BANKING ACT (SUPERVISORY REVIEW) REGULATIONS (supervisoryreview)

SUBSIDIARY LEGISLATION 371.16

BANKING ACT (SUPERVISORY REVIEW)

REGULATIONS

10th April, 2015

LEGAL NOTICE 127 of 2015, as amended by Legal Notices 76 of 2019

and 493 of 2021.

(1) The title of these regulations is the Banking Act

(Supervisory Review) Regulations.

(2) The purpose of these regulations is to implement Articles 3

(in part), 75, 77(2), 78(2), 78(3), 78(4), 78(5), 86(3), 91(11), 97,

98, 99, 100, 101, 103, 104, 104a, 104b, 104c, 105, 107, 110, 143 and

144 of the CRD.

(1)

In these regulations, unless the context otherwise

requires -

"the Act" means the Banking Act;

"the CRD" means Directive 2013/36/EU of the European

Parliament and of the Council of 26 June 2013 on the access to the

activity of credit institutions and the prudential supervision of credit

institutions, amen din g D irect ive 200 2/8 7/E C and repeal ing

Directives 2006/48/EC and 2006/49/EC, as amended from time to

time, and includes any binding legal instruments, guidelines and other

measures that may be issued thereunder;

"the CRR" means Regulation (EU) No 575/2013 of the European

Parliament and of the Council of 26 June 2013 on prudential

requirements for credit institutions and amending Regulation (EU)

No 648/2012, as amended from time to time, and includes any

binding legal instruments, guidelines and other measures that have

been or may be issued thereunder;

"DORA Regulation" means Regulation (EU) 2022/2554 of the

European Parliament and of the Council of 14 December 2022 on

digital operational resilience for the financial sector, and amending

Regulation (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/

2014, (EU) No 909/2014 and (EU) 2016/1011, as may be amended

from time to time, and includes any binding legal instruments,

guidelines and other measures that have been or may be issued

thereunder;

"European regulatory authority" means an authority which is in a

country or territory outside Malta that is a Member State and is

empowered by law or regulation to supervise credit institutions;

"internal approach" means the internal ratings based approach

referred to in Article 143(1), the internal models approach referred

to in Article 221, the own estimates approach referred to in Article

225, the advanced measurement approaches referred to in Article

312(2), the internal models method referred to in Articles 283 and

363, and the internal assessment approach referred to in Article

259(3) of the CRR;

"Regulation (EU) 2017/2402" means Regulation (EU) 2017/2402

of the European Parliament and of the Council of 12 December

2017 laying down a general framework for securitisation and

creating a specific framework for simple, transparent and

standardised securitisation, and amending Directives 2009/65/EC,

2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009

and (EU) No 648/2012;

"Resolution Committee" means the committee responsible for

resolution, as established by the Malta Financial Services Authority

Act;

"systemic risk" means a risk of disruption in the financial system

with the potential to have serious negative consequences for the

financial system and the real economy.

(2) Words and expressions used in these regulations which are

also used in the Act but which are not defined herein, shall have the

same meaning as in the Act

Provided that, in accordance with article 2(1A) of the Act,

for the purposes of applying the requirements and supervisory

powers laid down in these regulations on a consolidated or sub-

consolidated basis in accordance with the Act and any regulations

and Banking Rules made or issued thereunder transposing the

CRD, with any binding legal instruments issued under the CRD and

with the CRR, the terms "institution", "parent institution" and "EU

parent institution" shall also include the entities listed in

paragraphs (a), (b) and (c) of article 2(1A) of the Act

Provided further that, for the purposes of applying the

requirements and supervisory powers laid down in regulations 3(1),

(3), (4) and (5), 4, 5, 6, 7(1), (2), (4) and (5), 8, 9, 10, 13(2), 14, and

15(1), (2) and (3) on a consolidated or sub-consolidated basis in

accordance with the Act and any regulations and Banking Rules made

or issued thereunder transposing the CRD, with any binding legal

instruments issued under the CRD and with the CRR, the term "credit

institution" shall also include the entities listed in paragraphs (a), (b)

and (c) of article 2(1B) of the Act.

(1) The competent authority shall, taking into account the

technical criteria set out in regulation 4, review the arrangements,

strategies, processes and mechanisms implemented by credit

institutions to comply with the Act and any regulations or Banking

Rules issued thereunder, with any binding legal instruments issued

under the CRD and with the CRR, and evaluate

(a) risks to which credit institutions are or might be

exposed; and

(b) deleted by Legal Notice 493 of 2021;

(c) risks revealed by stress testing taking into account the

nature, scale and complexity of a credit institution’s

activities; and

(d) risk revealed by digital operational resilience testing in

accordance with Chapter IV of the DORA Regulation.

(2) The scope of the review and evaluation referred to in sub-

regulation (1) shall cover all requirements of the Act and any

regulations or Banking Rules issued thereunder, of any binding legal

instruments issued under the CRD and of the CRR.

