On 21 July 2020, the Czech National Bank (CNB) published a draft amendment to Decree No. 163/2014 Coll., on the performance of the activities of banks, credit unions and investment firms (draft).
The draft transposes CRD 5 into the Czech legal framework and also implements CRR 2. In addition, the draft takes into account the new regulatory framework for investment firms.
We will be shortly discussing the main amendments in the following text.
Requirements on internal governance system within consolidated group
The requirement to apply internal governance system (IG) in companies included in the consolidation group was removed from the decree. However, this requirement has not been waived. The scope and manner of application of IG within the consolidation unit is newly regulated in CRD 5 and these requirements have been transposed into sectoral laws.
Requirements on the management of interest rate risk in the banking book (IRRBB)
Banks are required to monitor the impact of changes in interest rates on both the economic value of equity (EVE) and net interest income (NII).
Following CRD 5, the decree stipulates the obligation to apply either a standardized methodology or a simplified standardized methodology for the management of IRRBB, depending on the complexity of a bank according to the CRR rules, if the bank does not have its own appropriate system.
The standardized methodology and the simplified standardized methodology will be specified in the directly applicable EU technical standards.
As part of the so-called supervisory outlier test for IRRBB, the decree stipulates the obligation to monitor the impact of:
The parameters of supervisory shock scenarios and modelling assumptions will be specified in the directly applicable EU technical standards.
Capital buffer to cover systemic risk
The decree updates the methodology for calculating the capital buffer to cover systemic risk. The formula for calculating the buffer has been extended to include subsets of risk exposures for which a specific capital buffer has been determined.
Determination of capital buffer for systemically important institutions
If a bank is subject to the capital buffer for a global systemically important bank, or the capital buffer for other systemically important bank, and is also subject to the capital buffer to cover systemic risk, then both buffers are applied, not just the higher capital buffer as is the case now.
Combined capital reserve and the calculation of maximum distributable amount (MDA)
The decree clarifies that CET 1 used to meet one component of the combined capital buffer may not be used to meet another component. At the same time, the calculation of MDA has been changed in case that the requirement on the combined capital buffer has not been fulfilled.
Leverage ratio buffer and the calculation of maximum distributable amount (MDA)
The decree sets out the approach for calculating MDA in case that the requirement on the leverage ratio buffer has not been fulfilled.
Leverage ratio of bank branch from non-member country
The decree sets out rules for calculating the leverage ratio of a bank branch from a non-EU member country. For these purposes, the decree makes references to the relevant parts of the CRR, both for the determination of Tier 1 capital and for the determination of the overall exposure.
Disclosure
The decree amends some provisions on disclosure including related Annex 10. For example, banks must inform about committees set up and their members.
Information to be submitted to the CNB
The decree includes a new obligation to inform the CNB of any possible individual differences in the remuneration of a male and female workers for equal work or work of equal value.
Remuneration
Following CRD 5, the decree amends Annex 1 on remuneration requirements, e.g. it redefines the category of employees whose activities have a significant impact on the risk profile of the bank, postpones a substantial part of the variable component of remuneration for no less than 4 to 5 years, etc.
On 1 July 2020, the EBA published its final Guidelines on the treatment of structural FX positions (EBA GL). The structural FX provision, as laid down in Article 352(2) of CRR, allows Competent Authorities to authorise banks to exclude FX-risk positions deliberately taken to hedge against the adverse effect of exchange rates on capital ratios from the calculation of the net open currency positions.
The Guidelines will be applicable from 1 January 2022, one year later than originally envisaged to ensure that banks have time to prepare for the introduction of the requirements.
On 31 July 2020, the EBA launched a public consultation to revise its Guidelines on internal governance (EBA GL). The review takes into account the amendments introduced by CRD 5 and the Investment Firms Directive. The consultation runs until 31 October 2020. The amended guidelines are expected to come into force on 26 June 2021.
In addition to the consultation paper, the EBA publish a version with track changes.
The guidelines clarify that identifying, managing and mitigating money laundering and financing of terrorism risk is part of sound internal governance arrangements and credit institutions’ risk management framework.
The guidelines further specify and reinforce the framework regarding loans to members of the management body and their related parties. Those loans may constitute a specific source of actual or potential conflict of interest and, therefore, specific requirements have been explicitly included in CRD 5. In the same way, other transactions with members of the management body and their related parties have the potential to create conflicts of interest and, therefore, the EBA is providing guidance on how to properly manage them.
Finally, in line with the requirement to have a gender-neutral remuneration policy, the consultation paper contains new guidance on the code of conduct to ensure that credit institutions take all necessary measures to avoid discrimination and guarantee equal opportunities to staff of all genders.
4-8-2020