On 23 May 2022, the European Banking Authority (EBA) published a final report containing draft regulatory technical standards (RTS), specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures. The final draft RTS, which have been prepared in accordance with Article 394(4) of the Capital Requirements Regulation (CRR),  clarify that entities carrying out banking activities or services and which have been authorised and supervised in accordance with the EU prudential framework, shall not be considered as shadow banking entities.

The main basis for the development of the draft RTS has been the guidelines on limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework under Article 395(2) of the CRR. These guidelines were published in December 2015 to give effect to the mandate of Article 395(2) of the CRR.

The draft RTS are a short legal text with three main Articles addressing the following:

• Criteria for identifying both shadow banking and non-shadow banking entities.
• Definition of banking activities and services.
• Criteria for excluding entities established in third countries from being deemed as shadow banking entities.

Key takeaway points from the final report include:

• Entities that carry out banking activities or services that have been authorised and are supervised in accordance with the regulatory framework consisting of any of the legal acts referred to in Annex 1 of the draft RTS (or are part of a group supervised on this basis), shall not be considered as shadow banking entities. The same treatment shall apply to the entities that are exempted or excluded from the application of some of those legal acts, notably the CRR, the Capital Requirements Directive IV, the European Markets Infrastructure Regulation and Solvency II Directive.
• All other entities that provide banking activities and services shall be considered shadow banking entities, however, specific rules apply to certain collective investment undertakings.
• With regards to entities established in a third country, institutions would not be identified as shadow banking entities provided that they are authorised and supervised by a supervisory authority that applied banking regulation and supervision based on at least the Basel core principles for effective banking supervision. Other entities would not be identified as shadow banking entities provided that they are subject to a regulatory regime recognised as equivalent to the one applied in the EU for such entities in accordance with the equivalence provisions of the relevant EU legal act.

The draft RTS will be submitted to the European Commission for endorsement following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.