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    EBA Finalizes Standards on Methods of Prudential Consolidation

    April 15, 2021

    EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR). These standards are intended to ensure that the appropriate method of prudential consolidation is applied for the calculation of CRR requirements on a consolidated basis. As per EBA, entities to be included in the scope of prudential consolidation are financial institutions (as defined in point 26 of Article 4(1) of CRR) and ancillary services undertakings (as defined in point 18 of Article 4(1) of CRR).

    These final draft regulatory technical standards specify the conditions for the application of the different methods of prudential consolidation. The regulatory technical standards have taken into consideration the BCBS guidelines on the identification and management of step-in risk and, therefore, include several indicators that should be assessed in order to identify the undertakings that can lead to step-in risk. Following the approval of the Risk Reduction Measures Package, the draft regulatory technical standards have been revised to reflect the changes introduced in the CRR and in the Capital Requirements Directive (CRD) as well as the feedback received during the public consultation. The main changes deal with the newly introduced Article 18(8) of the CRR, allowing competent authorities to extend prudential consolidation to certain non-financial undertakings in case there is a substantial risk of step-in. In this regard, building on the initial proposal presented in the consultation paper, these draft regulatory technical standards include several step-in risk indicators to be considered by competent authorities in assessing whether an undertaking should be fully or proportionally consolidated for prudential purposes.

     

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    Keywords: Europe, EU, Banking, CRR, Basel, Step-in Risk, Prudential Consolidation, Regulatory Technical Standards, Proportionality, Risk Reduction Package, EBA

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