Regulation. Outlook 4Q16. Management Solutions All rights reserved.

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1 Management Slutins All rights reserved. Regulatin Outlk 4Q16 R & D

2 Design and Layut: Marketing and Cmmunicatin Department Management Slutins Phtgraphs: Management Slutins picture library, Ftlia Management Slutins 2017 All rights reserved. This publicatin may nt be reprduced, distributed, publicly released r transfrmed, whlly r in part, freely r nerusly, using any means r methds, withut the prir written cnsent f Management Slutins. The cntents f this publicatin are prvided fr infrmatin purpses nly. Management Slutins des nt accept any liability fr the use that might be made f this infrmatin by third parties. The use f this material by anyne withut the express authrizatin f Management Slutins is frbidden.

3 Regulatin Outlk 4Q16 Table f cntents Executive summary 4 Regulatry prjectins 5 Publicatins f this quarter 6 Management Slutins Alert System n Regulatin 52 3

4 Executive summary Special mentin shuld be made f the refrm package f the financial sectr published by the Eurpean Cmmissin (EC) during the last quarter f 2016, which aims t intrduce int EU law, amng ther requirements, several internatinally agreed standards which are elements f the Basel III agenda. Furthermre, the EC endrsed IFRS 9 int the EU as adpted by the IASB. 4 Glbal publicatins The BCBS published a cnsultatin dcument and a discussin paper n the regulatry treatment f accunting prvisins fr capital purpses. The cnsultatin dcument sets ut a prpsal t retain, fr an interim perid, the current regulatry treatment; whereas the discussin paper prvides several ptins fr the lng-term treatment f prvisins under the new expected credit lsses (ECL) standards. The FSB issued the 2016 list f glbal systemically imprtant banks (G-SIBs) and the 2016 list f glbal systemically imprtant insurers. With regard t the Ttal Lss-Absrbing Capacity requirement (TLAC), the BCBS published the final standard n the regulatry capital treatment f investments in TLAC; whereas the FSB launched a public cnsultatin prpsing a set f high-level principles n the internal TLAC f G-SIBs. Eurpean publicatins Special mentin shuld be made f the refrm package f the financial system by the EC, prpsing t the Parliament and the Cuncil that several internatinally agreed standards issued by the BCBS and the FSB are intrduced int EU law, amng ther requirements. Thus, the EC prpses t transpse the TLAC (amending the MREL), a binding Leverage Rati (LR), the Net Stable Funding Rati (NSFR), the new requirements fr market risk, etc. This refrm wuld entail the amendment f relevant legislative acts (e.g. CRR, CRD IV, BRRD, etc.). The EC endrsed IFRS 9 int the EU as adpted by the IASB in 2014, applying frm Further, the EBA published Final ITS amending the ITS n supervisry reprting with regard t FINREP, with the aim f aligning the reprting framewrk with the new IFRS 9 requirements. The EBA published RTS n the assessment methdlgy f Internal Mdels Apprach (IMA) fr market risk t be used by cmpetent authrities (CAs); and launched a public cnsultatin n the estimatin f credit risk parameters fr IRB (PD and LGD). Eurpean publicatins (cntinuatin) The EBA published Guidelines (GL) specifying the infrmatin that CAs shuld cllect n ICAAP and ILAAP under the SREP. The EBA als launched a cnsultatin paper f GL n internal gvernance, which aims t update GL 44. The EBA published cnsultatin GL regarding the infrmatin and cmmunicatin technlgy (ICT) risk under SREP. Finally, the EBA published the results f the 2016 EU-wide transparency exercise. The ECB published its 2017 supervisry pririties: business mdels and prfitability drivers; credit risk, with a fcus n nnperfrming lans and cncentratins; and risk management, including RDA&RR, ICAAP and ILAAP, internal mdels, and utsurcing. The ECB published several draft guidance, such as a guide n leveraged transactins. Lcal publicatins The Bank f Spain published the updated list f institutins that are cnsidered G-SIIs and O-SIIs in 2017, specifying their relevant capital buffers. In USA, the Fed published the final rule under which G-SIBs will be required t meet a new lng-term debt (LTD) requirement and the TLAC. Further, the Fed, the OCC and the FDIC issued a jint prpsal regarding enhanced cyber risk management standards fr large and intercnnected entities under their supervisin and thse entities service prviders. The Bank f England (BE) published the results f the 2016 stress test f the UK banking system. These results were assessed against the BE s hurdle rate framewrk, cmprising elements expressed bth in terms f risk-weighted capital and leverage ratis.

5 Regulatry prjectins Regulatin Outlk 4Q16 The BCBS has pstpned the finalisatin f the review f the Basel III framewrk, initially scheduled fr January 2017, withut specifying when it will be accmplished. In the EU, the Parliament (EP) and the Cuncil will cntinue t deliberate n the refrm package prpsed by the EC. In Spain, the BdE is expected t publish a Pryect de Circular t adapt the allwance standards t the expected lss mdel intrduced by IFRS 9. Regulatry prjectins 1. Next quarter (Glbal) T be determined: the BCBS is expected t finalise the review f the Basel III framewrk by publishing standards n the revised standardised apprach fr credit risk, n the review f the IRB apprach, n the review f the standardised apprach and the basic apprach fr CVA, n the new apprach fr peratinal risk (SMA), n the capital flr based n the standardised methds (which wuld replace the Basel I flr), and n the LR (which may include a G-SIB surcharge). (Eurpe) T be determined: the EP and the Cuncil are expected t apprve the refrm package f the financial system, amending several legislative acts (CRR, CRD IV, BRRD, etc.). (Spain) T be determined: the Bank f Spain is expected t publish a Pryect de Circular t adapt the allwance standards t the expected lss mdel that will be intrduced by IFRS 9. (Eurpe) January 2017: the EBA GL n infrmatin n ICAAP and ILAAP under the SREP will be applicable. (Eurpe) January 2017: the EBA GL n limits n expsures t shadw banking entities will be applicable. (Eurpe) March 2017: the EBA is expected t publish a cnsultatin paper f draft RTS n the specificatin f the nature, severity and duratin f an ecnmic dwnturn, in the cntext f the IRB apprach. (UK) March 2017: the BE will publish the scenaris fr the 2017 stress test. 2. Next year (Eurpe) April 2017: the EBA will update the list f ther systemically imprtant institutins (O-SIIs). (Eurpe) June 2017: the EBA GL n disclsure f the Liquidity Cverage Rati (LCR) will be applicable. (Eurpe) June 2017: the 4 th Directive n anti-mney laundering (AML) shall be implemented by Member States. (Eurpe) June 2017: the EBA is expected t publish GL n the assessment f the ICT risk. (Eurpe) June 2017: the CAs are expected t apply the EBA revised GL n internal gvernance. (Glbal) Nvember 2017: the FSB will update the list f G-SIBs. (Glbal) December 2017: sme f the Pillar 3 disclsure requirements issued by the BCBS will be applicable. (Eurpe) December 2017: the EBA GL n Pillar 3 disclsure requirements will be applicable. (UK) December 2017: the BE will publish the results f the 2017 stress test. 3. Mre than a year (Glbal) January 2018: IFRS 9 will have t be implemented. (Glbal) January 2018: the NSFR and its disclsure requirements will be applicable. (Glbal) January 2018: the revised securitisatin framewrk will cme int frce. (Glbal) January 2018: the LR will migrate t a Pillar 1 minimum capital requirement. (Eurpe) January 2018: MiFID II and PSD2 shall be implemented by Member States. (Eurpe) January 2018: the Regulatin n key infrmatin dcuments fr package retail and insurance-based investment prducts (PRIIPs) will be applicable. (USA) January 2018: the NSFR will be applicable in USA. (Eurpe) May 2018: the General Data Prtectin Regulatin will be applicable. (Eurpe) September 2018: institutins are expected t start reprting under AnaCredit. (Glbal) December 2018: the revised standards n IRRBB will be applicable. (Glbal) January 2019: the revised market risk framewrk (FRTB) will be applicable. (Glbal) January 2019: G-SIBs nt headquartered in an emerging market ecnmy will be required t cmply with a minimum TLAC requirement f 16% f risk-weighted assets and 6% f the LR expsure. (USA) January 2019: the new requirements n LTD and TLAC will be applicable. (UK) January 2019: the ring-fencing rules will be implemented. (Eurpe) December 2020: accrding t the EBA s timeline, the effective implementatin f the amendments t the IRB apprach shuld finalise (e.g. definitin f default, estimatin f IRB parameters, etc.). 5

6 Publicatins f this quarter Summary f utstanding publicatins f this quarter. Tpic Title Date Page Basel Cmmittee n Banking Supervisin Regulatry treatment f accunting prvisins Cnsultative dcument n regulatry treatment f accunting prvisins interim apprach and transitinal arrangements Discussin paper n regulatry treatment f accunting prvisins 13/10/ Regulatry treatment f TLAC hldings Final Standard n TLAC hldings Amendments t the Basel III standards n the definitin f capital 14/10/ Financial Stability Bard List f G-SIBs 2016 list f glbal systemically imprtant banks (G-SIBs) 2016 list f glbal systemically imprtant insurers (G-SIIs) 21/11/ Infrmatin n glbal systemically imprtant banks (published by the BCBS) Internal TLAC Cnsultative dcument n Guiding Principles n the internal TLAC f G-SIBs Cnsultative dcument n Guidance n Cntinuity f Access t Financial Market Infrastructures fr a Firm in Reslutin 19/12/ Eurpean Cmmissin Refrm package f the financial sectr Prpsal fr a Directive amending the CRD IV Prpsal fr a Regulatin amending the CRR and EMIR Prpsal fr a Directive amending the BRRD n lss- absrbing and recapitalisatin capacity f credit institutins and investment firms Prpsal fr a Directive amending the BRRD as regards the ranking f unsecured debt instruments in inslvency hierarchy Prpsal fr a Regulatin amending the SRMR 24/11/ IFRS 9 Regulatin (EU) 2016/2067, amending Regulatin (EC) N 1126/2008 and adpting certain internatinal accunting standards as regards IFRS 9. 30/11/

7 Regulatin Outlk 4Q16 Tpic Title Date Page Eurpean Banking Authrity ICT risk Cnsultatin Paper n Guidelines n ICT Risk Assessment under the Supervisry Review and Evaluatin Prcess (SREP) 07/10/ Large expsures Reprt n the review f the large expsures regime 25/10/ Reprting: MREL Cnsultatin Paper n ITS n prcedures and templates fr the identificatin and transmissin f infrmatin by reslutin authrities t the EBA n MREL under the BRRD Annex t the Cnsultatin paper n ITS n MREL reprting by Reslutin Authrities (Annex I and Annex II) 25/10/ Gvernance Cnsultatin Paper Draft Guidelines n internal gvernance 31/10/ Reprting: ICAAP and ILAAP Final Guidelines n ICAAP and ILAAP infrmatin cllected fr SREP purpses 03/11/ SA-CCR and market risk Reprt in respnse f the EC s CfA n standardised apprach fr cunterparty credit risk and wn funds requirements fr market risk 07/11/ Reprting: peratinal risk and svereign expsures Cnsultatin Paper n Draft ITS amending Implementing Regulatin (EU) N 680/2014 with regard t peratinal risk and svereign expsures Annex I- Templates fr reprting n wn funds and wn funds requirements (changes shwing) Annex II Instructins fr reprting n wn funds and wn funds requirements 15/11/ IRB apprach fr credit risk Cnsultatin Paper n Guidelines n PD estimatin, LGD estimatin and the treatment f defaulted expsures 16/11/ IMA fr market risk Final draft RTS n the specificatin f the assessment methdlgy fr cmpetent authrities regarding cmpliance f an institutin with the requirements t use internal mdels fr market risk and assessment f significant share 23/11/ Reprting: FINREP Final draft ITS Cmmissin Implementing Regulatin (EU) 680/2014 n supervisry reprting f institutins with regard t FINREP fllwing the changes in IFRS 9 Annex I (FINREP Annex III IFRS templates) Annex II (FINREP Annex IV ngaap templates) Annex III rev1 (FINREP Annex V Instructins) 01/12/ Transparency exercise Risk Assessment f the Eurpean Banking system 2016 EU- wide transparency exercise 05/12/ Design f MREL Final Reprt n the implementatin and design f the MREL framewrk 15/12/ Pillar 3 Final Guidelines n disclsure requirements under Part Eight f the CRR 15/12/ IRB apprach fr credit risk Stress test EBA Qualitative survey n IRB mdels Instructins fr the EBA qualitative survey n IRB mdels (Dec 2016) Decisin by the EBA Bard f Supervisrs regarding and EU- wide stress test in /12/ /12/

8 Tpic Title Date Page Eurpean Securities and Markets Authrity / Eurpean Banking Authrity Suitability assessment Cnsultatin paper n the assessment f the suitability f members f the management bdy and key functin hlders under the CRD IV and MiFID II Annex I Template fr the assessment f cllective suitability 02/11/ Optins and discretins Eurpean Central Bank Draft Guideline n the exercise f ptins and discretins available in Unin law by NCAs in relatin t less significant institutins Draft Recmmendatin n cmmn specificatins fr the exercise f sme ptins and discretins available in Unin law by NCAs in relatin t less significant institutins 04/11/ Suitability assessment Leveraged transactins Supervisry pririties Draft guide t fit and prper assessments 15/11/ Cnsultatin paper n Draft Guidance n leveraged transactins 25/11/ SSM supervisry pririties fr /12/ Cunterparty credit risk Cnsultatin n Guide n materiality assessment fr IMM and A-CVA mdel extensins and changes 20/12/ Bank f Spain G-SII and O-SII Lista actualizada de entidades de sistémicas y clchnes de capital en /11/ Federal Reserve / FDIC / OCC Cyber Risk Advance ntice f prpsed rulemaking n Enhanced Cyber Risk Management Standards 20/10/ LCR Final rule n LCR disclsure requirements 20/12/ Federal Reserve LTD and TLAC Final rule n LTD and TLAC requirements 16/12/ Bank f England Stress test UK Stress testing the UK banking system: 2016 results 30/11/ Prudential Regulatin Authrity MiFID II Cnsultatin paper n the implementatin f MiFID II: Part 2 28/11/

9 Regulatin Outlk 4Q16 9

10 Publicatins f this quarter Glbal publicatins 13/10/2016 Cnsultative dcument n regulatry treatment f accunting prvisins interim apprach and transitinal arrangements. Discussin paper n regulatry treatment f accunting prvisins. 1. Cntext Bth the Internatinal Accunting Standards Bard (IASB) and the US Financial Accunting Standards Bard (FASB) adpted prvisining standards that require the use f expected credit lsses (ECL) mdels rather than incurred lss mdels. In this regard, the BCBS is supprtive f the ECL appraches, but nevertheless needs t cnsider the implicatins fr regulatry capital f these appraches. In this cntext, the BCBS has published a cnsultative dcument that sets ut a prpsal t retain, fr an interim perid, the current regulatry treatment f prvisins under the standardised (SA) and the internal ratings-based (IRB), and cnsults n whether any transitinal arrangement may be necessary t allw banks time t adjust t the new ECL accunting standards; and a discussin paper n the plicy ptins fr the lng-term regulatry treatment f prvisins under the new ECL standards. 2. Main pints Cnsultative dcument n regulatry treatment f accunting prvisins - interim apprach and transitinal arrangements 10 Prpsal fr an interim perid. The BCBS is prpsing t retain the current regulatry treatment f accunting prvisins. The current regulatry treatment is as fllws: Standardized Apprach (SA): banks are permitted t include general prvisins (GP) in Tier 2 capital up t a limit f 1.25% f credit RWAs (specific prvisins d nt qualify fr inclusin in Tier 2 capital). Expsures are net f SP and grss f GP. IRB apprach: any shrtfall between ttal eligible prvisins (as defined in Basel II) and the regulatry expected lss (EL) is fully deducted frm CET1, whereas any excess is added t Tier 2 capital, up t a limit f 0.6% f credit RWAs. Neither SP nr GP are deducted frm EAD. An imprtant issue is t define which prtins f prvisins shuld be regarded as SP and GP fr regulatry purpses. In this regard, the BCBS is prpsing that jurisdictins wuld extend their existing appraches t categrising prvisins as GP r SP t prvisins measured under the applicable ECL accunting mdel. Pssible transitinal arrangements. The BCBS has identified a number f reasns why it may be apprpriate t intrduce a transitinal arrangement fr the impact f ECL accunting n regulatry capital. Regarding these transitinal arrangements: Sme issues that wuld need t be cnsidered include the fllwing: what capital metrics shuld be referenced (e.g. CET1), the perid t be allwed fr transitin (the BCBS is cnsidering a perid frm 3 t 5 years), etc. The BCBS prvides three appraches that are examples f hw a transitinal arrangement might be structured (the BCBS s current preference is fr Apprach 1): Apprach 1: Day 1 impact n CET1 capital spread ver a specified number f years (an explanatin f the mechanics f this arrangement is given in the dcument). Apprach 2: CET1 capital adjustment linked t Day 1 prprtinate increase in prvisins. Apprach 3: phased prudential recgnitin f IFRS 9 Stage 1 and 2 prvisins. Discussin paper n regulatry treatment f accunting prvisins Plicy ptins fr the lnger-term regulatry treatment f prvisins. The BCBS is cnsidering the fllwing preliminary appraches (althugh the BCBS is pen t cmments and prpsals ther than these raised in the discussin paper): T retain the current regulatry treatment f prvisins (as explained abve), including the distinctin between GP and SP, as a permanent apprach. T intrduce a universally applicable and binding definitin f GP and SP, while retaining the current regulatry treatment based n the GP/SP distinctin.

