for the measures resulting from the implementation of their monetary policies. Such measures may not provide for discriminatory or restrictive treatment based on the fact that a credit institution is authorized in another Member State. 89/646/EEC Article 14 (2) 41 Article 28 Collaboration concerning supervision The competent authorities of the Member States concerned shall collaborate closely in order to supervise the activities of credit institutions operating, in particular by having established branches there, in one or more Member States other than that in which their head offices are situated. They shall supply one another with all information concerning the management and ownership of such credit institutions that is likely to facilitate their supervision and· the examination of the conditions for their authorization, and all information likely to facilitate the monitoring of such institutions, in particular with, regard to liquidity, solvency, deposit guarantees, the limiting of large exposures, administrative and accounting procedures and internal control mechanisms. Article 29 On-the-spot verification of branches established in another Member State 77/780/EEC Article 7 (1) (as amended by 89/646/EEC, Article 14 (1) I. Host Member States shall provide that, where a credit institution authorized in another Member State carries on its activities through a branch, the competent authorities of the home Member State may, after having first informed the competent authorities of the host Member State, carry out themselves or through the intermediary of persons they appoint for that purpose on-the-spot verification of the information referred to in Article 28. 89/646/EEC Article 15 2. The competent authorities of the home Member State may also, for purposes of the verification of branches, have recourse to one of the other procedures laid down in Article 56 (7). 89/646/EEC Article 15 (as amended by 92/30/EEC, Article 10 (4) (Corrigendum, OJ No L 280, 24. 9. 1992, p. 54) 3. This Article shall not affect the right of the competent authorities of the host Member State to carry out, in the discharge of their responsibilities under this Directive, on-the-spot verifications of branches established within their territory. 89/646/EEC Article 15 42 77/780/EEC Article 12 (1) to (5) (as amended by 89/646/EEC, Article 16) (adapted) Article 30 Exchange of information and professional secrecy 1. The Member States shall provide that all persons working or who have worked for the competent authorities, as well as auditors or experts acting on behalf of the competent authorities, shall be bound by the obligation of professional secrecy. This means that no confidential information which they may receive in the course of their duties may be divulged to any person or authority whatsoever, except in summary or collective form, such that individual institutions cannot be identified, without prejudice to cases covered by criminal law. Nevertheless, where a credit institution has been declared bankrupt or is being compulsory wound up, confidential information which does not concern third parties involved in attempts to rescue that credit institution may be divulged in civil or commercial proceedings. 2. Paragraph I shall not prevent the competent authorities of the various Member States from exchanging information in accordance with this Directive and with other Directives applicable to credit institutions. That information shall be subject to the conditions of professional secrecy indicated in paragraph 1. 3. Member States may conclude cooperation agreements, providing for exchanges of information, with the competent authorities of third countries only if the infom,ation disclosed is subject to guarantees of professional secrecy at least equivalent to those referred to in this Article. 4. Competent authorities paragraphs l or 2 may use it only in the course of their duties: confidential rece1vmg information under to check that the conditions governing the taking-up of the business of credit institutions are met and to facilitate monitoring, on a non consolidated or consolidated basis, of the conduct of such business, especially with regard to the monitoring of liquidity, solvency, large exposures, and administrative and accounting procedures and internal control mechanisms, or to impose sanctions, or in an administrative appeal against a decision of the competent authority, or in court proceedings initiated pursuant to Article 33 or to special provisions provided for in this or in other Directives adopted in the field of credit institutions. 5. Paragraphs I and 4 shall not prccl ude the exchange _of information within a Member State, where there are two or more competent authorities in the same Member State, or between Member States, between competent authorities and: 43 authorities entrusted with the public duty of supervising other financial organizations and insurance companies and the authorities responsible for the supervision of financial markets, 77/780/EEC Article 12 (1) to (5) (as amended by 89/646/EEC, Article 16) (adapted) bodies involved in the liquidation and bankruptcy of credit institutions and in other similar procedures, persons responsible for carrying out statutory audits of the accounts of credit institutions and other financial institutions, in the discharge of their supervisory functions, and the disclosure to bodies which administer deposit-guarantee schemes of information necessary to the exercise of their functions. The information received shall be subject to the conditions of professional secrecy iVdicatrd in paragrnph I. 6. Notwithstanding paragraphs I to 4, Member States may authorize exchanges of information between, the competent authorities and: the authorities responsible for overseeing the bodies involved in the liquidation and bankruptcy of credit institutions and other similar procedures, or the authorities responsible for overseeing persons charged with carrying out statutory audits of the accounts of insurance undertakings, credit institutions, investment firms and other financial institutions. 77/780/EEC Article 12 (5) (a) (as amended by 95/26/EC, Article 4 (2)) (adapted) Member States which have recourse subparagraph shall require at least that the following conditions are met: the provisions of the first to the information shall be for the purpose of performing the supervisory task referred to in the first subparagraph, information received in this context shall be subject to the conditions of professional secrecy imposed in paragraph I, where the information originates in another Member State, it may not be disclosed without the express agreement of the competent authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their agreement. Member States shall communicate to the Commission and to the other Member States the name of the authorities v-. 'hich may receive information pursuant to this paragraph. 44 7. Notwithstanding paragraphs I to 4, Member States may, with the aim of strengthening the stability, including integrity, of the financial system, authorize the exchange of information between the competent authorities and the authorities or bodies responsible under law for the detection and investigation of breaches of company law. 77/780/EEC Article 12 (S) (b) (as amended by 95/26/EC, Article 4 (3)) Member States which have recourse to the provision in the first subparagraph shall require at least that the following conditions are met: the information shall be for the purpose of performing the task referred to in the first subparagraph, information received in this context shall be subject to the conditions of professional secrecy imposed in paragraph I, where the information originates in another Member State, it may not be disclosed without the express agreement of the competent authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their agreement. Where, in a Member State, the authorities or bodies referred to in the first subparagraph perform their task of detection or investigation with the aid, in view of their specific competence, of persons appointed for that purpose and not employed in the public sector, the possibility of exchanging information provided for in the first subparagraph may be extended to such persons under the conditions stipulated in the second subparagraph. In order to implement the third indent of the second subparagraph, the authorities or bodies referred to in the first subparagraph shall communicate to the competent authorities which have disclosed the information, the names and precise responsibilities of the persons to whom it is to be sent. Member States shall communicate to the Commission and to the other Member States the names of the authorities or bodies which may receive information pursuant to this paragraph. Before 31 December 2000, the Commission shall d~aw up a report on the application of the provisions of this paragraph. 8. This Article shall not prevent a competent authority from transmitting: to central banks and other bodies with a similar function in their capacity as monetary authorities, where appropriate, overseeing payment systems, to other public authorities responsible for information intended for the performance of their task, nor shall it prevent such authorities or bodies from communicating to the competent authorities such information as they may need for the purposes of paragraph 4. Information received in this context shall be subject to the conditions of professional secrecy imposed in this Article. 77/780/EEC Article 12 ( 6) (as amended by 95/26/EC, Article 4 (4)) 45 9. In addition, notwithstanding the provisions referred to in paragraphs I and 4, the Member States may, by virtue of provisions laid down by law, authorize the disclosure of certain info,rmation to other departments of their legislation on the central government administrations responsible for supervision of credit institutions, financial institutions, investment services and insurance companies and to inspectors acting on behalf of those departments. However, such disclosures may be m~de only where necessary for reasons of prudential control. However, the Member States shall provide that information received under paragraphs 2 and 5 and that obtained by means of the on-the-spot verification referred to in Article 29 ( 1) and (2) may never be disclosed in the cases r~ferred to in this paragraph except with the express consent of the competent authorities which disclosed the information or of the competent authorities of the Member State in which on-the-spot verification was carried out. the competent authorities 10. This Article shall not prevent from communicating the information referred to in paragraphs I to 4 to a clearing house or other similar body recognized under national law for the provision of clearing or settlement services for one of their Member States' markets if they consider that it is necessary to communicate the information in order to ensure the proper functioning of those bodies in relation to defaults or potential defaults by market participants. The information received in this context shall b~ subject to the conditions of professional secrecy imposed in paragraph I. The Member Stites shall, however, ensure that information received under paragraph 2 may not be disclosed in the circumstances referred to in this paragraph without the express consent of the competent authorities which disclosed it. 77/780/EEC Article 12 (7) (as amended by 89/646/EEC, Article 16) 77/780/EEC Article 12 (8) (as amended by 95/26/EC, Article 4 (6)) 46 77/780/EEC Article 12a (as amended by 95/26/EC, Article 5) Article 31 Duty of persons responsible for the legal control of annual and consolidated accounts 1. Member States shall provide at least that: (a) any person authorized within the meaning of Council Directive 84/253/EEcC 1), performing in a credit institution the task described in Article 51 of Council Directive 78/660/EEcC2), or Article 37 of Council Directive 83/349/EEC, or Article 31 of Directive 85/61 l/EEC(3); shall have a duty to report promptly to the competent authorities any fact or decision concerning that institution of which he has become aware while carrying out that task which is liable to: constitute a material breach of the regulations or administrative provisions which lay down the conditions governing authorization or which specifically govern pursuit of the activities of credit institutions, or laws, affect the continuous functioning of the credit institution, or lead to refusal to certify the accounts or to the expression of reservations; (b) that person shall likewise have a duty to report any fact and decisions of which he becomes aware in the course of carrying out a task as described in (a) in an undertaking having closed links resulting from a control relationship with the credit institution within which he is carrying out the abovementioned task. 2. The disclosure in good faith to the competent authorities, by persons authorized within the meaning of Directive 84/253/EEC, of any fact or decision referred to in paragraph 1 shall not constitute a breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision and shall not i11volve such persons in liability of any kind. Article 32 Power of sanction of the competent authorities Without prejudice to the procedures for the withdrawal of authorizations and the provisions of criminal law, the Member States shall provide that their respective competent authorities may, as against credit institutions or those who effectively control the business of credit institutions which breach laws, regulations or administrative provisions concerning the supervision or pursuit of their activities, adopt or impose in respect of them penalties or measures aimed specifically at ending observed breaches or the causes of such breaches. 