What treatment is envisaged in the context of connected clients for multiple exposures to multiple entities that are part of the same economic group, but are not included in the scope of prudential consolidation? Are these considered to be an exposure to the same (connected) client?
In case an institution has incurred exposures to other entities which are part of the same economic group (for example where a control relation exists between these entities), exposure to entities which are part of the same consolidation may be excluded from the large exposure limits, depending on a supervisory discretion, following Art.400(2)(c) CRR.
However, the same does not directly apply equally to exposures to entities which are also part of the same group, but are not within the same scope of prudential consolidation (most likely when non-financial entities are concerned). These entities are belonging to the same group of connected clients following the EBA guidelines on connected clients. Logically these exposures would thus jointly be considered a single connected client. However, the last sub-sentence of Art. 400(2)(c) CRR casts some doubts about this, since it state's that: "exposures that do not meet these criteria whether or not exempted from Article 395(1), shall be treated as exposures to a third party". This may suggest that each of these exposures must separately be considered an exposure to a third party.
As stated in paragraph 15 (for control relationships) and 27 (for economic dependency) of the EBA Guidelines on connected clients under Article 4(1)(39) of Regulation (EU) No 575/2013, Institutions should group two or more clients into a group of connected clients on account of a relationship of control or an economic dependency among these clients regardless of whether or not the exposures to these clients are exempted from the application of the large exposures limit under Article 400(1) and (2) CRR or in accordance with exemptions under national rules implementing Article 493(3) CRR. For the determination of the exposure amount that is subject to the large exposure limit, exempted exposures may subsequently be subtracted from the exposure amount that is applicable to the group of connected clients.
Group entities that do not fall under the intragroup discretionary exemption described in Article 400(2)(c) of Regulation (EU) No 575/2013 (CRR) – that is undertakings not covered by the supervision on a consolidated basis to which the institution itself is subject - need to be considered as part of the same group of connected clients with group entities covered by the supervision on a consolidated basis if they meet the criteria in Article 4(1)(39) CRR.
The same approach applies where, according to Article 493(3)(c) CRR and by way of derogation from Article 400(2)(c) CRR, Members States - and not competent authorities - fully or partially exempt exposures from the application of Article 395(1) CRR.