On 17 February 2021, the European Banking Authority (EBA) published a consultation paper concerning draft guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits of Article 395(1) of the Capital Requirements Regulation (CRR) and the time and measures to return to compliance pursuant to Article 396(3) of the CRR.
If in an exceptional case an institution breaches the limits set out in Article 395(1) of the CRR, the first subparagraph of Article 396(1) of the CRR requires an institution to report the value of the exposure with no delay to the Member State competent authority (NCAs), which may (where the circumstances warrant it) allow the institution a limited period of time in which to restore compliance with the limit.
Article 396(3) of the CRR 2 mandates the EBA to issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to specify how NCAs may determine: (i) the exceptional cases referred to in paragraph 1 of Article 396 of the CRR; (ii) the time considered appropriate for returning to compliance; and (iii) the measures to be taken to ensure the timely return to compliance of the institution.
The draft guidelines in the consultation paper contain 4 sections: (i) criteria to determine the exceptional cases referred to in Article 396(1) of the CRR; (ii) information to be provided to the NCA in case of a breach of the large exposure limits; (iii) criteria to determine the appropriate time to return to compliance with the limits of Article 395(1) of the CRR; and (iv) measures to be taken to ensure the timely return to compliance of the institution with the limits of Article 395(1) of the CRR.
The draft guidelines provide guidance from a going-concern perspective. Gone-concern situations in which an institution is in the process of restructuring or undergoes a similar crisis-induced scenario are outside the scope. In such situations, measures are needed that go well beyond restoring compliance with the large exposures framework of the CRR.
The deadline for comments on the consultation paper is 17 May 2021.
When finalised the guidelines will apply from 1 March 2022.