On 21 December 2022, the European Banking Authority (EBA) published its final report on Draft Regulatory Technical Standards (RTS) on the identification of a group of connected clients under Article 4 paragraph 1 number 39 of RegulationNo 575/2013 (the Capital Requirements Regulation or CRR).

These draft RTS, in conjunction with the EBA guidelines on connected clients, provide the complete framework for the identification of two or more natural or legal persons who are so closely linked by idiosyncratic risk factors, that it is prudent to treat as a single risk.

In particular, the following conditions lead to the identification of two or more legal persons as connected:

  • if they are part of the same consolidated financial statements, even in the absence of exposures towards the natural or legal person that controls the group. These draft RTS also provide a non-exhaustive list of circumstances of control criteria and control indicators to assess if there is a parent-subsidiary or similar relationship among natural and/or legal persons;
  • if it is likely that the financial difficulties of one natural or legal person would spread to other(s) impacting full and timely repayment of liabilities;
  • in case control and economic dependencies co-exist within group of connected clients in such a way that all relevant natural and/or legal persons constitute a single risk.

The main basis for the development of the draft RTS has been the existing EBA guidelines on connected clients under Article 4 paragraph 1 number 39 of the CRR. The draft RTS also ensure a greater alignment to LEX Basel Standards. The final draft RTS will be submitted to the Commission for adoption. Following the submission, the RTS will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.