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    EC Issues Regulation on Materiality Threshold for Credit Obligations

    February 06, 2018

    EC published the final Commission Delegated Regulation (EU) 2018/171 on regulatory technical standards for the materiality threshold for credit obligations past due; this regulation supplements the Capital Requirements Regulation or CRR (EU Regulation No 575/2013). Regulation 2018/171 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from May 07, 2018.

    Regulation 2018/171 specifies the conditions for setting the materiality threshold for retail and "other than retail" exposures. A competent authority shall set, for all institutions in its jurisdiction, a single materiality threshold for these exposures. This single threshold for the assessment of materiality of a credit obligation will be set, as referred to in Article 178(1)(b) of CRR. Such a materiality threshold, that should remain consistent over time, brings the added benefit of increased comparability of capital requirements among institutions in the same jurisdiction. The materiality threshold can have a significant impact on the calculation of capital requirements and expected losses for all institutions in the relevant jurisdiction, irrespective of the method used for such calculation. Therefore, when defining the materiality threshold, the competent authorities should take into account a variety of factors, including the specific risk characteristics of retail exposures. The specific risk characteristics for retail exposures and exposures other than retail exposures should be considered separately.

    A competent authority shall notify EBA of the materiality thresholds set in its jurisdiction. A component authority setting the relative component of the materiality threshold at a higher or lower percentage than 1% shall substantiate that choice to EBA. A competent authority should not change the materiality threshold, unless it is inadequate due to changed market or economic conditions, leading to significant distortions in the default identification processes. A competent authority shall set a date for the application of the materiality threshold that may vary for different categories of institutions, but shall be no later than December 31, 2020 for institutions using the Standardized Approach laid down in Part Three, Title II, Chapter 2 of CRR.

     

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    Effective Date: February 26, 2018

    Keywords: Europe, EU, Banking, CRR, Materiality Threshold, Credit Obligations, EBA, EC

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