(3) On the basis of the review and evaluation referred to in

sub-regulation (1), the competent authority shall determine whether

the arrangements, strategies, processes and mechanisms

implemented by credit institutions and the own funds and liquidity

held by them ensure a sound management and coverage of their

risks.

(4) The competent authority shall establish the frequency and

intensity of the review and evaluation referred to in sub-regulation

(1) having regard to the size, systemic importance, nature, scale

and complexity of the activities of the credit institution concerned

and taking into account the principle of proportionality. The review

and evaluation shall be updated at least on an annual basis for

cred it in sti tut io ns co vered by the supervisory examination

programme referred to in regulation 5(2)

Provided that when conducting the review and evaluation

referred to in sub-regulation (1), the competent authority shall

apply the principle of proportionality in accordance with the

criteria disclosed pursuant to regulation 17(1)(c).

(4A) The competent authority may tailor the methodologies for

the application of the review and evaluation referred to in sub-

regulation (1) to take into account credit institutions with a similar

risk profile, such as similar business models or geographical

location of exposures. Such tailored methodologies may include

risk-oriented benchmarks and quantitative indicators, shall allow

for due consideration of the specific risks th at each c redit

institution may be exposed to, and shall not affect the institution-

specific nature of measures imposed in accordance with regulation

9

Provided that where the competent authority uses tailored

methodologies pursuant to this sub-regulation, it shall notify the

EBA.

(5) Where a review shows that a credit institution may pose

systemic risk in accordance with Article 23 of Regulation (EU) No

1093/2010, the competent authority shall inform the EBA without

delay about the results of the review.

(6) Where a review, in particular the evaluation of governance

arrangements, the business model, or the activities of a credit

institution, gives the competent authority reasonable grounds to

suspect that, in connection with that credit institution, money

laundering or terrorist financing is being or has been committed or

attempted, or there is increased risk thereof, the competent

authority shall immediately notify the EBA and the Financial

Intelligence Analysis Unit established in terms of the Prevention of

Money Laundering Act. In the event of potential increased risk of

money laundering or terrorist financing, the competent authority

together with the Financial Intelligence Analysis Unit shall conduct

a joint assessment. Such assessment shall be immediately notified

to the EBA. The competent authority shall take, as appropriate and

without prejudice to the power of other authorities to take any

action or regulatory measures available to them under any other

applicable law, measures in accordance with the Act and any

regulations made and Banking Rules issued thereunder transposing

the CRD and with any binding legal instruments issued under the

CRD

Provided that this sub-regulation shall be without prejudice

to the obligations of the competent authority arising out of any

other applicable legislation relating to the prevention of money

laundering and the funding of terrorism.

(1) In addition to credit, market and operational risks, the

review and evaluation performed by the competent authority in

accordance with regulation 3 shall include at least

(a) the results of the stress test carried out in accordance

with Article 177 of the CRR by credit institutions

applying an internal ratings based approach;

(b) the exposure to and management of concentration risk

by credit institutions, including their compliance with

the requirements set out in Part Four of the CRR and

those on concentration risk in Article 81 of the CRD;

(c) the robustness, suitability and manner of application of

the policies and procedures implemented by credit

institutions for the management of the residual risk

associated with the use of recognised credit risk

mitigation techniques;

(d) the extent to which the own funds held by a credit

institution in respect of assets which it has securitised

are adequate having regard to the economic substance

of the transaction, including the degree of risk transfer

achieved;

(e) the exposure to, measurement and management of

liquidity risk by credit institutions including the

development of alternative scenario analyses, the

management of risk mitigants (in particular the level,

composition and quality of liquidity buffers) and

effective contingency plans;

(f)

the impact of diversification effects and how such

effects are factored into the risk measurement system;

(g) the results of stress tests carried out by credit

institutions using an internal model to calculate market

risk own funds requirements under Part Three, Title

IV, Chapter 5 of the CRR;

(h) the geographical

location

of

credit

institutions’

exposures;

(i)

the business model of the credit institution.

(2) For the purposes of sub-regulation (1)(e), the competent

authority shall regularly carry out a comprehensive assessment of

the overall liquidity risk management by credit institutions and

promote the development of sound internal methodologies. While

conducting these reviews, the competent authority shall have

regard to the role played by credit institutions in the financial

markets. The competent authority shall also duly consider the

potential impact of its decisions on the stability of the financial

system in all other Member States concerned.

(3) The competent authority shall monitor whether a credit

institution has provided implicit support to a securitisation. If a

credit institution is found to have provided implicit support on

more than one occasion the competent authority sh all take

appropriate measures reflective of the increased expectation that it

will provide future support to its securitisation thus failing to

achieve a significant transfer of risk.

