Commission Delegated Regulation (EU) 2018/345Show full title

CHAPTER I U.K. GENERAL PROVISIONS

Article 1 U.K. Definitions

For the purpose of this Regulation the following definitions shall apply:

(a)

‘valuation’ means either the assessment of an entity's assets and liabilities conducted by a valuer pursuant to Article 36(1) of Directive 2014/59/EU, or the provisional valuation conducted by the resolution authority or the valuer, as the case may be, pursuant respectively to paragraphs (2) and (9) of Article 36 of that Directive.

(b)

‘valuer’ means either the independent valuer within the meaning of Article 38 of Commission Delegated Regulation (EU) 2016/1075(1) or the resolution authority when conducting a provisional valuation pursuant to paragraphs (2) and (9) of Article 36 of Directive 2014/59/EU.

(c)

‘entity’ means an institution or an entity as referred to in points (b), (c) or (d) of Article 1(1) of Directive 2014/59/EU.

(d)

‘fair value’ means the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the valuation date, as defined in the relevant accounting framework.

(e)

‘hold value’ means the present value, discounted at an appropriate rate, of cash flows that the entity can reasonably expect under fair, prudent and realistic assumptions from retaining particular assets and liabilities, considering factors affecting customer or counterparty behaviour or other valuation parameters in the context of resolution.

(f)

‘disposal value’ means the measurement basis refered to in Article 12(5).

(g)

‘franchise value’ means the net present value of cash flows that can reasonably be expected to result from the maintenance and renewal of assets and liabilities or businesses and includes the impact of any business opportunities, as relevant, including those stemming from the different resolution actions that are assessed by the valuer. Franchise value may be higher or lower than the value arising from the contractual terms and conditions of assets and liabilities existing at the valuation date.

(h)

‘equity value’ means an estimated market price, for transferred or issued shares, that results from the application of generally accepted valuation methodologies. Depending on the nature of the assets or business, equity value may comprise franchise value.

(i)

‘measurement basis’ means the approach for determining the monetary amounts at which assets or liabilities are presented by the valuer.

(j)

‘resolution date’ means the date on which the decision to resolve an entity is adopted, pursuant to Article 82 of Directive 2014/59/EU.

Article 2 U.K. General criteria

1. When performing the valuation the valuer shall consider circumstances affecting the expected cash flows of, and discount rates applicable to an entity's assets and liabilities, and shall aim to fairly represent the entity's financial position in the context of the opportunities and risks it deals with.

2. The valuer shall disclose and justify the key assumptions used in the valuation. Any significant deviation in the valuation from the assumptions used by the entity's management in the preparation of financial statements and in the calculation of the entity's regulatory capital and capital requirements shall be supported by the best available information.

3. The valuer shall provide the best point estimate of the value of a given asset, liability, or combinations thereof. Where appropriate, the results of the valuation shall also be provided in the form of value ranges.

4. Criteria laid down in this Regulation for the measurement of individual assets and liabilities of an entity, shall also apply to the measurement of portfolios or groups of assets or combined assets and liabilities, businesses, or the entity considered as a whole, as the circumstances require.

5. The valuation shall subdivide creditors in classes according to their priority ranking under applicable insolvency law, and shall include the following estimates:

(a) the value of claims of each class according to the applicable insolvency law and, where relevant and feasible, according to the contractual rights conferred on claimants;

(b) the proceeds each class would receive if the entity were wound-up under normal insolvency proceedings;

When calculating the estimates pursuant to points (a) and (b) of the first subparagraph, the valuer may apply the criteria set out in Article 4 of Commission Delegated Regulation (EU) 2018/344 of 14 November 2017 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the criteria relating to the methodologies for valuation of difference in treatment in resolution as appropriate.

6. Where appropriate and feasible, taking into account timing and credibility of the valuation, the resolution authority may request several valuations. In that case, the resolution authority shall establish the criteria to determine how these valuations shall be used for the purposes set out in Article 36 of Directive 2014/59/EU.

