Yes. It is typically the case in jurisdictions where banking structural reforms were adopted. In France, the law for regulation and segregation of banking activities provides that trading entities must be segregated and subject to individual capital and liquidity requirements, while the parent company has to apply the Large Exposure regime to its trading subsidiary. Albeit there is still a control relationship between these entities, there is no economic risk anymore and no existence of a “single risk”.
Moreover this might be the case in few situations, in particular for major international Groups acting among several business lines or for specialised lending involving non-recourse debts; even if a control relationship exists, a specific analysis can demonstrate that no single risk exists.
For FBF members, it is important that the internal analysis according to experts can still be considered in the revised guidelines, and that internal risk management practices do not have to be reconsidered.
FBF members see no significant impact expected as their internal procedures already specify the need of specific analysis and documentation of the conclusion in such cases.
We do not estimate any significant additional costs as our internal procedures to identify individual customers for clustering purposes already require such assessment and documentation (in particular for significant informal groups).
Yes. However we are very much concerned by the potential impact that such an alternative approach would have on the bank’s sovereign exposures amounts should this be applied. The “assimilated” Sovereign exposure definition is neither defined at the EU level nor at the international level. The FBF is not in favour of such an approach and ask the EBA to wait for new insights at the international level as regards sovereign risk.
Banks in general will have to face a major problem of feasibility and we fear that, as a result, the clustering will not be homogenously implemented among banks. Moreover, banks will face the risk of misguided assessments over some groups, leading to non-desirable impacts over the delegation levels and the limit consumptions. Therefore, in order to ensure the feasibility, coherence and comparability among European financial institutions, we suggest that either BCE/EBA or NCAs provide the list of such customer connections.
In addition, we are using this opportunity to draw attention to the need of expending the use of the global Legal Entity Identifier (LEI) to all financial markets (and not limiting its application to specific market segments). We consider such improvement as a major prerequisite for ensuring the consistency of the Large Exposures framework implementation within Europe. In this perspective, we very much welcome the opinion drawn by the ECB on the 12 September 2016 on the proposal for a Regulation amending Regulation (EU) No 345/2013 and Regulation (EU) No 346/2013, standing that “ECB strongly supports the use of internationally agreed standards, such as the International Securities Identification Number (ISIN) and the global Legal Entity Identifier (LEI), as unique identifiers to meet reporting requirements on the securities markets. (…) The ECB is accordingly of the view that, where appropriate and to the extent possible, other legislative changes underpinning the CMU should also establish the mandatory reporting of unique identifiers”.
In the assessments of situations where economic dependencies may exist, it is indicated that the institutions should automatically cluster customers together if one of criteria is met without taking into account the expert analysis. The proposed mechanism does not seem right as, firstly, they are not sufficient on a stand-alone basis to systematically justify a grouping, and secondly, such a systematic process will not consider the dynamic aspect of the economic dependencies. Therefore, automatic criteria will produce misleading results. For example, in point h), the situation where two companies have the same customer base don’t systematically lead to a connection because if one company lose a client, this same client could be retrieve by the other company due to the limited possibility to find new customer. In this case, the expert analysis could be crucial to decide if the connection is relevant. Consequently, we believe that criteria c/, d/ and h/ may be proposed as an element of the assessment but not as systematic triggers of connection.
In our opinion the guidelines should be modified to indicate that the listed criteria should be considered in the assessment process, but without any systematic grouping.
We propose to amend the guidelines par. 23 in the following way:
Replace “institutions should deem, […]” by “institutions may consider, in particular […]”. This will leave the flexibility for banks to assess whether the criteria characterises a real situation of economic dependency or not.
No. We remind that these criteria should not lead to automatic grouping of clients. An internal expert analysis should remain the basis for assessing such connectedness.
Yes. However we consider it regrettable that this consultation is performed without being linked to the on-going discussions relative to the default contagion rules.