On 26 July 2021, the European Banking Authority (EBA) launched a public consultation on regulatory technical standards (RTS) to set out several criteria to identify shadow banking entities for the purposes of reporting large exposures. The consultation runs until 26 October 2021.
The draft RTS provides three main legal provisions addressing the criteria for identifying both shadow banking and non-shadow banking entities, principles to define banking activities and services, and criteria for excluding entities established in third countries considered as shadow banking entities.
The approach in the EBA guidelines to identify shadow banking entities carves out certain entities from the scope of the definition. Such excluded entities are those being subject to an appropriate and sufficiently robust prudential framework. In a nutshell, entities that carry out banking activities or services and have been authorised and are supervised in accordance with their regulatory framework or are exempted or excluded from the application of any legal acts, notably the CRR, the CRD, EMIR and Solvency II, shall not be considered as shadow banking entities. On the contrary, all other entities providing banking activities and services shall be considered shadow banking entities, however specific rules apply to certain collective investment undertakings.
Considering the characteristics of funds regulated under the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers Directive (AIFMD), special provisions are included in the draft RTS. In view of the severe liquidity issues that affected money market funds (MMFs) during the COVID-19 crisis and the ongoing discussions at EU and international level to strengthen their regulation, MMFs are identified as shadow banking entities.
Finally, the draft RTS consider the situation of entities established in third countries and provide for a treatment that distinguishes between banks and other entities. Banks would not be identified as shadow banking entities provided that they are authorised and supervised based on at least the Basel core principles for effective banking supervision; other entities would not be identified as shadow banking entities provided that they are subject to a regulatory regime recognised as equivalent to the one applied in the Union for such entities.
Legal basis and background
The main basis for the development of the draft RTS has been the guidelines on limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework under Article 395(2) of Regulation (EU) No 575/2013. These guidelines were published in December 2015 to give effect to the mandate contained in Article 395(2) CRR.
According to Article 394(2) CRR, as amended by Regulation (EU) 2019/876, “institutions shall report the following information to their competent authorities in relation to […] their 10 largest exposures to shadow banking entities which carry out banking activities outside the regulated framework on a consolidated basis, including large exposures exempted from the application of Article 395(1) […]”.
Article 394(4) CRR mandates the EBA “to develop draft regulatory technical standards to specify the criteria for the identification of shadow banking entities referred to in paragraph 2. In developing those draft regulatory technical standards, EBA shall take into account international developments and internationally agreed standards on shadow banking and shall consider whether (a) the relation with an individual entity or a group of entities may carry risks to the institution's solvency or liquidity position; (b) entities being subject to solvency or liquidity requirements similar to those imposed by the CRR and Directive 2013/36/EU should be entirely or partially excluded from the respective reporting obligations.
 In accordance with the equivalence provisions of the relevant Union legal act.