89/646/EEC Article 17 (l) OJ No L 126, 12. 5. 1984, p. 20. (2) OJ No L 222, 14. 8. 1978, p. 11. Directive as last amended by Directive 94/8/EC (OJ No L 82, 25. 3. 1994, p. 33). (3) OJ No L 375, 31. 12. 1985, p. 3. Directive as last amended by Directive 95/26/EC. 47 Article 33 Right to apply to the courts Member States sha11 ensure that decisions taken in respect of a cre1it institution in pursuance of laws, regulations and administrative provisions adopted in accordance with this Directive may be subject to the right to apply to the courts. The same sha11 apply where. no decision is taken within six months of its submission in respect of an applicaticn for authorizat1on which contains all the infonnation required under the provisions in force. 77/780/EEC Article 13 Chapter 2 Technical instruments of prudential supervision Section 1 Own funds Article 34 General principles 89/299/EEC Article 1 (1) (adapted) 89/299/EEC Article 2 (1) (adapted) l. Wherever a Member State lays down by law, regulation or administrative action a provision in implementation of Community legislation concerning the prudential supervision of an operative credit institution which uses the term or refers to the concept of own funds, it shall bring this term or concept into line with the definition given in paragraphs 2, 3 and 4 and Articles 35 to 38. 2. Subject to the limits imposed in Article 38, the unconsolidated own funds of credit institutions shall consist of the following items: (I) (2) capital within the meaning of Article 22 of Directive 86/635/EEC, in so far as it has been paid up, plus share premium accounts but excluding cumulative preferential shares; reserves within the meaning of Article 23 of Directive 86/635/EEC and profits and losses brought forward as a result of the application of the final profit or loss. The Member States may permit inclusion of interim profits before a formal decision has been taken only if these profits have been verified by persons responsible for the auditing of the accounts and if it is proved to the satisfaction of the competent authorities that the amount thereof has been evaluated in accordance with the principles set out in Directive 86/635/EEC and is net of any foreseeable charge or dividend; 48 (3) (4) (5) funds for general banking risks within the meaning of Article 38 of Directive 86/635/EEC; :, revaluation reserves within the meaning of Article 33 of Directive 78/660/EEC; _ _ _ value adjustments within the meaning of Article 37 (2) of Directive 86/635/EEC; 89/299/EEC Article 2 (l) (adapted) (6) other items within the meaning of Article 35; (7) the commitments of the members of credit institutions set up as cooperative societies and the joint and several commitments of the borrowers of certain institutions organized as funds, as referred to in Article 36 (1 ); (8) fixed-term cumulative preferential shares and subordinated loan capital as referred to in Article 36 (3). The following items shall be deducted in accordance with Article 38: (9) own shares at book value held by a credit institution; (I 0) intangible assets within the meaning of Article 4 (9) ('Assets') of Directive 86/635/EEC; ( 11) material losses of a relevant nature of the current financial year; ( 12) holdings in other credit and financial institutions amounting to more than I O % of their capital, subordinated claims and the instruments referred to in Article 35 which a credit institution holds in respect of credit and financial institutions in which it has holdings exceeding I 0 % ' of the capital in each case. institution are held Where shares in another credit or financial temporarily for the purposes of a financial assistance operation designed to re-organise and save that institution, the competent authority may waive this provision; ( 13) holdings in other credit and financial institutions of up to 10 % of their capital, the subordinated claims and the instruments referred to in Article 35 which a credit institution holds in respect of credit and financial institutions other than those referred to in point 12 in respect of the amount of the total of such holdings, subordinated cJaims and instruments which exceed I O % of that credit institution's own funds calculated before the deduction of items in point I 2 and in this point. 49 89/299/EEC Article 2 (1) (adapted) 89/299/EEC Article 2 (2) (adapted) __ Pending subsequent coordination of the provisions on consolidation, Member States may provide that, for the calculation of unconsolidated own funds, parent companies subject to supervision on a consolidated basis need not deduct their holdings in other credit institutions or financial institutions which are included in the consolidation. This provision shall apply to all the prudential rules harmonized by Community acts. 3. The concept of own funds as defined in points l to 8 of paragraph 2 embodies a maximum number of items and amounts. The use of those items and the fixing of lower ceilings, and the deduction of items other than those listed in points 9 to 13 of paragraph 2 shall be left to the discretion of the Member States. Member States shall nevertheless be obliged to consider increased convergence with a view to a common definition of own funds. To that end, the Commission shall, by 1 January 1996 at the latest, submit a report to the European Parliament and to the Council on the application of this Article and Articles 35 to 39, accompanied, where appropriate, by such proposals for amendment as it shall deem necessary. Not later than 1 January 1998, the European Parliament and the Council shall, acting in accordance with the procedure laid down in Article 189b of the Treaty and after consultation of the Economic and Social Committee, examine the definition of own funds with a view to the uniform application of the common definition. 4. The items listed in points l to 5 of paragraph 2 must be available to a credit institution for unrestricted and immediate use to cover risks or. losses as soon as these occur. The amount must be net of any foreseeable tax charge at the moment of its calculation or be suitably adjusted in so far as such tax charges reduce the amount up to which these items may be applied to cover risks or losses. 89/299/EEC Article 2 (3) Article 35 Other items I. The concept of own funds used !:>y a Member State may include other items provided that, whatever their legal or accounting designations might be, they have the following characteristics: 89/299/EEC Article 3 (adapted) (a) they are freely available to the credit institution to cover normal banking risks where revenue or capital losses have not yet been identified; (b) their existence is disclosed in internal accounting records; ( c) their amount js determined by the management of the credit institution, the competent verified by independent auditors, made known authorities and placed under the supervision of the latter. __ _ to 50 89/299/EEC Article 3 (adapted) 2. Securities of indeterminate duration and other instruments that fulfil the following conditionsmay also be accepted as other items: (a) they may not be reimbursed on the bearer's initiative or without the prior agreement of the competent authority; (b) the debt agreement must provide for the credit institution to have the option of deferring the payment of interest on the debt; (c) the lender's claims on the credit institution must be wholly subordinated to those of all non-subordinated creditors; ( d) the documents governing the issue of the securities must provide for debt and unpaid interest to be such as to absorb losses, whilst leaving the credit institution in a position to continue trading; (e) only fully paid-up amounts shall be taken into account. · To these may be added cumulative. preferential shares other than those referred to in point 8 of Article 34 (2). Article 36 Other provisions concerning own funds I. The commitments of the members of credit institutions set up as cooperative societies referred to in point 7 of Article 34 (2), shall comprise those societies' uncalled capital, together with the legal commitments of the members of those cooperative societies to make additional non-refundable payments should the credit institution incur a loss, in which case it must be possible to demand those payments without delay. ~. 89/299/EEC Article 4 (adapted) The joint and several commitments of borrowers in the case of credit institutions organized as funds shall be treated in the same way as the preceding items. All such items may be included in own funds in so far as they are counted as the own funds of institutions of this category under national law. 2. Member States shall not include in the own funds of public credit institutions guarantees which they or their local authorities extend to such entities. - - - - 3. Member States or the competent authorities may include fixed-term cumulative preferential shares referred to in point 8 of Article 34 (2) and subordinated loan capital referred to in that provision in own funds, if binding agreements exist under which, in the event of the bankruptcy or liquidation of the credit institution, they rank after the claims of all other creditors and are not to be repaid until all other debts outstanding at the time have been settled. 51 Subordinated loan capital must also fulfil the following criteria: (a) only fully paid-up funds may be taken into account; (b) the loans involved must have an original maturity of at least five years, after which they may be repaid; if the maturity of the debt is not fixed, they shall be repayable only subject to five years' notice unless the loans are no longer considered as own funds or unless the prior consent of the competent authorities is specifically required for early repayment. The competent authorities may grant permission for the early repayment of such loans provided the request is made at the initiative of the issuer and the solvency of the credit institution in question is not affected; (c) the extent to which they may rank as own funds must be gradually reduced during at least the last five years before the repayment date; ( d) the loan agreement must not include any clause providing that in specified circumstances, other than the winding-up of the credit institution, the debt will become repayable before the agreed repayment date. Article 37 Calculation of own funds on a consolidated basis 1. Where the calculation is to be made on a consolidated basis, the consolidated amounts relating to the items listed under Article 34 (2) shall be used in accordance with the rules laid down in Articles 52 to 56. Moreover, the following may, when they are credit ('negative') items, be regarded as consolidated reserves for the calculation of own funds: any minority interests within the meaning of Article 21 of Directive 83/349/EEC, where the global integration method is used, the first consolidation difference within the meaning of Articles 19, 30 and 31 of Directive 83/349/EEC, 89/299/EEC Article 4 (adapted) 89/299/EEC Article 5 (adapted) translation differences the accordance with Article 39 (6) of Directive 86/635/EEC, in consolidated included reserves in any difference resulting from the inclusion of certain part1c1pating interests in accordance with the method prescribed in Article 33 of Directive 83/349/EEC. 2. Where the above are debit ('positive') items, they must be deducted in the calculation of consolidated own funds. 52 89/29WEEC Article 6 (1) and (4) (as amended by 91/633/EEC, Article 1 (1)) Article 38 Deductions and limits I. The items referred to in points 4 to 8 of Article 34 (2), __ shall be subject to the following limits:. _ (a) the total of the items in points 4 to 8 may not exceed a maximum of 100 % of the items in points 1 plus 2 and 3 minus 9, 10 and 11; (b ), the total of the items in points 7 and 8 may not exceed a maximum of 50 % of the items in points 1 plus 2 and 3 minus 9, 10 and 11; ( c) the total of the items in points 12 and 13 shall be deducted from the total of the items. 2. The competent authorities may authorize credit institutions to exceed the limit laid down in paragraph l _ in temporary and exceptional circumstances. Article 39 Provision of proof to the competent authorities Compliance with the conditions laid down in Article 34 (2), (3) and (4) and Articles 35 to 38 must be proved to the satisfaction of the competent authorities. 8. 9/299/EEC Article 7 ' ~. Section 2 Solvency ratio Article 40 General principles 1. The solvency ratio _ __ expresses own funds, as defined in Article 41, as a proportion of total assets and off-balance-sheet items, risk-adjusted in accordance with Article 42. 