Article 3 U.K. Valuation date

The valuation date shall be one of the following dates:

(a)

the reference date as determined by the valuer on the basis of the date as close as possible before the expected date of a decision by the resolution authority to put the entity in resolution or to exercise the power to write-down or to convert capital instruments;

(b)

where an ex post definitive valuation required by Article 36(10) of Directive 2014/59/EU is conducted, the resolution date;

(c)

in relation to liabilities arising from derivative contracts, the point in time determined pursuant to Article 8 of Commission Delegated Regulation (EU) 2016/1401(2).

Article 4 U.K. Sources of information

The valuation shall be based on any information pertinent to the valuation date which is deemed relevant by the valuer. In addition to the entity's financial statements, related audit reports and regulatory reporting as of a period ending as close as possible to the valuation date, that relevant information may include the following:

(a)

the updated financial statements and regulatory reporting prepared by the entity as close as possible to the valuation date;

(b)

an explanation of the key methodologies, assumptions and judgements used by the entity in order to prepare the financial statements and regulatory reporting;

(c)

data contained in the records of the entity;

(d)

relevant market data;

(e)

conclusions drawn by the valuer from discussion with management and auditors;

(f)

where available, supervisory assessments of the entity's financial condition, including information acquired pursuant to point (h) of Article 27(1) of Directive 2014/59/EU;

(g)

industry-wide assessments of asset quality, where relevant to the entity's assets, as well as stress test results;

(h)

valuations of peers, adequately adjusted to capture the entity's specific circumstances;

(i)

historical information, adequately adjusted to eliminate factors that are no longer relevant, and to incorporate other factors that did not affect the historical information; or

(j)

trend analyses, adequately adjusted to reflect the entity's specific circumstances.

Article 5 U.K. Impact of group arrangements

1. Where the entity forms part of a group, the valuer shall take into account the impact that existing contractual intra-group support arrangements can have on the value of the assets and liabilities where, on the basis of the circumstances, it is probable that those arrangements will be put into effect.

2. The valuer shall only take into account the impact of other formal or informal arrangements within the group where, on the basis of the circumstances, it is probable that those arrangements shall remain in place in the context of a group's stressed financial condition or in resolution.

3. The valuer shall determine whether the resources of an entity within the group are available to meet losses of other group entities.

Article 6 U.K. Valuation report

The valuer shall prepare a valuation report to the resolution authority which shall include at least the following elements:

(a)

except as provided in Article 36(9) of Directive 2014/59/EU, the information referred to in points (a) to (c) of Article 36(6) of that Directive;

(b)

except as provided in Article 36(9) of Directive 2014/59/EU, the information referred to in Article 36(8) of Directive 2014/59/EU;

(c)

the valuation of the liabilities arising from derivatives carried out in accordance with Commission Delegated Regulation (EU) 2016/1401;

(d)

a summary of the valuation including an explanation of best point estimate, value ranges and sources of valuation uncertainty;

(e)

an explanation of the key methodologies and assumptions used by the valuer when performing the valuation, how sensitive the valuation is to the choices of methodologies and assumptions and, where feasible, an explanation of how those methodologies and assumptions differ from those used for other relevant valuations including any preliminary resolution valuations;

(f)

any additional information which in the valuer's opinion would assist the resolution authority or competent authority for purposes of Article 36(1) to (11) of Directive 2014/59/EU.

(1)

Commission Delegated Regulation (EU) 2016/1075 of 23 March 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the content of recovery plans, resolution plans and group resolution plans, the minimum criteria that the competent authority is to assess as regards recovery plans and group recovery plans, the conditions for group financial support, the requirements for independent valuers, the contractual recognition of write-down and conversion powers, the procedures and contents of notification requirements and of notice of suspension and the operational functioning of the resolution colleges (OJ L 184, 8.7.2016, p. 1).

(2)

Commission Delegated Regulation (EU) 2016/1401 of 23 May 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms with regard to regulatory technical standards for methodologies and principles on the valuation of liabilities arising from derivatives (OJ L 228, 23.8.2016, p. 7).