Shearman & Sterling LLP | FinReg | European Banking Authority Issues Final Guidance on Identifying Connected Clients
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  • European Banking Authority Issues Final Guidance on Identifying Connected Clients

    11/14/2017
    The European Banking Authority has published final Guidelines on connected clients under the Capital Requirements Regulation, following two earlier consultations. The Guidelines are intended to replace the "Guidelines on the implementation of the revised large exposures regime" issued in 2009 by the EBA's predecessor, the Committee of European Banking Supervisors.

    The concept of "connected clients" features widely in the CRR. The connections between clients, particularly relationships of control or economic dependencies, can mean that financial problems of one entity are, in effect, transferred via this interrelationship to another entity that otherwise would not be concerned. The objective of the Guidelines is to clarify the situations in which this type of interconnectedness should lead to the grouping of clients because they effectively constitute a single risk for the purposes of the CRR.

    Guidelines are intended to apply to all areas of the CRR where the concept of connected clients is used, namely: the large exposures regime; the categorization of clients in the retail exposure class for the purposes of credit risk; the development and application of rating systems; the specification of items requiring stable funding for reporting purposes; and the small- and medium-sized enterprise (SME) supporting factor. The Guidelines also apply to EBA technical standards and EBA guidelines that refer to "groups of connected clients" in the context of liquidity reporting and the reporting of concentration of funding and concentration of counterbalancing capacity.

    The Guidelines are consistent with the standards on the supervisory framework for measuring and controlling large exposures issued by the Basel Committee on Banking Supervision in April 2014. However, they are more detailed and go further than the Basel standards by including additional guidance, such as on an alternative approach for exposures to central governments and on the relation between interconnectedness through control and economic dependency.

    The Guidelines will apply from January 1, 2019.

    View the Final Guidelines.