This guide from the European Central Bank (ECB) outlines the institution's approach to the exercise of options and discretions provided for in the European Union legislative framework, related to the prudential supervision of credit institutions. It aims to ensure coherence and transparency in the supervisory policies applied within the Single Supervisory Mechanism, particularly for significant credit institutions…
The document is the "ECB Guide on options and discretions available in Union law (2025)", published by the European Central Bank (ECB) - Banking Supervision (Single Supervisory Mechanism, SSM) in July 2025. It is a 95-page guide (only the first 32 pages were provided) detailing the ECB’s policy regarding the exercise of options and discretions provided in the European legislative framework, notably Regulation (EU) 575/2013 (CRR) and Directive 2013/36/EU (CRD), as well as their recent revisions (CRRIII-CRDVI package). The scope covers the prudential supervision of significant credit institutions in the European Union, focusing on capital requirements, consolidation, waivers, liquidity, and other prudential aspects applicable to the current period (2025).
This ECB guide defines the policy and guiding principles for the exercise of options and discretions provided by European legislation (CRR and CRD) within the prudential supervision of significant credit institutions under the Single Supervisory Mechanism (SSM). It aims to ensure consistency, efficiency, and transparency in the application of prudential rules across the concerned Member States, while considering the specificities of institutions and markets. The main findings are that the guide does not create new regulatory requirements but clarifies the modalities for applying options and discretions, notably regarding consolidation, capital, liquidity, and governance. The ECB exercises these options on a case-by-case basis, respecting the principles of equal treatment, proportionality, and legitimate expectations of supervised entities. The guide includes detailed procedures for waiver requests (e.g., consolidation, liquidity, capital waivers), evaluation criteria (e.g., absence of legal or practical obstacles to fund transfers, prudent management, impact on resolution plans), as well as required documents (management letters, legal opinions, internal assessments). It also specifies the management of options in exceptional circumstances or in support of monetary policy. Key recommendations are to use this guide as a reference for supervisory teams and institutions to ensure harmonized application of options and discretions, while allowing justified case-by-case adaptations. The guide is regularly updated to incorporate legislative and regulatory developments.
The guide was developed to clarify and harmonize the ECB’s policy in exercising the options and discretions provided by the European legislative framework applicable to the prudential supervision of significant credit institutions. The issue lies in the need to ensure consistent and transparent application of prudential rules in a complex European context, with national legislations transposing directives and institutional and territorial specificities. The challenges are to avoid divergences in treatment between Member States, guarantee supervision quality and financial stability, and respect European law principles. The guide aims to provide a clear framework for supervisory teams (JSTs) and institutions, detailing principles, criteria, and procedures for exercising options and discretions, while specifying that these policies do not create new binding rules. The scope covers significant institutions supervised by the ECB, options and discretions stemming from the CRR/CRD and their recent evolutions (notably CRRIII-CRDVI). The limits are that the guide does not address options exercised under Regulation (EU) 2016/445 nor non-prudential requirements.
1. Objective and scope of the guide:
- The guide specifies the ECB’s policy for exercising options and discretions provided by the CRR and CRD, targeting supervision of significant institutions in the SSM (p. 3-6).
- It does not create new rules but guides supervisory teams’ (JSTs) decisions and informs institutions and the public.
- It takes into account the specificities of institutions, business models, and territories, respecting principles of equality, proportionality, and legitimate expectations.
2. Exercise of options in exceptional circumstances:
- Certain options related to liquidity (LCR, NSFR) and leverage may be exercised by the ECB in support of monetary policy or in exceptional situations, without institution requests (p. 7).
3. Consolidation and waivers (Article 7 et seq. of the CRR):
- The ECB assesses waiver requests to prudential requirements for subsidiaries and parent companies within the same Member State on a case-by-case basis, verifying notably the absence of obstacles to rapid fund transfers, prudent management, impact on resolution plans, and contribution to risk and capital (thresholds of 1% and 5% for risks and capital) (p. 8-11).
- Requests must be accompanied by complete documentation: management letters, legal opinions, internal assessments, guarantees, description of financial arrangements, attestations on risk management (p. 12-15).
- The ECB may also grant waivers for groups affiliated to a central body, under conditions of joint responsibility, consolidated supervision, and centralized management power (p. 19-21).
4. Liquidity waivers (Article 8 of the CRR):
- The ECB may grant partial or total waivers to liquidity requirements (LCR, NSFR) for liquidity sub-groups, under strict conditions: compliance with local requirements, centralized monitoring, contracts ensuring free movement of funds, absence of legal or practical obstacles, limited impact on resolution plans (p. 15-20).