(4) For the purposes of the determination to be made under

regulation 3(3), the competent authority shall consider whether the

valuation adjustments taken for positions or portfolios in the

trading book, as set out in Article 105 of the CRR, enable the credit

institution to sell or hedge out its positions within a short period

without incurring material losses under normal market conditions.

(5) The review and evaluation performed by the competent

authority shall include the exposure of credit institutions to the

interest rate risk arising from non-trading book activities

Provided that the supervisory powers shall be exercised at

least in the following cases

(a) where a credit institution’s economic value of equity

as referred to in Article 84(1) of the CRD declines by

more than 15% of its Tier 1 capital as a result of a

sudden and unexpected change in interest rates as set

out in any of the six supervisory shock scenarios

applied to interest rates;

(b) where a credit institution’s net interest income as

referred to in Article 84(1) of the CRD experiences a

large decline as a result of a sudden and unexpected

change in interest rates as set out in any of the two

supervisory shock scenarios applied to interest rates

Provided further that, notwithstanding the first proviso to

this sub-regulation, the competent authority shall not be obliged to

exercise supervisory powers where it considers, based on the

review and evaluation referred to in this sub-regulation, that the

credit institution’s management of interest rate risk arising from

n o n - tr a di n g b o o k a c t i vi t i e s i s a deq ua te a n d t h a t t h e cr e di t

institution is not excessively exposed to interest rate risk arising

from non-trading book activities.

(5A) For the purposes of sub-regulation (5), the term

"supervisory powers" means the powers referred to in regulation

9(1) or the power to specify modelling and parametric assumptions,

other than those identified by the EBA pursuant to point (b) of

paragraph 5a of Article 98 of the CRD, to be reflected by credit

institutions in their calculation of the economic value of equity

under Article 84(1) of the CRD.

(6) The review and evaluation performed by the competent

authority shall include the exposure of credit institutions to the risk

of excessive leverage as reflected by indicators of excessive

leverage, including the leverage ratio determined in accordance

with Article 429 of the CRR. In determining the adequacy of the

leverage ratio of credit institutions and of the arrangements,

strategies, processes and mechanisms implemented by credit

institutions to manage the risk of excessive leverage, the competent

authority shall take into account the business model of those credit

institutions.

(7) The review and evaluation conducted by the competent

a u t h o r i t y s h a l l i n c l u d e g o v e r n a n c e a r r a n g e m en t s o f cr e d i t

institutions, their corporate culture and values, and the ability of

directors to perform their duties. In conducting that review and

evaluation, the competent authority shall, at least, have access to

agendas and supporting documents for meetings of the board of

directors and its committees, and the results of the internal or

external evaluation of performance of the board of directors.

(1) The competent authority shall, at least annually, adopt

a supervisory examination programme for the credit institutions it

supervises. Such programme shall take into account the supervisory

review and evaluation process referred to in regulation 3, and shall

contain the following

(a) an indication of how the competent authority intends

to carry out its tasks and allocate its resources;

(b) an identification of which credit institutions are

intended to be subject to enhanced supervision and the

measures taken for such supervision as set out in sub-

regulation 3; and

(c) a plan for inspections at the premises used by a credit

institution, including its branches and subsidiaries

established in other Member States in accordance with

regulation 12 of the European Passport Rights for

Credit Institutions Regulations and regulation 10(2)

and (3) and regulation 19(1) and (2) of the Supervisory

Consolidation Regulations.

(2) Supervisory examination programmes shall include the

following credit institutions

(a) credit institutions for which the results of the stress

tests referred to in regulation 4(1)(a) and (1)(g) and in

regulation 6, or the outcome of the supervisory review

and evaluation process under regulation 3, indicate

significant risks to their ongoing financial soundness

or indicate breaches of the Act and any regulations or

Banking Rules issued thereunder transposing the

requirements of the CRD, of any binding legal

instruments issued under the CRD and of the CRR; and

(b) deleted by Legal Notice 493 of 2021.

(c) any other credit institution for which the competent

authority deems it to be necessary.

(3) Where appropriate under regulation 3, the following

measures shall, in particular, be taken if necessary

(a) an increase in the number or frequency of on-site

inspections of the credit institution;

(b) a permanent presence of the competent authority at the

credit institution;

(c) additional or more frequent reporting by the credit

institution;

(d) additional or more frequent review of the operational,

strategic or business plans of the credit institution; and

(e) thematic examinations monitoring specific risks that

are likely to materialise.

(4) Adoption of a supervisory examination programme by the

European regulatory authority of a home Member State shall not

prevent the competent authority from carrying out, on a case-by-

case basis, on-the-spot checks and inspections of the activities

carried out by branches established in Malta of credit institutions

authorised by such European regulatory authorities in accordance

with regulation 8(2) and (3) of the European Passport Rights for

Credit Institutions Regulations.