2. The solvency ratios of credit institutions which are neither parent undertakings as defined in Article 1 of Directive 83/349/EEC, nor subsidiaries of such undertakings shall be calculated on an individual basis. 3. The solvency ratios of credit institutions which are parent undertakings shall be calculated on J consolidated basis in accordance with the methods laid down in this Directive and in Directive ____ 86/635/EEC. 4. The competent authorities responsible for authorizinr and supervising a parent undertaking which is a credit institution may also require the calculation of a subconsolidated or unconsolidated ratio in respect of that parent undertaking and of any of its subsidiaries which are subject to authoriz. ation and ~upervision by them. Where such monitoring of the satisfactory allocation of capital within a banking group is not carried out, other measures must be taken to attain that end. 89/647/EEC Article 3 (1) to (4) (as amended by 92/30/EEC, Article 10 (2), 3rd indent) (adapted) 53 to credit institutions' compliance with S. Without prejudice the requirements of paragraphs 2, 3 and 4, and of Article S2 (8) and (9), the competent authorities shall ensure that ratios are calculated not less than twice each year, either by credit institutions themselves, which shall communicate the results and any component data required to the competent authorities, or by the competent authorities, using data supplied by the credit institutions. 89/647/EEC Article 3 (7) and (8) (adapted) 6. The valuation of assets and off-balance-sheet items shall be ~ffected in accordance with Directive 86/635/EEC. _ _ _ Article 41 The numerator: own funds Own funds as defined in this Directive shall form the numerator of the solvency ratio. 89/647/EEC Article 4 1 Article 42 The denominator: risk-adjusted assets and off-balance-sheet items I. Degrees of credit risk, expressed as percentage weightings, shall be assigned to asset items in accordance with Articles 43 and 44, and exceptionally Articles 4S, 62 and 63. The balance-sheet value of each asset shall then be multiplied by the relevant weighting to produce a risk-adjusted value. 89/647/EEC Article S In the case of the off-balance-sheet items listed in Annex II, a two-stage 2. calculation as prescribed in Article 43 (2) shall be used. 3. In the case of the interest-rate and foreign-exchange-related off-balance sheet items referred to in Article 43 (3 ), the potential costs of replacing contracts in the event of counterparty default shall be calculated by means of one of the two methods set out in Annex Ill Those costs shall be multiplied by the relevant counterparty weightings in Article 43 (I), except that the l 00 % weightings as provided for there shall be replaced by 50 % weightings to produce risk-adjusted values. 4. The total of the risk-adjusted values of the assets and off-balance-sheet items mentioned in paragraphs 2 and 3 shall be the denominator of the solvency ratio. 54 Article 43 Risk weightings I. The following weightings shall be applied to the various categories of asset items, although the competent authorities may fix higher weightings as they see fit: 89/647/EEC Article 6 (a) Zero weighting ( 1) cash in hand and. equivalent items; (2) asset items constituting claims on Zone A central governments and central banks; (3) asset items constituting claims on the European Communities; (4) asset items constituting claims carrying the explicit guarantees of Zone A central governments and central banks or of the European Communities; 89/647/EEC Articl~ 6 (as amended by 95/15/EC, Article 2) (5) (6) (7) asset items constituting claims on Zone B central governments and central banks denominated and funded in the national currencies of the borrowers; 89/647/EEC Article 6 (adapted) asset items constituting claims carrying the explicit guarantees of Zone B central governments and central banks denominated and funded in the national currency common to the guarantor and the borrower; asset items secured, to the satisfaction of the competent authorities, by collateral in the form of Zone A central government or central bank securities or securities issued by the European Communities or by cash deposits placed with the lending institution or by certificates of deposit or similar instruments issued by and lodged with the latter; (b) 20 % weighting (I) asset items constituting claims on the European rnvestment Bank (EIB); (2) asset items constituting claims on multilateral development banks; (3) (4) (5) (6) (7) asset items constituting claims carrying the explicit guarantee of the European Investment Bank (EIB); asset items constituting claims carrying the explicit guarantees of multilateral development banks; asset items constituting claims on Zone A regional governments or local authorities, subject to Article 44; asset items constituting claims carrying the explicit guarantees of Zone A regional governments or local authorities, subject to Article 44; asset items constituting claims on Zone A credit institutions but not constituting such institutions' own funds; __ _ _ 55 (8) asset items constituting claims with a maturity of one year or less, on Zone B credit institutions, other than securities issued by such institutions which are recognized as components of their own funds; 89/647/EEC Article 6 (adapted) (9) asset items carrying the explicit guarantees of Zone A credit institutions; ( I O) asset items constituting claims with a maturity of one year or less carrying the explicit guarantees of Zone B credit institutions; (11) asset items secured, to the satisfaction of the competent authorities, by collateral in the form of securities issued by the EIB or by multilateral development banks; (I 2) cash items in the process of collection; (c) 50 % weighting (I) (2) loans fully and completely secured, to the satisfaction of the competent authorities, by mortgages on residential property which is or will be occupied or let by the borrower, and loans fully and completely secured. to the satisfaction of the competent authorities. by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in respect of residential property which is or will be occupied or let by the borrower; (as amended by 95/1/EC, Euratom, ECSC, Annex I, point XI, 8, III, 2 (a)). prepayments and accrued income: these assets shall be subject to the weighting corresponding the counterparty where a credit institution is able to determine it in accordance with Directive to determine the 86/635/EEC. Otherwise, where counterparty, it shall apply a flat-rate weighting of 50 %; is unable to it 56 89/647/EEC Article 6 {adapted) (d) JOO% weighting ( J) (2) (3) ( 4) (5) (6) asset items constituting claims on Zone B central governments and central banks except where denominated and funded in the national currency of the borrower; asset items constituting claims on Zone B regional governments or local authorities; asset items constituting claims with a maturity of more than one year on Zone B credit institutions; asset items constituting claims on the Zone A or Zone B non-bank sectors; tangible "Assets" within the meaning of Article 4 (10) of Directive 86/635/EEC; holdings of shares, participation and other components of the own funds of other credit institutions which are not deducted from the own funds of the lending institutions: (7) all other assets except where deducted from own funds. 2. The following treatment shall apply to off-balance-sheet items other than those covered in paragraph 3. They shall first be grouped according to the risk groupings set out in Annex II. The full value of the full-risk items shall be taken into account, 50 % of the value of the medium-risk items and 20 % of the medium/low-risk items, while the value of low-risk items shall be set at zero. The second stage shall be to multiply the off-balance-sheet values, adjusted as described above, by the weightings attributable to the relevant counterparties in accordance with the treatment of asset items prescribed in paragraph 1 and Article 44. , In the case of asset sale and repurchase agreements and outright forward purchases, the weightings shall be those attaching to the assets in question and not to the counterparties to the transactions. 57 3. The methods set out in Annex III shall be applied to the interest-rate and foreign-exchange risks listed in Annex IV. 89/647/EEC Article 6 4. Where off-balance-sheet items carry explicit guarantees, they shall be weighted as if they had been incurred on behalf of the guarantor rather than the counterparty. Where the potential exposure arising from off-balance sheet transactions is fully and completely secured, to the satisfaction of the competent authorities, by any of the asset items recognized as collateral in points (a) (7) and (b) (11) of paragraph 1, weightings of O % or 20 % shall apply depending on the collateral in question. 5. Where asset and off-balance-sheet items are given a lower weighting because of the existence of explicit guarantees or collateral acceptable to the competent authorities, the lower weighting shall apply only to that part which is guaranteed or which is fully covered by the collateral. Article 44 Weighting of claims for regional governments or local authorities of the Member States I. Notwithstanding the requirements of Article 43 (1) (b ), the Member States may fix a weighting of O % for their own regional governments and local authorities if there is no difference in risk between claims on the latter and claims on their central governments because of the revenue-raising powers of the regional governments and local authorities and the existence of specific institutional arrangements the effect of which is to reduce the chances of default by the latter. A zero-weighting fixed in accordance with these criteria shall apply to claims on and off-balance-sheet items incurred on behalf of the regional governments and local authorities in question and claims on others and off-balance-sheet items incurred on behalf of others and guaranteed by those regional governments and local authorities. 2. The Member States shall notify the Commission if they believe a zero weighting to be justified according to the criteria laid down in paragraph I. The Commission shall circulate that information. Other Member States may offer the credit institutions under the supervision of their competent authorities the possibility of applying a zero-weighting where they undertake business with the regional governments or local authorities in question or where they hold claims guaranteed by the latter. 89/647/EEC Article 7 58 Article 45 Other weighting l. The Member States may apply a weighting of 20 % to asset items which are secured, to the satisfaction of the competent authorities concerned, by collateral in the form of securities issued by Zone A regional governments or local authorities, by deposits placed with Zone A credit institutions other than the lending institution, or by certificates of deposit of similar instruments issued by those credit institutions. 89/647/EEC Article 8 (adapted) 2. The Member States may apply a weighting of 10 % to clai~s on institutions specializing in the inter-bank and public-debt markets in their home Member States and subject to close supervision by the competent authorities where those asset items are fully and completely secured, to the satisfaction of the competent authorities of the home M~mber States, by a combination of asset items mentioned in Article 43 (1) (a) and (b) recognized by the latter as constituting a~equate collateral. 3. The Member States shall notify the Commission of any prov1s1ons adopted pursuant to paragraphs l and 2 and of the grounds for such provisions. The Commission shall forward that information to the Member States. The Commission shall periodically examine the implications of those provisions in order to ensure that they do not result in any distortions of competition. __ _ Article 46 Administrative bodies and non-commercial undertakings For the purposes of Article 43 (1) (b), the competent authorities may include within the concept of regional governments and local authorities non commercial administrative bodies responsible to regional governments or local authorities, and those non-commercial undertakings owned by central governments, regional governments, local authorities or authorities which, in the view of the competent authorities, exercise the same responsibilities as regional and local authorities. 89/647/EEC Article 2 (2) (adapted) Article 47 Solvency ratio level I. __ Credit institutions shall be required permanently to maintain the ratio defined in Article 40 at a level of at least 8 %. 2. Notwithstanding paragraph 1, the competent authorities may prescribe higher minimum ratios as they consider appropriate. 89/647/EEC Article 10 {adapted) 59 If the ratio falls below 8 % the competent authorities shall ensure that the 3. credit institution in question takes appropriate measures to restore the ratio to the agreed minimum as quickly as possible. 89/647/EEC Article 10 (adapted) Section 3 Large exposures Article 48 Reporting of large exposures 1. A credit institution's exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10 % of its own funds. 