The consolidated EBA guidelines on connected clients replace the previous recommendations from 2009. They focus on the definition of connected clients according to EU regulation and apply to various areas, including the large exposures regime and client categorization for credit risk. The guidelines clarify control relationships and economic dependencies between clients, specifying that institutions must prove that…
This document is a guide published by the European Banking Authority (EBA) in 2026, titled "Consolidated EBA Guidelines on connected clients." It comprises 97 pages, including approximately 42 pages provided here. It aims to clarify and harmonize the application of the concept of "connected client groups" defined in Article 4(1)(39) of Regulation (EU) No 575/2013 (CRR). This concept is used in several areas of the CRR: large exposures regime, client categorization in the retail exposure class for credit risk, development and application of rating systems, specification of elements requiring stable funding for reporting, and SME support factor. The scope also covers EBA technical standards and guidelines referencing connected client groups, notably regarding liquidity reporting. The guide addresses the two forms of interconnection leading to the consideration of multiple clients as a single risk: control relationships and economic dependencies. The application period is set for January 1, 2019 (p. 1-5, 16-17).
The guide replaces the 2009 CEBS guidelines on implementing the large exposures regime, focusing exclusively on the notion of connected clients according to Article 4(1)(39) of the CRR. It applies to all CRR areas where this concept is used, notably the large exposures regime, client categorization, rating systems, liquidity reporting, and the SME factor. Two types of interconnection are covered: control relationships and economic dependencies. Regarding control, the guide clarifies the concept of "single risk" and places the burden of proof on institutions to demonstrate that a control relationship does not imply a single risk. Institutions must use clients' consolidated financial statements to assess control, and for clients not subject to EU accounting rules (natural persons, central governments, clients under foreign standards), a non-exhaustive list of criteria and indicators is provided, distinguishing criteria always constituting control and indicators to consider. An alternative approach is proposed for entities directly controlled or interconnected with central or regional governments, allowing separate assessment of connected client groups. For economic dependencies, the guide confirms that clients must be considered a single risk if one’s financial difficulties can affect the other, unless the institution can demonstrate otherwise (e.g., easy replacement of the dependent client). A non-exhaustive list of situations to consider is provided, notably common sources of funding. The guide also addresses cases where control and economic dependence are linked, emphasizing the existence of a single risk ("domino effect") as the main criterion. Finally, it prescribes rigorous procedures to identify connected clients, integrated into credit processes, with enhanced attention when exposure to a client exceeds 5% of Tier 1 capital. These guidelines are consistent with Basel Committee standards but more detailed, notably on the alternative approach for central governments. The application date is set for January 1, 2019 (p. 3-5).
The guide was developed to replace the 2009 CEBS guidelines, which became obsolete and not harmonized with the CRR and other European regulations. It aims to clarify and operationalize the notion of connected client groups, defined in Article 4(1)(39) of the CRR, to identify clients linked by idiosyncratic risk factors justifying their treatment as a single risk. The scope extends to all uses of the concept in the CRR, notably the large exposures regime, retail client categorization, rating systems, liquidity reporting, and the SME factor. The issues concern managing financial contagion risk between clients linked by control or economic dependence, excluding sectoral or geographic risks covered by other rules. The guide takes into account accounting developments (Directive 2013/34/EU) and the specifics of entities not subject to European accounting standards, as well as developments in the shadow banking sector. It also responds to the need to harmonize practices among Member States and integrate new regulatory provisions, notably the alternative approach for entities linked to central governments (p. 6-12).
- Definition and scope of connected clients: The guide specifies that connected clients are those linked by direct or indirect control (according to Article 4(1)(37) of the CRR) or by an economic dependence likely to lead to a single risk. Control relies on consolidated financial statements, with specific criteria for entities not subject to European standards. Economic dependence includes commercial links, supply chains, or common sources of funding, provided that one client’s difficulties affect the other (p. 3-12, 16).
- Alternative approach for central governments: Institutions may, at their discretion, apply an alternative approach by separately assessing entities directly controlled or interconnected with a central government, while including the latter in each group. This approach does not apply to indirectly controlled entities (p. 8-9, 19).
- Relationship between control and economic dependence: These two forms of interconnection are distinct but can be linked, forming a single group of connected clients if a single risk exists. The guide emphasizes the importance of identifying contagion chains, including downstream and upstream effects (p. 10-12, 31-34).
- Identification and management of connected clients: Institutions must integrate connection identification into their credit and monitoring processes, using all available information, including public data and qualitative information. The investigation effort must be proportional to exposure, with reinforcement beyond 5% of Tier 1 capital. Procedures must be periodically reviewed and adapted (p. 11-13, 22-23).
- Particular cases and exceptions: The guide acknowledges that in exceptional cases, notably certain special purpose vehicles (SPVs) with legal protection features (bankruptcy remoteness), a control relationship does not necessarily entail a single risk. These cases must be demonstrated and documented by the institution (p. 24-25, 45-48).
- Illustrative scenarios: Several annexed scenarios illustrate the application of principles, notably group formation according to control and economic dependence, the alternative approach for central governments, and limits to identifying contagion chains when entities are not clients of the institution (p. 24-34).
- Harmonization and regulatory update: The guide aims to harmonize practices within the EU, considering accounting and regulatory developments, and integrating feedback from public consultations. It extends the scope to all uses of the concept in the CRR and associated EBA standards (p. 35-44).
- Costs and benefits: Implementation generates operational costs (analyses, reporting, IT), notably to demonstrate exceptions, apply the alternative approach, and identify economic dependencies. However, expected benefits in risk management and prevention of excessive concentrations are deemed superior (p. 38-39).
- Established facts: The concept of connected clients is essential to limit contagion risk in banking exposures. Control relationships generally entail a single risk, except demonstrated exceptions (p. 3-5, 45-48). The alternative approach for entities linked to central governments is validated and framed (p. 8-9, 19). Identifying economic dependencies is complex, requires economic judgment and proportionate investigations, notably beyond 5% of Tier 1 capital (p. 11-13, 22-23).
- Assumptions: The guide assumes institutions have access to clients’ consolidated financial statements and can collect qualitative information. It considers contagion chains can be identified, although limits exist if entities are not clients (p. 11, 34).
- Interpretations: The guide interprets that single risk is the central criterion to group clients, whether based on control or economic dependence, and that these two criteria are not mutually exclusive but complementary (p. 10-12, 26-28). It considers economic dependence situations must be assessed case by case, with the possibility to demonstrate absence of contagion (p. 3-5).
- Uncertainties: Assessing economic dependencies relies on economic judgment and sometimes limited information, which may lead to differences in assessment between institutions. Complete identification of contagion chains may be hindered by lack of information on non-client entities (p. 11-13, 34).
The EBA recommends rigorous and harmonized application of the connected client group concept, integrating both control relationships and economic dependencies, to identify contagion risks and limit excessive concentrations. Institutions must use consolidated financial statements to assess control and apply a list of criteria for cases not covered by these statements. The alternative approach for entities linked to central governments may be used at discretion, with mandatory inclusion of the government in each group. Institutions must strengthen their identification procedures, notably for exposures exceeding 5% of Tier 1 capital, combining public, internal, and qualitative information. Exceptional cases where control does not entail a single risk must be duly demonstrated and documented. Procedures must be periodically reviewed and adapted. The guide emphasizes that these measures, although generating operational costs, provide a clear and coherent framework for managing risks related to connected clients. The effective date is set for January 1, 2019 (p. 3-5, 22-23, 35-39).
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