The Daisy Chain Regulation

On 14 November 2022, the Regulation (EU) 2022/2036 of the European Parliament and of the Council came in force (the Daisy Chain Regulation) and amended the Capital Requirements Regulation (EU) No 575/2013 (CRR) and the Banking Recovery and Resolution Directive (2014/59/EU) (BRRD) which constitute the prudential regulatory framework for credit institutions operating in the European Union (EU).

The Daisy Chain Regulation aims to revise the minimum requirements of own funds and eligible liabilities (MREL) regime and align the resolution treatment of global systemically important institutions (G-SII) in the prudential regulatory framework.

New adjustments on CRR

Consolidated calculation for G-SIIs with multiple resolution entities (Article 12a CRR) which are defined as being entities where at least two G-SII entities belonging to the same G-SII are resolutions entities or third country entities that would be a resolution entity if it were established in the EU. The EU parent institution of that G-SII shall calculate own funds and eligible liabilities for (i) each resolution entity or third country that would be a resolution entity if it were established in the EU and (ii) the EU parent institution as if it were the only resolution entity of the G-SII.

Deductions from eligible liabilities items (New article 477a CRR): EU parent institutions are now permitted to deduct a lower amount for the holdings of the own funds and eligible liabilities of their EU and foreign subsidiaries. This new possibility is subject to the permission of the resolution authorities or relevant third-country authorities of any subsidiaries concerned.

Calendar and grandfathering provisions: these adjustments are in force as from 14 November 2022. However, Article 1, point (3), point (5)(b), and points (7), (8) and (9) of the Daisy Chain Regulation and linked to this adjustments shall apply from 1 January 2024.

New adjustments on BRRD

Revision of the MREL provision (Article 45 BRRD):

• the relevant resolution authorities shall calculate the amount of own funds and eligible liabilities for each resolution entity or third-country entity that would be a resolution entity if it were established in the EU and/or for the EU parent undertaking as if it were the only resolution entity of the G-SII;
• the relevant resolution authorities shall discuss and, where appropriate and consistent with the G-SII’s resolution strategy, agree on the application of the deduction of certain holdings of own funds instruments and eligible liabilities of its subsidiaries that do not belong to the same resolution group and any adjustment to minimise or eliminate the difference between the sum of the amounts referred to the MREL provision (article 45d(4), point (a)) and the initial capital defined under article 12a, point (a) of the CRR.

Assessment by the European Commission of the indirect subscription of instruments eligible for meeting MREL (New paragraph in Article 129 BBRD): notably on the possibility to allow entities that are not themselves resolution entities to comply with the MREL on a consolidated basis. This assessment will apply to different types of banking group structures, including where groups have an operating company between the holding company identified as a resolution entity and its subsidiaries.

Calendar and grandfathering provisions: Member States of the European Union shall bring into force the laws, regulations and administrative provisions necessary to comply with the above adjustments by 15 November 2023. Other minor adjustments are in force as from 14 November 2022.