11 Regulatin Outlk 4Q16 T change the current regulatry treatment under the SA, remving the GP/SP distinctin and intrducing a regulatry expected lss (EL). The BCBS specifies, amng thers, that: All accunting prvisins wuld be treated in the same way, aligning with the IRB appraches. Standardised regulatry EL wuld be intrduced under the SA, serving as the minimum amunt f credit lsses that regulatrs wuld require banks t cver in the frm f CET1 reductin under the Pillar 1 capital requirements. The BCBS wuld prvide standardised regulatry EL rates (fr each risk weight in each expsure class) and banks wuld multiply these figures with relevant expsure values. If capital requirements increase significantly, cmpared with the revised SA, the BCBS wuld assess t what extent adjustments may be necessary. Cmments n the prpsals shuld submitted by 13 January

12 14/10/2016 Final Standard n TLAC hldings Amendments t the Basel III standards n the definitin f capital. 1. Cntext In Nvember 2015, the FSB published an internatinal standard fr Glbal Systemically Imprtant Banks (G-SIBs) n lssabsrbing and recapitalisatin capacity in reslutin, which includes a minimum requirement fr Ttal Lss-Absrbing Capacity (TLAC). At the same time, the BCBS cnsulted n its prpsed deductin treatment fr banks investments in TLAC issued by ther G- SIBs, and als n its prpsals n the extent t which instruments ranking pari passu with TLAC shuld be subject t the same deductin treatment. In this cntext, the BCBS has published the final standard n the regulatry capital treatment f banks investments in TLAC and pari passu instruments. This standard aims t reduce the risk f cntagin within the financial system shuld a G- SIB enter reslutin. 2. Main pints 12 Tier 2 deductin apprach. Internatinally active banks (bth G-SIBs and nn-g-sibs) must deduct their TLAC hldings that d nt therwise qualify as regulatry capital frm their wn Tier 2 capital, taking int cnsideratin the fllwing: Under Basel III, if the investing bank des nt wn mre than 10% f the cmmn shares f the issuer, then capital hldings are deducted nly t the extent that they exceed a threshld (10% f the investing bank s cmmn equity). The BCBS has extended this treatment t TLAC hldings. Thus, TLAC hldings may be included within the threshld and the deductin shuld be applied as fllws: In the case f capital instruments, t the same cmpnent f capital fr which the capital wuld qualify if it was issued by the bank itself (e.g. AT1 instruments, t AT1). In the case f hldings f ther TLAC instruments, t Tier 2 capital. The BCBS has intrduced an additinal threshld that may be used fr nn-regulatry capital TLAC hldings nly, and which is equivalent t 5% f the investing bank s cmmn equity. In this regard: This threshld nly applies where the investing bank des nt wn mre than 10% f the cmmn shares f the issuer (therwise, TLAC hldings must be fully deducted frm Tier 2 capital). Where the investing bank is a G-SIB, the additinal threshld may be used nly fr TLAC hldings in the trading bk that are sld within 30 business days. Reciprcal crss-hldings f TLAC between G-SIBs must be fully deducted frm Tier 2 capital. A G-SIB s hldings f its wn nn-regulatry-capital TLAC must be deducted frm its wn TLAC resurces. Definitin f TLAC hldings. T better meet the bjective f limiting cntagin, the BCBS has defined TLAC hldings mre bradly than thse instruments that are actively being recgnised by the issuing G-SIB as TLAC. Thus, fr the purpse f calculating regulatry capital requirements, the definitin f relevant TLAC hldings: Includes all direct, indirect and synthetic hldings f external TLAC. Includes all instruments ranking pari passu with subrdinated frms f TLAC. Excludes all hldings f instruments r ther claims listed in the Excluded Liabilities sectin f the FSB TLAC Term Sheet. Other TLAC-related changes t Basel III. It is specified that any CET1 capital that is being used t meet the TLAC requirement cannt be used t meet the regulatry capital buffers, which is cnsistent with the FSB TLAC Term Sheet. These requirements will take effect at the same time as the minimum TLAC requirements fr each G-SIB. Thus, they will take effect n 1 January 2019 fr investments in mst G-SIBs, but later fr thse whse headquarters are in emerging market ecnmies.

13 Regulatin Outlk 4Q16 21/11/ list f glbal systemically imprtant banks (G-SIBs) list f glbal systemically imprtant insurers (G-SIIs). Infrmatin n glbal systemically imprtant banks. 1. Cntext In Nvember 2011 the FSB published an integrated set f plicy measures t address the systemic and mral hazard risks assciated with systemically imprtant financial institutins (SIFIs). In that publicatin, the FSB identified an initial grup f glbal systemically imprtant banks (G-SIBs), and in July 2013 the FSB published an initial list f glbal systemically imprtant insurers (G-SIIs). These lists are updated annually. In this regard, the FSB has published the 2016 list f G-SIBs and the 2016 list f G-SIIs. In parallel with these publicatins, the BCBS has released additinal infrmatin regarding the assessment methdlgy used fr the purpse f the list f G- SIBs. 2. Main pints FSB list f G-SIBs The 30 institutins identified as G-SIBs in 2016 remain the same as thse n the 2015 list. Nnetheless, there are changes in the allcatin acrss buckets f the institutins. The inclusin f a bank in the G-SIBs list means that the institutin is subject t: Higher capital buffer requirements. The Ttal-Lss Absrbing Capacity (TLAC) requirements. Reslvability requirements, which include grup-wide reslutin planning and regular reslvability assessments. Higher supervisry expectatins fr risk management functins, data aggregatin capabilities, risk gvernance and internal cntrls. FSB list f G-SIIs The 9 insurers n the 2016 G-SII list remain the same as thse n the 2015 list. The inclusin f an insurer in the G-SII list means that the insurer is subject t: A Higher lss absrbency (HLA) requirement, which is still under develpment. Enhanced grup-wide supervisin, including fr the grup-wide supervisr t have direct pwers ver hlding cmpanies and t versee the develpment and implementatin f a Systemic Risk Management Plan and a Liquidity Management Plan. Reslvability requirements, which include grup-wide recvery and reslutin planning and regular reslvability assessments. BCBS - Additinal infrmatin The BCBS has published the fllwing infrmatin regarding the assessment methdlgy used fr the purpse f the list f G-SIBs: A list f the banks included in the assessment sample, and the links t the disclsures f thse banks. The denminatrs used t calculate the scres fr sample banks. The cut-ff scre and bucket threshlds. The reprting instructins. 13 Bth lists will be updated in Nvember The assignment f G-SIBs t the buckets in the list published determines the higher capital buffer requirements that will apply t each G-SIB frm 1 January The TLAC standard will be phased-in frm 1 January The HLA requirement fr G-SIIs, which is still under develpment, is scheduled t be applied starting frm January 2019 t thse G-SIIs identified in Nvember 2017.

14 19/12/2016 Cnsultative dcument n Guiding Principles n the Internal TLAC f G-SIBs. Cnsultative dcument n Guidance n Cntinuity f Access t Financial Market Infrastructures fr a Firm in Reslutin. 1. Cntext In Nvember 2015 the FSB, in cnsultatin with the BCBS, finalised a new standard n the adequacy f ttal lss-absrbing capacity fr glbal systemically imprtant banks (G-SIBs) in reslutin ( the TLAC standard ). This standard requires a certain amunt f the TLAC resurces f a G-SIB ( internal TLAC ) t be cmmitted t material sub-grups that are lcated in hst jurisdictins. In this regard, the FSB has published a Cnsultative dcument n the internal TLAC f G-SIBs, which prpses a set f high-level guiding principles t assist hme and hst authrities in the implementatin f internal TLAC mechanisms cnsistent with the TLAC standard. Sme f these principles are described belw. Alng with this cnsultative dcument, the FSB has als published a Cnsultative dcument n Cntinuity f Access t Financial Market Infrastructures (FMIs) fr a Firm in Reslutin, setting ut the arrangements required t this end. Nnetheless, this cnsultative dcument has nt been analysed within this publicatin alert. 2. Main pints 14 Material sub-grup identificatin and cmpsitin. Amng ther principles, it is prpsed that: Hst authrities shuld, in cnsultatin with the hme authrity and the Crisis Management Grup (CMG), identify material sub-grups in their jurisdictin and determine their cmpsitin and the distributin f internal TLAC between the entities that frm the material sub-grup. Material sub-grups shuld nly cnsist f entities in mre than ne jurisdictin where there is a single reslutin regime in thse jurisdictins (r a high degree f cperatin between the hst authrities). Size f the internal TLAC requirement. Amng ther principles, it is prpsed that: Hst authrities retain ultimate respnsibility fr setting the internal TLAC requirement (between 75% and 90% f the external minimum TLAC, as set ut in the TLAC standard) fr the material sub-grups in their jurisdictin (but shuld d s in cnsultatin with the hme authrity). In cases where there is surplus TLAC (i.e. TLAC at the reslutin entity that is nt distributed t material subgrups), hme authrities shuld cnsider its characteristics t ensure that it is readily available t recapitalise any direct r indirect subsidiary. Cmpsitin and issuance f internal TLAC. Amng ther principles, it is prpsed that: Hst authrities shuld determine the cmpsitin f internal TLAC in cnsultatin with the hme authrity. They may cnsider the inclusin f an expectatin that internal TLAC cnsist f debt liabilities accunting fr an amunt f at least 33% f the requirement. The issuance f internal TLAC shuld credibly supprt the reslutin strategy. If nt, authrities shuld require G- SIBs t change their TLAC issuance strategies. Features f trigger mechanisms fr internal TLAC. It is prpsed that: Cntractual triggers fr internal TLAC shuld specify the cnditins under which a write-dwn and/r cnversin int equity is expected t take place. Authrities shuld cnsider if Pint f Nn-Viability (PONV) pwers (i.e. ability f an authrity t write dwn and/r cnvert t equity regulatry capital/ther TLAC instruments when the authrity determines that therwise the relevant entity wuld becme nn-viable) shuld be cmplemented with apprpriate cntractual PONV triggers. The prcess fr triggering internal TLAC. The FSB prpses principles divided int 3 stages: Stage 1: hme and hst cmmunicatin prir t triggering internal TLAC (e.g. hst authrities shuld make hme authrities aware that they are cnsidering making a determinatin that the material sub-grup has reached PONV). Stage 2: determinatin t trigger internal TLAC (e.g. the decisin t trigger internal TLAC shuld be based n the determinatin that the material sub-grup has reached PONV). Stage 3: write-dwn and/r cnversin f internal TLAC (e.g. the hst authrity shuld determine the capital shrtfall f a material sub-grup that has reached PONV). Cmments t this cnsultative dcument shall be submitted by 10 February The FSB will undertake a review f the technical implementatin f the TLAC standard by the end f 2019.

15 Regulatin Outlk 4Q16 15

16 Publicatins f this quarter Eurpean publicatins 24/11/2016 Prpsal fr a Directive amending the CRD IV. Prpsal fr a Regulatin amending the CRR and EMIR. Prpsal fr a Directive amending the BRRD n lss-absrbing and recapitalisatin capacity f credit institutins and investment firms. Prpsal fr a Directive amending the BRRD as regards the ranking f unsecured debt instruments in inslvency hierarchy. Prpsal fr a Regulatin amending the SRMR. 1. Cntext In the wake f the financial crisis, the EU pursued an ambitius refrm f the financial regulatry framewrk t bring back financial stability and market cnfidence, designed t cmply with the internatinally agreed standards. Hwever, t tackle remaining weaknesses and implement the new regulatry develpments at internatinal level, a further review f the framewrk was needed. In this cntext, the EC has published a refrm package f the financial system, whereby is prpsing t amend the Capital Requirement Directive (CRD IV), the Capital Requirement Regulatin (CRR), the Bank Recvery and Reslutin Directive (BRRD), the Single Reslutin Mechanism Regulatin (SRMR), and the Regulatin n EMIR. Sme f the key elements f this refrm are the leverage rati (LR), the ttal lss absrbing capacity (TLAC) requirement, the net stable funding rati (NSFR) and the capital requirements fr market risk derived frm the Fundamental Review f the Trading Bk (FRTB). 2. Main pints 16 Revisin f MREL and implementatin f TLAC. The TLAC standard is implemented by intrducing a minimum Pillar 1 MREL requirement in the CRR. This minimum requirement is applicable nly t G-SIIs (n either an individual basis r a cnslidated basis, and in certain cases it applies t nn-eu G-SIIs), cmprising an external MREL requirement applicable t reslutin entities and an internal MREL requirement applicable t subsidiaries which are nt reslutin entities. External MREL shall be f at least 18% f RWAs and 6.75% f the LR expsure (althugh transitinal prvisins are included). In case a bank des nt have sufficient amunt f eligible liabilities, the shrtfall is autmatically filled up with CET1, which may lead t a breach f the cmbined capital buffer requirement, triggering a limit f discretinary payments. The existing MREL requirement in the BRRD (Pillar 2 MREL requirement) is mdified t be aligned with the TLAC standard (e.g. it shuld be expressed as a percentage f the RWAs and f the LR expsure measure). All institutins have t cmply with the Pillar 2 MREL requirement, which is set n a case-by-case basis. Reslutin authrities (RAs) shuld be able t require that G-SIIs cmply with a supplementary Pillar 2 MREL requirement. In additin, RAs shuld be able t require fr higher MREL in the frm f MREL guidance (measures less severe than discretinary payments will be applied in case f a breach f the guidance). Leverage Rati. The EC prpses t intrduce a binding LR (Pillar 1) set at 3% f Tier 1 as a percentage f the ttal expsure measure, which is added t the wn funds requirements in the CRR and must be met in additin t the risk-based requirements. The adjustments t the expsure measure included in the delegated act n the LR are maintained. Net Stable Funding Rati. The EC prpses t implement the BCBS standard n NSFR, althugh intrducing sme adjustments previusly recmmended by the EBA. If the NSFR falls belw the 100% level, the institutin shall take the measures laid dwn in the CRR fr a timely restratin. Market risk (FRTB). The EC prpses t transpse the cnclusins f the FRTB int EU law (e.g. strengthened cnditins t use internal mdels, clarificatin regarding the criteria t classify the psitins in the trading bk r the banking bk, etc.), althugh intrducing phase-in perid in which institutins shall multiply wn funds requirements by a factr f 65%. Mrever, the prpsal sets ut tw simplified appraches: Small trading bks, fr which the threshlds increase (under 50M and less than 5% f the institutin's ttal assets), and which may replace the treatment f the wn funds requirements fr market risk regarding the trading bk by the treatment f the wn funds requirements fr credit risk regarding the banking bk. Medium-sized activities, which are subject t the market risk capital requirements (under 300M and less than 10% f institutin's ttal assets) and may use the simplified standardised apprach.

