Pursuant to the Bank Recovery and Resolution Directive (BRRD), banks will be obligated to meet the requirements for the minimum level of own funds and eligible liabilities and total loss-absorbing capacity – MREL and TLAC.
After the global crisis on the financial market initiated in the United States (2006-2008) and the financial crisis in Cyprus (2013), more countries are gradually introducing regulations aimed at increasing the banks capital security to prevent similar situations in the future.
The Resolution regulations and new capital adequacy standards – MREL and TLAC have become the key to increase the banks capital security.
The Resolution regulation is a mechanism for banks operating in the territory of the European Union, which provides tax payers money protection, as the bankruptcy or restructuring process is carried out without involving public funds – the burden of saving financial institutions has been transferred from citizens (bail-out) to shareholders (bail-in).
MREL and TLAC – what are they?
MREL (Minimum Requirement for own funds and Eligible Liabilities) is a prudential requirement that will be applicable to all banks in the European Union.
Typical resolution strategies, such as a bridge bank, takeover or bail-in, are to be the primary strategies only for banks with critical functions. The condition for the successful implementation of the Resolution process is that the entity meets the MREL requirements, which includes own funds and eligible liabilities.
The TLAC (Total Loss-Absorbing Capacity) requirements have to be reported by banks operating globally, recognized as institutions of high systemic importance (GSII).
The basis for determing both requirements – European and global – is the level of risk-weighted assets.
Due to the events related to the COVID-19 pandemic and the implementation of BRRD2, the deadline for meeting the MREL requirement has been extended to January 1, 2024.
MREL and TLAC reporting
In accordance with the taxonomy defined by the EBA under Framework 3.0, the reports that banking entities will have to prepare cover five main areas of assessment relevant to determine the quality of TLAC / MREL instruments, namely:
- capacity for loss absorption,
- other aspects including governing law, tax and regulatory calls, and tax gross-up clauses.
The report contains 15 recommendations: 4 in the area of subordination, 7 in the area of capacity for loss absorption, 3 in the area of maturity and 1 on tax gross-up.
Who will be required to report MREL / TLAC?
With regard to MREL reporting, the following will be required to report:
- Domestic entities – obligatory (financial institutions and regulators and all banks)
- Non-domestic entities – optional (holdings).
While in relation to TLAC reporting, the reporting obligation will apply to:
- Global Systemically Important Institutions
- institutions being a part of systemically important institutions
MREL / TLAC reporting deadlines and frequency
For both MREL and TLAC reporting, the reporting frequency will depend on the reporting entity category.
Reports are submitted:
- quarterly – by obligated entities within G-SII,
- semi-annual or annual (end of the accounting period) – by other financial institutions.
The first reference date for reporting in accordance with the ITS is the 30 June 2021 (reporting framework 3.0) both for MREL and TLAC.
MREL / TLAC reporting systems
The multitude of regulations to which banking sector institutions are subject makes it more and more difficult to meet all reporting requirements. Many entities struggle with significant problems related to, inter alia, the difficulty of introducing employees to new reporting obligations.
To facilitate the fulfillment of obligations, banks are looking for systems that will simplify the reporting process as much as possible. In response to their needs, companies providing software for financial institutions offer systems that meet the Resolution requirements, and adapt their solutions to emerging reporting obligations, such as the MREL / TLAC introduced by EBA.
One of such systems is aSISt, which is a highly specialized XBRL reporting tool. It is a proven tool that has been successfully used for many years by many European commercial banks and supervisory institutions, as well as 100% of Polish cooperative banks.
If you are interested in receiving detailed information about the aSISt system and learning about the offer for the MREL, TLAC or Resolution reporting system, please contact us. Our specialists will prepare with pleasure an offer dedicated to your reporting needs.
If you are interested in a reporting tool that includes resolution or MREL, please contact us
- EBA publishes final draft technical standards on disclosure and reporting on MREL and TLAC : https://www.eba.europa.eu/eba-publishes-final-draft-technical-standards-disclosure-and-reporting-mrel-and-tlac
- Final report on draft its on disclosure and reporting on MREL and TLAC : https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Consultations/2020/CP%20on%20ITS%20on%20disclosure%20and%20reporting%20of%20MREL%20and%20TLAC/898092/Final%20report%20on%20draft%20ITS%20on%20disclosure%20and%20reporting%20on%20MREL%20and%20TLAC.pdf
- Pakiet bankowy a nowe zasady wyznaczania MREL : https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2021/03/CB-pakiet-bankowy-MREL.pdf
- MREL będzie wyzwaniem dla banków i regulatorów : https://www.obserwatorfinansowy.pl/tematyka/rynki-finansowe/bankowosc/mrel-bedzie-wyzwaniem-dla-bankow-i-regulatorow
- MREL – Rewolucja w polskich bankach : https://biznes.interia.pl/waluty/aktualnosci/news-mrel-rewolucja-w-polskich-bankach,nId,4402028