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Summary of CEBS Draft Implementation Guidelines on Large Exposures

Core Content

The Committee of European Banking Supervisors (CEBS) has issued draft implementation guidelines on large exposures (LE) as part of its ongoing efforts to promote efficient and effective supervision of the EU financial system. These guidelines are based on CEBS's second advice to the European Commission in November 2007 and April 2008, and aim to harmonize the application of the revised LE regime across Member States (MS).

Main Objectives

CEBS aims to ensure the safety and soundness of the EU financial system by:

• Promoting good supervisory practices
• Ensuring efficient and cost-effective supervision of cross-border groups
• Maintaining a level playing field and proportionality in regulatory approaches

Key Tasks of CEBS

• Provide advice to the European Commission
• Ensure consistent implementation of EU banking legislation
• Promote convergence of supervisory practices
• Facilitate information exchange and supervisory cooperation
• Conduct regular risk assessments from a supervisory perspective

Lamfalussy Structure

CEBS operates under the Lamfalussy structure, which emphasizes the development of harmonized supervisory standards and practices across the EU. This structure supports the implementation of the revised LE regime through a structured and consistent approach.

CP26: Draft Implementation Guidelines on LE

i) Connected Clients

• Main Goal: Guide institutions in identifying connected clients that should be treated as a single risk in the context of large exposures.
• Key Points:
  • Clarify the concept of 'interconnectedness'
  • Provide non-exhaustive indicators of control to identify control relationships
  • Offer examples of when economic dependencies should be further investigated
  • Consider connections through a common source of funding
  • Ensure identification of connected clients for all exposures above 1% of the institution’s own funds

ii) Exposures to Schemes with Underlying Assets

• Main Goal: Establish a prudent framework for considering schemes with underlying assets and tranched products in the LE calculation.
• Key Points:
  • The 'look-through' approach is considered the most prudent, but may not always be feasible
  • Alternative, more conservative approaches are proposed to address uncertainty in underlying assets
  • Institutions are encouraged to choose the most appropriate approach based on their specific circumstances

iii) Reporting

• Main Goal: Harmonize LE reporting requirements across the EU.
• Key Points:
  • Introduce a common template with unique data-definitions for LE reporting to supervisors
  • Integrate the common template into the COREP framework with the same remittance dates and reporting frequency
  • Allow for exceptional (non-standardized) reporting in the case of breaches of LE limits

Call for Comments and Questions

CEBS invites all interested parties to provide their views and comments on the issues and questions outlined in CP26. Written feedback should be sent to cp26@c-ecs.org by Friday, 11 September 2009.

These guidelines are intended to be finalized and published by the end of the year for implementation by Member States starting from 31 December 2010.