17 Regulatin Outlk 4Q16 Standardised Apprach fr Cunterparty Credit Risk (SA-CCR). In line with the BCBS standards, the EC prpses, amng thers, replacing the Mark-t-Market Methd and the existing Standardised apprach with the SA-CCR fr calculating the expsure value f derivative psitins. Mrever, a simplified standardised apprach is included fr thse institutins with a small derivative business (under 150M and less than 10% f the institutin's ttal assets). Interest Rate Risk fr Banking Bk (IRRBB). The EC intrduces the BCBS revised framewrk n IRRBB, including a cmmn SA that institutins may use n a vluntary basis and that CAs may require t use where the internal systems are nt satisfactry. Large expsures. In line with the BCBS standards, the EC prpses t: i) limit the capital that can be taken int accunt t calculate the large expsures limit (nly Tier 1 capital); ii) intrduce a lwer limit f 15% fr G-SIIs expsures t ther G-SIIs and; iii) impse the use f the SA-CCR fr determining expsures t OTC derivative transactins (even fr banks using internal mdels). Pillar 2. The EC clarifies the cnditins fr the applicatin f Pillar 2 capital add-ns, distinguishing between capital requirements, mandatry and impsed t address risks nt cvered by Pillar 1 and buffer capital requirements; and capital guidance, which refers t the pssibility fr CAs t cmmunicate their expectatins fr an institutin t hld capital in excess f capital requirements. Intermediate EU parent undertaking. The EC intrduces a new requirement fr establishing an intermediate EU parent undertaking where tw r mre institutins established in the EU have the same ultimate parent undertaking in a third cuntry. This requirement nly applies t grups identified as nn-eu G-SIIs r that have entities n the EU with ttal assets f at least M. IFRS 9. A 5 year phasing-in perid is prpsed t prevent sudden impact n capital ratis (i.e. institutins may add t their CET1 capital the 12-mnth expected credit lsses and the lifetime expected lsses calculated in accrdance with IFRS 9 multiplied by the transitinal factrs). Other aspects. The prpsals include ther amendments in relatin t Financial and Mixed Hlding Cmpanies (they are included in the scpe f the prudential framewrk); reprting (e.g. amendments t enhance prprtinality); disclsure (e.g. alignment with internatinal standards); ranking f unsecured debt instruments in inslvency hierarchy; certain rules regarding remuneratin; treatment f bank expsures t SMEs and t infrastructure prjects; treatment f expsures t central cunterparties (fllwing the BCBS standard); etc. These prpsals are nw submitted t the EP and the Cuncil fr their cnsideratin and adptin. The prpsed Regulatins and Directives shall enter int frce n the twentieth day fllwing that f its publicatin in the Official Jurnal f the Eurpean Unin. Nnetheless, different applicatin dates are prvided. Fr instance: The LR, the NSFR, the new rules n market risk, the SA-CCR, the revised IRRBB framewrk, and the new large expsures regime, amng thers, shall apply frm 2 years after the date f entry int frce f the prpsed texts. G-SIIs shall meet a MREL requirement f 16% f RWAs and 6% f the LR expsure measure (phase-in) by January Regarding the LR, nce a final internatinal agreement n the leverage rati buffer fr G-BIS is reached, it shuld be cnsidered fr inclusin in the CRR. 17

18 30/11/2016 Regulatin (EU) 2016/2067, amending Regulatin (EC) N 1126/2008 and adpting certain internatinal accunting standards as regards IFRS Cntext On 24 July 2014, the Internatinal Accunting Standards Bard (IASB) published IFRS 9 Financial Instruments. The standard aims t imprve the financial reprting f financial instruments by addressing cncerns that arse in this area during the financial crisis. In particular, IFRS 9 respnds t the G20's call t mve t a mre frward-lking mdel fr the recgnitin f expected lsses n financial assets. In this cntext, the EC has published the Regulatin (EU) 2016/2067, transpsing IFRS 9 int the EU framewrk. This Regulatin amends the Annex t Regulatin (EC) 1126/2008, and as a cnsequence f the adptin f IFRS 9, certain internatinal accunting standards in the EU are als amended. 2. Main pints IFRS 9 has been endrsed as adpted by the IASB in The adptin f IFRS 9 implies, by way f cnsequence, amendments t: Internatinal Accunting Standards: IAS 1, IAS 2, IAS 8, IAS 10, IAS 12, IAS 20, IAS 21, IAS 23, IAS 28, IAS 32, IAS 33, IAS 36, IAS 37, IAS 39, IFRS 1, IFRS 2, IFRS 3, IFRS 4, IFRS 5, IFRS 7 and IFRS 13. Interpretatins f the Internatinal Financial Reprting Interpretatins Cmmittee: IFRIC 2, IFRIC 5, IFRIC 10, IFRIC 12, IFRIC 16 and IFRIC 19. Interpretatin f the Standing Interpretatins Cmmittee (SIC) 27. Furthermre, IFRS 9 repeals IFRIC 9. Each cmpany shall apply this Regulatin, at the latest, as frm the cmmencement date f its first financial year starting n after 1 January The EC intends t give an ptin t the insurance sectr nt t apply IFRS 9 fr a limited perid f time. 18

19 Regulatin Outlk 4Q16 07/10/2016 Cnsultatin Paper n Guidelines n ICT Risk Assessment under the Supervisry Review and Evaluatin Prcess (SREP). 1. Cntext Infrmatin and cmmunicatin technlgy (ICT) risk is defined as the current r prspective risk f lsses due t the inapprpriateness r failure f the hardware and sftware f technical infrastructures, which can cmprmise the availability, integrity, accessibility and security f such infrastructures and f data. In view f the increasing imprtance and cmplexity f ICT risk within the banking industry and in individual institutins, the EBA has published a Cnsultatin Paper n Guidelines (GL) n the assessment f the ICT risk under the Supervisry Review and Evaluatin Prcess (SREP). These GL are addressed t cmpetent authrities (CAs) and are intended t prmte cmmn prcedures and methdlgies fr the assessment f the ICT risk under the SREP. The GL are divided int the fllwing three parts: i) general prvisins; ii) assessment f gvernance and strategy n ICT; and iii) assessment f ICT risks expsures and cntrls. 2. Main pints General prvisins. Level f applicatin: CAs shuld apply these GL t all institutins in line with the level f applicatin as set ut in the SREP GL. Hwever, CAs shuld apply them in a manner prprtinate t the size, structure and peratinal envirnment f institutins. Use f findings and scring: The assessment f gvernance and strategy n ICT feeds int the assessment f internal gvernance and institutin-wide cntrls under the SREP, and als infrms the business mdel assessment under SREP. The assessment f ICT risks expsures and cntrls infrms the peratinal risk scre under the SREP. Assessment f gvernance and strategy n ICT. CAs shuld assess: ICT strategy: whether the institutin has an ICT strategy that is adequately gverned (i.e. adequate versight frm the management bdy), is cnsistent with the institutin s business strategy, and supprts the institutin s business mdel. Overall internal gvernance: whether the verall internal gvernance arrangements are adequate in relatin t the ICT systems (e.g. the institutin has a rbust rganizatinal structure with clear respnsibilities, including amng thers the management bdy and its cmmittees, and that the key respnsible persns fr ICT such as the Chief Infrmatin Officer have adequate access t the management bdy). ICT risk in the institutin s risk management framewrk: whether the risk management and internal cntrl framewrk adequately safeguards the ICT systems (i.e. the risk appetite and the ICAAP cver the ICT risks, and the ICT risks are within the scpe f the risk management and internal cntrl framewrks). Assessment f ICT risks expsures and cntrls. It fcuses n tw areas: Identificatin f material ICT risks. CAs shuld identify the significant ICT risks t which the institutin is r might be expsed. In this regard, CAs shuld: Review the institutin s ICT risk prfile, cnsidering several aspects (e.g. whether the institutin is implementing material changes t its ICT systems, r has utsurced them, etc.). Review the critical ICT systems and services, taking int cnsideratin that they shuld fulfill at least ne f the cnditins specified in the GL (e.g. they supprt the cre business peratins and distributin channels, etc.). Identify the material ICT risks that can have a significant prudential impact n the critical ICT systems and services. CAs shuld then map material ICT risks int ne f the ICT risk categries (e.g. ICT security risk, ICT change risk, etc.). Assessment f the cntrls t mitigate material ICT risks. Fr the identified material ICT risks, CAs shuld review the fllwing aspects: i) ICT risk management plicy, prcesses and risk tlerance threshlds; ii) rganizatinal management and versight framewrks; iii) internal audit cverage and findings; and iv) ICT risk cntrls that are specific fr the identified material ICT risk. 19 Cmments t this cnsultative dcument shall be submitted by 6 January 2017.

20 25/10/2016 Reprt n the review f the large expsures regime. 1. Cntext As part f the review f the CRR, the Eurpean Cmmissin (EC) is cnsidering whether t implement the BCBS standards n large expsures in the EU framewrk, and als reviewing the exemptins t the rules n large expsures. In this regard, in April 2016, the EC sent a Call fr Advice (CfA) t the EBA seeking its assistance. In respnse t the CfA, the EBA has published a Reprt n the review f the large expsures framewrk laid dwn in the CRR, which includes recmmendatins intended t simplify and harmnise the regime. The reprt is divided int three different sectins: i) alignment with the BCBS large expsures framewrk; ii) discretinary exemptins t the large expsures regime; and iii) additinal aspects. 2. Main pints Alignment with the BCBS large expsures framewrk. The EBA prvides the fllwing recmmendatins: Strengthening the large expsures capital base by cnsidering nly Tier 1 capital, instead f including a prprtin f Tier 2 capital (as currently allwed). Reducing the large expsures limit fr expsures frm Glbal Systemically Imprtant Institutins (G-SIIs) t ther G-SIIs t 15% f Tier 1 capital. The EBA wuld amend the ITS n supervisry reprting and clarify fr which cunterparties this limit shuld apply. Maintaining the existing framewrk with regard t expsures t funds, securitisatins and ther transactins with underlying assets. Hwever, regarding the treatment f institutins expsures t shadw banking entities, the EBA suggests that a reprt n the effectiveness f the existing guidelines shuld be prvided s that a higher degree f harmnizatin culd be achieved. Cnsidering the extensin f the new standardised apprach fr measuring cunterparty credit risk expsures (SA-CCR) t the large expsures framewrk (and the cnsequent exclusin f the use f internal mdels t calculate the expsure value f OTC derivatives) nly after the full implementatin f the SA-CCR in the CRR. Discretinary exemptins t the large expsures regime. The EBA suggests keeping tw f the exemptins identified in the CfA and deleting three. In particular, the EBA recmmends that: The fllwing exemptins shuld be kept: i) expsures within cperative netwrks; and ii) interbank expsures incurred t prmte specific sectrs f the ecnmy under sme frm f gvernment versight. The fllwing exemptins shuld be deleted: i) vernight interbank expsures in minr trading currencies; ii) guarantees n mrtgage lans financed by issuing mrtgage bnds; and iii) expsures t recgnised exchanges. Additinal aspects. The EBA prvides views n ther aspects f the large expsures framewrk, which require further wrk. In particular, the EBA refers t: Alignment with ther features f the BCBS framewrk (e.g. with regard t the treatment f credit risk mitigatin techniques). Issues where there is a need fr clarificatin in the CRR (e.g. the treatment f breaches t the large expsures limits culd be further develped and harmnised). Errrs, incnsistencies and fundamental issues identified in the Q&As, submitted by stakehlders. 20 This reprt will supprt the Cmmissin in its review f the large expsures framewrk as part f the verall CRR review.

21 Regulatin Outlk 4Q16 25/10/2016 Cnsultatin Paper n ITS n prcedures and templates fr the identificatin and transmissin f infrmatin by reslutin authrities t the EBA n MREL under the BRRD. Annex t the Cnsultatin Paper n ITS n MREL reprting by Reslutin Authrities (Annex I and Annex II). 1. Cntext Under the BRRD, reslutin authrities (RAs), after cnsulting the relevant cmpetent authrities (CAs), shall ensure that institutins meet at all times a minimum requirement fr wn funds and liabilities eligible fr bail-in (MREL). This minimum requirement is t be set n a firm-by-firm basis, based n criteria laid dwn in the BRRD and further specified in the RTS n MREL. In this regard, the EBA has published a Cnsultatin Paper n draft ITS n MREL reprting by RAs, which set the prcedures they shuld use when infrming the EBA f the MREL that have been set fr each institutin under their jurisdictin. Alng with the draft ITS, the EBA has published an Annex which cntains the templates t be used by RAs. These ITS nly cver the reprting f MREL requirements by RAs t the EBA. Thus, reprting by institutins t RAs r CAs is utside f the scpe f this cnsultatin. 2. Main pints Infrmatin included in the standard frms and templates. The RA, in crdinatin with the CA, shall transmit t the EBA fr each reprting perid the relevant infrmatin fr each institutin fr which it has set a MREL, cntained in the template f Annex I. Amng thers, this template cvers the fllwing elements: Ttal liabilities and wn funds. Ttal risk expsure amunt. Leverage rati denminatr. The amunt necessary t ensure lss absrptin determined by the RA. The amunt f MREL needed t recapitalize the institutin under reslutin thrugh executin f the reslutin strategy cnsidering the amunt necessary t sustain market cnfidence. Where apprpriate, adjustments applied t reflect liabilities excluded frm bail-in, size, systemic risk, etc. The final MREL requirement applied and any transitinal arrangements. Regarding thse institutins fr which the recapitalizatin amunt is zer, the RA may transmit t the EBA the infrmatin detailed in the template cntained in Annex II (simplified reprting template) instead f Annex I. In respect f grups, the grup-level RA shall infrm the EBA f the cnslidated MREL and any MREL set n an individual basis fr the parent entity and subsidiaries thrugh a jint decisin f the reslutin cllege. Reprting perids and submissins dates. RAs shall infrm the EBA withut undue delay after the decisin establishing the MREL is taken r updated, and update this infrmatin at least annually thereafter. In any case the infrmatin shall be transmitted t the EBA relating t the MREL that applied n 1 April f each year and this shuld be submitted t the EBA by 1 May. 21 Cmments t this cnsultative dcument shall be submitted by 21 Nvember 2016.

22 31/10/2016 Cnsultatin Paper Draft Guidelines n internal gvernance 1. Cntext Accrding t the CRD IV, the EBA is mandated t further harmnise institutins internal gvernance arrangements, prcesses and mechanisms within the EU. In this regard, in September 2011, the EBA published its Guidelines n internal gvernance (GL 44) with the bjective f enhancing and cnslidating supervisry expectatins and imprving the internal gvernance framewrk. In this cntext, the EBA has published a Cnsultatin Paper n draft Guidelines n internal gvernance that updates GL 44 and puts mre emphasis n the duties and respnsibilities f the management bdy in its supervisry functin in risk versight. In particular, this dcument specifies the rle f the management bdy regarding internal gvernance; the internal gvernance plicy, risk culture and business cnduct; the principle f prprtinality; the internal cntrl framewrk; and the principle f transparency. 2. Main pints 22 Rle f the management bdy regarding internal gvernance. These GL imprve the crprate gvernance arrangements f the institutins and specify: The management bdy s duties and respnsibilities that include, amng thers, the apprval and versight f the implementatin f the verall business strategy and verall risk strategy. The rle f the chair f the management bdy that shuld lead the management bdy and be respnsible fr its effective verall functining. The supervisr functin f the management bdy which invlves, amng thers, mnitring and challenging the strategy f the institutin, management actins and decisin, and perfrming the rle independently frm the management bdy. The management functin f the management bdy which invlves, amng thers, t be respnsible fr the implementatin f the strategies set by the management bdy and discuss regularly their implementatin and apprpriateness. The rle f the Cmmittees (i.e. setting up, cmpsitin, prcesses, etc.). All significant institutins (at individual, parent cmpany and grup level) must establish a risk and a nminatin cmmittee and shuld set ther specialised (e.g. Cmmittee n ethics, cnduct and cmpliance). Nt significant institutins may als cnsider setting up such cmmittees. The rganisatinal framewrk and its structure that shuld ensure the independence f the internal cntrl functins and that the management bdy have the apprpriate financial and human resurces as well as pwers t effectively perfrm their rle. Internal gvernance plicy, risk culture and business cnduct. In this regard, the GL specify certain aspects regarding: The internal gvernance plicy (at individual and grup level) which shuld be a clear rganisatinal and peratinal structure with well-defined, transparent and cnsistent lines f respnsibility. The business cnduct framewrk that shuld be fcused n the establishment f a risk culture, a cde f cnduct and the management f cnflicts f interest. The mechanisms t reprt breaches f regulatry requirements (e.g. a dedicated whistleblwing unit, internal alert prcedures, etc.). The utsurcing plicy which shuld be regularly reviewed and shuld cnsider the impact f utsurcing n an institutin's business and the risks it faces (such as peratinal, reputatinal and cncentratin risk). Principle f prprtinality. As established in these GL, institutins shuld take int accunt their size (in terms f ttal assets), internal rganizatin, nature, scale and cmplexity f their activities when develping and implementing internal gvernance arrangements.

