Reciprocation of macroprudential measures

The macroprudential measures implemented in a country may directly or indirectly impact other countries. In order to reduce the potential for arbitrage of financial institutions between Member States, these can reciprocate measures of other authorities. Broadly two reciprocation frameworks can be distinguished: automatic and voluntary reciprocation. Following ESRB Recommendation ESRB/2014/1, Article 137 of the Capital Requirements Directive (CRD) (2013/36/EU), and Article 59-7 (8) of the Law of 5 April 1993 on the financial sector (LFS), there is an automatic recognition principle for CCyB below or equal to 2.5% for EU countries. Hence, the CSSF should generally recognise the buffer rates set by other Member States. For this type of reciprocation no decisions need to be taken. Regarding other cases and instruments, the ESRB in its Recommendation on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (ESRB/2015/2), provides guidance for a systemic assessment of the cross-border effects of macroprudential policy and a coordinated policy response in the form of voluntary reciprocity for macroprudential policy measures when needed. In practice, the activating authority requests a reciprocation of its measure to the ESRB and the latter issues a recommendation to reciprocate the measure taken by the activating authority. The CSSF is not obliged to reciprocate but is required to sufficiently explain why it does not (“comply or explain mechanism”). The decision to reciprocate is taken after consultation with the Banque centrale du Luxembourg (BcL) and after requesting the opinion or recommendation of the Comité du Risque Systémique (CdRS). So far, the CSSF took the reciprocation measures detailed below.

* CSSF Regulation N° 16-14 (only in French)

on the reciprocity of the systemic risk buffer rate of 1% adopted by the Central bank of Estonia

* CSSF Regulation N° 16-04

on voluntary reciprocity for macroprudential policy measures