In our opinion, extending the scope of application to include rating procedures would bring about significant changes for institutions. We believe that, depending on the specifications, process-related and administrative efforts would increase significantly, and would represent a disproportionate burden for smaller institutions in particular. Even though section 9 tends to negate any direct impact related to Article 172 (1) d of the CRR, this provision only applies to the IRBA. Given the outstanding importance of rating systems for the risk management of each institution, we believe that a clarification is required that the requirements for establishing groups of connected clients have no influence upon development and calibration of rating systems for risk management purposes (Pillar II).
Assuming that it is EBA's understanding, concerning the area of liquidity management, that clients exclusively (or predominantly) making deposits also need to be examined regarding the establishment of connected-client groups, we anticipate serious problems concerning the availability of data required to assess the establishment of clients to groups of connected clients, in accordance with the extensive criteria set out in EBA's draft guidelines on connected clients.
To date, the concept of connected-client groups has been exclusively applied in the context of large exposures, thus targeting banks' borrowing clients. Grouping clients is only required if several members of a group of connected clients have actually taken out loans from the institution concerned.
Extending the scope of application of EBA's guidelines on connected clients to depositor clients, or to introduce a notional analysis of grouping, would require a significant amount of additional information. Such information is not currently available with the level of detail required by the draft guidelines. Besides causing immense process-related and organisational efforts for data collection and processing, such extended requirements for disclosure of financial or economic circumstances – which significantly exceed those required for know your customers (KYC) purposes and the prevention of money laundering and financing of terrorism– are likely to meet resistance from clients, and threaten to negatively affect the business relationships.
For instance, an individual holding a share in a small business, who wishes to make a deposit from his private assets, is unlikely to agree disclosing the financial circumstances of that small business to an extent that economic dependencies with other companies can be checked.
Moreover, individual clients may need to be assigned to different groups of connected clients. Whilst such multiple assignments might be unproblematic for the purposes of large exposure limits (at least given the absence of any aggregate limit for all large exposures), they might pose problems for liquidity reporting purposes, and/or would require further regulation. Taking ALMM as an example, the multiple assignment of individual clients would exaggerate concentration risk on the funding side (C67.00).
Extending the guidelines' scope of application onto the liquidity regime would only be acceptable if no new requirements were introduced regarding the examination and potential establishment of groups of connected clients and using existing groups established on the basis of lending relationships only in liquidity regime. We reject any more extensive requirements.