Public consultation on the draft ECB Guideline on materiality threshold for credit obligations past due for less significant institutions

Frequently asked questions (FAQs)

What is the purpose of the Guideline?

The ECB has exercised its discretion under Article 178(2)(d) of Regulation (EU) No 575/2013 (CRR) as regards significant institutions (SIs) by adopting Regulation (EU) ECB/2018/1845 (Regulation for SIs) in relation to the threshold for the materiality of defaults in relation to obligors’ total obligations and at the level of individual credit facilities. To ensure consistency and a level playing field, and in line with the definition set out for SIs, the draft Guideline aims to define and harmonise such threshold for less significant institutions (LSIs) too.

With the aim of balancing the need for the consistent application of supervisory standards between SIs and LSIs on the one hand with the compliance with the principle of proportionality on the other hand, the ECB believes that the national competent authorities (NCAs) involved in the supervision of LSIs should exercise the discretion under Article 178(2)(d) of the CRR and Commission Delegated Regulation (EU) 2018/171 in the same way the ECB does under the Regulation for SIs.

What is the legal basis for the ECB to issue the Guideline?

Although NCAs are primarily responsible for exercising the relevant options and discretions in relation to LSIs, the ECB, in line with its oversight role under Council Regulation (EU) No 1024/2013 (SSM Regulation), strives to promote the consistent exercise of options and discretions in relation to both SIs and LSIs, where appropriate. To this end, the ECB may, among other measures, issue guidelines to NCAs with a view to ensuring the effective and consistent functioning of the Single Supervisory Mechanism (SSM) (Article 6(5)(a) and (c) of the SSM Regulation).

Why are you asking for industry feedback and what are the next steps?

Asking the industry for feedback is consistent with the SSM practice developed so far for other ECB legal instruments for supervisory purposes. The same approach has been followed in the past for instance for Guideline (EU) 2017/697. After the public consultation is closed, the ECB will assess the comments received and address them in a feedback statement. This feedback statement will be published on the ECB website.

The materiality threshold in the draft Guideline is defined in line with the Regulation for SIs. That Regulation needs to be slightly adjusted in order to ensure full alignment with Article 178(1)(b) of the CRR, according to which a default of an obligor is considered to have occurred when, among other things, the obligor is past due more than 90 days on any material credit obligation. Hence, a corrigendum to the Regulation for SIs will be adopted together with the Guideline in order to ensure that the definitions of the materiality threshold in the Regulation for SIs and in the Guideline are identical.