92/121/EEC Article 3 (adapted) 2. A credit institution shall report every large exposure within the meaning of paragraph 1 to the competent authorities. Member States shall provide that reporting is to be carried out, at their discretion, in accordance with one of the following two methods: reporting of all large exposures at least once a year, combined with reporting during the year of all new large exposures and any increases in existing large exposures of at least 20 % with respect to the previous communication, reporting of all large exposures at least four times a year. 3. Exposures exempted under points (a), (b), (c), (d), (f), (g) and (h) of Article 49 (7) need not, however, be reported as laid down in paragraph 2. The reporting frequency laid down in the second indent of paragraph 2 may be reduced to twice a year for the exposures referred to in points (a), (b), (c), (d), (f), (g) and (h) of Article 49 (7) and also in paragraphs (8), (9) and ( I 0). ". 4. The competent authorities shall require that every credit institution have sound administrati\'e and accounting procedures and adequate internal control mechanisms for the purpose of identifying and recording all large exposures and subsequent changes to them, as defined and required by this Directive, and for that of monitoring those exposures in the light of each credit institution's own exposure policies. Where a credit institution invokes paragraph 3, it shall keep a record of the grounds advanced for at least one year after the event giving rise to the dispensation, so that the competent authorities may establish whether it is justified. 60 92/121/EEC Article 4 (adapted) Article 49 Limits on large exposures 1. A credit institution may not incur an exposure to a client or group of connected clients the value of which exceeds 25 % of its own funds. 2. Where that client or group of connected clients is the parent undertaking or subsidiary of the credit institution and/or one or more subsidiaries of that parent undertaking, the percentage laid down in paragraph I shall be reduced to 20 %. Member States may, however, exempt the exposures incurred to such clients from the 20 % limit if they provide for specific monitoring of such exposures by other measures or procedures. They shall inform the Commission and the Banking Advisory Committee of the content of such measures or procedures. 3. A credit institution may not incur large exposures which in total exceed 800 % of its own funds. 4. Member States may impose limits more stringent than those laid down in paragraphs I, 2 and 3. 5. A credit institution shall at all times comply with the limits laid down in paragraphs 1, 2 and 3 in respect of its exposures. If in an exceptional case exposures exceed those limits, that fact must be reported without delay to the competent authorities which may, where the circumstances warrant it, allow the credit institution a limited period of time in which to comply with the limits. 6. Member States may fully or partially exempt from the application of paragraphs I, 2 and 3 exposures incurred by a credit institution to its parent undertaking, to other subsidiaries of that parent undertaking or to its own subsidiaries, in so far as those undertakings are covered by the supervision on a consolidated basis to which the credit institution itself is subject, in accordance with this Directive or with equivalent standards in force in a third country. 7. Member States may fully or partially exempt the following exposures from the application of paragraphs 1, 2 and 3: (a) asset items constituting claims on Zone A central governments or central banks; (b) asset items constituting claims on the European Communities; (c) asset items constituting claims carrying the explicit guarantees of Zone A central governments or central banks o·r of the European Communities; (d) other exposures attributable to, or guaranteed by, Zone A central governments or central banks or the European Communities; 61 (e) asset items constituting claims on and other exposures to Zone B central governments or central banks which are denominated and, where applicable, funded in the national currencies of the borrowers; 92/121/EEC Article 4 (adapted) (t) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of Zone A central government or central bank securities, or securities issued by the European Communities or by Member State regional or local authorities for which Article 44 lays down a zero weighting for solvency purposes; (g) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of cash deposits placed with the lending institution or with a credit institution which is the parent undertaking or a subsidiary of the lending institution; (h) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of certificates of deposit issued by the lending institution or by a credit institution which is the parent undertaking or a subsidiary of the lending institution and lodged with either of them; (i) asset items constituting claims on and other exposures to credit institutions, with a maturity of one year or less, but not constituting such institutions' own funds; __ _ (j) asset items constituting claims on and other exposures to those the institutions which are not credit institutions but which fulfil conditions referred to in Article 45 (2) __ , with a maturity of one year or less, and secured in accordance with the same paragraph; (k) bills of trade and other similar bills, with a maturity of one year or less, bearing the signatures of other credit institutions; (1) debt securities as defined in Article 22 ( 4) of Directive 85/611/EEC; (m)pending subsequent coordination, holdings in the insurance companies referred to in Article 51 (3) __ up to 40 % of the own funds of the credit institution acquiring such a holding; (n) asset items constituting claims on regional or central credit institutions with which the lending institution is associated in. a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network; 62 92/121/EEC Article 4 (adapted) (as amended by 95/1/EC, Euratom, ECSC, Annex I, point XI, B, III, (3) (a)) (adapted) (o) (p) exposures secured, to the satisfaction of the competent authorities, by collateral in the form of securities other than those referred to in (f) provided that those securities are not issued by the credit institution itself, its parent company or one of their subsidiaries, or by the client or group of. connected clients in question. The securities used as collateral must be valued at market price, have a value that exceeds the exposures guaranteed and be either traded on a stock exchange or effectively negotiable and regularly quoted on a market operated under the auspices of recognized professional operators and allowing, to the satisfaction of the competent authorities of the Member State of origin of the. credit institution, for the establishment of an objective price such that the excess value of the securities may be verified at any time. The. excess value required shall be I 00 %; it shall, however, be 150 % in the case of shares and 50 % in the case of debt securities issued by credit institutions, Member State regional or local authorities other than those referred to in Article 44, and in the case of debt securities issued by the European Investment Bank and multilateral development banks _. Securities used as collateral may not constitute credit institutions' own funds; __ _ _ loans secured, to the satisfaction of the competent authorities, by mortgages on residential property or by shares in Finnish residential housing companies. operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation and leasing transactions under which the lessor retains full ownership of the residential property leased for as long as the lessee has not exercised his option to purchase, in all cases up to 50 % of the value of the residential property concerned. The value of the property shall be calculated, to the satisfaction of the competent authorities, on the basis of strict valuation standards law, regulation or administrative provisions. Valuation shall be carried out at least once a year. For the purposes of this point residential property shall mean a residence to be occupied ~r let by the borrower; laid down by (q) 50 % of the medium/low-risk off-balance-sheet items referred to in Annex II; (r) subject to the competent authorities' agreement, guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions __ , subject to a weighting of 20 % of their amount. Member States shall inform the Commission of the use they make of this option in order to ensure that it does not result in dist9rtions of competition. ___ By 21 December 1997 at the latest, the Commission shall submit to the Council a report accompanied, if necessary, by appropriate proposals; (s) the low-risk off-balance-sheet items referred to in Annex II __ _ , to the extent that an agreement has been concluded with the client or group of connected clients under which the exposure may be incurred only if it has been ascertained that it will not cause the limits applicable under paragraphs 1, 2 and 3 to be exceeded. 63 8. For the purposes of paragraphs I, 2 and 3, Member States may apply a weighting of 20 % to asset items constituting claims on Member State regional and local authorities and to other exposures to or guaranteed by such authorities; subject to the conditions laid down in Article 44, however, Member States may reduce that rate to 0 %. 92/121/EEC Article 4 (adapted) 9. For the purposes of paragraphs I, 2 and 3, Member States may apply a weighting of 20 % to asset items constituting claims on and other exposures to credit institutions with a maturity of more than one but nof more than three years and a weighting of 50 % to asset items constituting claims on credit institutions with a maturity of more than three years, provided that the latter are represented by debt instruments that were issued by a credit institution and that those debt instruments are, in the opini9n of the competent authorities, effectively negotiable on a market made up of professional operators and are subject to daily quotation on that market, or the issue of which was authorized by the competent authorities of the Member State of origin of the issuing credit institution. In no case may any of these items constitute own funds. 10. By way of derogation from point (i) of paragraph 7 and paragraph 9, Member States may apply a weighting of 20 % to asset items constituting claims on and other e·xposures to credit institutions, regardless of their maturity. 11. Where an exposure to a client is guaranteed by a third party, or by collateral in the fonn of securities issued by a third party under the conditions laid down in point (o) of paragraph 7, Member States may: treat the exposure as having been incurred to the third party rather than to the client, if the exposure is directly and unconditionally guaranteed by that third party, to the satisfaction of the competent authorities, treat the exposure as having been incurred to the third party rather than to the client, if the exposure defined in point ( o) of paragraph 7 is guaranteed by collateral under the conditions there laid down. 12. By 1 January 1999 at the latest, the Council shall, on the basis of ,a report from the Commission, examine the treatment of interbank exposures provided for in point (i) of paragraph 7 and paragraphs 9 and I 0. The Council shall decide on any changes to be made on a proposal from the Commission. 64 Article SO Supervision on a consolidated or unconsolidated basis of large exposures If the credit institution is neither a parent undertaking nor a subsidiary, 1. compliance with the obligations imposed in Articles 48 and 49 or in any other Community provision applicable to this area shall be monitored on an unconsolidated basis. 92/121/EEC Article 5 (1) to (3) 2. In the other cases, compliance with the obligations imposed in Articles 48 and 49 or in any other Community provision applicable to this area shall be monitored on a consolidated basis in accordance with Articles 52 to S6. 3. Member States may waive monitoring on an individual or subconsolidated basis of compliance with the obligations imposed in Articles 48 and 49 or in any other Community provision applicable to this area by a credit institution which, as a parent undertaking, is subject to monitoring on a consolidated basis and by any subsidiary of such a credit institution which is subject to their authorization and supervision and is covered by monitoring on a consolidated basis. Member States may also waive such monitoring where the parent undertaking is a financial holding company established in the same Member State as the credit institution, provided that company is subject to the same monitoring as credit institutions. In the cases referred to in the first and second subparagraphs measures must be taken to ensure the satisfactory allocation of risks within the group. 