23 Regulatin Outlk 4Q16 Internal cntrl framewrk. These GL prvide mre guidance n hw internal cntrl functins are rganised and hw internal cntrls are implemented. They als specify: The risk management framewrk which shuld encmpass all relevant risks with apprpriate cnsideratin f bth, financial and nn-financial risks, including credit, market, liquidity, cncentratin, peratinal, infrmatin technlgy, reputatinal, legal, cnduct, cmpliance and strategic risks. The institutin s well dcumented new prduct apprval plicy (NPAP) which shuld address the develpment f new markets, prducts and services and significant changes t existing nes. The internal cntrl functins, and in particular the risk management functin (its rle in risk strategy and decisins, in material changes in the institutin s risk prfile, in identifying and measuring risks and, in unapprved expsures), the cmpliance functin and the internal audit functin. The establishment f a sund Business Cntinuity Management t ensure the institutin s ability t perate n an n-ging basis and limit lsses in the event f severe business disruptin. Principle f transparency. Accrding t these GL, the management bdy shuld infrm and update the relevant staff abut the institutin s strategies and plicies in a clear and cnsistent way, at least t the level needed t carry ut their particular duties. Cmments t this cnsultative dcument shall be submitted by 28 January Cmpetent Authrities acrss the EU will be expected t implement these GL by mid The existing Guidelines n internal gvernance (GL 44) will be repealed when the revised Guidelines enter int frce. 23

24 03/11/2016 Final Guidelines n ICAAP and ILAAP infrmatin cllected fr SREP purpses. 1. Cntext Cmpetent authrities (CAs) review institutins internal capital adequacy assessment prcess (ICAAP) and internal liquidity adequacy assessment prcess (ILAAP) as part f the supervisry review and evaluatin prcess (SREP) perfrmed in accrdance with the CRD IV and in accrdance with the EBA SREP Guidelines. In this regard, the EBA has issued Final Guidelines t facilitate the cnsistent apprach t the assessment f institutins ICAAP and ILAAP under the SREP. In particular, the Guidelines specify what infrmatin regarding ICAAP and ILAAP CAs shuld cllect frm the institutins, and als set general criteria fr CAs t rganise cllectin f ICAAP and ILAAP infrmatin frm institutins and use such infrmatin fr the purpses f their assessments f ther SREP elements. 2. Main pints Infrmatin regarding ICAAP and ILAAP that CAs shuld cllect frm institutins. Reader s manual. Overarching dcument which is prepared t facilitate the assessment f ICAAP and ILAAP dcuments and prvides an verview f the ICAAP and ILAAP-related dcuments submitted t the CAs and their status (e.g. new, changed, etc.). Cmmn infrmatin t ICAAP and ILAAP. Infrmatin n business mdel and strategy; risk gvernance and management framewrk; stress testing framewrk and prgramme; and risk data, aggregatin and IT systems. ICAAP specific infrmatin. Infrmatin regarding the verall ICAAP framewrk; risk measurement, assessment and aggregatin; internal capital and capital allcatin; capital planning; stress testing in ICAAP; and supprting dcumentatin. ILAAP specific infrmatin. Infrmatin n the liquidity and funding risk management framewrk; funding strategy; strategy regarding liquidity buffers and cllateral management; cst benefit allcatin mechanism; intraday liquidity risk management; liquidity stress testing; liquidity cntingency plan; and supprting dcumentatin. Cnclusins n ICAAP and ILAAP and quality assurance infrmatin. Fr instance, the findings f the internal capital and liquidity adequacy assessments and their impact n the risk and verall management f an institutin; an adequate explanatin f hw institutins ensure that the ICAAP and ILAAP framewrks and mdels used prvide reliable results; results f the internal validatins/reviews f ICAAP and ILAAP methdlgies and calculatin utcmes perfrmed by independent validatin functin; etc. General criteria fr CAs t rganise cllectin f ICAAP and ILAAP infrmatin. The frequency, reference and remittance dates, and scpe fr ICAAP and ILAAP infrmatin shuld be determined in relatin t the SREP categrisatin f institutins, minimum supervisry engagement mdel and supervisry examinatin prgrammes. CAs wuld be expected t receive frm Categry 1 institutins (i.e. glbal systemically imprtant institutins (G- SIIs) and ther systemically imprtant institutins (O-SIIs) and, as apprpriate, ther institutins determined by CAs) all infrmatin specified in these Guidelines annually by a single set date as a cmprehensive package. Nn-Categry 1 institutins may have different scpe, frmat, frequencies, remittance and reference dates regarding infrmatin, which will be determined by the CAs fr each categry f institutins, r individual institutins. 24 These Guidelines will apply frm 1 January Based n their implementatin, CAs will determine the scpe and set the remittance dates fr the first submissin f infrmatin in accrdance with the prvisins f these Guidelines.

25 Regulatin Outlk 4Q16 07/11/2016 Reprt in respnse f the EC s CfA n standardised apprach fr cunterparty credit risk and wn funds requirements fr market risk. 1. Cntext In April 2016, the EBA received tw calls fr advice (CfAs) t assist the Eurpean Cmmissin (EC) in the adptin int EU legislatin f tw new internatinal framewrks prpsed by the BCBS: i) a new standardised apprach fr cunterparty credit risk (SA-CCR); and ii) a new market risk framewrk, based n the s-called Fundamental Review f the Trading Bk (FRTB). In respnse t these CfAs, the EBA has published a Reprt t the EC n the SA-CCR and wn funds requirements fr market risk. This reprt analyses the envisaged impact f these tw framewrks, and issues recmmendatins regarding their implementatin which are addressed t the EC. In particular, this reprt includes 5 plicy recmmendatins n the fllwing aspects: i) threshld fr small trading bk (TB) business; ii) threshld fr small derivative business; iii) cnsideratin f additinal prprtinality slutins; iv) higher reliance n delegated legislatin in the implementatin f the SA-CCR and the FRTB framewrks; and v) COREP prprtinality mnitring. 2. Main pints Threshld fr small TB business. The EBA recmmends keeping a threshld belw which institutins are able t use the nn-trading bk apprach fr the cmputatin f capital requirements. Regarding this threshld, the EBA suggests, amng thers, the fllwing aspects: It shuld be applicable in the case f psitin risk nly. It shuld be defined in terms f the sum f the abslute market value f lng and shrt psitins in equity and debt instruments included in the TB. With regard t the level f the threshld, it shuld be set at 50M. Threshld fr small derivative business. The EBA recmmends intrducing a threshld belw which institutins are allwed t use a simple apprach fr the cmputatin f CCR capital requirements, which culd include the use f the current riginal expsure (OEM) r mark t market (MtM) methd, subject t apprpriate recalibratin. In particular, it suggests that: The threshld shuld be defined in terms f the sum f the abslute market value f lng and shrt psitins in derivative instruments included in bth its TB and nn-tb. With regard t the level f the threshld, it culd be established at 20M. Cnsideratin f additinal prprtinality slutins. The EBA recmmends cnsidering the definitin f higher threshlds belw which SAs that are simpler than the nes develped in Basel culd be applied fr smaller banks nt included in the scpe f the Basel standards: Fr market risk, the current SA (subject t apprpriate recalibratin) culd be kept fr institutins that fall between the threshld f 50M f recmmendatin i) and the higher threshld t be defined. Fr CCR, either a simplified versin f SA-CCR r the current MtM methd (subject t apprpriate recalibratin) culd be kept fr institutins that fall between the threshld f 20M f recmmendatin ii) and the higher threshld t be defined. Higher reliance n delegated legislatin in the implementatin f the SA-CCR and the FRTB framewrks. The EBA recmmends that large technical parts f these internatinal standards shuld be implemented using delegated acts r RTS mandates. COREP prprtinality mnitring. The EBA recmmends the inclusin int COREP f the fllwing (a deadline f 2 years shuld be set): CCR COREP templates giving an verview f the CCR f institutins (e.g. expsures t central cunterparties, methds used t cmpute CCR expsures and crrespnding RWAs, etc.). COREP cells/templates prviding details n the cmputatin f the different prprtinality threshlds included in legislatin and links with crrespnding accunting categries. 25 Accrding t the BCBS s implementatin calendar, the SA-CCR will becme effective n 1 January Accrding t the implementatin calendar included in the FRTB text, the new market risk framewrk shuld be implemented in jurisdictins legal framewrks by January 2019, and firms are expected t reprt under the new standards by the end f the year.

26 15/11/2016 Cnsultatin Paper n Draft ITS amending Implementing Regulatin (EU) N 680/2014 with regard t peratinal risk and svereign expsures. Annex I Templates fr reprting n wn funds and wn funds requirements (changes shwing). Annex II Instructins fr reprting n wn funds and wn funds requirements. 1. Cntext The CRR mandates the EBA t develp unifrm reprting requirements, which are included in Regulatin 680/2014. In this regard, the data n svereign expsures currently cllected suffers frm several shrtcmings which required additinal ad-hc data cllectins frm several cmpetent authrities (CAs); and imprvements are als necessary t the reprted infrmatin n peratinal risk (OpRisk) t allw supervisrs t mnitr the lsses due t OpRisk events. In this cntext, the EBA has published a Cnsultatin Paper n ITS amending Regulatin 680/2014 with regard t svereign expsures and OpRisk. In particular, these ITS prpses new requirements as regards the reprting f infrmatin n svereign expsures, and changed requirements as regards the reprting f OpRisk infrmatin. 2. Main pints 26 New requirements regarding svereign expsures. This prpsal cvers the fllwing aspects: Templates. The existing reprting requirements shuld be supplemented with tw new templates that shall be reprted with a semi-annual frequency: C 33.01, which prvides a breakdwn f svereign expsures by residence f the bligr, accunting prtfli and regulatry treatment. C 33.02, which prvides breakdwn f svereign expsures by residence f the bligr and accunting prtfli and maturity. Scpe (definitin f svereign). All expsures t General gvernments are t be reprted in the new templates, which includes central, state r reginal and lcal gvernments. Prprtinality. Institutins that have svereign expsures f at least 1% f ttal debts securities and lans receivables are requested t reprt the infrmatin as specified in templates C and C Amng these institutins: Thse that hld nn-dmestic svereign expsures f 10% r mre cmpared t ttal svereign expsures shall reprt a full cuntry breakdwn. Thse that d nt meet the abve-mentined threshld shall reprt the infrmatin fr expsures aggregated at ttal level and dmestic level. Changed requirements regarding OpRisk. The EBA prpses the fllwing changes: Redefine scpe f institutins subject t bligatin t reprt OpRisk lss data. The EBA prpses t limit the exceptins frm reprting the full sheet C Thus, institutins using the Basic Indicatr Apprach (BIA) and the Standardised Apprach (TSA) shall reprt this infrmatin when they meet at least ne f the criteria specified (e.g. ttal value f the asset exceeds 30 billin). Separate lss impacts in current reprting perid relating t events frm previus reprting perids. A few changes are prpsed t template C (e.g. new rws) t distinguish between lss impacts frm current events and thse relating t lder events. Cllect detailed infrmatin n the largest lsses frm the last year. The EBA prpses t intrduce a new template (C 17.02), which aims at cllecting detailed infrmatin n the largest OpRisk lss incidents in the last year. Cmments t this cnsultative dcument shall be submitted by 7 January The envisaged date fr finalisatin f the draft ITS is March/April 2017, with the applicatin f the revised reprting requirements in March 2018.

27 Regulatin Outlk 4Q16 16/11/2016 Cnsultatin Paper n Guidelines n PD estimatin, LGD estimatin and the treatment f defaulted expsures. 1. Cntext In February 2016, the EBA published a Reprt n the regulatry review f the IRB Apprach, utlining the initiatives that has undertaken t reduce the unjustified variability in the utcmes f internal mdels while preserving the risk sensitivity f capital requirements. In this regard, the EBA has published a Cnsultatin Paper n Guidelines (GL) n PD and LGD estimatin and n the treatment f defaulted assets, which are fcused n the definitins and mdelling techniques used in the estimatin f risk parameters fr bth nn-defaulted (PD and LGD) and defaulted expsures (best estimate f expected lss (ELbe) and LGD-in defaulted). These draft GL aims at aligning the terminlgy and definitins, and prvide clarificatin n the applicatin f certain regulatry requirements that were until nw interpreted in varius ways. 2. Main pints General estimatin requirements. These GL cver plicy prpsals regarding segmentatin principles, aimed t prvide guidance n the highest level f rating system design; data requirements, including clarificatins regarding accuracy, cmpleteness, etc.; human judgement in mdel develpment; and margin f cnservatism (MC), including principles t be fllwed regarding its identificatin, quantificatin, reprting and dcumentatin. PD estimatin. The GL prvide detailed guidance n the fllwing aspects: General requirements, such as the requirement that each natural/legal persn that has expsures within the scpe f the IRB Apprach shuld be rated, clarificatin n the updates f rating relevant infrmatin, etc. Data requirements fr the purpse f default rate calculatin and fr the reference data set fr mdel develpment. Observed default rates, in particular regarding the calculatin f a ne-year default (the GL clarify it fr a number f specific situatins) and the methd chsen fr averaging ver a series f ne-year default rates (e.g. the GL require institutins t justify their apprach). Lng-run average default rate, clarifying amng thers that it shuld be calculated as the average f bserved ne-year default rates if the histrical bservatin perid is representative f their variability (i.e. it cntains a dwnturn perid). PD estimatin methdlgies, including particular plicies fr the use f third-party ratings, the design f grades and pls and fr the prcess f assigning PD estimates t grades and pls. LGD estimatin. The GL prvide detailed guidance n the fllwing aspects: General requirements, which clarify, amng thers, that institutins shuld nt use methdlgies that are based nly n external data when estimating LGD. Data requirements n the reference data set and the representativeness f data (e.g. use f apprpriate pints in time). Calculatin f ecnmic lss and realised LGD, in particular n the treatment f unpaid late fees, interest and additinal drawings after default, discunting rate, and csts. Lng-run average LGD, including clarificatins regarding the histrical bservatin perid, calculatin, treatment f incmplete recvery prcesses, etc. LGD estimatin methdlgies and risk drivers, specifying principles that shuld be adhered t regardless f the methdlgy. 27

