http://www.legislation.gov.uk/eudn/2015/4/bodyDecision (EU) 2015/656 of the European Central Bank of 4 February 2015 on the conditions under which credit institutions are permitted to include interim or year-end profits in Common Equity Tier 1 capital in accordance with Article 26(2) of Regulation (EU) No 575/2013 (ECB/2015/4)Decision (EU) 2015/656 of the European Central BankDecision (EU) 2015/656 of the European Central Bank of 4 February 2015 on the conditions under which credit institutions are permitted to include interim or year-end profits in Common Equity Tier 1 capital in accordance with Article 26(2) of Regulation (EU) No 575/2013 (ECB/2015/4)King's Printer of Acts of Parliamenthttps://webarchive.nationalarchives.gov.uk/eu-exit/https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32015D0004texttext/xmlen2023-12-13Expert Participation2023-07-11 Subject matter and scope Article 1 1 This Decision lays down the conditions under which the ECB has determined to grant permission to credit institutions to include interim or year-end profits in CET1 capital pursuant to Article 26(2)(a) and (b) of Regulation (EU) No 575/2013. 2 This Decision is without prejudice to the right of credit institutions to request permission from the ECB to include interim or year-end profits in CET1 capital in cases not covered by this Decision. 3 This Decision applies to credit institutions for which the ECB carries out direct supervision in accordance with Regulation (EU) No 468/2014 of the European Central Bank (ECB/2014/17). Definitions Article 2 For the purposes of this Decision, the following definitions shall apply: ‘credit institution’ means a credit institution as defined in point 1 of Article 4(1) of Regulation (EU) No 575/2013 and which is supervised by the ECB. ‘consolidated basis’ has the same meaning as defined in point 48 of Article 4(1) of Regulation (EU) No 575/2013. ‘sub-consolidated basis’ has the same meaning as defined in point 49 of Article 4(1) of Regulation (EU) No 575/2013. ‘consolidating entity’ means the credit institution which shall comply with the requirements laid down in Regulation (EU) No 575/2013 on consolidated basis or sub-consolidated basis, as applicable, in accordance with Articles 11 and 18 of Regulation (EU) No 575/2013. ‘interim profits’ means profits as laid down in the applicable accounting framework, computed for a reference period shorter than a full financial year, and before the credit institution has taken a formal decision confirming such a profit or loss of the institution. ‘year-end profits’ means profits as defined in the applicable accounting framework, computed for a reference period equal to a full financial year, and before the credit institution has taken a formal decision confirming such a profit or loss of the institution. ‘pay-out ratio at consolidated level’ means the ratio between: (a) dividends, other than those paid in a form that does not reduce CET1 capital (e.g. scrip-dividends), distributed to owners of the consolidating entity; and (b) profit after tax attributable to owners of the consolidating entity. If for a given year the ratio between (a) and (b) is negative or above 100 %, the pay-out ratio shall be deemed to be 100 %. If for a given year (b) is zero, the pay-out ratio shall be deemed to be 0 % if (a) is zero, and 100 % if (a) is above zero. ‘pay-out ratio at solo level’ means the ratio between: (a) dividends, other than those paid in a form that does not reduce CET1 capital (e.g. scrip-dividends), distributed to owners of the entity; and (b) profit after tax. If for a given year the ratio between (a) and (b) is negative or above 100 %, the pay-out ratio shall be deemed to be 100 %. If for a given year (b) is zero, the pay-out ratio shall be deemed to be 0 % if (a) is zero and 100 % if (a) is above zero. Permission to include interim or year-end profits in CET1 capital Article 3 1 For the purposes of Article 26(2) of Regulation (EU) No 575/2013, credit institutions shall be permitted to include interim or year-end profits in CET1 capital before a formal decision confirming the final profit or loss of the institution for the year has been taken, provided that the credit institution has met the conditions set out in Articles 4 and 5 of this Decision. 2 The conditions set out in Articles 4 and 5 shall be met prior to submission of the applicable reporting on own funds and own funds requirements in accordance with the reporting remittance dates laid down in Article 3 of Implementing Regulation (EU) No 680/2014. 3 Credit institutions that intend to include interim or year-end profits in CET1 capital shall send a letter addressed to the ECB that includes the documentation required in Articles 4 and 5 of this Decision. Within three working days from receipt of the relevant documentation, the ECB shall notify credit institutions whether such documentation contains the information required in this Decision. Verification of the profits Article 4 1 The ECB shall consider that the verification requirement under Article 26(2)(a) of Regulation (EU) No 575/2013 has been met if the notifying credit institution provides the ECB with a document signed by its external auditor that complies with the requirements set out in paragraphs 3 and 4. 2 Credit institutions notifying their intention to include interim or year-end profits as CET1 capital, at various levels of consolidation or on an individual basis, may provide the document referred to in paragraph 1 at the highest level of consolidation. 3 For year-end profits, the verification shall consist either of an audit report or of a comfort letter stating that the audit has not been completed and nothing has come to the attention of the auditors that causes them to believe that the final report will include a qualified opinion. 4 For interim profits, the verification shall consist either of an audit report or of a review report (as defined by the International Standard on Review Engagements 2410 issued by the International Auditing and Assurance Standards Board or a comparable standard applicable at national level) or, provided that the verification carried out by the credit institution consists of an audit report, a comfort letter along the lines set out in paragraph 3. Deduction from profits of any foreseeable charge or dividend Article 5 1 In order to demonstrate that any foreseeable charges or dividends have been deducted from the amount of profits, the credit institution shall: a provide a declaration that those profits have been recorded in accordance with the principles set out in the applicable accounting framework and that the scope of prudential consolidation is not materially wider than the scope of verification referred to in the external auditor's document referred to in Article 4; and b submit to the ECB a document signed by a qualified person detailing the main components of those interim or year-end profits, including deductions for any foreseeable charges or dividends. 2 In those cases where interim or year-end profits are to be included on a consolidated or sub-consolidated basis, the requirements referred to in paragraph 1 shall be satisfied by the consolidating entity. 3 The dividends to be deducted shall be the amount formally proposed or decided by the management body. If such formal proposal or decision has not yet been taken, the dividend to be deducted shall be the highest of the following: a the maximum dividend calculated in accordance with internal dividend policy; b the dividend calculated on the basis of the average pay-out ratio over the last three years; c the dividend calculated on the basis of the previous year's pay-out ratio. 4 Any deduction of dividends based on an approach not listed in paragraph 3 shall not be covered by this Decision. 5 For the purposes of paragraph 1(b), a qualified person means a person who has been duly authorised by the institution's management body to sign on its behalf. 6 For the purposes of paragraph 1, institutions shall use the model letter in the Annex to this Decision. Entry into force Article 6 1 This Decision shall enter into force on 6 February 2015. 2 This Decision shall apply from the reporting reference date of 31 December 2014 in accordance with Article 2 of Implementing Regulation (EU) No 680/2014. Done at Frankfurt am Main, 4 February 2015. The President of the ECB Mario Draghi Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) (OJ L 141, 14.5.2014, p. 1).