65 Section 4 Qualifying holdings outside the financial sector Article 51 Limits to non-financial qualifying holdings I. No credit institution may have a qualifying holding the amount of which exceeds 1 ·5 % of its own funds in an undertaking which is neither a credit institution, nor a financial institution, nor an undertaking carrying on an activity referred to in the second subparagraph of Article 43 (2) (f) of Directive 86/635/EEC. 89/646/EEC Article 12 (1) to (S) in 2. The total amount of a credit institution's qualifying holdings undertakings other institutions or undertakings carrying on activities referred to in the second subparagraph of Article 43 (2) (f) of Directive 86/635/EEC may not exceed 60 % of its own funds. than credit institutions, financial 3. The Member States need not apply the limits laid down in paragraphs I in Directive in and 2 to holdings 73/239/EEC(l), and Directive 79/267/EEC(2). insurance companies as defined 4. Shares held temporarily during a financial reconstruction or rescue operation or during the normal course of underwriting or in an institution's own name on behalf of others shall not be counted as qualifying holdings for the purpose of calculating the limits laid down in paragraphs I and 2. Shares which are not financial fixed assets as defined in Article 35 (2) of Directive 86/635/EEC shall not be included. 5. The limits laid down in paragraphs I and 2 may be exceeded only in exceptional circumstances. In such cases, however, the competent authorities shall require a credit institution either to increase its own furtds or to take other equivalent measures. (I) OJ No L 228, 16. 8. I 973, p. 3. Dirccti\'e as last amended by Directive 95/26/EC. (2) OJ No L 63, 13. 3. 1979, p. I. Dirccti\'c as last amended by Directive 95/26/EC. 66 6. The Member States may provide that the competent authorities shall not apply the limits laid down in paragraphs 1 and 2 if they provide that 100 % of the amounts by which a credit institution's qualifying holdings exceed those limits must be covered by own funds and that the latter shall not be included in the calculation of the solvency ratio. If both the limits laid down in paragraphs 1 and 2 are exceeded, the amount to be covered by own funds shall be the gre~ter of the excess amoun~s. 89/646/EEC Article 12 (8) 92/30/EEC Article 3 (1) to (7) (adapted) Chapter 3 Supervision on a consolidated basis Article 52 Supervision on a consolidated basis of credit institutions t'. Every credit institution which has a credit institution or a financial institution as a subsidiary or which holds a participation in such institutions shall be subject, to the extent and in'the manner prescribed in Article 54, to supervision on the basis of its consolidated financial situation. Such supervision shall be exercised at least in the areas referred to in paragraphs 5 and 6. 2. Every credit institution the parent undertaking of which is a financial holding company shall be subject, to the extent and in the manner prescribed in Article 54, to supervision on the basis of the consolidated financial situation of that financial holding company. Such supervision shall be exercised at least in the areas referred to in paragraphs 5 and 6. The consolidation of the financial situation of the financial holding company shall not in any way- imply that the competent authorities are required to play a supervisory role in relation to the financial holding company standing alone. 3. The Member States or the competent authorities responsible for exercising supervision on a consolidated basis pursuant to Article 53 may decide in the cases listed below that a credit institution, financial institution or auxiliary banking services undertaking which is a subsidiary or in which a participation is held need not be included in the consolidation: if the undertaking that should be included is situated in a third country where there are legal impediments to the transfer of the necessary information, if, in the opinion of the competent authorities, the undertaking that should be included is of negligible interest only with respect to the objectives of monitoring credit institutions and in all cases if the balance sheet total of the undertaking that should be included is less than the smaller of the following two amounts: ECU 10 million or 1 % of the balance sheet total of the parent undertaking or the undertaking that holds the participation. If several undertakings meet the above criteria, they must nevertheless be included in the consolidation where collectively they are of non-negligible interest with respect to the aforementioned objectives, or 67 if, in the opm!on of the competent authorities responsible for exercising supervision on a consolidated basis, the consolidation of the financial situation of the undertaking that should be included would be inappropriate or misleading as far as the objectives of the supervision of credit institutions are concerned. 92/30/EEC Article 3 (1) to (7) (adapted) 4. When the competent authorities of a Member State do not include a credit institution subsidiary in supervision on a consolidated basis under one of the cases provided for in the second and third indents of paragraph 3, the competent authorities of the Member State in which that credit institution subsidiary is situated may ask the parent undertaking for information which may facilitate their supervision of that credit institution. 5. Supervision of solvency, and of the adequacy of own funds to cover market risks and control of large exposures __ _ shall be exercised on a consolidated basis in accordance with this Article and Articles 53 to 56. Member States shall adopt any measures necessary, where appropriate, to in include financial holding companies accordance with paragraph 2. in consolidated supervision, Compliance with the limits set in Article 51 (1) and (2) __ shall be supervised and controlled on the basis of the consolidated or sub consolidated financial situation of the credit institution. 6. The competent authorities shall ensure that, in all the undertakings included in the scope of the supervision on a consolidated basis that is exercised over a credit institution in implementation of paragraphs l and 2, there are adequate internal control mechanisms for the production of any data and information which would be relevant for the purposes of supervision on a consolidated basis. 7. Without prejudice to specific provisions contained in other Directives, Member States may waive application, on an individual or sub-consolidated basis, of the rules laid down in paragraph 5 to a credit institu~on that, as a parent undertaking, is subject to supervision on a consolidated basis, and to any subsidiary of such a credit institution which is subject to their authorization and supervision and is included in the supervision on a consolidated basis of the credit institution which is the parent company. The same exemption option shall be allowed where the parent undertaking is a financial holding company which has its head office in the same Member State as the credit institution, provided that it is subject to the same supervision as that exercised over credit institutions, and in particular the standards laid down in paragraph 5. In both cases set out in the first subparagraph, steps must be taken to ensure that capital is distributed adequately within the banking group. If the competent authorities do apply those rules individually to such credit institutions, they may, for the purpose of calculating own funds, make use of the provision in the last subparagraph of Article 34 (2). _ _ _ '. 68 8. Where a credit institution the parent of which is a credit institution has been authorized and is situated in another Member State, the competent authorities which granted that authorization shall apply the rules laid down in paragraph 5 to that institution on an. individual or, when appropriate, a sub consolidated basis. 9. Notwithstanding the requirements of paragraph 8, the competent authorities responsible for authorizing the subsidiary of a parent undertaking which is a credit institution may, by bilateral agreement, delegate their responsibility for supervision to the competent authorities which authorized and supervise the parent undertaking so that they assume responsibility for supervising this Directive. The Commission must be kept informed of the existence and content of such agreements. It shall forward such information to the competent authorities of the other Member States and to the Banking Advisory Committee. in accordance with the subsidiary 92/30/EEC Article 3 (8) and (9) (adapted) 92/121/EEC Article 5 (4) and (5) (adapted) 89/647/EEC Article 3 (5) and (6) (adapted) I 0. Member States shall provide that their competent authorities responsible for exercising supervision on. a consolidated basis may ask the subsidiaries of a credit institution or a financial holding company which are not included within the scope of supervision on a consolidated basis for the information referred to in Article SS. In such a case, the procedures for transmitting and verifying the information laid down in that Article shall apply. 92/30/EEC Article 3 (10) Article 53 Competent authorities responsible for exercising supervision on a consolidated basis I. Where a parent undertaking is a credit institution, superv1S1on on a consolidated basis shall be exercised by the competent authorities that authorized it under Article 4. 92/30/EEC Article 4 (adapted) 2. Where the parent of a credit institution is a financial holding company, supervision on a consolidated basis shall be exercised by the competent authorities which authorized that credit institution under Article 4. However, where credit institutions authorized in two or more Member States have as their parent the same financial holding company, supervision on a consolidated basis shall be exercised by the competent authorities of the credit institution authorized in the Member State in which the financial holding company was set up. 69 92/30/EEC Article 4 (adapted) If no credit institution subsidiary has been authorized in the Member State in which the financial holding company was set up, the competent authorities of the Member States concerned (including those of the Member State in which the financial holding company was set up) shall seek to reach agreement as to who amongst them will exercise supervision on a consolidated basis. In the absence of such agreement, supervision on a consolidated basis shall be exercised by the competent authorities that authorized the credit institution with the greatest balance sheet total; if that figure is the same, supervision on a consolidated basis shall be exercised by the competent authorities which first gave the authorization referred to in Article 4. _ _ _ 3. The competent authorities con~emed may by common agreement waive the rules laid down in the first and second subparagraphs of paragraph 2. 4. The agreements referred to in the third subparagraph of paragraph 2 and in paragraph 3 shall provide for procedures for cooperation and for the transmission of information such that the objectives of supervision on a consolidated basis can be attained. 5. Where Member States have more than one competent authority for the prudential supervision of credit institutions and financial institutions, Member States shall take the requisite measures to organize coordination between such authorities. Article 54 Form and extent of consolidation I. The competent authorities responsible for exercising supervision on a consolidated basis must, for the purposes of supervision, require full consolidation of all the credit institutions and financial institutions which are subsidiaries of a parent undertaking. 92/30/EEC Article 5 However, proportional consolidation may be prescribed where, in the opinion of the competent authorities, the liability of a parent undertaking holding a share of the capital is limited to that share of the capital because of the liability of the other shareholders or members whose solvency is satisfactory. The liability of the other shareholders and members must be clearly established, if necessary by means of formal, signed commitments. 2. The competent authorities responsible for carrying out supervision on a consolidated basis. must, in order to do so, require the proportional consolidation of participations in credit institutions and financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where those undertakings' liability is limited to the share of the capital they hold. 3. In the case of participations or capital ties other than those referred to in paragraphs 1 and 2, the competent authorities shall determine whether and how consolidation is to be carried out. In particular, they may permit or require use of the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis. - ,o 4. Without prejudice to paragraphs I, 2 and 3, the competent authorities shall determine wh_ether and how consolidation is to be carried out in the following cases: 92/30/EEC Article 5 where, in the opinion of the competent authorities, a credit institution exercises a significant influence over one or more credit institutions or financial institutions, but without holding a participation or other capital ties in these institutions, where two or more credit institutions or financial institutions are placed under single management other than pursuant to a contract or clauses of their memoranda or articles of association, where two or more · credit institutions or financial institutions have administrative, management or supervisory bodies with the same persons constituting a majority. In particular, the competent authorities may permit, or require use of, the method provided for in Article 12 of Directive 83/349/EEC. That method shall not, however, constitute inclusion of the undertakings concerned in consolidated supervision. 