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Febelfin Comment on CP 31: Management of Concentration Risk under the Supervisory Review Process

Core Content

Febelfin, representing four trade associations from the Belgian financial industry, has submitted comments on the consultation document related to CP 31, which outlines guidelines for managing concentration risk under the supervisory review process. The main focus of their feedback is on the proportionality principle, the burden of implementation, and the consistency with existing rules.

Main Views

• Existing Rules are Sufficient: Febelfin believes the current rules for managing concentration risk are more than adequate and that the proposed guidelines add excessive detail, which may be burdensome, particularly for smaller institutions.
• Proportionality Principle Should Apply: They advocate for the application of the proportionality principle in the implementation of the proposed guidelines to ensure that the requirements are appropriately scaled to the size and complexity of the institution.
• No Change to Internal Models: Febelfin supports the idea of maintaining existing internal models for measuring credit concentration risk, as they believe these are effective and do not need to be modified.
• Clarification Needed: They request further clarification on the relationship between CP31 and the recently amended large exposures rules, as well as the definition of "inter-risk" and its link to "connected clients."
• Focus on Material Risks: They suggest that institutions should only include entities that face material concentration risks in their risk management policies, as including non-material entities may be unnecessary and cumbersome.
• Liquidity Risk Concentrations: Febelfin emphasizes the importance of understanding liquidity risk concentrations, including the role of funding structure, geographic factors, and off-balance sheet commitments. They also highlight the need for quantitative indicators to complement qualitative assessments.
• Capital Requirements: They argue that the requirement for extra capital above minimum requirements should only be applied as a last resort, and that the proposed approach of focusing on the "unmitigated part of any concentration risk" is not aligned with existing rules.
• Operational Risk Concentrations: They note that the understanding of operational risk concentrations still requires refinement and that common causes (e.g., inadequate controls) should be considered before concluding that a loss event is related to concentration risk.
• Internal Audit Role: They clarify that the role of internal audit is not to assess risk exposures, but to ensure that procedures are adequate and properly applied.

Key Information

• Document Title: CP 31 – Management of Concentration Risk under the Supervisory Review Process
• Commenting Entity: Febelfin, a federation of four Belgian financial trade associations
• Date of Submission: 12/04/2010
• Contact: Mr. Giovanni Carosio, Chairman of the Committee for European Banking Supervisors (CEBS)
• Email: cp31@c-ecs.org
• Location: London, United Kingdom

Summary of Comments by Guideline

Annex Comments

• Annex 1: No comment.
• Annex 2: Febelfin requests elaboration and integration of the content into the main guidelines, as the current indicators are not clear enough for understanding how regulators expect the management of concentration risk to evolve.

Conclusion

Febelfin's comments focus on maintaining the existing regulatory framework, applying proportionality, and ensuring clarity and consistency with current rules. They also highlight the need for further clarification on key terms and concepts, and suggest that additional guidance is necessary to make the proposed guidelines more practical and implementable.