28 Estimatin f risk parameters fr defaulted expsures. The GL cver the fllwing aspects: General requirements (specific t ELbe and LGD in-default) that specify that the same methds used fr estimating LGD n nn-defaulted expsures shuld be used and prvide guidance nly n thse specific aspects where different treatment fr defaulted assets lss rate estimatin is justified. Data requirements (specific t ELbe and LGD in-default), which specify that the scpe f data necessary includes als the infrmatin btained during the recvery prcess. Reference dates, specifying, amng thers, that institutins shuld set them accrding t the recvery pattern bserved n a specific type f expsures. Calculatin f realised LGD and lng-run average LGD fr defaulted expsures specifying that the frmer shuld be perfrmed at each relevant reference date, and clarifying the treatment f incmplete recvery prcesses fr the latter. Risk drivers, specifying the type f drivers that institutins shuld take int accunt (e.g. type f prduct, type f cllateral, gegraphical lcatin f the cllateral, etc.). Specific requirements fr ELbe estimatin, in particular regarding the current ecnmic circumstances and the relatins f ELbe with specific credit risk adjustments. Specific requirements fr LGD in-default estimatin, including dwnturn cnditins and apprpriate MC. Other aspects. These GL prvide als guidance n the applicatin f risk parameters (cnservatism and human judgement in their applicatin); re-develpment, re-estimatin and re-calibratin f internal mdels; and calculatin f shrtfall r excess f prvisins against EL fr IRB prtflis. Cmments t this cnsultative dcument shall be submitted by 10 February The prpsed deadline fr implementatin is end-2020, as already specified by the EBA. 28

29 Regulatin Outlk 4Q16 23/11/2016 Final draft RTS n the specificatin f the assessment methdlgy fr cmpetent authrities regarding cmpliance f an institutin with the requirements t use internal mdels fr market risk and assessment f significant share. 1. Cntext The CRR cntains specific mandates fr the EBA t develp RTS t specify the cnditins under which cmpetent authrities (CAs) assess the significance f psitins included in the scpe f market risk internal mdels, as well as the methdlgy that CAs shall apply t assess cmpliance f an institutin with the requirements t use an Internal Mdel Apprach (IMA) fr market risk. In this regard, the EBA has published the Final RTS n the assessment f significant share and n the assessment methdlgy, being mindful f the Fundamental Review f the Trading Bk (FRTB) that the BCBS published in January In particular, these RTS intrduce sme elements that g in the directin f the Basel review, which can be implemented within the CRR current legal setting. 2. Main pints Assessment f significant share f psitins. Permissin by CAs fr the use f internal mdels shall be required fr each risk categry (general risk f equity instruments, specific risk f equity instruments, general risk f debt instruments, specific risk f debt instruments, freign-exchange risk and cmmdities risk) and shall be granted nly if the internal mdel cvers a significant share f the psitins f a certain risk categry. Identificatin f risk categries and legal scpe. The assessment f the significance f psitins has t be cnducted fr the particular cmbinatin f legal entity/ies and risk categry/ies, withut cnsidering any rll-ut plans r materiality limits fr the risk categries r institutins that remain utside the scpe f the mdel. Methdlgy applied. When assessing the significance f psitins, due t differences in the nature f general and specific risks, it is prpsed t use tw different treatments. The assessment f general risk has t be based n the wn fund requirements stemming frm changes in brad market mvements, unrelated t any specific attributes f individual securities, while the assessment f specific risk shall be based n the net psitin in each individual security, in rder t reflect the idisyncratic risk. Initial and regular assessment f significance. As part f the annual internal validatin, the risk cntrl unit shall assess the materiality f the psitins excluded frm the internal mdel by using tw simple metrics: the prprtin f the P&L and the prprtin f the wn funds requirements stemming frm the psitins included in the scpe f the mdel cmpared with the ttal by risk categry. Minimum mdel stability perid prir t authrizatin. At the mment when the mdel applicatin is submitted, the market risk internal mdel shall have been wrking fr at least 1 year in a stable way (nt subject t material changes). Calculatin f threshlds fr psitins excluded. Tw calculatins are required: When submitting a mdel applicatin, banks shall cmply with a threshld f 10% fr the psitins they intend t include in the internal mdel. If CAs have excluded sme psitins frm the scpe, banks shall meet a threshld f 40%. Assessment methdlgy f market risk internal mdels. Cmmn gvernance framewrk. The RTS include minimum standards n mdel gvernance, independence, resurces and validatin in a single gvernance sectin that cvers the fllwing elements: segregatin and independence f the risk unit; variable remuneratin f the risk unit/internal audit persnnel; utsurcing; initial and regular internal validatin; cmpleteness f the internal validatin; independence f the internal validatin; new prduct apprval plicy; internal reprts and structure f cmmittees; internal limits and limit breach apprval prcess; and stress testing prgramme. VaR and SVaR. The RTS include requirements n calculatin at cnslidated level; backtesting; treatment f event risk ; treatment f wn creditwrthiness, etc. IRC mdel. The RTS include requirements regarding sme elements used in this mdel such as the selectin f ratings, PDs and LGDs, transitin matrices r liquidity hrizns. Gvernance requirements are als intrduced fr the inclusin f equity psitins in IRC and it is required that PDs used fr mdelling purpses shall be higher than zer (withut prviding an explicit flr value). Internal mdel fr the crrelatin trading prtfli. The RTS establish gvernance requirements fr the inclusin f psitins and apprpriate segregatin f instruments included in the crrelatin trading prtfli, including an explicit requirement t assess and mnitr regularly the existence f a liquid tw-way market. 29 These RTS shall enter int frce n the twentieth day fllwing that f its publicatin in the Official Jurnal f the Eurpean Unin.

30 01/12/2016 Final draft ITS Cmmissin Implementing Regulatin (EU) 680/2014 n supervisry reprting f institutins with regard t FINREP fllwing the changes in IFRS 9. Annex I (FINREP Annex III IFRS templates). Annex II (FINREP Annex IV ngaap templates). Annex III rev1 (FINREP Annex V Instructins). 1. Cntext In July 2014, the Internatinal Accunting Standards Bard (IASB) issued IFRS 9 Financial Instruments which supersedes IAS 39. In this regard, fllwing the recent endrsement f IFRS 9 int EU law, the EBA has published the Final ITS amending the ITS n supervisry reprting with regard t FINREP, with the aim f aligning the reprting framewrk with the new IFRS 9 requirements. Mrever, as certain parts f FINREP templates are t be reprted indistinctively by institutins using IFRS and by institutins under natinal Generally Accepted Accunting Principles (GAAP), and it is necessary t ensure that infrmatin remains cnsistent, the ITS als requires an update f the GAAP templates. 2. Main pints Changes t FINREP IFRS templates 30 Classificatin and measurement. The main changes thrughut the FINREP templates are: Deletin f the Held t Maturity accunting prtfli which n lnger exist in IFRS 9. Replacement f the Available fr sale (AFS) accunting prtfli by the Fair value thrugh Other Cmprehensive Incme (FVOCI) accunting prtfli. Replacement f the Lans and Receivables accunting prtfli by the Amrtised cst accunting prtfli. Impairment. The FINREP templates with a fcus n impairment have been mdified t accmmdate the changes intrduced by IFRS 9. Sme f the amendments are the fllwing: Each template breaks assets dwn between the different stages and their assciated allwance where relevant. Sme templates cnvey infrmatin n the classificatin and impairment status f expsures fr which exemptins and rebuttable presumptins are used in IFRS 9. Assets subject t specific impairment rules are separately identified when needed fr supervisry purpses. Infrmatin n write-ffs are included in three specific templates. The impact f mdificatins f assets is nw separately identified bth in terms f P&L in and in terms f amunt f allwance. Hedge accunting. The fllwing amendments have been intrduced: Extra rws have been added in existing templates t reflect the changes in the accunting fr qualifying hedges. Mrever, the revisin f FINREP intrduces tw new templates: A template t reprt infrmatin n nn-derivative hedging instruments in cash-flw hedges and fair value hedges. A template n hedged item in fair value hedges and n the impact n fair value hedges in the reprting perid in review. Changes t FINREP GAAP templates Cnsequential changes. The ITS intrduce changes that are implemented t keep the infrmatin reprted aligned between bth IFRS and GAAP reprters (e.g. accumulated changes in fair value due t credit risk fr trading assets are n lnger required, new rws are inserted fr the breakdwn f hedging instruments by types f hedges, regulatry cncepts implemented fr FINREP purpses have been updated fr natinal GAAP reprters, etc.). Brader changes. The ITS intrduce changes t fix specific reprting issues that have arisen with the current Annex IV (e.g. new rws and clumns have been added regarding held fr trading assets under IFRS and trading assets under GAAP, reprting f market values f derivatives, etc.).

31 Regulatin Outlk 4Q16 Other changes that apply t bth IFRS and GAAP templates Other changes. The ITS intrduce changes that apply t bth IFRS and GAAP templates regarding the cncept f grss carrying amunt f financial assets; the reprting f nn-perfrming expsures and frbearance, the reprting f mrtgage lans, etc. The ITS will be submitted t the Eurpean Cmmissin (EC) fr endrsement. The ITS apply, depending n the accunting year, frm the first date where IFRS 9 as endrsed by the EU becmes applicable (1 January 2018). Thus, fr an institutin with an accunting year f January / December the applicatin date will be 1 January 2018, with a first reference date f 31 March

32 05/12/2016 Risk Assessment f the Eurpean Banking system EU- wide transparency exercise. 1. Cntext The EBA has published its ninth Risk Assessment Reprt (RAR), which describes the main develpments and trends that have affected the EU banking sectr since the end f 2015 and prvides an utlk n the main micr-prudential risks and vulnerabilities lking ahead. In particular, the RAR includes aggregate results n capital psitin, return n equity (RE), nn-perfrming lans (NPL) rati, and cverage rati f NPLs. Mrever, the RAR als addresses ther aspects such as infrmatin and cmmunicatin technlgy related (ICT) risks. Mrever, the RAR is cmplemented with the EBA s EU-wide 2016 transparency exercise. Unlike the stress tests, transparency exercises are disclsure exercises where nly bank-by-bank data are published and n shcks are applied t the actual data. The sample in the this exercise includes 131 banks at the highest level f cnslidatin in the EU. 2. Main pints Sample f banks in the RAR: 198 banks frm 29 Eurpean Ecnmic Area cuntries (157 banks at the highest EU level f cnslidatin). Based n ttal assets, this sample cvers abut 85% f the EU banking sectr. Reference date f the RAR: the data presented in the RAR is as f June Data fr the RAR: the RAR is based n qualitative and quantitative infrmatin cllected by the EBA frm the supervisry reprting, its Risk Assessment Questinnaire fr banks and market analysts, and micr-prudential qualitative and supervisry cllege infrmatin. Results f the RAR: the EU banking sectr cntinues t struggle with high levels f NPLs and lw prfitability, ntwithstanding the steady strengthening f the capital base. Capital psitin. The strengthening f slvency has cntinued. The aggregate CET1 capital rati is 13.6% (13.2% fully laded). The Tier 1 capital rati and the ttal capital rati reached 14.8% and 17.8%, respectively. RE. The aggregate weighted average RE is 5.7%, dwn by mre than 100 bp cmpared t June The decline in prfitability was driven by a drp f ttal perating incme by 8.8 %. Mrever, the RE remain belw banks cst f equity (CE). NPL rati. It imprved t 5.4%, cmpared t 5.7% at the end f Nnetheless, even if there are signs f ptential imprvements, asset quality is still subdued cmpared t histrical figures and ther regins. Cverage rati f NPL. It increases marginally t 43.8%, cmpared t 43.7% in December ICT risks. The rising digitalisatin f distributin channels and always-n expectatins f custmers is putting pressure n systems t adapt; and cyberattacks are n the rise. In this cntext, supervisrs are fcusing n ICTrelated risks including measures t fix rigid and utdated legacy IT systems, IT resilience and gvernance and utsurcing. The entry f financial technlgy (FinTech) cmpetitrs is als seen as a challenge and pprtunity. 32 CET1 rati (transitinal) RE NPL rati Cverage rati f NPL 13,6% 5,7% 5,4% 43,8% Reference date as f June 2016 The EBA decides n a yearly basis whether r nt t cnduct a stress test exercise. On thse years where a stress test exercise is nt cnducted, a transparency exercise is carried ut.

33 Regulatin Outlk 4Q16 15/12/2016 Final Reprt n the implementatin and design f the MREL framewrk. 1. Cntext In Nvember 2016, the Eurpean Cmmissin (EC) brught frward prpsals that, amng thers, aim t incrprate TLAC int the EU legal framewrk and t imprve the existing minimum requirement fr wn funds and eligible liabilities (MREL) framewrk. The prpsals entail amendments t varius pieces f EU legislatin that will be discussed by the Eurpean Parliament (EP) and Cuncil with a view t their adptin. In this cntext, the EBA has published the Final Reprt n the implementatin and design f the MREL addressed t the EC, including a number f recmmendatins t reinfrce the MREL framewrk and integrate the internatinal standards n TLAC in the EU's MREL. These recmmendatins are analysed belw. Mrever, this reprt prvides a quantitative analysis f the MREL stack and funding needs f 133 banking grups, and an analysis f the ptential macrecnmic impact f the intrductin f MREL. In this regard, the EBA estimates that the financing needs t cmply with an assumptin-based MREL requirement in the steady phase wuld range between 186bn and 276bn. Further, the net macr-ecnmic impact f intrducing MREL wuld be psitive and range between 17 and 91 basis pints f GDP. 2. Main pints The EBA makes, amng thers, the fllwing recmmendatins: Reference base fr MREL requirement (denminatr). It shuld be changed frm ttal liabilities and wn funds (TLOF) t RWAs. This shuld be cmplemented with a leverage rati expsure backstp, in parallel with its phase-in within the capital framewrk. MREL stacking rder. Banks in the EU shuld nt be able t use the same CET1 capital t meet MREL and t meet regulatry capital buffers. Interactin between MREL and the maximum distributable amunt (MDA) framewrk. It is recmmended t intrduce a suspensin ( grace perid ) in the autmatic triggering f distributin restrictins under the MDA framewrk where the breach relates t a failure t rll ver r issue sufficient MREL-eligible debt. Breach f MREL. It shuld be treated as seriusly as a breach f capital requirements. Thus, the EBA recmmends, amng thers, that pwers f reslutin authrities (RAs) shuld be enhanced t respnd t a breach, including an expedited impediment remval prcess and the pwer t require an institutin t draw up an MREL restratin plan. Redemptin and maturity management. It is recmmended t intrduce an apprval requirement fr any redemptin by an institutin f an MREL-eligible instrument where that redemptin wuld bring the institutin int breach f its MREL requirement r the cmbined buffer requirement (CBR). Mrever, the legislative framewrk shuld cntain a requirement fr RAs t mnitr the maturity prfile f the MREL-eligible instruments. Crss-hldings f MREL. Expsures t MREL instruments issued by credit institutins shuld be deducted frm MREL n a like-fr-like basis abve the duble threshld (in line with the prpsal by the BCBS fr the TLAC hldings). Subrdinatin. The reprt recmmends requiring glbally systemically imprtant banks (G-SIBs) t meet their MREL with subrdinated instruments at least t a level f 14.5% f RWAs in line with the TLAC term sheet; and requiring ther systemically imprtant institutins (O-SIIs) t meet a subrdinatin requirement f 13.5% f RWAs. Third-cuntry recgnitin requirements. Sme reductin f the burden f cmpliance with these requirements shuld be intrduced, which culd be dne by narrwing the scpe f the requirement while maintaining the effectiveness f cntractual recgnitin fr MREL liabilities. Adequacy and calibratin. The calibratin f MREL shuld, in all cases, be clsely linked t and justified by the institutin s reslutin strategy. Business mdels may be wrth cnsidering t the extent that they translate int differences in reslutin strategies. Intragrup issues. The MREL framewrk shuld prvide fr the identificatin f reslutin entities and the allcatin f internally issued, subrdinated MREL at the nn-reslutin-entity level. Reprting. The BRRD shuld prvide fr an explicit bligatin fr credit institutins t regularly reprt their level and cmpsitin f MREL instruments t RAs. Disclsure. Credit institutins in the EU shuld be required t disclse the quantum and cmpsitin f their MREL-eligible liabilities and the MREL required by the RAs. 33 The EP and Cuncil will deliberate n the financial sectr refrm package in the cming mnths. The EBA intends t cntinue t analyse the implementatin f MREL and TLAC in the EU.

