Response to consultation Paper on draft Guidelines on loan origination and monitoring.
Go back
Therefore, factoring companies should be able to continue to rely on external information on credit risk and creditworthiness, provided directly by the client (who shares, among other things, the sales ledger and the payments behaviour of the buyer) and sourced by third parties (e.g. from credit enquiry agencies). The creditworthiness assessment on account debtors made by the factoring companies are complete and thorough even if they do not collect information directly from them, and should thus not be required to obtain the detailed level of information about debtors as stated in e.g. points 5.1 (collection of information and documentation, in particular no. 83-86) and 5.2.5 (specificities for assessment of the financial positon of SMEs, no. 138) of the aforementioned draft EBA Guidelines as these would set disproportionately high and not risk adequate requirements for factoring.
In conclusion, in the unexpected case where debtors would be included within the scope of application, we suggest, at least, confirmation that analysis and monitoring of such debtors will follow lightened guidelines or, preferably, customized requirements. This would be in line with ECB work related to the treatment of factoring for AnaCredit where data required for debtors are limited compared to those required for clients. As stated in the AnaCredit Reporting Manual – Part III – Case studies, chapter 5 Factoring : “ Meanwhile, in cases where the counterparty is the account debtor, some of the counterparty reference data required for AnaCredit reporting (i.e. data on the debtor) are not available to factors as there is generally no contractual relation between the factor and the debtor (i.e. the factoring client’s customer). Therefore, the following data attributes are reported as “Non-applicable” “.
While the EUF does want to see responsible provision of finance, it also thinks that the proposals do not reflect a market that is diverse and tailored to the different operating models relevant to different sizes of business, different products and innovative processes. It could actually be counterproductive in discouraging adaptation and flexibility and harmful to access to finance and competition.
Therefore, factoring companies should be able to continue to rely on external information on credit risk and creditworthiness, provided directly by the client (who shares, among other things, the sales ledger and the payments behaviour of the buyer) and sourced by third parties (e.g. from credit enquiry agencies). The creditworthiness assessment on account debtors made by the factoring companies are complete and thorough even if they do not collect information directly from them, and should thus not be required to obtain the detailed level of information about debtors as stated in e.g. points 5.1 (collection of information and documentation, in particular no. 83-86) and 5.2.5 (specificities for assessment of the financial positon of SMEs, no. 138) of the aforementioned draft EBA Guidelines as these would set disproportionately high and not risk adequate requirements for factoring.
In conclusion, in the unexpected case where debtors would be included within the scope of application, we suggest, at least, confirmation that analysis and monitoring of such debtors will follow lightened guidelines or, preferably, customized requirements. This would be in line with ECB work related to the treatment of factoring for AnaCredit where data required for debtors are limited compared to those required for clients. As stated in the AnaCredit Reporting Manual – Part III – Case studies, chapter 5 Factoring : “ Meanwhile, in cases where the counterparty is the account debtor, some of the counterparty reference data required for AnaCredit reporting (i.e. data on the debtor) are not available to factors as there is generally no contractual relation between the factor and the debtor (i.e. the factoring client’s customer). Therefore, the following data attributes are reported as “Non-applicable” “.
While the EUF does want to see responsible provision of finance, it also thinks that the proposals do not reflect a market that is diverse and tailored to the different operating models relevant to different sizes of business, different products and innovative processes. It could actually be counterproductive in discouraging adaptation and flexibility and harmful to access to finance and competition.
5. What are the respondents’ views on the requirements for governance for credit granting and monitoring (Section 4)?
see above6. What are the respondent’s views on how the guidelines capture the role of the risk management function in credit granting process?
see above7. What are the respondents’ views on the requirements for collection of information and documentation for the purposes of creditworthiness assessment (Section 5.1)?