The competent authority shall carry out, as appropriate but

at least annually, supervisory stress tests on credit institutions it

supervises, to facilitate the review and evaluation process under

regulation 3.

(1) The competent authority shall review on a regular

basis, and at least every three years, credit institutions’ compliance

with the requirements regarding approaches that require permission

by the competent authority for the calculation of own funds

requirements in accordance with Part Three of the CRR. The

competent authority shall have particular regard to changes in a

credit institution’s business and to the implementation of those

approaches to new products. Where material deficiencies are

identified in risk capture by a credit institution’s internal approach,

the competent authority shall ensure they are rectified or take

appropriate steps to mitigate their consequences, including by

imposing higher multiplication factors, or imposing capital add-

ons, or taking other appropriate and effective measures.

(2)

The competent authority shall in particular review and

assess whether the credit institution uses well developed and up-to-

date techniques and practices for those approaches.

(3)

If for an internal market risk model numerous over-

shootings as referred to in Article 366 of the CRR indicate that the

model is not or is no longer sufficiently accurate, the competent

authority shall revoke the permission for using the internal model

or impose appropriate measures to ensure that the model is

improved promptly.

(4) If a credit institution has received permission to apply an

approach that requires permission by the competent authority

before using such an approach for the calculation of own funds

requirements in accordance with Part Three of the CRR but no

longer meets the requirements for applying that approach, the

competent authority shall require the credit institution to either

demonstrate to the satisfaction of the competent authority that the

effect of non-compliance is immaterial, where applicable in

accordance with the requirements of the CRR, or present a plan for

the timely restoration of compliance with the requirements and set

a deadline for its implementation. The competent authority shall

require improvements to that plan if it is unlikely to result in full

compliance or if the deadline is inappropriate. If the credit

institution is unlikely to be able to restore compliance within an

appropriate deadline and, where applicable, has not satisfactorily

demonstrated that the effect of non-compliance is immaterial, the

permission to use the approach shall be revoked or limited to

compliant areas or those where compliance can be achieved within

an appropriate deadline.

(5) The competent authority shall take into account the analysis

carried out by the EBA in terms of Article 101(5) of the CRD and

the guidelines containing benchmarks on the basis of that analysis

issued by the EBA, for the review of the permissions it grants to

credit institutions to use internal approaches for the calculations of

own funds requirements.

Deleted by Legal Notice 493 of 2021.

(1) For the purposes of regulations 3, 4(4) and (5), and 7(4),

and article 17E of the Act and the application of the CRR, the

competent authority shall have at least the following powers

(a) to require credit institutions to have additional own funds

in excess of the requirements set out in the CRR, under

the conditions set out in regulation 9A;

(b) to require the reinforcement of the arrangements,

processes, mechanisms and strategies implemented in

accordance with articles 17B and 17C of the Act;

(c) to require credit institutions to substitute a plan to

restore compliance with supervisory requirements in

accordance with the Act and any regulations made or

Banking Rules issued thereunder, with any binding legal

instruments issued under the CRD and with the CRR and

set a deadline for its implementation, including

improvements to that plan regarding scope and

deadline;

(d) to require credit institutions to apply a specific

provisioning policy or treatment of assets in terms of

own funds requirements;

(e) to restrict or limit the business, operations or network

of credit institutions or to request the divestment of

activities that pose excessive risks to the soundness of

the credit institution;

(f)

to require the reduction of the risk inherent in the

activities, products and systems of credit institutions,

including outsourced activities;

(g) to require credit institutions to limit variable

remuneration as a percentage of net revenues where it

is inconsistent with the maintenance of a sound capital

base;

(h) to require credit institutions to use net profits to

strengthen own funds;

(i)

to restrict or prohibit distributions or interest payments

by a credit institution to shareholders, members or

holders of Additional Tier 1 instruments within the

meaning of the CRR, where the prohibition does not

constitute an event of default of the credit institution;

(j)

to impose additional or more frequent reporting

requirements, including reporting on own funds, liquidity

and leverage;

(k) to impose specific liquidity requirements, including

restrictions on maturity mismatches between assets

and liabilities; and

(l)

to require additional disclosures.

(2) For the purposes of sub-regulation (1)(j), the competent

authority shall only impose additional or more frequent reporting

requirements on credit institutions where the relevant requirement

is appropriate and proportionate with regard to the purpose for

which the information is required and the information requested is

not duplicative

Provided that, for the purposes of article 17E of the Act,

and regulations 3 to 7, any additional information that may be

required from credit institutions shall be deemed as duplicative

where the same or substantially the same information has already

been otherwise reported to the competent authority or may be

produced by the competent authority

Provided further that credit institutions shall not be

required to report additional information where the competent

authority has previously received it in a different format or level of

granularity and that different format or granularity does not prevent

the competent authority from producing information of the same

qual ity and rel iabi lit y as that produ ced o n t he b asi s of th e

additional information that would be otherwise reported.