34 15/12/2016 Final Guidelines n disclsure requirements under Part Eight f the CRR. 1. Cntext In January 2015, the BCBS released a revised Pillar 3 framewrk (RPF), whse first applicatin is set fr 2016 year-end disclsures. The incrpratin f the RPF int the EU law wuld require an update f the disclsure requirements laid dwn in the CRR. In the meantime, EU institutins are facing strnger market pressure t prvide disclsures in line with the BCBS RPF, which might frce them t prvide a duble set f disclsures in these areas f misalignment between the CRR and the RPF. In this cntext, the EBA has published Final Guidelines (GL) n disclsure requirements. These GL, while nt changing the requirements f the CRR, prvide further guidance t institutins in cmplying with bth the CRR and the RPF requirements. In particular, they cver the entire cntent f the RPF, with the exceptin f securitisatin requirements, which are currently under discussins at EU level, and ther disclsure requirements fr which there are already EBA technical standards (e.g. wn funds and leverage rati). 2. Main pints 34 Scpe. These GL apply t Glbal and Other Systemically Imprtant Institutin (G-SIIs and O-SIIs). Mrever, cmpetent authrities may require institutins that are neither G-SII nr O-SII t them. Frmats and disclsures. The GL cntain Tables fr qualitative and quantitative infrmatin; and Templates fr quantitative infrmatin. Templates cme with a flexible r a fixed frmat (e.g. infrmatin n capital requirements and RWAs), while Tables cme with a flexible frmat. Disclsure requirements. The GL cntain the fllwing requirements (in certain cases sme adjustments have been made t the RPF tables and templates): General requirements n disclsures: the GL implement the RPF principles (related t clarity, cnsistency ver time, cmparability, etc.), and include prvisins regarding the disclsure f nn-material, prprietary r cnfidential infrmatin, the lcatin f disclsures, etc. Capital requirements: infrmatin n capital requirements and RWA fr all the risks (template OV1) and fr equity expsures under the IRB apprach (template CR10), and disclsures n nn-deducted insurance participatins (template INS1, nt cntemplated in the RPF framewrk). Risk management: disclsures n risk management (table OVA), credit risk (table CRA), cunterparty credit risk (table CCRA) and market risk (table MRA). Scpe f applicatin: disclsures n the difference in the scpe f cnslidatin (template LI1), measurement f expsure (template LI2), additinal infrmatin n these issues (table LIA), and infrmatin n the cnslidatin methd applied fr each entity within the scpe f cnslidatin (template LI3, nt cntemplated in the RPF framewrk). Credit risk and credit risk mitigatin: general infrmatin (tables CRB and CRC, and templates CR1, CR2 and CR3), disclsures n the standardised apprach (table CRD and templates CR4 and CR5), and disclsures n the IRB apprach (table CRE and templates CR6, CR7, CR8 and CR9). Cunterparty credit risk (CCR): amng thers, disclsures n breakdwn f CCR by expsure cmputatin methd (template CCR1), breakdwn f the CVA charge (template CCR2), etc. Market risk: qualitative disclsures (table MRB) and quantitative disclsures (templates MR1, MR2, MR3 and MR4). Timing and frequency f disclsures. The GL adpt the same frequency framewrk as the RPF: Tables are t be disclsed annually. Templates are t be disclsed semi-annually, except in the fllwing cases: Templates n linkages between the accunting and regulatry scpes f cnslidatin and the accunting and regulatry expsure values, as well as n the backtesting f PD under the IRB apprach, are t be disclsed annually. A limited set f templates with a fixed frmat and fcused n RWA variatins and capital requirements are t be disclsed quarterly. These GL apply frm 31 December Hwever, G-SIIs are encuraged t cmply with a subset f thse Guidelines as sn as 31 December 2016.

35 Regulatin Outlk 4Q16 19/12/2016 EBA Qualitative survey n IRB mdels. Instructins fr the EBA qualitative survey n IRB mdels (Dec 2016). 1. Cntext In Nvember 2016, the EBA published a cnsultatin paper n Guidelines (GLs) n PD, LGD and defaulted assets. These GL are part f the brader review f the internal ratings-based (IRB) apprach that is carried ut by the EBA t reduce the unjustified variability in the utcmes f internal mdels. In this cntext, the EBA has launched a Qualitative survey n IRB mdels, in rder t assess the impact f these GL in terms f expected amunt and severity f mdel changes. In particular, this survey cntains detailed questins abut banks' mdelling practices fr estimating PD, LGD, LGD-in default and expected lss best estimate (ELbe). 2. Main pints Scpe. This qualitative survey is nly addressed t institutins that use the IRB apprach fr credit risk. In any case, it will be carried ut n a vluntary basis. Selectin f mdels t cmplete the survey. Institutins are requested t cmplete these questinnaires fr at least 3 PD mdels and 3 LGD mdels, cvering the highest share f expsure values. Institutins shuld als take int accunt which mdels cver the largest share f bligrs and which mdels reflect the current mdelling practices. Institutins are requested t use the definitin f PD mdel and LGD mdel as prpsed in the GLs. Institutins shuld take int accunt the level f gvernance f the mdels (central mdel r lcal mdel) when deciding which mdel t select in accrdance with certain criteria (e.g. nly lcal mdels shuld be selected by subsidiaries). Questinnaire template. The respnses shuld be submitted using 3 different sheets: Sheet A (general infrmatin). It cntains general questins regarding the number f PD and LGD mdels used within an entity, general features f these mdels, etc. Scpe: sheet A shuld be cmpleted nce, by all institutins. Reference date: as f 30 June Sheet B (inf n PD mdel). It cntains detailed questins abut the develpment, calibratin and applicatin f individual PD mdels selected by institutins. Scpe: sheet B shuld be cmpleted by all institutins fr at least 3 PD mdels (unless less than 3 PD mdels are used within the institutin). Reference date: the mst up-t-date infrmatin abut the apprved mdel. Sheet C (inf n LGD mdel). It cntains detailed questins abut the estimatin and applicatin f individual LGD mdels selected by institutins. Scpe: sheet C shuld be cmpleted by thse institutins applying the A-IRB apprach r the IRB apprach fr the retail expsure class, fr at least 3 LGD mdels (unless less than 3 PD mdels are used within the institutin). Reference date: the mst up-t-date infrmatin abut the apprved mdel. 35 Institutins are invited t submit their respnses t this survey t relevant cmpetent authrities by 27January Institutins may be cntacted by the EBA in rder t clarify ptential issues r cncerns related t the quality f prvided infrmatin frm 6 February 2017 nwards. The EBA expects t publish the cnsultatin paper f the draft RTS n the specificatin f the nature, severity and duratin f an ecnmic dwnturn in the first quarter f 2017.

36 22/12/2016 Decisin by the EBA Bard f Supervisrs regarding and EU-wide stress test in Cntext The EBA is required, in cperatin with the Eurpean Systemic Risk Bard (ESRB), t initiate and crdinate EU-wide stress tests. In this regard, the EBA shall, at least annually, cnsider whether it is apprpriate t carry ut EU-wide stress tests. In this cntext, the EBA has published a decisin t carry ut its next EU-wide stress test in 2018, in line with its previus decisin t aim fr a biennial exercise. Furthermre, the EBA has decided t perfrm its regular annual transparency exercise in Main pints The EBA has decided nt t cnduct an EU-wide stress test in 2017 but t start preparatins fr the next stress test in The decisin t run the next EU-wide stress test in 2018 was driven by an acknwledgement f the nging prgress that EU-banks are making in strengthening their capital psitins. The EBA will perfrm its regular annual transparency exercise in 2017 which will be carried ut similar t the ne in The EBA will start immediately t prepare the methdlgy fr the 2018 stress test exercise, which will als include an assessment f the impact f IFRS 9. 36

37 Regulatin Outlk 4Q16 02/11/2016 Cnsultatin paper n the assessment f the suitability f members f the management bdy and key functin hlders under the CRD IV and MiFID II. Annex I Template fr the assessment f cllective suitability. 1. Cntext The EBA and the ESMA have published a Cnsultatin Paper n Guidelines (GL) n the assessment f the suitability f the members f the management bdy and key functin hlders, in accrdance with the requirements intrduced under the CRD IV and MiFID II. The existing EBA GL n the assessment f the suitability f the management bdy, published in Nvember 2012, will be repealed after the entry int frce f these GL. Alng with these GL, the EBA and the ESMA have published a template ( suitability matrix ) which institutins may use t selfassess peridically the cllective suitability f the members f the management bdy. 2. Main pints Scpe f suitability assessments. Amng thers, the GL specify that institutins shuld ensure that members f the management bdy, individually and cllectively, are suitable at all times (accrding t the ntins specified belw). This assessment shuld be carried ut n an nging basis an in certain situatins (e.g. when material changes t the cmpsitin f the management bdy ccur). Ntins f suitability. In particular, institutins shuld assess the fllwing aspects, fr which the GL prvide cmmn criteria: Sufficient time cmmitment f a member. Institutins shuld cnsider aspects such as the number f directrships in financial and nn-financial cmpanies, the member s gegraphical presence and the travel time required fr the rle, etc. Significant institutins must cmply with the limitatin f directrships set ut in the CRD IV. The GL specify hw t calculate the number f directrships. Adequate knwledge, skills and experience. This assessment shuld cnsider, amng thers, the knwledge and skills attained thrugh educatin and training, the practical and prfessinal experience gained in previus psitins, etc. Cnsideratin shuld be given t experience relating t financial markets, regulatry framewrk, risk management, etc. Reputatin, hnesty and integrity. Institutins shuld cnsider factrs such as the cnvictins r nging prsecutins f a criminal ffence (e.g. fraud, tax ffences, etc.), financial and business perfrmance f entities wned r directed by the member, etc. Independence f mind. Sme situatins that can create cnflicts f interests shuld be cnsidered (e.g. relatinships with the wners f qualifying hldings in the institutin). Cllective suitability criteria. Amng ther aspects, the GL specify that members f the management bdy shuld cllectively be able t take apprpriate decisins cnsidering the business mdel, risk appetite, strategy and markets; there shuld be a sufficient number f members with knwledge in each area; etc. Other relevant ntins. The GL als specify certain aspects regarding: Human and financial resurces fr training. Institutins shuld have in place plicies fr the inductin and training f members f the management bdy, a prcess t identify the areas in which training is required, and an evaluatin prcess t review the effectiveness. Diversity plicy. It shuld at least refer t educatinal and prfessinal backgrund, gender, age and fr institutins that are active internatinally gegraphical prvenance. Suitability plicy and gvernance arrangements. The GL specify that institutins shuld implement a suitability plicy aligned with the institutin s verall crprate gvernance framewrk, crprate culture and risk appetite; and include sme requirements regarding gvernance (e.g. adequate number f members f the management bdy). Assessment f suitability by cmpetent authrities (CAs). The GL specify, amng thers, that CAs are required t assess all members f the management bdy, and fr significant institutins als the heads f internal cntrl functins and the CFO (when they are nt part f the management bdy). 37 Cmments t this cnsultative dcument shall be submitted by 28 January 2017.

38 04/11/2016 Draft Guideline n the exercise f ptins and discretins available in Unin law by NCAs in relatin t less significant institutins. Draft Recmmendatin n cmmn specificatins fr the exercise f sme ptins and discretins available in Unin law by NCAs in relatin t less significant institutins. 1. Cntext As the cmpetent authrity, the ECB has exercised a number f ptins and discretins (O&Ds) available in Unin law fr significant institutins (SIs). T this end, the ECB published during 2016 several dcuments (amng thers, Regulatin 2016/445 and a Guide n the exercise f O&Ds). Althugh natinal cmpetent authrities (NCAs) are primarily respnsible fr exercising the relevant O&Ds in relatin t less significant institutins (LSIs), the ECB s verarching versight rle within the SSM enables it t prmte the cnsistent exercise f O&Ds in relatin t bth SIs and LSIs. In this cntext, the ECB has launched a public cnsultatin n a Guideline and a Recmmendatin cncerning the exercise f O&Ds fr LSIs. On the ne hand, the Guideline (legally binding act nce apprved), lays ut hw NCAs shuld exercise 7 O&Ds f general applicatin fr LSIs; n the ther hand, the Recmmendatin (a nn-legally binding act) aims t harmnise 43 O&Ds that are nt f general applicatin but are assessed n a case-by-case basis fr each institutin. 2. Main pints Guideline n the exercise f O&Ds by NCAs in relatin t LSIs. 38 The O&Ds specified belw shuld be exercised by NCAs in the supervisin f LSIs in the same way as specified in Regulatin 2016/445. Own funds. The ptin with regard t risk weighting and prhibitin f qualifying hldings utside the financial sectr (i.e. the risk weight f 1250 % shall be applied). Capital requirements. The ptin with regard t the default f an bligr (i.e. the past due criterin f 90 days shall be applied). The ptin with regard t hedging sets (i.e. the mark-t-market methd shall be used). Large expsures. The ptin with regard t exemptins t the limits t large expsures (i.e. certain expsures shall be exempted). Liquidity. The ptin with regard t utflws frm stable retail depsits (i.e. institutins shall multiply by 3% the amunt f stable retail depsits cvered by a depsit guarantee scheme). Transitinal prvisins f the CRR. The ptin with regard t the exemptin frm deductin f equity hldings in insurance cmpanies frm CET1 items (i.e. during the perid frm 1 January 2016 t 31 December 2018, credit institutins shall be permitted nt t deduct them prvided that sme cnditins are met). The ptin with regard t the applicable percentages fr deductin frm CET1 f significant investments in financial sectr entities and deferred tax assets that rely n future prfitability (i.e. 60% until December 2016, 80% frm January 2017 t December 2017, and 100% frm January 2018). Recmmendatin n cmmn specificatins fr the exercise f sme O&Ds in relatin t LSIs. The ECB has identified 43 O&Ds amng thse included in the abve-mentined ECB Guide which wuld be apprpriate t exercise in an identical manner in relatin t SIs and LSIs, in accrdance with the ECB Guide (thse included in the Annex f this Recmmendatin). Further, the ECB has identified 8 O&Ds fr whse exercise it recmmends a specific apprach in relatin t LSIs (e.g. liquidity waivers at crss brder level, expsures in the frm f cvered bnds, treatment f expsures t central cunterparties, etc.). Cmments t these cnsultatin dcuments shall be submitted by 5 January Once apprved, the NCAs shall cmply with the Guideline frm 1 January 2018, except fr the liquidity ptin which they shall cmply with frm 1 January 2019.

39 Regulatin Outlk 4Q16 15/11/2016 Draft guide t fit and prper assessments. 1. Cntext Since Nvember 2014 the ECB has been respnsible fr taking decisins n the appintment f all members f the management bdies f the significant credit institutins under its direct supervisin. In this regard, the ECB has launched a public cnsultatin n a Draft guide t fit and prper assessments f members f the management bdies f significant credit institutins, with the bjective f explaining in greater detail the plicies, practices and prcesses applied by the ECB when assessing the suitability. This draft guide builds n the EBA s draft guidelines published fr cnsultatin in Octber. This draft guide is nt a legally binding dcument and cannt in any way substitute the relevant legal requirements stemming either frm applicable EU law r applicable natinal law. 2. Main pints Principles. The ECB fllws 6 principles when perfrming fit and prper assessments: i) primary respnsibility f supervised entities when selecting individuals fr the management bdy; ii) rle f the ECB as a gatekeeper; iii) harmnisatin; iv) prprtinality and case-by-case assessment; v) due prcess and fairness; and vi) interactin with nging supervisin. Assessment criteria. The fitness and prpriety f members f the management bdy is assessed against 5 criteria (in line with the abve-mentined EBA s Guidelines): Experience. It is assessed against presumptins based n threshlds (e.g. fr CEO, 10 years f recent practical experience). If the threshlds are nt met, the appintee can still be cnsidered suitable if the entity can justify, which is analysed by cnducting a full detailed assessment. Reputatin. An appintee is cnsidered t be f gd repute if there is n evidence t suggest therwise (presumptin f inncence). Nnetheless, the fact that an individual being prsecuted is relevant t prpriety. In this regard, the supervisr must always be infrmed abut legal prceedings. Cnflicts f interest and independence f mind. The supervisr assesses the materiality f the risk psed by the cnflict f interest. In this regard, the Guide includes a list f situatins in which there is presumptin that a material cnflict f interest exists (e.g. the appintee has a clse persnal relatinship with a Bard member). Time cmmitment. The entity shuld prvide a minimum set f infrmatin (e.g. specificatin f the time cmmitment required fr the rle), and in certain cases additinal infrmatin may be required. Regarding cunting f directrships, the ECB takes a restrictive apprach. Cllective suitability. The supervised entity shuld prvide certain infrmatin (e.g. a descriptin f the cmpsitin f the management bdy, a statement n hw the appintee will t its cllective suitability needs, etc.). Interviews. Interviews are ne f the tls used in the infrmatin gathering phase. In this regard: Interviews are mandatry in the case f new appintments fr CEO and Chairman psitins at stand-alne banks and the tp banks f grups, and in all ther cases interviews may be used n a discretinary basis. An infrmative interview cvers all elements f suitability and if there are still cncerns after this interview, a secnd specific interview fcusing n the facts that gave rise t the cncerns may be cnducted. Assessment prcess. A fit and prper assessment can be triggered by: i) a change in the management bdy wing t a new appintment, a change f rle r a renewal (e.g. when a nn-executive member is appinted as executive directr); ii) new facts (e.g. reprt f a breach, facts alleged in newspapers, etc.); iii) a licensing r qualifying hlding prcedure. Decisin. After every assessment a frmal ECB decisin is taken, and an appintee is either cnsidered fit and prper r nt. The ECB has the pwer t include recmmendatins, cnditins r bligatins in psitive decisins. Remval f members frm the management bdy. The ECB has the pwer t remve at any time members f a significant supervised entity wh d nt fulfil the requirements. 39 Cmments t this cnsultative dcument shall be submitted by 20 January 2017.