In addition to the abovementioned pitfalls of the approach set by the Guidelines in the case of specialized factoring transactions, we also highlight that factoring companies generally do not have direct contractual relationships with the debtors of the purchased receivables (there is no loan or advance made to the benefit of these debtors) and hence they have only limited direct access to detailed information.Therefore, factoring companies should be able to continue to rely on external information on credit risk and creditworthiness, provided directly by the client (who shares, among other things, the sales ledger and the payments behaviour of the buyer) and sourced by third parties (e.g. from credit enquiry agencies). The creditworthiness assessment on account debtors made by the factoring companies are complete and thorough even if they do not collect information directly from them, and should thus not be required to obtain the detailed level of information about debtors as stated in e.g. points 5.1 (collection of information and documentation, in particular no. 83-86) and 5.2.5 (specificities for assessment of the financial positon of SMEs, no. 138) of the aforementioned draft EBA Guidelines as these would set disproportionately high and not risk adequate requirements for factoring.
In conclusion, in the unexpected case where debtors would be included within the scope of application, we suggest, at least, confirmation that analysis and monitoring of such debtors will follow lightened guidelines or, preferably, customized requirements. This would be in line with ECB work related to the treatment of factoring for AnaCredit where data required for debtors are limited compared to those required for clients. As stated in the AnaCredit Reporting Manual – Part III – Case studies, chapter 5 Factoring : “ Meanwhile, in cases where the counterparty is the account debtor, some of the counterparty reference data required for AnaCredit reporting (i.e. data on the debtor) are not available to factors as there is generally no contractual relation between the factor and the debtor (i.e. the factoring client’s customer). Therefore, the following data attributes are reported as “Non-applicable” “.
While the EUF does want to see responsible provision of finance, it also thinks that the proposals do not reflect a market that is diverse and tailored to the different operating models relevant to different sizes of business, different products and innovative processes. It could actually be counterproductive in discouraging adaptation and flexibility and harmful to access to finance and competition.
8. What are the respondents’ views on the requirements for assessment of borrower’s creditworthiness (Section 5.2)?
In addition to the abovementioned pitfalls of the approach set by the Guidelines in the case of specialized factoring transactions, we also highlight that factoring companies generally do not have direct contractual relationships with the debtors of the purchased receivables (there is no loan or advance made to the benefit of these debtors) and hence they have only limited direct access to detailed information.Therefore, factoring companies should be able to continue to rely on external information on credit risk and creditworthiness, provided directly by the client (who shares, among other things, the sales ledger and the payments behaviour of the buyer) and sourced by third parties (e.g. from credit enquiry agencies). The creditworthiness assessment on account debtors made by the factoring companies are complete and thorough even if they do not collect information directly from them, and should thus not be required to obtain the detailed level of information about debtors as stated in e.g. points 5.1 (collection of information and documentation, in particular no. 83-86) and 5.2.5 (specificities for assessment of the financial positon of SMEs, no. 138) of the aforementioned draft EBA Guidelines as these would set disproportionately high and not risk adequate requirements for factoring.
In conclusion, in the unexpected case where debtors would be included within the scope of application, we suggest, at least, confirmation that analysis and monitoring of such debtors will follow lightened guidelines or, preferably, customized requirements. This would be in line with ECB work related to the treatment of factoring for AnaCredit where data required for debtors are limited compared to those required for clients. As stated in the AnaCredit Reporting Manual – Part III – Case studies, chapter 5 Factoring : “ Meanwhile, in cases where the counterparty is the account debtor, some of the counterparty reference data required for AnaCredit reporting (i.e. data on the debtor) are not available to factors as there is generally no contractual relation between the factor and the debtor (i.e. the factoring client’s customer). Therefore, the following data attributes are reported as “Non-applicable” “.
While the EUF does want to see responsible provision of finance, it also thinks that the proposals do not reflect a market that is diverse and tailored to the different operating models relevant to different sizes of business, different products and innovative processes. It could actually be counterproductive in discouraging adaptation and flexibility and harmful to access to finance and competition.