(3)

Deleted by Legal Notice 493 of 2021.

(1) The additional own funds requirement referred to in

regulation 9(1)(a) shall be imposed by the competent authority

where, on the basis of the reviews carried out in accordance with

regulations 3 and 7, it determines any of the following situations

for an individual credit institution

(a) the credit institution is exposed to risks or elements of

risk that are not covered or not sufficiently covered, as

specified in sub-regulation (2), by the own funds

requirements set out in Parts Three, Four and Seven of

the CRR and in Chapter 2 of Regulation (EU) 2017/

2402;

(b) the credit institution does not meet the requirements

set out in articles 17B and 17C of the Act or in Article

393 of the CRR and it is unlikely that other

supervisory measures would be sufficient to ensure

that those requirements can be met within an

appropriate time-frame;

(c) the adjustments referred to in regulation 4(4) are

deemed to be insufficient to enable the credit

institution to sell or hedge out its positions within a

short period without incurring material losses under

normal market conditions;

(d) the evaluation carried out in accordance with

regulation 7(4) reveals that the non-compliance with

the requirements for the application of the permitted

approach will likely lead to inadequate own funds

requirements;

(e) the credit institution repeatedly fails to establish or

maintain an adequate level of additional own funds to

cover the guidance communicated in accordance with

regulation 9B(3);

(f)

other institution-specific situations deemed by the

competent authority to raise material supervisory

concerns

Provided that the competent authority shall only impose the

additional own funds requirement referred to in regulation 9(1)(a)

to cover the risks incurred by individual credit institutions due to

their activities, including those reflecting the impact of certain

economic and market developments on the risk profile of an

individual credit institution.

(2) For the purposes of sub-regulation (1)(a), risks or elements

of risk shall only be considered as not covered or not sufficiently

covered by the own funds requirements set out in Parts Three, Four

and Seven of the CRR and in Chapter 2 of Regulation (EU) 2017/

2 4 0 2 w h e r e t h e a m o u n t s , t y p es a n d d i s t r i b u t i o n o f c a p i t a l

considered adequate by the competent authority, taking into

account the supervisory review of the assessment carried out by

credit institutions in accordance with article 17C of the Act, are

higher than the own funds requirements set out in Parts Three, Four

and Seven of the CRR and in Chapter 2 of Regulation (EU) 2017/

2402. (3) For the purposes of sub-regulation (2), the competent

authority shall assess, taking into account the risk profile of each

individual credit institution, the risks to which the credit institution

is exposed, including

(a) institution-specific risks or elements of such risks that

are explicitly excluded from or not explicitly

addressed by the own funds requirements set out in

Parts Three, Four and Seven of the CRR and in

Chapter 2 of Regulation (EU) 2017/2402;

(b) institution-specific risks or elements of such risks

likely to be underestimated despite compliance with

the applicable requirements set out in Parts Three,

Four and Seven of the CRR and in Chapter 2 of

Regulation (EU) 2017/2402

Provided that, to the extent that risks or elements of risk are

subject to transitional arrangements or grandfathering provisions

laid down in the Act and any regulations made and Banking Rules

issued thereunder transposing the CRD, in any binding legal

instruments issued under the CRD or in the CRR, they shall not be

considered risks or elements of such risks likely to be

underestimated despite compliance with the applicable

requirements set out in Parts Three, Four and Seven of the CRR and

in Chapter 2 of Regulation (EU) 2017/2402.

(4) For the purposes of sub-regulation (2), the capital

considered adequate shall cover all risks or elements of risks

identified as material pursuant to the assessment laid down in sub-

regulation (3) that are not covered or not sufficiently covered by

the own funds requirements set out in Parts Three, Four and Seven

of the CRR and in Chapter 2 of Regulation (EU) 2017/2402

Provided that interest rate risk arising from non-trading

book positions may be considered material at least in the cases

referred to in regulation 4(5), unless the competent authority, in

performing the review and evaluation, comes to the conclusion that

the credit institution’s management of interest rate risk arising from

no n - t r a d i ng b oo k a c t i v i ti e s is a d e q u a t e an d t ha t t h e cr e d it

institution is not excessively exposed to interest rate risk arising

from non-trading book activities.

(5) Where additional own funds are required to address risks

other than the risk of excessive leverage not sufficiently covered by

point (d) of Article 92(1) of the CRR, the competent authority shall

determine the level of the additional own funds required under sub-

regulation (1)(a) as the difference between the capital considered

adequate pursuant to sub-regulations (2) to (4) and the relevant own

funds requirements set out in Parts Three and Four of the CRR and

in Chapter 2 of Regulation (EU) 2017/2402

Provided that where additional own funds are required to

address the risk of excessive leverage not sufficiently covered by

point (d) of Article 92(1) of the CRR, the competent authority shall

determine the level of the additional own funds required under sub-

regulation (1)(a) as the difference between the capital considered

adequate pursuant to sub-regulations (2) to (4) and the relevant own

funds requirements set out in Parts Three and Seven of the CRR.