40 25/11/2016 Cnsultatin paper n Draft Guidance n leveraged transactins. 1. Cntext The prlnged perid f lw interest rates and the ensuing search fr yield strategies have warranted specific mnitring f credit quality by the ECB in general and f leveraged finance expsures in particular. Recent research suggests that glbally leveraged finance markets have experienced a strng recvery since the crisis, and the ECB cnsiders that clser supervisry scrutiny f leveraged transactins is needed. In this regard, the ECB has launched a public cnsultatin n a Draft Guidance n leveraged transactins that summarises key supervisry expectatins cncerning these transactins, and the nging mnitring f bth syndicatin risk and the fundamental credit quality f leveraged expsures. This guidance applies t all significant credit institutins supervised by the ECB, althugh its implementatin shuld be cnsistent with the size and risk prfile f institutins leveraged transactins. 2. Main pints 40 Definitin f leveraged transactins. Institutins shuld have in place, as part f their internal plicies, a unique definitin which wuld encmpass all business units and gegraphical areas, and that shuld be regularly reviewed by an independent audit department. Institutins are expected t cnsider as a leveraged transactin any transactin that meets at least ne f the fllwing cnditins: All types f lan r credit expsure where the brrwer s pst-financing level f leverage exceeds a Ttal Debt t EBITDA rati f 4.0 times. All types f lan r credit expsures where the brrwer is wned by ne r mre financial spnsrs. Certain transactins are nt expected t be cvered by the definitin (e.g. lans with natural persns, cmmercial real estate financing, prject finance lans). Risk appetite and gvernance. As part f their internal risk appetite framewrk, institutins shuld define their appetite and strategy fr leveraged transactins. T this end, senir management is expected t define, review and endrse at least annually the budget and limits allcated t leveraged transactins. Mrever, institutins are expected t have a sund gvernance structure fr leveraged transactins, enabling senir management t have a cmprehensive versight. Underwriting and syndicatin. Institutins shuld define their appetite fr underwriting and syndicating, setting limits and sub-limits. The ECB specifies sme expectatins that internal standards and mnitring functins shuld cnsider (e.g. each transactin psing an underwriting/syndicatin risk requires prir apprval, institutins are expected t define acceptable leverage levels, institutins shuld identify transactins subject t failed syndicatins). Plicies and prcedures fr new deal apprval, and mnitring and managing f lnger-term leveraged transactin hldings. The ECB specifies the fllwing aspects: Institutins shuld have a credit apprval prcess fr all leveraged transactins. Further, due diligence requirements (e.g. assessment f the industry sectr, critical review f the business plan f the crprate brrwer, etc.) shuld be triggered in certain cases (e.g. new transactins, renewal, refinancing, etc.). Institutins shuld ensure regular mnitring f the prtfli, encmpassing all relevant risks fr leveraged transactins held fr the lnger term. The lng-term risk psitins ( hld bk ) shuld be reviewed nce a year. Deterirated expsures shuld be reviewed mre frequently. In this regard, the ECB prvides a list f signs f impairment r default in which institutins are expected t, amng ther things, run an impairment test. The mnitring f expsures shuld be cmplemented by a stress-testing framewrk. Secndary market activities n leveraged transactins. Institutins cmpliance and risk management functins shuld put in place and regularly review plicies and prcedures t ensure prper adherence f secndary market transactins with regulatins n market cnduct (e.g. Chinese walls, treatment f privileged infrmatin).

41 Regulatin Outlk 4Q16 Reprting requirements and IT systems. Regular cmprehensive reprts shuld be sent t the management f each institutin, including infrmatin abut bth its underwriting bk and its hld bk. These reprts shuld cver, amng thers, key markets trends, all leveraged transactins acrss the varius business units and gegraphies, the psitining f a institutin with regard t internal limits and the utcme f the stress scenaris, etc. Management infrmatin systems (MIS) shuld be sufficiently granular and sund enugh t enable management t identify, aggregate and mnitr leveraged transactins. Cmments t this cnsultative dcument shall be submitted by 27 January mnths fllwing the publicatin f this guidance an internal audit reprt shuld be drawn up and submitted t the jint supervisry team, detailing which f the expectatins expressed in this guidance have been implemented by the credit institutins. 41

42 16/12/2016 SSM supervisry pririties fr Cntext The ECB has published its 2017 pririties fr supervising significant banks in the eur area. They build n an assessment f the key risks faced by supervised banks (e.g. the lw/negative interest rate envirnment, high levels f nn-perfrming lans, etc.), taking int accunt the latest develpments in the ecnmic, regulatry and supervisry envirnment. In particular, the ECB specifies that the three areas that will guide banking supervisin are: i) business mdels and prfitability drivers; ii) credit risk, with a fcus n nn-perfrming lans (NPLs) and cncentratins; and iii) risk management. Fr each f the pririties, a number f supervisry initiatives will be carried ut. 2. Main pints Business mdels and prfitability drivers. Eurpean banking supervisin will cntinue t drive frward its thematic review f banks business mdels and prfitability drivers. A further pint f supervisry attentin will be the pssible repercussins f the UK s referendum n EU membership fr supervised banks and their business mdels. In additin, Eurpean banking supervisin will explre ptential risks fr business mdels emanating frm the emergence f FinTech and nn-bank cmpetitin. Credit risk, with a fcus n NPLs and cncentratins. Eurpean banking supervisin will cntinue t supprt Jint Supervisry Teams (JSTs) in fllw-up actins and supervisry dialgues with respect t the NPL guidance and the assessment f banks NPLs. In the light f the upcming intrductin f IFRS 9, the thematic review f the ptential impact f IFRS 9 n banks and their degree f preparatin will be intensified. Mrever, t investigate excessive cncentratins f credit risk in certain asset classes (e.g. shipping lans) Eurpean banking supervisin intends t use a new apprach cmbining bth n-site and ff-site elements. Risk management. Eurpean banking supervisin will: Finalise its nging thematic review f banks cmpliance with principles fr effective risk data aggregatin and risk reprting (RDA&RR), and JSTs will fllw up with institutins, as apprpriate. Rll ut its multi-year targeted review f internal mdels (TRIM). On-site inspectins will be launched in cnnectin with this review. Prmte the cntinuus imprvement f banks ICAAPs and ILAAPs. Initiate a thematic review t take stck f banks utsurced activities and scrutinise hw they are managing the assciated risks (including IT risks). 42

43 Regulatin Outlk 4Q16 20/12/2016 Cnsultatin n Guide n materiality assessment fr IMM and A-CVA mdel extensins and changes. 1. Cntext The CRR requires mdel apprval fr material mdel extensins and changes t credit, peratinal and market risk internal mdels. In this regard, RTS have been adpted fr the materiality assessment f mdel extensins and changes t the IRB apprach, the AMA and the IMA. Fr cunterparty credit risk (CCR) fr bth the internal mdel methd (IMM) and the advanced methd fr credit valuatin adjustment risk (A-CVA), the adptin f similar RTS is nt mandated by the current text f the CRR. Nnetheless, it shuld be nted that the EBA may regulate this field by adpting guidelines. In this cntext, the ECB has launched a public cnsultatin n the Guide n materiality assessment (EGMA) f IMM and A-CVA, which indicates hw the ECB intends t interpret the existing legal framewrk. The EGMA prvides assistance t significant institutins in their self-assessment f the materiality f changes and extensins t IMM and A-CVA mdels under the applicable legal framewrk, althugh is nt intended t have legal effect. 2. Main pints Overview. Within the EGMA, the materiality f extensins and changes is subject t: A self-assessment, which is the first step and can lead t tw classificatins: Nt material extensins and changes, which are ntified t the ECB and implemented. Extensins and changes that need t be investigated. The extensin and changes categrised as needing t be investigated are subject t an ECB internal mdel investigatin, which classifies them as material r nt material. When the extensin r change is material, the institutin receives a decisin frm the ECB. IMM Apprach. Extensins and changes that need t be investigated. They are submitted t the ECB in rder t investigate materiality if they fulfil any f the fllwing cnditins: They fall under any f the extensins described in Annex I, Part I, sectin 1 (e.g. expsures f an additinal type f transactin, new legal agreement types with regard t netting and margining if they require new r ther mdelling, etc.); r They fall under any changes described in Annex I, Part II, sectin 1 (e.g. significant changes in the way the mdel captures the effect f existing margining agreements); r They result in a change (calculated as specified in the Guide): In abslute value f 1% r mre, cmputed fr the 1 st business day f the testing f the impact, in the verall risk-weighted expsure amunts; and In abslute value f 5% r mre in the verall risk-weighted expsure amunts. IMM Apprach. Extensins and changes cnsidered nt material. They are ntified t the ECB at least 2 weeks befre their implementatin if they are described in Annex I, Part II, Sectin 2. All ther extensins and changes are ntified after their implementatin n at least an annual basis. A-CVA apprach. Changes that need t be investigated. They are submitted t the ECB in rder t investigate materiality if they fulfil the fllwing cnditins: Where the bank was granted permissin t set M equal t 1, they affect the mdelling f CVA risk fr cunterparties in a significant way as regards this permissin; and either They fall under any f the changes described in Annex II, sectin 1 (e.g. changes in the methdlgy used t determine the prxy spreads); r They result in a change (calculated as specified in the Guide): In abslute value f 1% r mre, cmputed fr the 1 st business day f the testing f the impact f the change, in ne f the relevant risk numbers referred t in the CRR (nn-stressed r stressed VaR); and either Of 5% r mre in the full CVA capital charge; r Of 10% r mre in at least ne f the relevant risk numbers referred t in the CRR (nn-stressed r stressed VaR). 43

44 A-CVA apprach. Changes cnsidered nt material. Changes that d nt meet the abve-mentined cnditins are classified as nt material and are ntified 2 weeks befre their planned implementatin r n at least an annual basis (depending n the type f change). A-CVA apprach. Exceptins. Fr all A-CVA extensins and fr A-CVA changes that cincide with an IMA mdel change, the EGMA refers t the RTS n IMA; and fr A-CVA changes that cincide with an IMM mdel change, the EGMA refers t the IMM part f the EGMA. Dcumentatin. Fr extensins/changes that need t be investigated, institutins are expected t submit certain dcumentatin (e.g. descriptin f the extensin r change, the implementatin date, relevant technical dcuments pricing, netting and margining, backtesting, etc.-). Cmments t the EGMA shall be submitted t the ECB by 14 February

45 Regulatin Outlk 4Q16 45

46 Publicatins f this quarter Lcal publicatins 08/11/ Updated list f systemically imprtant institutins and their capital buffers. 1. Cntext Accrding t the Ley 10/2014 that transpses the CRD IV int the Spanish law, the Bank f Spain (BdE) shuld identify thse credit institutins authrized in Spain that are glbal systemically imprtant institutins (G-SIIs) and ther systemically imprtant institutins (O-SIIs). In this regard, the BdE has published the updated list f institutins that are cnsidered G-SIIs and O-SIIs in 2017, specifying their relevant capital buffers. 2. Main pints List f G-SIIs in 2017 and their applicable buffers. Santander has been classified in sub-categry 1 f G-SIIs and will be subject t an additinal CET1 requirement equal t 1% f its ttal risk expsure n a cnslidated basis. Nevertheless, the buffer applicable in 2017 will be 0.5% in accrdance with the transitinal prvisins f Law 10/2014, which establishes a gradual implementatin perid. List f O-SIIs in 2017 and their applicable buffers. BBVA, Caixabank, Bankia, Sabadell and Ppular have been identified as O-SIIs. Regarding the additinal CET1 requirement, the applicable buffers in 2017 will be the fllwing (already applying the transitinal regime): 0.375% fr BBVA % fr Caixabank, Bankia, Sabadell and Ppular. Santander has been als identified as O-SII. In these cases, nly the higher f the tw capital buffers will apply, and since the tw are identical, the buffer required in 2017 will be 0.50%. The designatin as G-SIIs r O-SIIs is reviewed annually. 46

47 Regulatin Outlk 4Q16 20/10/2016 Advance ntice f prpsed rulemaking n Enhanced Cyber Risk Management Standards. 1. Cntext As technlgy dependence in the financial sectr cntinues t grw, s d pprtunities fr high-impact technlgy failures and cyber-attacks. Mrever, due t the intercnnectedness f the U.S. financial system, a cyber incident r failure at ne intercnnected entity may nt nly impact the safety and sundness f the entity, but als ther financial entities with ptentially systemic cnsequences. In this regard, the Fed, the OCC and the FDIC (hereinafter the agencies ) are inviting cmment n an advance ntice f prpsed rulemaking (ANPR) regarding enhanced cyber risk management standards fr large and intercnnected entities under their supervisin and thse entities service prviders. 2. Main pints Scpe f applicatin. The agencies are cnsidering applying the enhanced standards t certain entities (e.g. U.S. bank hlding cmpanies) with ttal cnslidated assets f $50 billin r mre n an enterprise-wide basis, and als t services prvided by third parties t these entities. Tw-tiered apprach. The agencies are cnsidering establishing a tw-tiered apprach, with the enhanced standards applying t all systems f entities under the scpe, and an additinal higher set f expectatins applying t thse systems f entities that are critical t the financial sectr. Enhanced cyber risk management standards. They wuld be rganized int five categries: Cyber risk gvernance. Agencies are cnsidering requirements such as: Develping a written, bard-apprved, enterprise-wide cyber risk management strategy (incrprated int the verall business strategy and risk management). Establishing cyber risk tlerances cnsistent with the risk appetite and strategy. Ensuring that the bard versees and hlds senir management accuntable fr implementing the entity s cyber risk management framewrk. Cyber risk management. The standards wuld require entities t integrate cyber risk management int the respnsibilities f at least three independent functins: Business units, which wuld amng thers assess n an nging basis the cyber risks assciated with their activities. Independent risk management functin, which wuld amng thers identify, measure, and mnitr cyber risk; and reprt t the CRO and the bard regarding the implementatin f the cyber risk management framewrk. Audit functin, which wuld assess whether the cyber risk management framewrk cmplies with applicable laws; and incrprate an assessment f cyber risk management int the verall audit plan. Internal dependency management. Entities wuld be required t integrate an internal dependency management strategy int the verall strategic risk management plan; maintain a listing f all internal assets and business functins; and apply apprpriate cntrls t address the inherent cyber risk f their assets. External dependency management. Entities wuld be required t integrate an external dependency management strategy int the verall strategic risk management plan; maintain a listing f all external dependencies and business functins; and apply apprpriate cntrls t reduce the cyber risk f external dependencies. Incident respnse, cyber resilience, and situatinal awareness. Entities wuld be required t be capable f perating critical business functins in the face f cyber-attacks, establish enterprise-wide cyber resilience and incident respnse prgrams, etc. Standards fr sectr-critical systems. The agencies are cnsidering the fllwing requirements: Minimizing the residual cyber risk (i.e. remaining cyber risk after mitigating cntrls have been taken int cnsideratin) f sectr-critical systems by implementing the mst effective, cmmercially available cntrls. Establishing a recvery time bjective (RTO) f 2 hurs. Measuring quantitatively the ability t reduce the aggregate residual cyber risk f the sectr-critical systems and the ability t reduce such risk t a minimal level. 47 Cmments shall be submitted by January 17, The agencies will again invite public cmment n a detailed prpsal befre adpting any final rule.

