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    EBA Updates CET1 List, Proposes Standards for Crowdfunding Providers

    December 08, 2021

    The European Banking Authority (EBA) updated the list of Common Equity Tier 1 (CET1) instruments of institutions and proposed the regulatory standards specifying information that crowdfunding service providers shall provide to investors. The list of CET1 instruments is accompanied by an updated CET1 report, which includes information on the underlying objectives of the monitoring as well as on the consequences of including or excluding instruments in or from the CET1 list; this latest update includes additional guidance in the context of (in)direct funding, refusal of redemption, redeemable shares, incentives for minimum dividends, and minimum dividends. The list encompasses 111 types of CET1 instruments in line with the Capital Requirements Regulation (CRR), with instruments issued by UK institutions having been removed post Brexit and additional instruments from a couple of European Union jurisdictions having been added or removed.

    EBA also launched a consultation on the daft regulatory technical standards on provision of information by crowdfunding service providers, with the consultation period ending on March 08, 2022. The proposed draft regulatory technical standards:

    • cover the method used for the calculation of credit scores and loan prices, the factors that the providers need to consider when carrying out a credit risk assessment and conducting a valuation of a loan, and the underlying policies and governance arrangements. 
    • require crowdfunding service providers to disclose the elements to be included in the information to investors with respect to the description of the method to calculate credit scores assigned to crowdfunding projects.
    • specify the elements of the pricing strategy that need to be provided to investors and how to ensure that such pricing is indeed fair and appropriate.
    • require crowdfunding service providers to consider adequate amount of information when conducting the creditworthiness assessment of project owners and crowdfunding projects.
    • set out what policies and procedures crowdfunding service providers are required to have in place to ensure that investors are adequately informed and that the credit risk assessment and loan valuation are conducted in a sound and consistent manner.

    Investors using crowdfunding platforms may frequently be exposed to the risk of having less information compared to project owners, and/or an incomplete understanding of the viability of a crowdfunding project or of the due diligence conducted by the crowdfunding service providers. Therefore, it is important that adequate information is disclosed to investors on how credit scores are calculated and loans are priced. Moreover, investors need to be sure that crowdfunding service providers are subject to a minimum set of common standards in terms of credit risk assessment, governance, and risk management structures.

     

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    Comment Due Date: March 08, 2022

    Keywords: Europe, EU, Banking, CRR, Regulatory Capital, CET1, Basel, Crowdfunding Service Providers, Regulatory Technical Standards, Credit Risk, Lending, Disclosures, Loan Pricing, Credit Scoring, EBA

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