(6) The credit institution shall meet the additional own funds

requirement imposed by the competent authority under regulation

9(1)(a) to address risks other than the risk of excessive leverage

with own funds that satisfy the following conditions

(a) at least three quarters of the additional own funds

requirement shall be met with Tier 1 capital;

(b) at least three quarters of the Tier 1 capital referred to

in paragraph (a) shall be composed of Common Equity

Tier 1 capital.

(7) The credit institution shall meet the additional own funds

requirement imposed by the competent authority under regulation

9(1)(a) to address the risk of excessive leverage with Tier 1 capital.

(8) By way of derogation from sub-regulations (6) and (7), the

competent authority may require the credit institution to meet its

additional own funds requirement with a higher portion of Tier 1

capital or Common Equity Tier 1 capital, where necessary, and

having regard to the specific circumstances of the credit institution.

(9) Own funds that are used to meet the additional own funds

requirement referred to in regulation 9(1)(a) imposed by the

competent authority to address risks other than the risk of excessive

leverage shall not be used to meet any of the following

(a) own funds requirements set out in points (a), (b) and

(c) of Article 92(1) of the CRR;

(b) the combined buffer requirement;

(c) the guidance on additional own funds referred to in

regulation 9B(3) where that guidance addresses risks

other than the risk of excessive leverage.

(10) Own funds that are used to meet the additional own funds

requirement referred to in regulation 9(1)(a) imposed by the

competent authority to address the risk of excessive leverage not

sufficiently covered by point (d) of Article 92(1) of the CRR shall

not be used to meet any of the following

(a) the own funds requirement set out in point (d) of

Article 92(1) of the CRR;

(b) the leverage ratio buffer requirement referred to in

Article 92(1a) of the CRR;

(c) the guidance on additional own funds referred to in

regulation 9B(3), where that guidance addresses risks

of excessive leverage.

(11) The competent authority shall duly justify in writing to the

credit institution the decision to impose an additional own funds

requirement under regulation 9(1)(a), at least by giving a clear

account of the full assessment of the elements referred to in sub-

regulations (1) to (10). That justification shall include, in the case

set out in sub-regulation (1)(e), a specific statement of the reasons

for which the imposition of guidance on additional own funds is no

longer considered sufficient.

(1) Pursuant to the strategies and processes referred to in

article 17C of the Act, credit institutions shall set their internal

capital at an adequate level of own funds that is sufficient to cover

all the risks that a credit institution is exposed to and to ensure that

the credit institution’s own funds can absorb potential losses

resulting from stress scenarios, including those identified under the

supervisory stress test referred to in regulation 6.

(2) The competent authority shall regularly review the level of

the internal capital set by the credit institution in accordance with

sub-regulation (1) as part of the reviews and evaluations performed

in accordance with regulations 3 and 7, including the results of the

stress tests referred to in regulation 6. Pursuant to that review, the

competent authority shall determine for the credit institution the

overall level of own funds it considers appropriate.

(3) The competent authority shall communicate its guidance on

additional own funds to the credit institution. The guidance on

additional own funds shall be the own funds exceeding the relevant

amount of own funds required pursuant to Parts Three, Four and

Seven of the CRR, Chapter 2 of Regulation (EU) 2017/2402,

regulation 9(1)(a) and Article 128(6) of the CRD or pursuant to

Article 92(1a) of the CRR, as relevant, which are needed to reach

the overall level of own funds considered appropriate by the

competent authority pursuant to sub-regulation (2).

(4) The competent authority’s guidance on additional own

funds pursuant to sub-regulation (3) shall be institution-specific.

The guidance may cover risks addressed by the additional own

funds requirement imposed pursuant to regulation 9(1)(a) only to

the extent that it covers aspects of those risks that are not already

covered under that requirement.

(5) Own funds that are used to meet the guidance on additional

own funds communicated in accordance with sub-regulation (3) to

address risks other than the risk of excessive leverage shall not be

used to meet any of the following

(a) the own funds requirements set out in points (a), (b)

and (c) of Article 92(1) of the CRR;

(b) the requirement laid down in regulation 9A imposed

by the competent authority to address risks other than

the risk of excessive leverage and the combined buffer

requirement

Provided that own funds that are used to meet the guidance

on additional own funds communicated in accordance with sub-

regulation (3) to address the risk of excessive leverage shall not be

used to meet the own funds requirement set out in point (d) of

Article 92(1) of the CRR, the requirement laid down in regulation

9A imposed by the competent authority to address the risk of

excessive leverage and the leverage ratio buffer requirement

referred to in Article 92(1a) of the CRR.