- Precise specifications are given for contracts between entities (duration, termination conditions, prior notice to the ECB).
- For cross-border groups, the ECB verifies the quality of liquidity management, adequate allocation of liquid assets and stable funding (thresholds of 75% of solo or sub-consolidated requirements), and application of the strictest requirements among concerned States (p. 18-20).
5. Consolidation methods:
- The ECB applies individual consolidation for subsidiaries in the same Member State with significant exposures to the same parent (p. 20).
- It grants waivers to usual accounting consolidation methods in certain cases (holdings, significant influence, step-in risks), after case-by-case evaluation (p. 21-23).
- Exclusion of certain entities from consolidation is exceptional and subject to strict conditions, notably on supervision impact and valuation of holdings (p. 23).
6. Valuation for capital purposes:
- The ECB does not generally impose the use of IFRS standards for prudent valuation but may require it case by case, with consistency conditions and external certification (p. 24).
7. Capital:
- The guide details the classification modalities of successive issuances of capital instruments, with a notification and evaluation procedure of substantial similarity of clauses (p. 26-27).
- It specifies the definition of mutuals according to regulation and European criteria (p. 27).
- Deduction of holdings in insurance or financial entities is framed, with specific permissions and exclusion cases (p. 27-28).
- The ECB examines legal equivalences for instruments issued by subsidiaries in third countries (p. 28).
- Capital reductions are subject to a capital surplus margin, assessed according to several criteria including compliance with SREP, BRRD, leverage ratios, and quality of forward-looking information (p. 28-30).
- Specific waivers are provided for mutuals, cooperatives, under conditions limiting redemptions (p. 30).
8. Documentation and procedures:
- The guide precisely lists expected documents for each type of option or waiver request, including letters signed by CEOs, legal opinions, internal assessments, resolution plans, contracts, risk management attestations, etc. (p. 12-15, 24).
9. History and updates:
- The guide has undergone several public consultations since 2015, with updates in 2022 and 2025 to integrate legislative developments (CRRII-CRDV, CRRIII-CRDVI) (p. 5).
- Certain provisions related to market risk are deferred to 2026, with temporary maintenance of previous rules (p. 6-7).
Findings:
- The guide formalizes the ECB’s policy for exercising options and discretions provided by the CRR and CRD, without creating new binding rules (p. 3-6).
- The ECB applies a case-by-case approach, considering the specificities of institutions, business models, and territories (p. 5).
- Precise and documented criteria are required for waiver requests, notably on fund transferability, prudent management, resolution impact, compliance with local and consolidated requirements (p. 8-20).
- Certain options are exercised by the ECB in exceptional situations or in support of monetary policy, without prior request (p. 7).
Assumptions:
- The ECB assumes institutions will provide complete and compliant documentation to evaluate requests.
- It considers that risk and capital contribution thresholds (1% and 5%) are relevant to qualify negligible risks (p. 9).
Interpretations:
- The ECB interprets that options and discretions must be exercised respecting principles of equality, proportionality, and legitimate expectations, and may derogate from general policy if justified (p. 5).
- It considers that consolidation must be adapted to actual risks and group structure, with particular vigilance on step-in risks and holdings (p. 21-23).
Uncertainties:
- Future application of market risk rules is deferred to 2026, creating a transitional period (p. 6-7).
- Evolution of national legislations transposing the CRD may influence certain options, notably regarding governance and supervision (p. 5).
- Impact of upcoming regulatory developments on ECB practices remains to be monitored.
The ECB concludes that the guide is an essential tool to ensure consistent, transparent, and effective application of options and discretions provided by the European prudential framework within the SSM. It recommends supervisory teams (JSTs) rely on this guide to evaluate institution requests, respecting the detailed criteria and procedures. The guide emphasizes the importance of complete and rigorous documentation to justify exercised waivers and options. The ECB recalls that, although the guide does not create new rules, it reserves the right to adapt its policies according to legislative, regulatory developments and specific circumstances. It also encourages institutions to anticipate documentation requirements and prepare solid internal assessments to facilitate approval processes. Finally, the guide specifies that certain market risk-related options will be applied from 2026, requiring increased vigilance during the transitional period.
Synthesis note written from the full document by DataSAI Academy. This note comes from the scientific library of the DataSAI Academy, open to all.