5. Where consolidated supervision is required pursuant to Article 52 (1) and (2), ancillary banking services undertakings shall be in consolidations in the cases, and in accordance with the methods laid down in paragraphs I to 4 of this Article. included Article 55 Information to be supplied by mixed-activity holding companies and their subsidiaries I. Pending further coordination of consolidation methods, Member States shall provide that, where the parent undertaking of one or more credit institutions is a mixed-activity holding company, the competent authorities responsible for the authorization and supervision of those credit institutions shall, by approaching its subsidiaries either directly or via credit institution subsidiaries, require them to supply any information which would be relevant for the purposes of supervising the credit institution subsidiaries. the mixed-activity holding company and 2. Member States shall provide that their competent authorities may carry out, or have carried out by external inspectors, on-the-spot inspections to verify information received from mixed-activity holding companies and their subsidiaries. If the mixed-activity holding company or one of its subsidiaries is an insurance undertaking, the procedure laid down in Article 56 (4) may also be us~d. If a mixed-activity holding company or one of its subsidiaries is situated in a Member State other than that in which the credit institution subsidiary is situated, on-the-spot verification of information shall be carried out in accordance with the procedure laid down in Article 56 (7). 92/30/EEC Article 6 71 Article 56 Measures to facilitate supervision on a consolidated basis 1. Member States shall take the necessary steps to ensure that there are no legal impediments preventing the undertakings included within the scope of supervision on a consolidated basis, mixed-activity holding companies and their subsidiaries, or subsidiaries of the kind covered in Aiticle 52 { 10), from exchanging amongst themselves any infonnation which would be relevant for the purposes of supervision in accordance with Articles 52 to 'SS and this Article. 92/30/EEC Article 7 (adapted) 2. Where a parent undertaking and any of its subsidiaries that are credit institutions are situated in different Member States, the competent authorities of each Member State shall communicate to each other all relevant infonnation which may allow or aid the exercise of supervision on a consolidated basis. Where the competent authorities of the Member State in which a parent undertaking is situated do not themselves exercise supervision on a consolidated basis pursuant to Article 53, they may be invited by the competent au~horities responsible for exercising such supervision to ask the parent undertaking for any infonnation which would be relevant for the purposes of supervision on a consolidated basis and to transmit it to these. authorities. information referred 3. Member States shall authorize the exchange between their competent authorities of the the understanding that, in the case of financial holding companies, financial institutions or ancillary banking services undertakings, the collection or possession of information shall not in any way imply that the competent authorities are required to play a supervisory role in relation to those institutions or undertakings standing alone. in paragraph 2, on to Similarly, Member States shall authorize their competent authorities to exchange the information referred to in Article SS on the understanding that the collection or possession of information does not in any way imply that the competent authorities play a supervisory role in relation to the mixed activity holding company and those of its subsidiaries which are not credit institutions, or to subsidiaries of the kind c~vered in Article 52 ( 10). 4. Where a credit institution, financial holding company or a mixed-activity holding company controls one or more subsidiaries which are insurance companies or other undertakings providing investment services which are subject to authorization, the competent authorities and the authorities entrusted with the public task of supervising insurance undertakings or those other undertakings providing investment services shall cooperate closely. Without prejudice to their respective responsibilities, those authorities shall provide one another with any information likely to simplify their task and to allow supervision of the activity and overall financial situation of the undertakings they supervise. 72 Infonnation received, 5. in the fnmework of supervision on a consolidated basis, and in particular any exchange of inf onnation between competent authorities which is provided for in this Directive, shall be subject to the obligation of professional secrecy defined in Article JO. __ 92/30/EEC Article 7 (adapted) 6. The competent authorities responsible for supervision on a consolidated basis shall establish lists of the financial holding companies referred to in Article 52 (2). Those lists shall be communicated to the competent. authorities of the other Member States and to the Commission. 7. Where, in applying this Directive, the competent authorities of one Member State wish in specific cases to verify the information concerning a credit institution, a financial holding company, a financial institution, an ancillary banking services undertaking, a mixed-activity holding company, a subsidiary of the kind covered in Article SS or a subsidiary of the kind covered in Article 52 (10), situated in another Member State, they must ask the competent authorities of that other Member State to have that verification carried out. The authorities which receive such a request must, within the framework of their competence, act upon it either by carcying out the verification themselves, by allowing the authorities who made the request to carry it out, or by allowing an auditor or expert to carry it out. 8. Without prejudice to their provisions of criminal law, Member States shall ensure that penalties or measures aimed at ending observed breaches or the causes of such breaches may be imposed on financial holding companies and mixed-activity holding companies, or their effective managers, that infringe laws, regulations or administrative provisions enacted to implement Articles 52 to SS and this Article. In certain cases, such measures may require the intervention of the courts. The competent authorities shall cooperate closely to ensure that the abovementioned penalties or measures produce the desired results, especially when the central administration or main establishment of a financial holding company or of a mixed-activity holding company is not located at its head office. '. TITLE VI BANKING ADVISORY COMMITTEE Article 57 Composition and tasks of the Banking Advisory Committee 1. A Banking Advisory Committee of the competent authorities of the Member States _ shall be set up alongside the Commission. 2. The tasks of the Banking Advisory Committee shall be to assist the Commission in ensuring the proper implementation of this Directive. ___ Further it shall carry out the other tasks prescribed by this Directive and shall assist the Commission in the preparation of new proposals to the Council concerning further coordination in the sphere of credit institutions. 77n80/EEC Article 11 (adapted) 73 77n80/EEC Article 11 (adapted) 3. The Banking Advisory Committee shall not concern itself with concrete problems relating to individual credit institutions. 4. The Banking Advisory Committee shall be composed of not more than three representatives from each Member State and from the Commission. These representatives may be accompanied by advisers from time to time and subject to the prior agreement of the Committee. The Committee may also invite qualified persons and experts to participate in its meetings. The secretariat shall be provided by the Commission. 5. The Banking Advisory Committee shall __ adopt its rules of procedure and elect a chairman from among the representatives of Member States. It shall meet at regular intervals and whenever the situation demands. The Commission may ask the Committee to hold an emergency meeting if it considers that the situation so requires. 6. The Banking Advisory Committee's discussions and the outcome thereof shall be confidential except when the Committee decides otherwise. Article 58 Examination of the requirements for authorization The Banking Advisory Committee shall examine the content given by the competent authorities to requirements listed in Articles 5 (1) and 6 (1), any other requirements which the Member States apply and the information which must be included in the programme of operations, and shall, where appropriate, make suggestions to the Commission with a view to a more detailed coordination. 77/780/EEC Article 3 (5) (adapted) Article 59 Observation ratios I. Pending subsequent coordination, the competent authorities shall, for the purposes of observation and, if necessary, in addition to such coefficients as may be applied by them, establish ratios between the various assets and/or liabilities of credit institutions with a view to monitoring their solvency and liquidity and the other measures which may serve to ensure that savings are protected. To this end, the Banking Advisory Committee shall decide on the content of the various factors of the observation ratios referred to in the first subparagraph and lay down the method to be applied in calculating them. '. 77/780/EEC Article 6 (adapted) 74 Where appropriate, the Banking Advisory Committee shall be guided by technical consultations between the supervisory authorities of the categories of institutions concerned. 77/780/EEC Article 6 (adapted) 2. The observation ratios established in pursuance of paragraph 1 shall be calculated at least every six months. 3. The Banking Advisory Committee shall examine the results of analyses third the supervisory authorities referred carried out by subparagraph of paragraph 1 on the basis of the calculations referred to in paragraph 2. the to in 4. The Banking Advisory Committee may make suggestions to the Commission with a view to coordinating the coefficients applicable in the Member States. TITLE VII POWERS OF EXECUTION Article 60 Technical adaptations I. Without prejudice, regarding own funds, to the report referred to in the second subparagraph of Article 34 (3), the technical adaptations in the following areas shall be adopted in accordance with the procedure laid down in paragraph 2: clarification of the definitions in order to take account in the application of this Directive of developments on financial markets, clarification of the definitions to ensure uniform application of this Directive in the Community, the alignment of terminology on and the framing of definitions in. accordance with subsequent acts on credit institutions and related matters, the definition of 'Zone A' in point (14) of Article 1, the definition of 'multilateral development banks' in point (19) of Article 1, alteration of the amount of initial capital prescribed in Article S to take account of developments in the economic and monetary field, expansion of the content of the list referred to in Articles 18 and 19 and set out in Annex I or adaptation of the terminology used in that list to take account of developments on financial markets, the areas in which information as listed in Article 28, the competent authorities must exchange 89/299/EEC J\rticle 8 (as amended by 92/16/EEC, Article 1 (2)) (adapted) 89/646/EEC Article 22 (adapted) 89/647/EEC Article 9 (adapted) 92/121/EEC Article 7 (adapted) 75 89/299/EEC Article 8 (as amended by 92/16/EEC, Article l (2)) (adapted) 89/646/EEC Article 22 (adapted) 89/647/EEC Article 9 (adapted) 92/121/EEC Article 7 (adapted) amendment of the definitions of the assets listed in Article 43 in order to take account of developments on financial markets, the list of classification of off-balance-sheet items in Annexes II and IV and their treatment in the calculation of the ratio as described in Articles 42, 43 and 44 and Annex III, a temporary reduction in the minimum ratio prescribed in Article 47 or the weighting prescribed in Article 43 in order to take account of specific circumstances, clarification of exemptions provided for in Article 49 (5) to ( I 0). 