With respect to the definition, it should be clear that this covers entities whose main business is credit intermediation. The entity is only engaged in credit intermediation activities if it is acting in a bank-like capacity; if it is receiving rather than providing credit intermediation services, it should not be considered as acting in a bank-like capacity. This is consistent with the established definitions of shadow banking and the provisions of the CRR.

As regards what should be excluded from the definition, we support the exclusion of UCITs. We would also argue for the exclusion of exposures to entities which carry out treasury functions for corporate groups and securitisations and funds where the look through approach is used. Including securitisation SPVs under the EBA’s shadow banking limits potentially draws in a wide range of arrangements which does not appropriately identify a systemically risky shadow banking activity.

We are concerned that the consultation paper does not take into account the MMF regulation and SFT transparency regulations currently under negotiation. In particular, many MMFs operate under the rules of the UCITS Directive, the remainder of which are governed by AIFMD. This significantly reduces the risks of MMFs. Furthermore, the changes to stress testing and liquidity requirements will also play a role in substantially increasing the robustness of MMFs. The overall MMF framework of MMFs will be strengthened, and this should be taken into account by the EBA. We argue that MMFs should be excluded from scope.

The definition should also be clearer on third country equivalence. Specifically it is unclear which 3rd country equivalence the EBA intends to utilise for the purposes of ascertaining which entities are subject to prudential regulation on a solo or group basis. Currently there exists 3rd country equivalence for the treatment of credit risk provisions under the CRR. In particular, the European Commission decision in respect of Article 152 covers entities which would be considered ‘regulated financial sector entities” under the IRB approach. This however only covers investment firms and credit institutions on an individual basis.



It is therefore important to ensure that for the purposes of these guidelines, excluded undertakings includes all entities which are subject to prudential regulation on a consolidated basis by regulators in equivalent 3rd countries, and this is not limited to the equivalence decisions made by the EC. In terms of 3rd country insurance entities, it is important to note there have been very few equivalence decisions made under Solvency 2. We would therefore propose that excluded entities includes insurance entities which are subject to bank like regulation in 3rd countries e.g. subject to solvency requirements, risk management, control requirements etc.

As a more general point, firms will not always have absolute transparency as to a client’s investment and trading activities (e.g. if a client is conducting activities away from that firm, which may be confidential). As a result there will be occasions where they genuinely cannot make an absolute assessment as to a client’s full activities. In these cases firms should be able to make reasonable assessments based on relationship with the client and information reasonably available to them, and categorise as a shadow banking entity/non-shadow banking entity accordingly. The EBA should acknowledge in its final guidelines that firms are only required to make the assessment on a best efforts basis.

Could the EBA also describe its rationale for excluding the de minimis approach, and clarify what is meant by this threshold (e.g. activities that are incidental to an entity’s overall business)?