48 20/12/2016 Final rule n LCR disclsure requirements. 1. Cntext In September 2014, the US agencies (Fed, OCC and FDIC) adpted the LCR Rule t implement a quantitative liquidity requirement, the liquidity cverage rati (LCR), fr certain cmpanies. The LCR requires a cvered cmpany t maintain an amunt f high-quality liquid assets (HQLA) that is n less than 100% f ttal net cash utflws ver a prspective 30 calendarday perid f stress. The LCR rule includes als a mdified LCR requirement fr certain smaller, less cmplex banking rganizatins. In this cntext, the Fed has adpted a final rule t implement public disclsure requirements regarding the LCR. Under this rule, a cvered cmpany will be required t publicly disclse n a quarterly basis quantitative infrmatin abut its LCR calculatin, as well as a discussin f the factrs that have a significant effect n its LCR. 2. Main pints Scpe. The final rule applies t thse cmpanies subject t the LCR Rule: All bank hlding cmpanies and certain savings and lan hlding cmpanies that have $50 billin r mre in ttal cnslidated assets r $10 billin r mre in n-balance sheet freign expsure. Nnbank financial cmpanies t which the Fed has applied the LCR Rule. Quantitative infrmatin. Cmpanies are required t disclse in a standardized tabular frmat bth the average unweighted and the average weighted amunts f: Eligible HQLA and each f its cmpnents (i.e. level 1, 2A and 2B liquid assets). Cash Outflws (e.g. depsit utflw frm retail custmers and cunterparties, unsecured whlesale funding utflw, etc.). Cash Inflws (e.g. secured lending and asset exchange cash inflw, retail cash inflw, unsecured whlesale cash inflw, etc.). HQLA Amunt, Ttal Net Cash Outflw Amunt excluding the Maturity Mismatch Add-n, Maturity Mismatch Addn, Ttal Net Cash Outflw Amunt, and LCR. Hwever, mdified LCR hlding cmpanies are nt required t calculate the maturity mismatch add-n. Qualitative infrmatin. Cmpanies are required t prvide a discussin f certain features that have a significant effect n their LCR. A cmpany s discussin may include aspects such as the main drivers f the LCR results, changes in the LCR results ver time and their causes, etc. Frequency. Cmpanies are required t prvide quarterly public disclsures. Amendment. There is an amendment t the LCR Rule t prvide hlding cmpanies that becme subject t the mdified LCR Rule after the rule s effective date with a full year t cme int cmpliance with the mdified LCR. 48 Cmpanies that have $700 billin r mre in ttal cnslidated assets r $10 trillin r mre in assets under custdy and that are subject t a transitin perid in the LCR Rule will be required t cmply with the disclsure requirements beginning n April 1, Other cvered cmpanies that are subject t anther transitin perid in the LCR Rule will be required t cmply with the disclsure requirements beginning n April 1, The rule will require hlding cmpanies subject t the mdified LCR t cmply with the disclsure requirements beginning n Octber 1, 2018.

49 Regulatin Outlk 4Q16 16/12/2016 Final rule n LTD and TLAC requirements. 1. Cntext The Fed has published a final rule t imprve the resiliency and reslvability f glbal systemically imprtant banks (G-SIBs) and thereby reduce threats t financial stability. Under this final rule, cvered banks will be required t meet a new lng-term debt (LTD) requirement and a new ttal lss-absrbing capacity (TLAC) requirement. In particular, this final rule applies t U.S. tp-tier Bank Hlding Cmpanies (BHCs) identified as glbal systemically imprtant BHCs under the GSIB surcharge rule ( cvered BHCs ); as well as t the tp-tier U.S. Intermediate Hlding Cmpanies (IHCs) f glbal systemically imprtant Freign Banking Organizatins ( cvered IHCs ). 2. Main pints Requirements fr a cvered BHC External LTD requirement. Eligibility. Debt that is issued directly by the cvered BHC, unsecured, plain vanilla, gverned by U.S. law, and that is due t be paid after ne year r mre (fr eligible external LTD that is due t be paid between ne and tw years, there is a haircut f 50%). Minimum level f external LTD. The greater f: i) 6% plus the G-SIB surcharge f RWAs (RWA cmpnent); and ii) 4.5% f leverage expsure (leverage cmpnent). External TLAC requirement. Eligibility. Tier 1 regulatry capital issued directly by the BHC and the amunt f eligible external LTD. Minimum level f external TLAC. The greater f: i) 18% f the RWAs; and ii) 7.5% f the leverage expsure. Buffers. External TLAC buffers will be applied t BHCs, the breach f which wuld result in limitatins n capital distributins and discretinary bnus payments: Buffer t the RWA cmpnent: equal t the sum f 2.5% plus the G-SIB surcharge applicable under methd 1 f the G-SIB surcharge rule plus any applicable cuntercyclical capital buffer. Buffer t the leverage cmpnent: 2% f leverage expsure. Other aspects. T mitigate the impact, a grandfather fr certain utstanding LTD f cvered BHCs issued prir t 31 December 2016 is prvided, t cunt twards the LTD and TLAC requirements. Requirements fr a cvered IHC Distinctin between a reslutin and a nn-reslutin IHC. The minimum amunt f TLAC and LTD, and whether the eligible LTD may be issued externally, depends n whether the IHC is a: Reslutin cvered IHC, which is expected t enter reslutin in multiple-pint-f-entry (MPOE) reslutin strategy. Reslutin ICHs will have the ptin t issue capital and LTD externally. Nn-reslutin cvered IHC, which is expected t cntinue t perate utside f reslutin prceedings while the freign parent entity is reslved under a single-pint-f-entry (SPOE) reslutin strategy. Nn-reslutin IHCs are required t issue internal TLAC and LTD t a freign parent r t a whlly wned freign subsidiary f the freign parent. LTD requirement. Minimum level f LTD. The greater f: i) 6% f RWAs; ii) 2.5% f the leverage expsure (if applicable); and iii) 3.5% f average cnslidated assets. TLAC requirement. Minimum level f TLAC. IHCs will be required t maintain the fllwing levels f TLAC: Reslutin IHCs, the greater f: i) 18% f RWAs; ii) 6.75% f the leverage expsure (if applicable); and iii) 9% f average cnslidated assets. Nn-reslutin IHCs, the greater f: i) 16% f RWAs; ii) 6% f the leverage expsure (if applicable); and iii) 8% f average cnslidated assets. Buffer. An internal TLAC buffer t the RWA cmpnent, equal t 2.5% plus any applicable cuntercyclical capital buffer will be applied t all cvered IHCs, which must be satisfied with CET1 capital. A breach f this buffer wuld result in limits n capital distributins and discretinary bnus payments. 49 The Fed requires cvered BHCs and IHCs t achieve cmpliance with the rule as f 1 January 2019, althugh phase-in prvisins are included.

50 30/11/2016 Stress testing the UK banking system: 2016 results. 1. Cntext In March 2016, the BE launched the 2016 stress test f the UK banking system, which cvered 7 majr UK banks accunting fr arund 80% f PRA-regulated banks lending t the UK real ecnmy. The test, which is the first cnducted under the BE s new apprach t stress testing, examined the resilience f the system t a mre severe stress than in 2014 and In this regard, the BE has published the results f the 2016 stress test f the UK banking system. Perfrmance in the test was assessed against the BE s hurdle rate framewrk, cmprising elements expressed bth in terms f risk-weighted capital and leverage ratis. On the ne hand, the risk-weighted capital rati hurdle rate has tw elements: i) a hurdle rate, equal t the sum f the minimum standard fr CET1 (4.5%) and any Pillar 2A CET1 uplift set by the PRA; and ii) a CET1 systemic reference pint, which adds the phase-in G-SIB capital buffer t the hurdle rate. On the ther hand, the Tier 1 leverage hurdle rate is 3%, while a bank s systemic reference pint als includes its G-SIB additinal leverage rati buffer. 2. Main pints 50 Impact f the stress scenari n the banking system. The BE judged that the banking system is, in aggregate, capitalised t supprt the real ecnmy in a stress scenari. The stress scenari is estimated t lead t lsses f 44 billin ver the first 2 years f the stress (arund 5 times the net lsses incurred by the same banks as a grup ver 08 09). The stress scenari wuld reduce the aggregate CET1 capital rati frm 12.6% at the end f 2015 t a lw pint f 8.8% in 2017, after factring in the impact f management actins and the cnversin f Additinal Tier 1 (AT1) instruments int CET1 capital. The lw-pint CET1 capital rati is well abve the 6.5% weighted average hurdle rate and 7.3% weighted average systemic reference pint. Mrever, the lw-pint CET1 capital is als well abve the 7.6% lw pint seen in the 2015 and 2014 tests. The aggregate Tier 1 leverage rati falls frm 4.9% at the end f 2015 t a lw pint f 3.9% in Impact f the stress scenari acrss banks. The impact differs substantially acrss banks. In general, the stress has the greatest impact n thse banks with significant internatinal and crprate expsures. Fr HSBC, Llyds Banking Grup, Natinwide Building Sciety and Santander UK, the test did nt reveal capital inadequacies. RBS did nt meet its CET1 capital r Tier 1 leverage hurdle rates befre AT1 cnversin. After AT1 cnversin, RBS did nt meet its CET1 systemic reference pint r Tier 1 leverage rati hurdle rate. RBS has already updated its capital plan t incrprate further capital strengthening actins and its revised plan has been accepted by the PRA. The PRA will cntinue t mnitr RBS s prgress against its revised capital plan. Barclays did nt meet its CET1 systemic reference pint befre AT1 cnversin. Nnetheless, in light f the steps that Barclays had already annunced t strengthen its capital psitin, the PRA did nt require Barclays t submit a revised capital plan. Standard Chartered met all f its hurdle rates and systemic reference pints, althugh it did nt meet its Tier 1 minimum capital requirement (including Pillar 2A). Nnetheless, in light f the steps that Standard Chartered is already taking t strengthen its capital psitin, the PRA did nt require Standard Chartered t submit a revised capital plan. Qualitative review. As in previus stress tests, the BE als undertk a qualitative review f banks stress-testing capabilities. The PRA judged that banks in aggregate have made prgress during the stress test, but the rate f imprvement has been slwer and mre uneven than expected. This qualitative review will be cnsidered in the BE s brader assessment f banks risk management and gvernance arrangements. The 2017 stress test will fr the first time include a secnd explratry scenari in additin t the regular cyclical scenari. In this regard: The BE will publish the quantitative data assciated with these scenaris, alng with an explanatry Key Elements dcument, arund the end f 2017 Q1. The BE intends t publish the results f the 2017 exercise in 2017 Q4.

51 Regulatin Outlk 4Q16 28/11/2016 Cnsultatin paper n the implementatin f MiFID II: Part Cntext Fllwing the financial crisis, the Eurpean Cmmissin reviewed the MiFID I framewrk and cncluded that it shuld be updated in rder t, amng ther aspects, strengthen investr prtectin. As a result f this review, the EU adpted a new legislative package in June 2014, including a directive revising and expanding the existing framewrk: MiFID II. In this regard, the PRA has published a Cnsultatin Paper (CP) n the implementatin f MiFID II, setting ut its prpsals fr rules t transpse parts f MiFID II in the UK. This is the secnd PRA cnsultatin n implementing MiFID II, and fllws CP9/16, which cnsulted n implementatin f the MiFID II passprting regime and algrithmic trading. 2. Main pints Scpe. The PRA prpses t amend its rules by extending the substantive requirements f the Delegated Regulatin f the Eurpean Cmmissin n rganisatinal requirements and perating cnditins t apply acrss all businesses and firms within the scpe f the rules. Management bdy. The PRA prpses t intrduce rules t require firms t implement thse management bdy requirements under MiFID II nt previusly included in the PRA rules. Amng ther aspects, the PRA specifies that: A firm must ensure that the management bdy mnitrs and peridically assesses the adequacy and implementatin f the strategic bjectives in the prvisin f its regulated activities, the adequacy f the plicies relating t the prvisin f services t clients, etc. The management bdy defines, apprves and versees the rganisatin f the firm fr the prvisin f regulated activities (e.g. skills, knwledge and expertise required by persnnel; the resurces; etc.); a remuneratin plicy f persns invlved in the prvisin f services t clients; etc. A firm must ensure that the members f the management bdy have adequate access t infrmatin that are needed t versee and mnitr management decisin-making. Organisatinal requirements. The PRA prpses t intrduce rules t require firms t implement thse rganisatinal requirements under MiFID II nt previusly included in the PRA rules. The rganisatinal requirements in MiFID II are related t the peratin f the cmpliance functin, utsurcing, and recrd-keeping. Other aspects. The prpsal includes ther amendments, such as the fllwing: Remval frm the PRA Rulebk f prvisins that are superseded by prvisins in the abve-mentined Delegated Regulatin as they are directly applicable. Cnsequential changes t PRA Rulebk ntes and supervisry statements t update references frm MiFID t MIFID II. Cmments t this CP shall be submitted by 27 February The expected implementatin date fr the prpsals in this CP is 1 January

52 Management Slutins Alert System n Regulatin Thrugh the Alert System n regulatin, Management Slutins drives immediate knwledge n new regulatins amng its prfessinals and clients Alert System n Regulatin Regulatrs The R&D department in Management Slutins mnitrs n a daily basis the regulatry publicatins frm mre than 20 financial regulatrs and supervisrs. Glbal FSB BCBS IASB 52 Fr thse publicatins which are mre likely t give rise t significant effects upn MS clients, the R&D department has been sending ut publicatin alerts since the beginning f 2013, addressed t its prfessinals and t thse clients wh requested it. Alerts are published in Spanish and English in less than 24 hurs since the regulatr publicatin. Mrever, quarterly MS publishes the Regulatin Outlk, a reprt that cllects the alerts f the perid and anticipates the main upcming regulatry changes. T be included in the Alert System n financial regulatin, please send an t investigacin-desarrll@msspain.cm EU USA UK Spain EC EP Cnsej EBA ESMA EIOPA ECB SRB Cngress Fed OCC FDIC BdE BE PRA FCA Gbiern Crtes Generales

53 Management Slutins All rights reserved. Our gal is t exceed client expectatins, becming their trusted partners Management Slutins is an internatinal cnsultancy firm fcusing n prviding business, risk, financial, rganizatinal and prcess-related advice, bth in respect f functinal cmpnents and in the implementatin f related technlgies. With a crss-functinal team f almst 2,000 prfessinals frm the business, technical, mathematical and ther areas, Management Slutins perates thrugh 23 ffices acrss Eurpe (11), the Americas (11) and Asia (1). T meet these requirements, Management Slutins has its activities structured by industry (Financial Institutins, Energy, Telecmmunicatins, Cnsumer Prducts and Industry, and Gvernment) and business line (FCRC, RBC, NT), gruping tgether a wide range f areas f specializatin, including Strategy, Sales and Marketing Management, Organizatin and Prcesses, Risk Management and Cntrl, Management and Financial Reprting and New Technlgies. Javier Calv Martín Partner in Management Slutins javier.calv.martin@msgermany.cm.de Manuel Ángel Guzmán Caba R&D Manager in Management Slutins manuel.guzman@msspain.cm Marta Hierr Triviñ Manager in Management Slutins marta.hierr@msspain.cm Mari Sanz Juberías R&D Senir Cnsultant in Management Slutins mari.sanz.juberias@msspain.cm Management Slutins Tel. (+34)