EBA Finalizes Guidelines for High-Risk Exposures Under CRR
EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures. EBA also aims to facilitate the transition to the upcoming regulatory revisions, noting that the forthcoming implementation of the revised Basel standards will only apply as of 2022. The consultation on these guidelines was conducted from April to July 2018. The guidelines should be implemented by July 01, 2019.
The guidelines consist of two sections:
- The first section clarifies the notions of investments in venture capital firms and private equity, which EBA has taken the initiative to provide for the purpose of these guidelines only. This step was triggered by the lack of guidance available to the public on these notions and because definitions are deemed necessary to ensure harmonization on the types of exposures that are considered as investments in venture capital firms and private equity.
- The second section specifies the types of exposures listed under Article 128 (3) of CRR, which should be considered as high risk and provides stakeholders with a clear identification scheme to follow in their process of identification of exposures associated with high risk. This guidance will encourage institutions to single out and specify the individual exposures that carry a high risk of loss—as items of particularly high risk and, therefore, structurally different from common exposures of the same original asset class.
EBA recognizes that the revised standardized approach for credit risk, which was agreed on by BCBS as part of its Basel III finalization in December 2017, no longer includes provisions on higher risk exposures as the Basel II standard currently does. Nevertheless, EBA considers it beneficial to issue these guidelines to ensure detection of high risk within banks before the transposition of Basel III into the EU legislative framework as well as to ensure a harmonized and consistent application of Article 128(2) and (3) of CRR until any revision of these provisions has to be applied by institutions, noting that BCBS only requires the framework to apply from 2022 onward.
Related Links
Effective Date: July 01, 2019
Keywords: Europe, EU, Banking, CRR, High-risk Exposures, Basel III, Credit Risk, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
FIN-FSA Issues Schedule for Reporting Supervisory Benchmarking DataRelated Articles
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
