The European Commission Implementing Regulation (EU) 2018/1624 of 23 October 2018 (“the CIR”) establishes a minimum harmonised standard of procedures, templates and instructions for the provision of information for the purposes of resolution plans for credit institutions and investment firms.
Template Z.07.01 FUNC1 should be filled with information necessary to identify the critical functions provided by the institution. The content of that template represents the minimum information needs at European Union level and the SRB requires more data to develop the relevant chapters of resolution plans.
The SRB and the National Resolution Authorities (NRAs) of the Banking Union Member States have developed a more complete template for the collection of such information (the Critical Functions report).
According to the European Commission Delegated Regulation (EU) 2016/778 of 20 May 2016 (p. 41), a function shall be considered critical, when it meets both of the following criteria:
1.the function is provided by an institution to third parties not affiliated to the institution or group; and
2.the sudden disruption of that function would likely have a material negative impact on the third parties, give rise to contagion or undermine the general confidence of market participants due to the systemic relevance of the function for the third parties and the systemic relevance of the institution or group in providing the function.
The Commission Delegated Regulation defines a two-step approach for defining critical functions. First, institutions are required to perform a self-assessment when drawing-up recovery plans. Second, resolution authorities shall critically review the recovery plans to ensure consistency and coherence across approaches used by individual institutions. The Critical Functions report aims at guiding institutions through this self-assessment, and at providing essential information for Internal Resolution Teams (IRTs) to perform the critical review.
The Critical Functions Report
The template is structured as follows:
Part 1. Select applicable economic functions. Institutions can indicate which sub-functions are applicable for the reporting entity. A sub-function is not applicable if the entity is not providing the function to third parties. This impacts the scope of the exercise: the criticality assessment needs to be done for each applicable sub-function.
Part 2. Complete data input cells. For each applicable function, quantitative data should be reported. To facilitate reporting and comparability, the guidance refers to definitions used in other regulatory reporting where possible and appropriate. However, in contrast to other data collection exercises, quantitative data may be provided as a best estimate since the purpose is to have an idea of orders of magnitude.
Part 3. Conduct impact & supply-side assessment. Institutions should assess the impact of discontinuation and substitutability of each applicable function, by conducting an impact and a supply-side analysis.
•The impact analysis assesses the impact of a sudden discontinuation of the function on third parties, financial markets and the real economy, taking into account the size, market share, external and internal interconnectedness, complexity, and cross-border activities of the institution.
•The supply-side analysis assesses the market for providing the function in terms of substitutability. A function shall be considered substitutable where it can be replaced in an acceptable manner and within a reasonable timeframe.
Part 4. Conduct criticality assessment. Based on the impact and supply-side analyses, institutions decide upon whether each sub-function is critical or not.
Key changes in 2019
Please pay attention to the following points:
- Banking groups are required to report the critical functions templates at country level, for each Member State in which the group operates. In addition, banking groups may be required to report the critical functions template at different levels of consolidation or aggregation.
- Institutions do not need to complete Template Z.07.01 FUNC1 required to be reported under the CIR. That template (included as a linked worksheet in the SRB spreadsheet) will be automatically populated when banks fill the SRB critical functions template. Institutions should nevertheless verify that the information thereby included in Z.07.01 FUNC1 is indeed correct and in line with the reporting requirements outlined in the Implementing Regulation.
- Definitions: Elements that are included in Z.07.01 FUNC 1 shall be considered to fall under the same definition as in the CIR. In case of any remaining discrepancies the text of the CIR should prevail.
- Conventions: In line with the CIR: Information not required or not applicable shall not be included in a data submission. Numeric values shall be submitted as facts according to the following:
• Data points with the data type “Monetary” shall be reported using a minimum precision equivalent to thousands of units;
• Data points with the data type “Percentage” shall be expressed as per unit with a minimum precision equivalent to four decimals;
• Data points with the data point “Integer” shall be reported using no decimals and a precision equivalent to units.
- Q.22 Value of transactions, Q.26 Number of transactions: As a general rule, the average value and number of daily transactions over the year shall be reported, in line with the CIR.
- Supply-side Analysis (C.3, C.13, C.23, C.33, C.43): the scale has been modified to align with the instructions to Z.07.01 FUNC1. You should select ‘H’ if a function can easily be provided by another bank under comparable conditions within a reasonable timeframe, ‘L’ if a function cannot be easily or rapidly substituted, ‘MH’ and ‘ML’ for intermediate cases.
The deadline for submission of the reports by banks to NRAs is 30 April 2019.
Frequently Asked Questions
Questions relating to the report can be submitted to Internal Resolution Teams (IRTs). A preliminary FAQ is included in the guidance note.