Response to consultation on Guidelines on limits on exposures to shadow banking

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2. Do you agree with the approach the EBA has proposed for the purposes of establishing effective processes and control mechanisms? If not, please explain why and present possible alternatives.

We support the EBA’s approach in respect of control mechanisms and oversight arrangements which reflect current practice amongst our members.

We think the EBA should nevertheless clarify whether it wishes to introduce additional Pillar 2 requirements or whether compliance with the existing framework is sufficient. Our understanding is that the latter already covers exposures to shadow banking entities. We see no strong reasons to introduce specific types of arrangements for such exposures. We think the scope of the guidelines is far too diverse for the application of a uniform mechanism.

We are concerned by the requirement to implement a “robust process for determining interconnectedness between shadow banking entities, and between shadow banking entities and the institution”. We think an obligation to assess the interconnectedness between shadow banking entities outside an institution’s portfolio is a disproportionate requirement. Unless there are specific reasons/concerns, it should be possible to limit such an assessment to the links between entities that are part of an institution’s portfolio.

3. Do you agree with the approach the EBA has proposed for the purposes of establishing appropriate oversight arrangements? If not, please explain why and present possible alternatives.

See response to question 2.

4.Do you agree with the approaches the EBA has proposed for the purposes of establishing aggregate and individual limits? If not, please explain why and present possible alternatives.

Though it is technically possible to set an aggregate limit to exposures to the shadow banking sector, we do not think such a requirement is needed. As mentioned above, the shadow banking sector is heterogeneous and we do not think the introduction of a distinct limit to such a diverse range of firms and types of activities will bring substantial added value in risk management and supervision. A more nuanced definition based on entities/products would be more useful.

We support the list of information criteria identified by the EBA to set individual limits on exposures to shadow banking entities. We think these elements are consistent with the type of information currently collected by lending institutions to set limits to any types of individual clients or connected clients.

5. Do you agree with the fallback approach the EBA has proposed, including the cases in whichit should apply? If not, please explain why and present possible alternatives. Do you think that Option 2 is preferable to Option 1 for the fallback approach? If so, why? In particular: Do you believe that Option 2 provides more incentives to gather information about exposures than Option 1? Do you believe that Option 2 can be more conservative than Option 1? If so, when? Do you see some practical

As a general observation, we would like the EBA to clarify that a certain degree of subjective assessment and proportionality is required between the general and fallback approaches. Institutions should not be required to automatically apply the fallback approach in cases where only one type of information is missing. Further guidance could be useful.

We would support a fallback approach based on option 2. Again, this is justified by the heterogeneity of the shadow banking sector. We think option 1 would lead to the treatment of exposures to all entities as one single client. We do not think this is in line with the development of enhanced risk-sensitive regulatory frameworks and internal modelling.

6. Taking into account, in particular, the fact that the 25% limit is consistent with the currentlimit in the large exposures framework, do you agree it is an adequate limit for the fallback approach? If not, why? What would the impact of such a limit be in the case of Option 1? And in the case of Option 2?

We believe it is very important to have a consistent approach between all individual exposures. However, A 25% limit in the entirety of an institution’s exposures to shadow banking entities would be excessively constraining. Should option 1 be retained, we think a dedicated impact analysis on the effect of such a limit on firms’ portfolios should be conducted.

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Name of organisation

Eurofinas/Leaseurope