The European Banking Authority launches today a consultation paper on draft Regulatory Technical Standards (RTS) to define the conditions and methodologies used to determine the overall exposure to a client or group of connected clients resulting from a transaction with underlying assets and the risks inherent in the structure of the transaction itself. The consultation runs until 16 August 2013.
The EBA’s starting point in setting out the calculation methodology is to require institutions to take all the reasonable steps to look-through to the underlying assets and to identify the obligors of all credit risk exposures underlying the transaction.
In case an institution is not able to identify the obligors of underlying exposures, it is requested to add all these exposures to the same hypothetical ‘unknown client’ and the large exposures limit applies to the ‘unknown client’ in the same way it applies to any other single client. Therefore, all unknown exposures stemming from all transactions should be considered as a single risk and as one hypothetical ‘unknown client’.
An important development compared to the ‘CEBS Guidelines on the implementation of the revised large exposures regime’ is the proposal for a more prudent treatment for securitisation positions whereby all tranches in a securitisation would be treated equally as if they were a first loss tranche and therefore fully exposed to the underlying assets.
The EBA is requested to submit these draft RTS to the European Commission by 1 January 2014.
The final comprise on the Capital Requirements Regulation and Capital Requirements Directive (CRR/CRD) provides a mandate for the EBA to define the conditions and methodologies used to determine the overall exposure to a client or a group of connected clients in respect of exposures through transactions with underlying assets and the conditions under which the structure of the transaction does not constitute an additional exposure.
The EBA has developed these draft RTS building on ‘CEBS Guidelines on the implementation of the revised large exposures regime’ but also considering the experience gathered by national supervisory authorities in the application of these Guidelines as well as other relevant market developments.
Comments to this consultation paper can be sent to the EBA by e-mail to EBA-CPfirstname.lastname@example.org by 16 August 2013, indicating the reference EBA/CP/2013/07.
All contributions received will be published following the close of the consultation, unless requested otherwise.