2. The Commission shall be assisted by a committee composed of representatives of the Member States and chaired by a representative of the Commission. The Commission representative shall submit to the committ~e a draft of the measures to be taken. The committee shall deliver its opinion on the draft within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148 (2) of the Treaty in the case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States in the committee shall be weighted in the manner set out in that Article. The chairman shall not vote. The Commission shall adopt the measures envisaged if they. are in accordance with the opinion of the committee. If the measures envisaged are not in accordance with the opinion of the committee, or if no opinion is delivered, the Commission shall, without delay, submit to the Council a proposal concerning the measures to be taken. The Council shall act by a qualified majority. If, on the expiry of a period of three months from the date of referral to the Council, the Council has not acted, the proposed measures shall be adopted by the Commission, saYe where the Council has decided against the said measures by a simple majority. TITLE VIII TRANSITIONAL AND FINAL PROVISIONS Chapter 1 Transitional provisions Article 61 Transitional provisions regarding Article 36 Denmark may allow its mortgage credit institutions organized as cooperative societies or funds before I January 1990 and converted into public limited liability companies to continue to include joint and several commitments of members, or of borrowers as referred to in Article 36 (I) claims on whom are treated in the same way as such joint and several commitments, in their own funds, subject to the following limits: 89/299/EEC Article 4a (as amended by 92/16/EEC, Article 1) 76 (a) the basis for calculation of the part of joint and several commitments of borrowers shall be the total of the items referred to in Article 34 (2), points 1 and 2, minus those referred to in Article 34 (2), points 9, I 0 and 11; 89/299/EEC Article 4a (as amended by 92/16/EEC, Article 1) (b) the basis for calculation on I January 1991 or, if converted at a later date, on the date of conversion, shall be the maximum basis for calculation. The basis for calculation may never exceed the maximum basis for calculation; (c) the maximum basis for calculation shall, from 1 January 1997, be reduced by half of the proceeds from any issue of new capital, as defined in point 1 of Article 34 (2), made after that date; and (d) the maximum amount of joint and several commitments of borrowers to be included as own funds must never exceed: 50 % in 1991 and 1992, 45 % in 1993 and 1994, · 40 % in 1995 and 1996, 35 % in 1997, 30 % in 1998, 20 % in 1999, 10 % in 2000, and 0 % after 1 January 2001, of the basis for calculation. Article 62 Transitional provisions regarding Article 43 1. Member States may apply a 50 % weighting to property leasing transactions concluded no later than 1 January 2001 concerning assets for business use situated in the country of the head office and governed by statutory provisions whereby the lessor retains full ownership of the rented asset until the tenant exercises his option to purchase. 89/647/EEC Article 11 (5) 77 2. Article 43 (3) shall not affect the competent authorities' recognition of bilateral contracts for novation concluded concerning: 96/10/EC Article 2 (adapted) Belgium, before 23 April 1996 Denmark, before 1 June 1996 Germany, before 30 October 1996 Greece, before 27 March 1997 Spain, before 7 January 1997 France, before 30 May 1996 Ireland, before 27 June 1996 Italy, before 30 July i 996 Luxembourg, before 29 May 1996 The Netherlands, before 1 July 1996 Austria, before 30 December 1996 Portugal, before 15 January 1997 Finland, before 21 August 1996 Sweden, before 1 June 1996 United Kingdom, before 30 April 1996 Article 63 Transitional provisions regarding Article 47 1. A credit institution the minimum ratio of which has not reached the 8 % prescribed in Article 47 (1), on 1 January 1991, must gradually approach that level by successive stages. It may not allow the ratio to fall below the level reached before that objective has been attained. Any fluctuation should be temporary and the competent authorities should be apprised of the reasons for it. 89/647/EEC Article 11 (1) to (3) (adapted) 2. For not more than five years after 1 January 1993, the Member States may fix a weighting of 10 % for the bonds defined in Article 22 (4) of Directive 85/611/EEC and maintain it for credit institutions when and if they consider it necessary, to avoid grave disturbances in the operation of their markets. Such exceptions shall be reported to the Commission. 3. For not more than seven years after 1 January 1993, Article 47 (1) shall not apply to the Agricultural Bank of Greece. However, the latter must approach the level prescribed in Article 47 (1) by successive stages according to the method described in paragraph l of this Article. Article 64 Transitional provisions regarding Article 49 If, on 5 February 1993, ____ a credit institution had already 1. incurred an exposure or exposures exceeding either the large exposure limit or the aggregate large exposure limit laid down in Article 49, the competent authorities shall require the credit institution concerned to take steps to have that exposure or those exposures brought within the limits laid down. in Article 49. 92/121/EEC Article 6 (adapted) 2. The process of having such an exposure or exposures brought within authorized limits shall be devised, adopted, implemented and compl~ted within the period which the competent authorities consider consistent with the principle of sound administration and fair competition. The competent authorities shall the Banking Advisory the Commission and Committee of the schedule for the general process adopted. inform 3. A credit institution may not take any measure which would cause the exposures referred to in paragraph 1 to exceed their level on 5 February 1993. ___ _ 78 4. The period applicable under paragraph 2 shall expire no later than 31 December 2001. Exposures with a longer maturity, for which the lending institution is bound to observe the contractual terms, may be continued until their maturity. 92/121/EEC Article 6 (adapted) 5. Until 31 December 1998, Member States may increase the limit laid down in Article 49 (1) to 40 % and the limit laid down in Article 49 (2) to 30 %. In such cases and subject to paragraphs 1 to 4, the time limit for bringing the exposures existing at the end of this period within the limits laid down in Article 49 shall expire on 31 December 2001. In the case of credit institutions the own funds of which 6. do not exceed ECU 7 million, and only in the case of such institutions, Member States may extend the time limits laid down in paragraph 5 by five years. Member States that avail themselves of the option provided for in this paragraph shall take steps to prevent distortions of competition and shall inform the Commission and the Banking Advisory Committee thereof. 7. In the cases referred to in paragraphs 5 and 6, an exposure may be considered a large exposure if its value is equal to or exceeds 15 % of own funds. 8. Until 31 December 2001 Member States may substitute a frequency of at least twice a year for the frequency of notification of large exposures referred to in the second indent of Article 48 (2). 9. Member States may fully or partially exempt from the application of Article 49 (1 ), (2) and (3) exposures incurred by a credit institution consisting of mortgage loans as defined in Article 62 (1) concluded before 1 January 2002 as well as property leasing transactions as defined in Article 62 (2) concluded before 1 January 2002, in both cases up to 50 % of the value of the property concerned. The same treatment applies t'o loans secured, to the satisfaction of the competent authorities, by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation which are similar to the mortgage loans referred to in the first subparagraph. as amended by 9S/1/EC, Euratom, ECSC, Annex I, point XI, B, III, (3) (b) 10. Without prejudice to paragraph 4, Portugal may be, until 31 December 1998, fully or partially exempt from the application of Article 49 ( 1) and (3) exposures incurred by a credit institution to 'Electricidade de Portugal' (EDP) and Petrogal. 92/121/EEC Article 6 (adapted) 79 Article 65 Transitional provisions regarding Article 51 Credit institutions which, on 1 January 1993, exceeded the limits laid down in Articles 51 (1) and (2) shall have until 1 January 2003 __ to comply with them. 89/646/EEC Article 12 (7) (adapted) Chapter 2 Final provisions Article 66 Repealed Directives 1. Directives 73/183/EEC, 77/780/EEC, 89/299/EEC, 89/646/EEC, 89/647/EEC, 92/30/EEC and 92/121/EEC, as amended by the Directives set out in in Annex V, Part A, are hereby repealed without prejudice to the obligations of the Member States concerning the deadlines for transposition of the said Directives listed in Annex V, Part B. 2. References to the repealed Directives shall be construed as references to this Directive and should be read in accordance with the correlation table in Annex VI. Article 67 Implementation This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Communities. Article 68 Addressees This Directive is addressed to the Member States. Done at Brussels, For the European Parliament, The President For the Counci~ The President 80 ANNEX I LIST OF ACTIVITIES SUBJECT TO MUTUAL RECOGNITION 1. Acceptance of deposits and other repayable funds. 2. Lending (I). 3. Financial leasing. 4. Money transmission services. 5. Issuing and administering means of payment (e. g. credit cards, travellers' cheques and bankers' drafts). 6. Guarantees and commitments. 7. Trading for own account or for account of customers in: (a) money market instruments (cheques, bills, CDs, etc. ); (b) foreign exchange; ( c) financial futures and options; ( d) exchange and interest rate instruments; ( e) transferable securities. 8. Participation in securities issues and the provision of services related to such issues. 9. Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings. 10. Money broking. 11. Portfolio management and advice. 12. Safekeeping and administration of securities. 13. Credit reference services. 14. Safe custody services. 89/646/EEC Annex Corrigendum (OJNoL311, 14. 11. 1997, p. 34) Corrigendum (OJNoL83, 30. 3. 1990, p. 128) (1) Including inter alia: - consumer credit, - mortgage credit, - factoring, with or without recourse, - financing of commercial transactions (including forfeiting). 81 ANNEX II CLASSIFICATION OF OFF-BALANCE-SHEET ITEMS 89/647/EEC Annex I (adapted) Full risk - Guarantees having the character of credit substitutes, - Acceptances, - Endorsements on bills not bearing the name of another credit institution, - Transactions with recourse, - Irrevocable standby letters of credit having the character of credit substitutes, - Assets purchased under outright forward purchase agreements, - Forward forward deposits, - The unpaid portion of partly-paid shares and securities, - Other items also carrying full risk. Medium risk - Documentary credits issued and confirmed (see also medium/low risk); - Warranties and indemnities (including tender, performance, customs and tax bonds) and guarantees not having the character of credit substitutes, · - Asset sale and repurchase agreements as defined in Article 12 (3) and (5) of Directive 86/635/EEC, - Irrevocable standby letters of credit not having the character of credit substitutes, ' '. - Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of more than one year, - Note issuance facilities (NIFs) and revolving unde1writing facilities (RUFs), - Other items also carrying medium risk. Medium/low risk - Documentary credits in which underlying shipment acts as collateral and other self-liquidating transactions, - Other items also carrying medium/low risk. Low risk - Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of up to and including one year or which may be cancelled unconditionally at any time without notice, - - Other items also carrying low risk. The Member States undertake to inform the Commission as soon as they have agreed to include a new off-balance sheet item in any of the 1::i. st indents under each category of risk. Such items will be definitively classified at Community level once the procedure laid down in Article 60 has been completed. 82 ANNEX III THE TREATMENT OF OFF-BALANCE-SHEET ITEMS CONCERNING INTEREST AND FOREIGN- EXCHANGE RA TES 89/647/EEC Annex II (as amended b 96/10/EC, Article 1) 1. SCOPE AND CHOICE OF METHOD Subject to the consent of their supervisory authorities, credit institutions may choose one of the methods set out below to measure the risks associated with the transactions listed in Annex IV. Interest-rate and foreign-exchange contracts traded on recognized exchanges where they are subject to daily margin requirements and foreign-exchange contracts with an original maturity of fourteen calendar days or less are excluded. 2. METHODS Method 1: the 'mark to market' approach Step (a): by attaching current market values to contracts (mark to market) the current replacement cost of all contracts with positjve values is obtained. Step (b): to obtain a figure for potential future credit exposure(}), the notional principal amounts or underlying values are multiplied by the following percentages: Residual maturity One year or less More than one year TABLE 1 Interest-rate contracts 0% 0,5 % Foreign-exchange contracts 1% 5% \ Step (c): the sum of current replacement cost and potential future credit exposure is multiplied by the risk weightings allocated to the relevant counterparties in Article 43. Method 2: the 'original exposure' approach Step (a): the notional principal amount of each instrument is multiplied by the percentages given below: TABLE2 Original maturityl 1J Interest-rate contracts 0,5% 1% Foreign-exchange contracts 2% 5% One year or less More than one year but not exceeding two years Additional allowance for each additional year l 1 J In the case of interest-rate contracts credit institutions ma y, sub· ect to the consent of their corn p etent 1% 3% authorities, choose either original or residual maturity. Step (b): the original exposure thus obtained is multiplied by the risk weightings allocated to the relevant counterparties in Article 43. 