Guidelines on Connected Clients

Status: Final and translated into the EU official languages

These draft Guidelines review and update the ‘Guidelines on the implementation of the revised large exposures regime’ issued by the Committee of European Banking Supervisors (CEBS) on 11 December 2009. Their focus is exclusively on the issue of connected clients as defined in the Capital Requirements Regulation (CRR) and they reflect the developments in the area of shadow banking and large exposures both at EU and international level.

Consultation on the scope of the draft Guidelines on connected clients (EBA-CP-2017-07)

Summary
25/05/2017

The European Banking Authority launched today a consultation focusing on the scope of its draft Guidelines on connected clients, on which it had already sought the stakeholders’ views in July 2016. In the new consultation, the EBA is proposing to extend the scope of these draft Guidelines to the remaining aspects of the Capital Requirements Regulation (CRR), the EBA technical standards, and the EBA guidelines where the concept of group of connected client is relevant. The extension of the scope would ensure the consistent application of this concept throughout the CRR and the harmonisation of institutions’ practices. The consultation runs until 26 June 2017.
 
In the draft guidelines the EBA provides guidance on two types of interconnection, i.e. control relationships and economic dependencies, which lead to the formation of groups of connected clients. In its first consultation document, the EBA proposed that the Guidelines on connected clients should apply only in the context of the large exposures regime. 
 
However, the concept of ‘group of connected clients’ is also used in other areas of the CRR, such as the categorisation of clients in the retail exposure class for the purposes of credit risk, the development and application of rating systems, the specification of items requiring stable funding for the purposes of reporting, and the application of the SME supporting factor. In addition, this concept is also used in other EBA technical standards and guidelines. 
Respondents to the first consultation have, therefore, raised questions and comments on the scope of application of the Guidelines, as it was restricted to the large exposures regime.
 
In this second consultation, the EBA is considering to extend the scope of the draft Guidelines to the remaining aspects of the CRR, the EBA technical standards, and the EBA guidelines where the concept of ‘group of connected client’ is relevant and would like to understand the possible impact in terms of institutions’ practices and capital requirements. 

Consultation process

‎Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. All contributions received will be published following the close of the consultation, unless requested otherwise, and will be considered in the finalisation of the guidelines on connected clients together with the comments received during the first consultation. Please note that the deadline for the submission of comments is 26 June 2017. 

Legal basis and background

In light of the new provisions laid down in the CRR as well as in the- EBA technical standards and guidelines in the area of large exposures, the EBA decided to review the 2009 CEBS ‘Guidelines on the implementation of the revised large exposures regime’ and to focus exclusively on the issue of connected clients under Article 4(1)(39) of the CRR.
 
Consultation on Guidelines on Connected Clients (EBA-CP-2016-09)

Summary
26/07/2016

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines on the treatment of connected clients for large exposures. These draft Guidelines review and update the ‘Guidelines on the implementation of the revised large exposures regime’ issued by the Committee of European Banking Supervisors (CEBS) on 11 December 2009. Their focus is exclusively on the issue of connected clients as defined in the Capital Requirements Regulation (CRR) and they reflect the developments in the area of shadow banking and large exposures both at EU and international level. The consultation runs until 26 October 2016.
 
In these draft Guidelines, the EBA clarifies that institutions in the EU should make use of their clients’ consolidated financial statements in order to assess connections based on control. The draft guidelines also provide a non-exhaustive list of indicators of control that should be used by institutions for assessing those clients to which EU accounting rules do not apply (e.g. natural persons, central governments, and clients which prepare consolidated financial statements in accordance with the accounting rules of a third country).
Guidance is also provided on the use of an alternative approach for assessing the existence of groups of connected clients of entities directly controlled by or directly interconnected with central governments.
Regarding the assessment of economic dependency, the draft guidelines develop further the non-exhaustive list of situations of economic dependency which was included in the 2009 CEBS Guidelines and reinforce this definition to make clear that if the failure of a client leads to ‘repayment difficulties’ of another client, an institution is to consider these clients as connected.
Situations where control and economic dependency are interlinked are also clarified, as they can lead to the existence of one group of connected clients, as opposed to two separate groups of connected clients. The overarching indicator is the existence of a ‘single risk’ between two or more clients (‘domino effect’), regardless of the type of connection the single risk is based upon. The chain of contagion leading to possible default of all entities concerned is the relevant factor for the grouping.
 

Consultation process

‎Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. All contributions received will be published following the close of the consultation, unless requested otherwise. Please note that the deadline for the submission of comments is 26 October 2016.
 
A public hearing will take place at the EBA premises on 5 September 2016 from 2pm to 4pm UK time.

Legal basis and background

In light of the new provisions laid down in the CRR as well as in the- EBA technical standards and guidelines in the area of large exposures, the EBA decided to review the 2009 CEBS ‘Guidelines on the implementation of the revised large exposures regime’ and to focus exclusively on the issue of connected clients under Article 4(1)(39) of the CRR. In addition, these Guidelines take into account the developments in the area of shadow banking and large exposures at both EU and international level.