June 19, 2019

EBA launched a consultation on the guidelines on loan origination and monitoring in EU. The draft guidelines specify the internal governance arrangements for granting and monitoring of credit facilities throughout their life cycle. These guidelines apply to the risk management practices, policies, processes, and procedures for loan origination and for monitoring of performing exposures, along with their integration into the overall management and risk management framework. The consultation runs until September 30, 2019 and the guidelines will apply from June 30, 2020.

The draft guidelines represent the first instance in which the EBA is proposing requirements that apply to providers of consumer credit under the Consumer Credit Directive and to non-bank mortgage credit providers under the Mortgage Credit Directive, also known as MCD. This amended scope of action is the result of the EC's review of the three ESAs, which is estimated to come into effect in January 2020 and will see the Consumer Credit Directive to be added to the EBA scope. These draft guidelines introduce requirements for borrowers' creditworthiness assessment and bring together the prudential and consumer protection objectives of EBA. Debt securities are excluded from the scope of application of these guidelines.

These guidelines build on the existing national experiences, addressing shortcomings in the institutions' credit granting policies and practices, as highlighted by the recent financial crisis. The guidelines also reflect recent supervisory priorities and policy developments related to credit granting. They account for the need to consider, in credit granting, environmental, social, and governance factors, anti-money laundering and counter-terrorist financing, and technology-based innovation. The draft guidelines aim to ensure that institutions have robust and prudent standards for credit risk taking, management and monitoring, and that newly originated loans are of high credit quality. The draft guidelines also aim to ensure that the institutions' practices are aligned with consumer protection rules and anti-money laundering requirements. 

The draft guidelines are envisaged to replace the existing EBA guidelines on creditworthiness assessments under the Mortgage Credit Directive, which the EBA issued in June 2015 and which will be repealed with the effect from the date of application on the guidelines on loan origination and monitoring.

 

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Comment Due Date: September 30, 2019

Effective Date: June 30, 2020

Keywords: Europe, EU, Banking, Loan Origination, Internal Governance, Credit Risk, Mortgage Credit Directive, Guidelines, EBA

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