3. CONTRACTUAL NETTING (CONTRACTS FOR NOV A TION AND OTHER NETTING AGREEMENTS) (a) Types of netting that competent authorities may recognize For the purpose of this point 3 'counterparty' means any entity (including natural persons) that has the power to conclude a contractual netting agreement. (1) Except in the case of single-currency 'floating/floating' interest rate swaps in which only the current replacement cost will be calculated. 83 The competent authorities may recognize as risk-reducing the following types of contractual netting: (i) bilateral contracts for novation between a credit institution and its counterparty under which mutual claims and obligations are automatically amalgamated in such a way that this novation fixes one single net amount each time novation applies and thus create a legally binding, single new contract extinguishing former contracts; (ii) other bilateral agreements between a credit institution and its counterparty. 89/647/EEC Annex II (as ame. nded b 96/10/EC, Article 1) (b) Conditions for recognition The competent authorities may recognize contractual netting as risk-reducing only under the following conditions: (i) a credit institution must have a contractual netting agreement with its counterparty which creates a single legal obligation, covering all included transactions, such that, in the event of a counterparty's failure to perform owing to default, bankruptcy, liquidation or any other similar circumstance, the credit institution would have a claim to receive or an obligation to pay only the net sum of the positive and negative mark to-market values of included individual transactions; (ii) a credit institution must have made available to the competent authorities written and reasoned legal opinions to the effect that, in the event of a legal challenge, the relevant courts and administrative authorities would, in the cases described under (i), find that the credit institution's claims and obligations would be limited to the net sum, as described in (i), under: the law of the jurisdiction in which the counterparty is incorporated and, if a foreign branch of an undertaking is involved, also under the law of the jurisdiction in which the branch is located, the law that governs the individual transactions included, and the law that governs any contract or agreement necessary to effect the contra~tual netting. ; (iii) a credit institution must have procedures in place to ensure that the legal validity of its contractual netting is kept under review in the light of possible changes in the relevant laws. The competent authorities must be satisfied, if necessary after consulting the other competent authorities concerned, that the contractual netting is legally valid under the law of each of the relevant jurisdictions. If any of the competent authorities is not satisfied in that respect, the contractual netting agreement will not be recognised as risk-reducing for either of the counterparties. The competent authorities may accept reasoned legal opinions drawn up by types of contractual netting. No contract containing a provision which permits a non-defaulting counterparty to make limited payments only, or no payments at all, to the estate of the defaulter, even if the defaulter is a net creditor (a 'walkaway' clause), may be recognized as risk-reducing. 84 89/647/EEC Annex II (as amended b 96/10/EC, Article 1) (c) Effects of recognition (i) Contracts for novation The single net amounts fixed by contracts for novation, rather than the gross amounts involved, may be weighted. Thus, in the application of Method I, in Step (a): Step (b): the current replacement cost, and in the notional principal amounts or underlying values may be obtained taking account of the contract for novation. In the application of Method 2, in Step (a) the notional principal amount may be calculated taking account of the contract for novation; the percentages of Table 2 must apply. (ii) Other netting agreements In the application of Method I, in Step (a) the current replacement cost for the contracts included in a netting agreement may be obtained by taking account of the current hypothetical net replacement cost which results from the agreement. In Step (b) the single net amounts may be taken into account only for forward foreign-exchange contracts and other similar contracts, in which notional principal is equivalent to cash flows, in cases where the amounts to be claimed or delivered fall due on the same value date and in the same currency. Jn the application of Method 2, in Step (a) - - for forward foreign-exchange contracts and other similar contracts, in which notional principal is equivalent to cash flows, in cases where the amounts to be claimed or delivered fall due on the same value date and in the same currency, the notional principal amount may be calculated taking account of the netting agreement; to all these contracts Table 2 must apply, for all other contracts included in a netting agreement, the percentages applicable may be reduced as indicated in Table 3: TABLE3 Original maturityl I J One year or less More than one year but not more than two years Additional allowance for each additional year l 1 J In the case of interest-rate contracts credit institutions ma y, sub· ect to the consent of their corn etent 2,25 % 0,75 % p Foreign-exchange contracts 1,50 % 3,75 % Interest-rate contracts 0,35 % 0,75 % authorities, choose either original or residual maturity. 85 TYPES OF OFF-BALANCE-SHEET ITEMS CONCERNING INTEREST RA TES AND FOREIGN EXCHANGE ANNEX IV 89/647/EEC Annex Ill Interest-rate contracts - Single-currency interest rate swaps, - Basis swaps, - Forward-rate agreements, - Interest-rate futures, - Interest-rate options purchased, - Other contracts of a similar nature. Foreign-exchange contracts - Cross-currency interest-rate swaps, - Forward foreign-exchange contracts, - Currency futures, - Currency options purchased, - Other contracts of a similar nature. 86 ANNEXV PARTA Repealed Directives together with their successive amendments (referred to in Article 66) Council Directive 73/183/EEC Council Directive 77/780/EEC ,( / - Council Directive 85/345/EEC - Council Directive 86/137/EEC - Council Directive 86/524/EEC - Council Directive 89/646/EEC - European Parliament and Council Directive 95/26/EC, only Article l, first indent, article 2 ( l ), first indent, Article 3 (2), Article 4 (2), (3) and (4) - as regards references to Directive 77/780/EEC - and (6), and Article 5, first indent. - Council Directive 96/13/EC Council Directive 89/299/EEC - Council Directive 91/633/EEC - Council Directive 92/16/EEC - Council Directive 92/30/EEC Council Directive 89/646/EEC - Council Directive 92/30/EEC - European Parliament and Council Directive 95/26/EC only Article I, l st indent. Council Directive 89/64 7 ,EEC - Commission Directive 91/31/EEC - Council Directi\'e 92/30/EEC - Commission Directive 94/7/EC - Commission Directive 95/15/EC - Commission Directive 95/67/EC - European Parliament and Council Directive 96/10/EC Council Directive 92/30/EEC Council Directive 92/121/EEC 87 ANNEXV PAllT B DEADLINES FOR IMPLEMENTATION (referred to in Article 66) Directive Deadline for implementation 73/183/EEC (OJ No L 194, 16. 7. 1973, p. l) 77/780(EEC (OJ No L 322, 17. 12. 1977, p. 30) 85/345/EEC (OJ No L 183, 16. 7. 1985, p. 19) 86/137/EEC (OJ No L 106, 23. 4. 1986, p. 35) 86/524/EEC (OJ No L 309, 4. 11. 1986, p. 15) 89/299/EEC (OJ No L 124, 5. 5. 1989, p. 16) 89/646/EEC (OJ No L 386, 30. 12. 1989, p. 1) 89/647/EEC(OJNoL386,30. 12. 1989,p. 14) 91/31/EEC(OJNoL 17,23. 1. 1991,p. 20) 91/633/EEC (OJ No L 339, 11. 12. 1991, p. 16) 92/16/EEC (OJ No L 75, 31. 3. 1992, p. 48) 92/30/EEC (OJ No L 110, 28. 4. 1992, p. 52) 92/121/EEC (OJ No L 29, 5. 2. 1993, p. 1) • 94/7/EC (OJ No L 89, 6. 4. 1994, p. 17) 95/15/EC (OJ No L 125, 8. 6. 1995, p. 23) 95/26/EC (OJ No L 168, 18. 7. 1995, p. 7) 95/67/EC(OJNoL314,28. 12. 1995,p. 72) 96/10/EC (OJ No L 85, 3. 4. 1996, p. 17) 96/13/EC (OJ No L 66, 16. 3. 1996, p. 15) Article 6 (2), other provisions 2. 1. 1975(l) 15. 12. 1979 15. 7. 1985 31. 12. 1986 l. I. 1993 I. I. 1990 1. I. 1993 1. 1. 1991 31. 3. 1991 31. 12. 1992 31. 12. 1992 31. 12. 1992 31. 12. 1993 25. 11. 1994 30. 9. 1995 18. 7. 1996 1. 7. 1996 30. 6. 1996 15. 4. 1996 (I) However, as regards the abolition of the restriction referred to in Article 3 (2) (g), the Netherlands was allowed to defer implementation until 2. 7. 1977. (Ref: Article 8, second subparagraph of Directive 73/183/EEC). 88 Dir. 77/780/EEC Article 1, 1st indent Article l, 2nd indent This Directive Article l ( l) Article I (2) Article 1 (3) Article I (4) to (8) Article I (9) Article l (10) and (l l) Article l (12) Article l (13) Article l (14) to (17) Article 1 (18) to (20) Article I (2l)to(23) Article I (24) Article l (25) Article l (26) Article 2 (l) Article 2 (2) Article 2 (3) Article 2 ( 4) Article 2 (5), l st, 2nd and Article 2 (4) (a), (b) and (c) 3rd subparagraphs Article 2 (6) Article 3 Article 4 Article 5 ( l ), l st subpara. Article 5 ( l ), 2nd subpara. Article l 0 (I), 3rd subpara. Article 5 (2) Article 5 (3) to (7) Article 6 (I) Article 3 (I) Article 3 (2), l st subpara. Article l, 5th indent Article 2 (l) Article 2 (2) Article 2 (3) Article 3 (2), 1st subpara. , 3rd indent and 2nd subpara. Article 3 (2)a Article 6 (2) Article 7 (I) and (2) Article 7 (3) Article 8 Article 9 Article 10 Article 11 Article 3 (2) 3rd, 4th and 5th subparas. Article 3 (4) Article 3 (3) (a) Article 3 (6) Article 3 (7) ANNEX VI CORRELATION TABLE Dir. 89/299/EEC Dir. 89/646/EEC Dir. 89/647/EEC Dir. 92/30/EEC Article I, I st indent Dir. 92/121/EEC Article 1 (a) Dir. 96/10/EC Article l (3) Article I (5) to (9) Article I (I 0) and ( 11) Artide I ( 12) Article I ( 13) Article 2 (I), 2nd to 5th indents Article 2 (1 ), 6th to 8th indents Article 1, 6th indent Article I, 7th indent Article I , 8th indent Article 1, 3rd to 5th indents Article I (c) Article I (d) Article l (h) Article I (m) Article 2 (I) Article I (1) Article 2 Article 2 (3) Article 3 Article l (3) Article 2 (2) (b) Article 4 (2) Article 10 (I) to (5) Article l (10), 2nd subpara. and Article 5 ( l) and (2) 89 Dir. 77/780/EEC Dir. 89/299/EEC Article 8 (I) Article 8 (5) Article 5 This Directive Article 12 Article 13 Articlel4(1) Article 14 (2) Article 15 Article 16 ( 1) to (5) Article 16 (6) Article 17 Article 18 Article 19 Article 20 (I) to (6) Article 20 (7) Article 21 ( 1} and (2) Article 21 (3) Article 22 Article 23 (I) Article 23 (2) to (7) Article 24 Article 25 Article 26 Article 27 Article 28 Article 29 Article JO (1) to (5) Article 30 (6) Article 30 (7) Article JO (8) Article 30 (9) Article JO (10) Article 31 Article 32 Article 33 Article 34 (I) Article 34 (2) to (4) Article 35 Article 36 Article 37 Article 38 Article 39 Article 40 Article 41 Article 42 Article 43 Article 44 Article 45 Article 46 Article 9 Article 7 (I) Article 12 (1) to (5) Article 12 (5a) Article 12 (5b) Article 12 (6) Article 12 (7) Article 12 (8) Article 12a Article 13 Dir. 89/647/EEC Dir. 92/30/EEC Dir. 92/121/EEC Dir. 96/10/EC Article 8 Dir. 89/646/EEC Article 7 Article 6 ( I ) Article 11 (I) to (5) Article I ( 10), 2nd subpara. Article 13 (2) Article 18(1) Article 18 (2) Article 19 Article 23 (I) Article 20 Article 23 (2) Article 21 Article 8 Article 9 Article 13 (1) and (3) Article 14 (2) Article 15 Article 17 Article I {I) Article 2 (I) to (3) Article 3 Article 4 Article 5 Article 6 (I) and (4) Article 7 Article 3 (l)to (4), (7) and (8) Article 4 Article 5 Article 6 Article 7 Article 8 Article 2 (2) 90 ; This Directive Article 47 Article 48 Article 49 Article 50 Article5I (l}to(5) Article5I (6) Article 52 ( 1) to (7) Article 52 (8) and (9) Article 52 (10) Article 53 Article 54 Article 55 Article 56 Article 57 Article 58 Article 59 Article 60 Article 61 Article 62 (1) Article 62 (2) Article 63 Article 64 Article 65 Article 66 Article 67 Article 68 Annex I Annex II Annex Ill Annex IV Annex V Annex VI Dir. 77/780/EEC Dir. 89/299/EEC Dir. 89/<>46/EE(' Dir. 89/647/EEC Article 10 Dir. 92/30/EEC Dir. 92/121/EEC Dir. 96/10/EC Article 12 (I) lo (5) Article 12 (8) Article 3 (5) and (6) Article 3 Article 4 Article 5 (1) to (3) Article 5 (4) and (5) Article 3 ( 1) to (7) Article 3 (8) and (9) Article 3 ( I 0) Article 4 Article 5 Article 6 Article 7 Article 11 Article 3 (5) Article 6 --- --- --- --- --- Article 8 Article 4a Article 22 Article 9 --- --- --- --- --- Article I 2 (7) --- --- --- Annex --- --- Article 11 (5) Article 11 (I) to (3) · --- --- --- Annex I Annex lI Annex Ill --- --- --- --- --- --- --- Article 7 Article 6 --- --- --- --- --- Article 2 - --- --- -- --- 91 ISSN 0254--14 75 COM(97) 706 final DOCUMENTS EN 01 09 10 Catalogue number CB-C0-97-726-EN-C ISBN 92-78-29624-4 Office for· Official Publications of the European Communities L-2985 Luxembourg 92-