Published: 8 November 2022
The Minimum Requirement for Own Funds and Eligible Liabilities (MREL) consists of own funds, which is the institution’s equity, and other forms of capital that may absorb losses in ongoing operations, as well as subordinated debt that can be converted to new equity. Institutions must apply to Finanstilsynet for permission to reduce subordinated debt.
The Financial Institutions Act, section 11-2 subsection (1) regulates which decision-making body shall resolve to raise, write down and convert debt capital. This provision has been interpreted to mean that the general meeting may delegate authority for the issuance of subordinated debt instruments to the board of directors. This can be done by giving the board a time-limited authorisation (for the issuance of instruments up to a certain limit in one or more rounds) or by amending the institution's articles of association, so that it is clearly stated that the board is authorised to issue subordinated debt instruments.
According to Article 77 (2) of the revised Capital Requirements Regulation (CRR2), the prior permission of the resolution authority is required to reduce subordinated debt instruments that count as MREL debt. No permission is required to raise subordinated debt. The resolution authority shall consult the supervisory authority before permitting a reduction. Reference is also made to Article 78a on the approval process for a reduction in subordinated debt instruments.
The changes resulting from CRR2 have not been implemented in Norwegian law. Until further notice, Finanstilsynet will apply the practice following from CRR2. Consequently, it is therefore only necessary to apply for approval of a reduction in subordinated debt instruments.
Finanstilsynet does not approve loan agreements. If the entire or part of the loan agreement is regulated by the legislation of non-EEA states (including UK law), Finanstilsynet assumes that the bank will obtain an independent legal assessment of whether the loan agreement contains clauses that complicate Finanstilsynet's resolution of the institution. The independent legal assessment shall be forwarded to Finanstilsynet upon request.