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    EBA Publishes Regulatory Standards to Identify Shadow Banking Entities

    May 23, 2022

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures. 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.

    The final draft regulatory technical standards clarify that entities carrying out banking activities or services that have been authorized and supervised in accordance with the regulatory framework consisting of any of the legal acts referred to in Annex I of these draft regulatory standards (or are part of a group supervised on this basis) shall not be considered as shadow banking entities. Similarly, the entities that have been exempt or excluded from the application of some of those Legal Acts, notably the Capital Requirements Regulation (CRR), the Capital Requirements Directive (CRD), the European Market Infrastructure Regulation (EMIR), and Solvency II, shall not be considered as shadow banking entities. However, all other entities that provide banking activities and services shall be considered shadow banking entities. 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

    Specific rules apply to certain collective investment undertakings. Undertakings included in the consolidated supervision of an institution are out of the scope of these final draft regulatory standards. Moreover, for the entities established in a third country, the final draft regulatory technical standards differentiate between "institutions" and "other entities." Institutions are not identified as shadow banking entities, provided 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 are not identified as shadow banking entities, provided 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.

    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. Article 394(2) of the Capital Requirements Regulation (CRR2 or Regulation 2019/876) sets out the additional reporting obligations for an institution that is required to report its 10 largest exposures to shadow banking entities that carry out banking activities outside the regulated framework on a consolidated basis. 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. These guidelines were published in December 2015 to give effect to the mandate of Article 395(2) of CRR.

     

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    Keywords: Europe, EU, Banking, Shadow Banking, Regulatory Technical Standards, CRR, CRD, Large Exposures, Basel, Reporting, Concentration Risk, Regulatory Capital, EBA, Subheadline

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