Consultation memorandum: Debt Office proposes revised application of the Minimum Requirement for Own Funds and Eligible Liabilities (MREL)

News 2 heinäkuuta 2021

Today, the Swedish National Debt Office is submitting a consultation memorandum proposing the application of new rules under the Resolution Act (2015:1016) that pertain to the requirement for own funds and eligible liabilities.

On 1 July 2021, amendments to the Resolution Act entered into force that build on the so-called banking package established by the EU in 2019, entailing among other things amendments to the Bank Resolution and Recovery Directive. Among the revisions is a name change in Swedish from “minimikrav på nedskrivningsbara skulder” to “krav på kapitalbas och kvalificerade skulder”. Both names are translations of the English-language term Minimum Requirement for Own Funds and Eligible Liabilities, abbreviated as MREL.

The memorandum consists of an explanatory portion and a policy document (MREL policy). The MREL policy replaces the Debt Office’s previous application and instructions and is intended to form the basis of the decisions on MREL that will be made in December 2021 and take effect starting 1 January 2022.

In the MREL policy, the Debt Office proposes that undertakings for which the agency makes plans to manage through resolution (called resolution entities) be subject to MREL that includes a market confidence charge. All resolution entities shall also be subject to a requirement for subordinated liabilities determined in accordance with an alternative subordination requirement.

It is proposed that subsidiaries of resolution entities also be subject to MREL including a market confidence charge. However, for subsidiaries that do not conduct critical functions or the failure of which can be presumed to have no adverse impact on financial stability, the Debt Office proposes that MREL may be limited to a loss absorption amount only.

When the Debt Office makes new decisions on MREL, these will replace the agency’s previous ones including the application of the resolvability principles with which the undertakings currently must comply. The amendments to the Resolution Act stipulate that new decisions on MREL are to enter into full force starting 1 January 2024. In order to enable a linear phase-in of the new requirements, the Debt Office will decide on a target level to apply as of 1 January 2022.

The Debt Office proposes that this target level for MREL be based on existing requirement levels. For subordination, the target level is to be based on the minimum levels that also take effect 1 January 2022.

Altogether, the proposed MREL policy entails some changes from previous application. Above all, the resolution entities are going to be able to meet MREL not only with own funds and subordinated eligible instruments and liabilities, but also with a certain proportion of eligible liabilities. Through the proposed application of MREL, in which the overall de facto requirement is higher than under the previous application terms, the Debt Office ensures that Swedish undertakings will continue to be subject to suitable requirements for safeguarding financial stability.

The final day to reply to the consultation memorandum is 10 September 2021.

Minimum requirement for own funds and eligible liabilities (MREL)