EBA proposes criteria to identify shadow banking entities

Posted on July 30, 2021 by Editor

The European Banking Authority (EBA) launched today a public consultation on draft regulatory technical standards (RTS) that set out criteria for identifying shadow banking entities. This is required for the purposes of reporting large exposures, a tool for limiting the maximum possible loss that a credit institution could face in the event of the sudden failure of a client or a group of connected clients, and encouraging stability of the financial system.

The new RTS are made necessary by changes to the Capital Requirements Regulation (CRR). Where this previously required an institution to report its exposures to “unregulated financial entities” it now asks for “its 10 largest exposures to shadow banking entities which carry out banking activities outside the regulated framework on a consolidated basis.”

While these requirements are conceptually similar, the RTS provides criteria for identifying both shadow and non-shadow banking entities, a definition of banking activities and services, and criteria for excluding entities established in third countries from being deemed as shadow banking entities. It gives consideration to special rules and specific cases, following the essential principle all entities that carry out banking activities or services may be considered shadow banking entities unless they are authorised and supervised within the appropriate regulatory framework. The consultation is open to comment until 26 October 2021.

Read more here.

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