Communication of 29 July 2019 - SIMs and Groups of SIMs: Amendments to the Rules on the Application of the Default Definition

1
Communication of 29 July 2019
SIMs and groups of SIMs: amendments to the rules on the application of the default definition.

1. Preamble
   This Communication amends the rules contained in the Communication of 31.3.2014 (1) concerning the application to SIMs and groups of SIMs of the CRDIV/CRR rules (2), in order to align them with the evolution of the European regulatory framework on credit risk (3). The amendments aim to:
   i. set the materiality threshold for past-due credit obligations, for the purpose of classifying exposures as in default under Article 178(2)(d) of the CRR, as supplemented by Commission Delegated Regulation (EU) No 171/2018 of 19 October 2017 (DR);
   ii. transpose the European Banking Authority (EBA) Guidelines on the application of the default definition (Guidelines), which, inter alia, clarify the criteria for calculating past-due days, the qualitative and quantitative indicators to be considered for identifying likely default, the minimum criteria for exiting default status, and the rules for applying the default definition to retail credit exposures.
   The possible methods for setting the materiality thresholds for past-due credit obligations have been submitted to public consultation. On the Bank of Italy website, the consultation report and the received observations for which confidentiality was not requested are published. No consultation and impact analysis were carried out regarding the intention to comply with the Guidelines on the application of the default definition, given that they offer limited discretion to national authorities and that the EBA has already conducted the impact analysis and submitted the Guidelines to public consultation.
2. Amendments to the Rules
   To align the credit risk rules (Standardised Approach and IRB Approach) with the Guidelines and the Delegated Regulation, SIMs and groups of SIMs shall apply:

• the EBA Guidelines on the application of the default definition pursuant to Article 178 of Regulation (EU) No 575/2013 (EBA/GL/2016/07);
• the materiality thresholds for the identification of past-due credit exposures - pursuant to Article 178(2)(d) of the CRR, as supplemented by the Delegated Regulation - as set out below:
  ― the absolute component is set at 100 euros for retail exposures and 500 euros for non-retail exposures; and

1 See Communication of 31.3.2014 published in the Supervisory Bulletin 3/2014 and subsequently amended by Communication of 4 January 2018.
2 Directive 2013/36/EU (CRDIV) and Regulation 575/2013/EU (CRR).
3 The rules for banks have been subject to an analogous regulatory intervention. See the 27th update of Circular No. 285 "Supervisory provisions for banks", which amended the chapters on "Credit Risk – Standardised Approach" (Part Two, Chapter 3) and "Credit Risk – IRB Approach" (Part Two, Chapter 4).

2
― the relative component is set at 1% (4);
The introduced innovations shall apply from 31 December 2020.
3. Entry into Force
This regulatory amendment shall enter into force from the date of publication in the Official Gazette.

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This Communication was issued following the opinion of CONSOB, pursuant to Article 6(1) of the TUF.

4 SIMs and groups of SIMs that, for the purpose of the default definition for retail exposures, adopt the transaction-by-transaction approach shall apply the materiality thresholds at the individual transaction level.