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creditworthiness assessments under the Mortgage Credit Directive, which the EBA issued in June 2015 and which will be repealed with the effect from the date of application on the guidelines on loan origination and monitoring.
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
Previous ArticleFCA Welcomes ISDA Protocol on Narrowly Tailored Credit Events
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.