(6) The failure to meet the guidance referred to in sub-

regulation (3) where a credit institution meets the relevant own

funds requirements set out in Parts Three, Four and Seven of the

CRR and in Chapter 2 of Regulation (EU) 2017/2402, the relevant

additional own funds requirement referred to in regulation 9(1)(a)

and, as relevant, the combined buffer requirement or the leverage

ratio buffer requirement referred to in Article 92(1a) of the CRR

shall not trigger the restrictions referred to in Article 141 or 141b

of the CRD.

The competent authority shall notify the Resolution

Committee of the additional own funds requirement imposed on

credit institutions pursuant to regulation 9(1)(a) and of any

g u i d a n c e o n a d d i t i o n al o w n f u n d s co m m u n i c a t e d t o c r e d i t

institutions in accordance with regulation 9B(3).

(1) For the purposes of determining the appropriate level

of liquidity requirements on the basis of the review and evaluation

carried out in accordance with these regulations, the competent

authority shall assess whether any imposition of a specific liquidity

requirement is necessary to capture liquidity risks to which a credit

i ns t it ut i on i s o r m ig ht b e exp ose d , t a k in g in to a c c ou nt t he

following

(a) the particular business model of the credit institution;

(b) the credit institution’s arrangements, processes and

mechanisms referred to in Section II of Chapter 2 of

Title VII of the CRD and in particular in Article 86 of

the CRD in relation to liquidity risk;

(c) the outcome of the review and evaluation carried out

in accordance with regulation 3.

(d) Deleted by Legal Notice 493 of 2021.

(2) In particular, without prejudice to regulation 7 of the

Administrative Penalties, Measures and Investigatory Powers

Regulations, the competent authority shall consider the need to

apply administrative penalties or other administrative measures,

including prudential charges, the level of which broadly relates to

the disparity between the actual liquidity position of a credit

institution and any liquidity and stable funding requirements

established at national or at European Union level.

(3) The competent authority shall monitor developments in

relation to liquidity risk profiles, for example product design and

volumes, risk management, funding policies and funding

concentrations.

(4) The competent authority shall take effective action where

developments referred to in sub-regulation (3) may lead to the

instability of an individual credit institution or systemic instability.

(5) The competent authority shall inform EBA about any

actions carried out pursuant to sub-regulation (4).

The competent authority shall inform EBA of

(a) the functioning of its review and evaluation process

referred to in regulation 3;

(b) the methodology used to base decisions on the

technical criteria for supervisory review referred to in

regulation 4, the supervisory stress testing in

regulation 6, the review of internal approaches in

regulation 7, the supervisory measures in article 17E

of the Act, the supervisory powers in regulation 9 and

the specific liquidity requirements in regulation 10, on

the process referred to in paragraph (a).

The competent authority shall apply the review and

evaluation process referred to in these regulations in accordance

with the level of application of the requirements of Part One, Title

II of the CRR.

(1) The competent authority shall collect the information

disclosed in accordance with the criteria for disclosure established in

points (g), (h), (i) and (k) of Article 450(1) of the CRR as well as the

information provided by credit institutions on the gender pay gap and

shall use that information to benchmark remuneration trends and

practices. The competent authority shall provide the EBA with such

information.

(2) The competent authority shall collect information on the

number of natural persons per credit institution that are

remunerated EUR 1 million or more per financial year, in pay

brackets of €1 million, including their job responsibilities, the

business area involved and the main elements of salary, bonus,

long-term award and pension contributions. The competent

authority shall forward such information to EBA.

The competent authority shall, taking into account the

nature, scale and complexity of the credit institutions’ activities,

monitor that credit institutions do not solely or mechanistically rely

on external credit ratings for assessing the creditworthiness of an

entity or financial instrument.

(1) Where the competent authority chooses to develop

specific portfolios of internal approaches permitted to be used by

credit institutions, it shall do so in consultation with the EBA and

shall ensure that credit institutions report the results of the

calculations for these specific portfolios separately from the results

of the calculations for the benchmark portfolios required under

Article 78 of the CRD.

(2) The competent authority shall, on the basis of the

information submitted by credit institutions, monitor the range of

risk weighted exposure amounts or own funds requirements, as

applicable, except for operational risk, for the exposures or

transactions in the benchmark portfolio resulting from the internal

approaches of those credit institutions. The competent authority

shall make an assessment, at least annually, of the quality of those

approaches paying particular attention to

(a) those approaches that exhibit significant differences in

own fund requirements for the same exposure;

(b) approaches where there is particularly high or low

diversity, and also where there is a significant and

systematic

under-estimation

of

own

funds

requirements.

(3) Where particular credit institutions diverge significantly

from the majority of their peers or where there is little commonality

in approach leading to a wide variance of results, the competent

authority shall investigate the reasons therefor and, if it can be

clearly identified that a credit institution’s approach leads to an

underestimation of own funds requirements which is not

attributable to differences in the underlying risks of the exposures

or positions, the competent authority, shall take corrective action.

