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November 09, 2017

EBA published an opinion and a report on matters related to the other financial intermediaries (OFIs) and the regulatory perimeter issues under the Capital Requirements Directive/Regulation (CRD IV/CRR). These matters include the use of Articles 2(5) and 9(2) CRD IV (Directive 2013/36/EU) and the interpretation of the terms “financial institution” and “ancillary services undertaking,” as defined in the CRR (Regulation (EU) No 575/2013). The EBA opinion is addressed to the European Parliament, Council, and the EC.

The opinion is based on the results of a detailed assessment, across the EU, of the prudential treatment of OFIs—that is, the entities carrying out credit intermediation activities that are not credit institutions nor other specified types of financial entity. The report published by EBA includes the results of the assessment of the use of Articles 2(5) and 9(2) CRD IV; the prudential treatment of OFIs under national law; the definitions of ancillary services undertaking and financial institution; and Annex I to the CRD IV. EBA's findings are relevant to the consideration of the legislative proposals to amend the CRD IV/CRR.

EBA undertook a comprehensive analysis of issues related to the regulatory perimeter further to the 2014 EBA Opinion and Report on the perimeter of credit institutions. This is in view of the need for the regular monitoring of credit intermediation activities outside the traditional banking sector and other developments such as the emergence of fintech. In terms of the overall scope of the CRD IV/CRR, EBA observes that Article 2(5) CRD IV remains valid and requires minor update. Also Article 9(2) CRD IV also appears to continue to have relevance in the member states and any amendment thereto ‎should be substantiated by a prior and thorough impact assessment. ‎As for the terms "financial institution" and "ancillary services undertaking," which are crucial for establishing the scope of prudential consolidation, EBA notes that these terms are prone to inconsistent interpretation across the EU, thus leading to potential divergences in the application of regulatory consolidation rules. EBA urges the institutions in EU to consider further possible amendments to the definitions of these terms, to ensure consistent treatment of prudential risks and to promote a level playing field.

EBA also notes a significant variation in the prudential treatment of OFIs under national laws. Although EBA is not making specific recommendations on the scope of individual prudential regulation under EU law, EBA observes the need to continue its monitoring work, including in conjunction with ESRB, as part of the annual shadow banking monitoring exercises. EBA highlights that Annex I to the CRD IV, which enlists the activities subject to mutual recognition, has been largely unchanged for 30 years and urges the EU institutions to consider clarifications and updates to the Annex.

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Keywords: Europe, EU, Banking, Regulatory Perimeter, CRD IV, CRR, OFI, EBA

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