NBB Circular 2019_14: EBA Guidelines on the specification of types of exposures to be considered as presenting a high risk

NBB_2019_14 – 3 July 2019 Circular – Page 1/3
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Circular
Brussels, 3 July 2019
Reference: BNB_2019_14 your contact:
Sietse Bracke tel. +32 2 221 21 65
Sietse.Bracke@nbb.be

Guidelines of the EBA (EBA/GL/2019/01) on the specification of types of exposures to be considered as presenting a high risk.

Scope
Credit institutions, listed companies, resolution bodies and bodies assimilated to resolution bodies under Belgian law, and branches established in Belgium of credit institutions and securities firms subject to the law of a non-EEA country, both on a consolidated basis and on a solo basis.

Summary/Objective
These guidelines clarify the concepts of 'venture capital firms' and 'private equity investments' referred to in Article 128(2)(a) and (c) of Regulation (EU) No 575/2013 1.

These guidelines also clarify which types of exposures, other than those mentioned in Article 128(2) of Regulation (EU) No 575/2013, must be considered as presenting a particularly high risk and under what circumstances, as required under Article 128(3) of Regulation (EU) No 575/2013.

These guidelines apply with effect from 3 July 2019.

1 Regulation of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.

Circular - Page 2/3 NBB_2019_14 - 3 July 2019

Madam, Sir,

By this circular, the National Bank of Belgium intends to indicate that the guidelines of the European Banking Authority (hereinafter 'EBA') on the specification of types of exposures to be considered as presenting a high risk (EBA/GL/2019/01) have been integrated into its supervisory practice. This circular contains a brief summary of these guidelines, which can be consulted on the EBA website via the following link:
https://eba.europa.eu/regulation-and-policy/credit-risk/guidelines-on-specification-of-types-of-exposures-to-be-associated-with-high-risk

Article 112 of Regulation (EU) No 575/2013 requires institutions applying the standard approach for credit risk to classify each of their exposures into one of the exposure categories provided for, including that provided for in point (k) of that article for exposures presenting a particularly high risk. Article 128(1) of Regulation (EU) No 575/2013 specifies that institutions applying the standard approach for credit risk are required to apply a risk weight of 150% to exposures that present a particularly high risk.

Article 128(2) in turn specifies that exposures presenting a particularly high risk include the following exposures:

• investments in venture capital firms;
• investments in alternative investment funds (AIFs) within the meaning of Article 4(1)(a) of Directive 2011/61/EU, unless the fund's mandate does not allow leverage higher than that required under Article 51(3) of Directive 2009/65/EC;
• private equity investments;
• speculative finance of real estate.

The purpose of the clarifications provided by the guidelines is twofold. First, they explain what is meant exactly by the concepts of 'investments in venture capital firms' and 'private equity investments' referred to in Article 128(2). Although institutions are already able to form an idea of the exposures that are covered, these two terms are not defined in Regulation (EU) No 575/2013, unlike speculative finance of real estate.

Secondly, the guidelines clarify under what conditions institutions are required to identify exposures presenting particularly high risks other than those covered by Article 128(2) of Regulation (EU) No 575/2013. They further provide that institutions must take into account at least exposures presenting levels of risk factors different from those of other debtors or operations falling under the same exposure category.

Finally, the guidelines provide for a notification obligation under which institutions are required, in accordance with the conditions set out in Article 128(3) of Regulation (EU) No 575/2013, when they have still identified any type of exposure presenting a particularly high risk of loss, other than those identified in accordance with these guidelines, to inform the competent authorities of their jurisdiction and to provide a brief description of the main characteristics of these exposures. The competent authorities should then inform the EBA.

NBB_2019_14 – 3 July 2019 Circular – Page 3/3

The French translation of these EBA guidelines is attached in its entirety to this circular. This annex can be consulted on the website of the National Bank of Belgium. These guidelines apply with effect from 3 July 2019.

A copy of this circular is sent to the commissioner(s), approved auditor(s) of your institution.

Please accept, Madam, Sir, the expression of my distinguished sentiments.

Pierre Wunsch
Governor

Annex: EBA Guidelines on the specification of types of exposures to be considered as presenting a high risk (EBA/GL/2019/01)