Response to consultation Paper on draft Guidelines on loan origination and monitoring.

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5. What are the respondents’ views on the requirements for governance for credit granting and monitoring (Section 4)?

In addition to the abovementioned, the section on credit decision making (4.4) refers to individual delegated authority. We find that if such functions are assigned to individual employees and in limited cases, there needs to be a clear definition of the scope of responsibilities, adequate training, and an understanding that the accountability for following rules and procedures still resides at the top. The same considerations should appy for the ´three lines of defence´, including on how the lines are interconnected.
Furthermore, as a general principle, company objectives should be aligned with wider societal interests and sustainability goals. This also involves adopting a sustainable approach towards employees through ensuring that upskilling and re-skilling programmes aligned with the company´s long term credit risk policies and strategic orientations, such as green lending, are made available. NFU suggests that they are referenced as well, when addressing Resources and Skills.
According to the ´Coping with Compliance´ study that NFU carried out in 2018, regulatory requirements have increased in the Nordic financial sectors, with no adjustments made on the demands management put on employees performance in other fields, such as meetings and targets. Such situation has led to increased workload and stress levels among employees, frequently adversely affecting customers, who stand in the middle of the dilemma between following the rules and regulations and providing sound advice. While this is a general point to raise regarding EU regulation, we would emphasize its spillover effect to all levels, and down to company rules and regulations. Efforts should be made to streamline internal processes and reduce administrative burden for employees, allowing for the time to be used in servicing customers.
Ultimately, regarding 4.7. Remuneration, NFU strongly supports the idea of remuneration policies and practices that are consistent with and promote sound and effective risk management, but believes that remuneration policies and practices should be left to the social partners to decide upon. This is the cornerstone of the Nordic model, and in accordance to Article 153,5 TFEU; Recital 69 of CRD, recital 10 in Directive 2014/91/EU and Recital 14 in Directive 2010/76/EU. In some jurisdictions, collective agreements also regulate small amounts of variable remuneration paid to certain employee profiles , which as such cannot be affected by a third party/institution. We urge that these considerations are included under point 82.
In addition to that, and in order to maintain proportionality, it is equally important to acknowledge that most employees do not receive excessive amounts of variable remuneration. For financial institutions that impose low risk to the financial system and have a handful of employees, making sure that all information is reported in details, for example on remuneration policies, may be costly and significantly raise the administrative burden.
As a final point, not only remuneration policies and variable pay that can create risk incentives for staff, as implied in the guidelines.. Also non-monetary merit rating systems and aggressive sales targets are reasons for stress and pressure among the employees that can result in mis-selling. These types of systems are not driven by monetary incentives but can instead affect the overall salary or position of the employee at the company.

6. What are the respondent’s views on how the guidelines capture the role of the risk management function in credit granting process?

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7. What are the respondents’ views on the requirements for collection of information and documentation for the purposes of creditworthiness assessment (Section 5.1)?

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8. What are the respondents’ views on the requirements for assessment of borrower’s creditworthiness (Section 5.2)?

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9. What are the respondents’ views on the scope of the asset classes and products covered in loan origination procedures (Section 5)?

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10. What are the respondents’ views on the requirements for loan pricing (Section 6)?

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11. What are the respondents’ views on the requirements for valuation of immovable and movable property collateral (Section 7)?

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12. What are the respondents’ views on the proposed requirements on monitoring framework (Section 8)?

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Name of organisation

NFU - Nordic Financial Unions