(4) The competent authority shall ensure that its decision on

the appropriateness of corrective actions as referred to in sub-

regulation (3) comply with the principle that such actions must

maintain the objectives of an internal approach and therefore do

not

(a) lead to standardisation or preferred methods;

(b) create wrong incentives; or

(c) cause herd behaviour.

The competent authority shall collect the information

disclosed in accordance with Article 435(2)(c) of the CRR and

shall use it to benchmark diversity practices. The competent

authority shall provide that information to the EBA.

(1) The competent authority shall, in accordance with

Commission Implementing Regulation (EU) No 650/2014 of 4 June

2014 laying down implementing technical standards with regard to

the format, structure, contents list and annual publication date of

the information to be disclosed by competent authorities in

accordance with Directive 2013/36/EU of the European Parliament

and of the Council, as amended from time to time, publish the

following information

(a) the texts of laws, regulations, administrative rules and

general guidance adopted in Malta in the field of

prudential regulation;

(b) the manner of exercise of the options and discretions

available in European Union law;

(c) the general criteria and methodologies used in the

review and evaluation referred to in regulation 3

including the criteria for applying the principle of

proportionality as referred to in regulation 3(4);

(d) without prejudice to the provisions set out in Title VII,

Chapter 1, Section II of the CRD, aggregate statistical

data on key aspects of the implementation of the

prudential framework in Malta, including the number

and nature of supervisory measures taken in

accordance with article 17E(1)(a) of the Act, and of

administrative penalties imposed in accordance with

regulation 4(1), (2) and (3) and regulation 5 of the

Administrative Penalties, Measures and Investigatory

Powers Regulations.

(2) In terms of Article 143 of the CRD, the information

published in accordance with sub-regulation (1) shall be sufficient

to enable a meaningful comparison of the approaches adopted by

the European regulatory authorities. The disclosures shall be

published following a common format and updated regularly. The

disclosures shall be accessible at a single electronic location.

(1) For the purpose of Part Five of the CRR, relating to

exposures to transfer credit risk, the competent authority shall

publish the following information

(a) the general criteria and methodologies adopted to

review compliance with Articles 405 to 409 of the

CRR;

(b) without prejudice to the provisions laid down in Title

VII, Chapter 1, Section II of the CRD, a summary

description of the outcome of the supervisory review

and description of the measures imposed in cases of

non-compliance with Articles 405 to 409 of the CRR,

identified on an annual basis.

(2) If the competent authority exercises the discretion laid

down in Article 7(3) of the CRR, it shall publish the following

information

(a) the criteria it applies to determine that there is no

current or foreseen material practical or legal

impediment to the prompt transfer of own funds or

repayment of liabilities;

(b) the number of parent institutions in Malta and EU parent

institutions which benefit from the exercise of the

discretion laid down in Article 7(3) of the CRR and the

number of those which incorporate subsidiaries in a

third country;

(c) on an aggregate basis for Malta

(i)

the total amount of own funds on the

consolidated basis of the parent institution in

Malta, which benefits from the exercise of the

discretion laid down in Article 7(3) of the CRR,

which are held in subsidiaries in a third country;

(ii) the percentage of total own funds on the

consolidated basis of parent institutions in Malta

which benefits from the exercise of the

discretion laid down in Article 7(3) of the CRR,

represented by own funds which are held in

subsidiaries in a third country;

(iii) the percentage of total own funds required under

Article 92 of the CRR on the consolidated basis

of parent institutions in Malta, which benefits

from the exercise of the discretion laid down in

Article 7(3) of the CRR, represented by own

funds which are held in subsidiaries in a third

country.

(3) If the competent authority exercises the discretion laid

down in Article 9(1) of the CRR, it shall publish the following

information

(a) the criteria it applies to determine that there is no

current or foreseen material practical or legal

impediment to the prompt transfer of own funds or

repayment of liabilities;

(b) the number of parent institutions in Malta and EU parent

institutions which benefit from the exercise of the

discretion laid down in Article 9(1) of the CRR and the

number of such parent institutions which incorporate

subsidiaries in a third country;

(c) on an aggregate basis for Malta

(i)

the total amount of own funds of parent

institutions in Malta and EU parent institutions

which benefit from the exercise of the discretion

laid down in Article 9(1) of the CRR which are

held in subsidiaries in a third country;

(ii) the percentage of total own funds of parent

institutions in Malta and EU parent institutions

which benefit from the exercise of the discretion

laid down in Article 9(1) of the CRR represented

by own funds which are held in subsidiaries in a

third country;

(iii) the percentage of total own funds required under

Article 92 of the CRR of parent institutions in

Malta and EU parent institutions which benefit

from the exercise of the discretion laid down in

Article 9(1) of the CRR represented by own

funds which are held in subsidiaries in a third

country.