8.3 Quality, payment and availability of capital

The competent authority should verify the adequacy of the capital determined in accordance with section 8.2 in line with the quality requested under the relevant provisions set out in Title I, Part Two and Three CRR. In particular, in accordance with Article 12(2) CRD, initial capital is made of ‘only one or more of the items referred to in Article 26(1)(a) to (e) of [CRR]’.

Competent authorities should verify that the credit institution’s capital is separated from the owner assets and is fully, immediately and unrestrictedly available for the sole use of the credit institution.

The portion of the capital level to be paid up in full prior to granting the authorisation is the higher of the following:

• a) the portion of the capital determined in accordance with section 8.2 which is required to cover in full the first year of activity (i.e. the own funds necessary to cover full compliance with the prudential requirements throughout and at the end of the first twelve months, taking into account the expected losses for that time horizon); or
• b) the initial capital plus the first-year losses.

Competent authorities should verify and review through adequate evidence that the portion of capital paid up in full according to letters a) or b) above is effectively paid up in full, is of legitimate origin and is booked in the records of the undertaking prior to granting of the authorisation. To assess the legitimate source of the funds³² , competent authorities should apply the criteria set out in paragraphs 14.5 and 14.6 of the ESAs’ Joint Guidelines on the

32 ‘Source of the funds’ means the origin of the funds involved in a business relationship or occasional transaction. It includes both the activity that generated the funds used in the business relationship, for example the customer’s salary, and the means through which the customer’s funds were transferred. The funds could also derive from a ‘source of wealth’, meaning the origin of the customer’s total wealth, for example inheritance or savings, see paragraph 12, letters (n) and (o) of the EBA ML/TF Risk Factor Guidelines, EBA/GL/2021/02 of 1 March 2021, available at https://www.eba.europa.eu/regulation-and-policy/anti-money-laundering-and-e-money/revised-guidelines-on-ml-tf-risk-factors prudential assessment of the proposed acquisition of qualifying holdings³³ , relating to the activity that generated the funds and the means through which they have been transferred, having regard to whether they may give rise to an increased risk of money laundering or terrorist financing.

³³ JC/GL/2016/01 of 20 December 2016 on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector, available at: https://eba.europa.eu/regulation-and-policy/other-topics/joint-guidelines-for-the-prudential-assessment-of-acquisitions-of-qualifying-holdings

Without prejudice to the above, in those jurisdictions where the portion of the capital indicated in letters a) or b) of paragraph 123 has to be paid up before commencing the activities as a credit institution, rather than before granting the authorisation, competent authorities, for the purpose of granting the authorisation, should carefully review the plan and the implementation deadline submitted by the applicant in accordance with Article 6(2) of the RTS on information for authorisation³⁴ in order to ensure that such a capital amount is paid up in full before commencing the activities as a credit institution and is of legitimate origin.

The competent authority should include an express condition in the authorisation, suspending the effects of the authorisation at least until the actual payment of the portions of the capital identified therein.

³⁴ ‘Where the initial capital has not been paid-up in full at the time of submitting the application to the competent authority, the application shall set out the envisaged plan and implementation deadline for ensuring that the initial capital is paid-up in full before authorisation to commence the activity of credit institutions’.

Competent authorities should be satisfied that the applicant credit institution has a capital implementation plan in place addressing the outstanding amount of capital determined in accordance with section 8.2, which has not been paid up at the time of the authorisation according with paragraphs 123 and 124 and which is destined to cover the activities of the second and the third year. Such a capital implementation plan should indicate the type of funding sources and the timing of capital injections in order to avoid a potential failure to meet business objectives and a potential incurrence of losses affecting compliance with minimum capital requirements by the credit institution. The type of funding sources – such as shareholders’ private financial resources, financial instruments issued or to be issued in the financial markets and any agreements and contracts entered into in respect of own funds – should be carefully reviewed with the aim of ensuring that they are of legitimate origin and, based on their terms and conditions, will be promptly available.