EBA published final Guidelines on Credit Risk Mitigation for institutions applying the A-IRB approach

On 6 May 2020, the EBA published the final version of the Guidelines (CRM in A-IRB) on credit risk mitigation techniques (CRM) under the A-IRB approach. The Guidelines clarify the application of the provisions on CRM currently laid down in CRR, in particular the requirements for the eligibility of different CRM techniques for funded and unfunded credit protections.

For funded credit protection, the Guidelines provide a mapping of the eligibility requirements of legal certainty and collateral valuation applicable to institutions using the standardised approach and the foundation internal rating-based approach F-IRB. Specific guidance is also provided on other than immovable physical collateral for which the assessment of legal certainty is particularly challenging.

For unfunded credit protection, the Guidelines clarify the set of compliant approaches that are available to institutions to recognise the effects of the credit protection by adjusting their risk parameter estimates.

The Guidelines are complementary to the EBA Guidelines on the PD estimation, LGD estimation and the treatment of defaulted exposures.

The Guidelines will apply from 1 January 2022.

Final EBA Guidelines on loan origination and monitoring

On 29 May 2020, the EBA published the final Guidelines on loan origination and monitoring. The final text of Guidelines stems from the consultative paper which we covered in our newsletter last year (EBA GL Loans).

The guidelines specify the requirements for the granting and monitoring of credit facilities throughout their lifecycle, both from the perspective of prudential regulation and consumer protection.

The requirements set out in the Guidelines cover the following areas:

• internal management and control system applied in the credit origination, including related decision-making processes,
• assessment of borrowers’ creditworthiness of borrowers which are divided into consumers, micro and small enterprises, medium and large enterprises,
• risk-based pricing,
• approaches to the valuation of immovable and movable collaterals at the time of loan origination and as part of monitoring,
• ongoing monitoring of credit risk and exposures.

The Guidelines are to be applied from 30 June 2021 with two transitional provisions:

• for the portfolio of existing loans, where the implementation will require changes in contractual terms and conditions, it is postponed till 30 June 2022,
• any gaps in data and adjustments needed in monitoring systems should be addressed until 30 June 2024.

EBA Roadmap on Investment Firms

The new directive and regulation for investment firms, issued in December 2019, will be applicable from mid-2021. The directive and regulation give mandates to the EBA to issue a number of related regulatory documents. In the roadmap published on 4 June 2020 (Roadmap), the EBA presents its work plan for the preparation of 18 regulatory technical standards, 3 implementing technical standards, 6 guidelines and 2 reports.

These documents will cover the following areas:

• the criteria for determining which investment companies will continue to fall under CRR,
• capital requirements,
• reporting and disclosure,
• remuneration and governance,
• supervisory convergence, supervisory review and Pillar 2,
• environmental, social and governance aspects.

Together with the roadmap, the EBA has published a first set of documents on prudential requirements, reporting, disclosure and remuneration. The comments to these documents should be submitted by 4 September 2020.

Consultation on technical standards specifying the prudential treatment of SW assets

On 9 June 2020, the EBA published a draft technical standard (SW assets) which specifies the regulatory treatment of software assets.

The proposal relates to CRR 2 which brings the possibility of an exemption from the deduction of intangible assets from capital in the form of prudently valued software, i.e. those software assets whose value is not negatively affected by a possible crisis, insolvency or liquidation of banks. The draft technical standard provides a methodology that banks should implement for the purpose of prudent software valuation.

The deadline for submitting comments is 9 July 2020.

Consultation on technical standards on capital requirements for non-modellable risks under the FRTB

On 4 June 2020, the EBA published a draft technical standard (Non-modellable risk factors) on the capitalisation of non-modellable risk factors for banks using the new Internal Model Approach under the FRTB.

The comments should be submitted by 4 September 2020.

26-6-2020