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    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    July 26, 2021

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures. Entities that offer banking services and perform banking activities as defined in the draft regulatory technical standards but are not regulated and are not being supervised in accordance with any of the acts that form the regulated framework are identified as shadow banking entities. The consultation period ends on October 26, 2021 and the proposed standards will be submitted to the European Commission by December 2021 for endorsement. Following the European Commission endorsement, these standards will be subject to scrutiny by the European Parliament and the Council, before being published in the Official Journal of the European Union.

    Article 394(4) of the Capital Requirements Regulation (CRR or Regulation 575/2013) requires EBA to develop draft regulatory technical standards to specify the criteria for the identification of shadow banking entities. The main basis for development of these draft regulatory standards has been the guidelines on limits on exposures to shadow banking entities, which carry out banking activities outside a regulated framework. These guidelines were published in December 2015 to give effect to the mandate of Article 395(2) of CRR. The draft regulatory technical standards address three main legal provisions addressing the:

    • Criteria for identifying both shadow banking and non-shadow banking entities
    • Definition of banking activities and services
    • Criteria for excluding entities established in third countries from being deemed as shadow banking entities

    Considering the characteristics of funds regulated under the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers (AIFM) Directive, special provisions have been included in the draft regulatory standards. In view of the severe liquidity issues that affected money market funds during the COVID-19 crisis and the ongoing discussions at EU and international levels to strengthen their regulation, money market funds are identified as shadow banking entities. The draft regulatory technical standards consider the situation of entities established in third countries and provide for a treatment that distinguishes between banks and other entities.

    In case of entities established in a third country, the proposed regulatory standards differentiate between banks and other entities: banks would not be identified as shadow banking entities provided that they are authorized and supervised by a supervisory authority that applies banking regulation and supervision based on at least the Basel core principles for effective banking supervision; other entities would not be identified as shadow banking entities provided that they are subject to a regulatory regime
    recognized as equivalent to the one applied in the European Union for such entities, in accordance with the equivalence provisions of the relevant European Union legal act.


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    Comment Due Date: October 26, 2021

    Keywords: Europe, EU, Banking, Shadow Banking, Regulatory Technical Standards, CRR, Large Exposures, Basel, Reporting, Money Market Funds, NBFI, EBA

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