The European Banking Authority (EBA) will offer clarity on the appropriate treatment of legacy instruments at the end of 2021, after the benefits of the grandfathering period will end.
Its aim with the clarification is to preserve a consistent and high-quality capital base for EU institutions under the capital requirements regulation (CRR).
When CRR entered the market, grandfathering provisions were also implemented. This was to ensure institutions had sufficient time to meet requirements established by the new definition of own funds. If a capital instrument did not comply with the new definition, it was ‘’grandfathered’ for a transition period with the objective of phasing them out from own funds.
This beneficial treatment will end after 31 December, and so the EBA is supplying clarity on the appropriate end-treatment to ensure a high quality of capital for EU institutions and a consistent application of rules and practices.
Additionally, the EBA will clarify the interaction with the new grandfathering provisions and the amendments to the CRR and the bank recovery and resolution directive (BRRD), where there is crossover.
The EBA will interact closely with concerned stakeholders, but in the meantime, it suggests institutions engage with their relevant competent authorities with regard to the magnitude and future treatment of legacy instruments.
It will communicate the advice by mid-2020 to give players enough time to prepare.
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