On 22 December 2022, the Commission de Surveillance du Secteur Financier (the CSSF) published a new circular CSSF 22/824 (the Circular) on the application in the Grand Duchy of Luxembourg of the guidelines issued by the European Banking Authority (EBA) on Loan Origination and Monitoring (EBA/GL/2020/06) (the Guidelines). These Guidelines were initially adopted by the EBA and published on 29 May 2020 and were to apply to all credit institutions in Europe, impacting existing credit facilities as well as their refinancing, but also new credit facilities, in order to improve practices and associated governance arrangements, processes and mechanisms in relation to the granting of credit. The Guidelines aimed at ensuring that institutions have robust and prudent standards for credit risk taking, management and monitoring of loans granted, and that newly originated loans are of high credit quality. They were also designed to guarantee adequate practices in areas such as consumer protection and AML. The Circular will apply as from 31 March 2023.
In its Circular, the CSSF has undertaken to apply the Guidelines to all credit facilities – but excluding derivatives, debt securities and securities financing transactions – granted by the following entities (referred to collectively as the In-Scope Entities):
- Luxembourg credit institutions;
- Luxembourg branches of EU credit institutions;
- Luxembourg branches of credit institutions having their registered office in a third country;
- partially, to professionals performing lending activities under Article 28-4 of the Law of 5 April 1993 on the financial sector; and
- Luxembourg creditors within the meaning of the Directive 2014/17/EU (the Mortgage Credit Directive) and the Directive 2008/48/EC (the Consumer Credit Directive).
The CSSF further carefully details in the Circular the scope of application of the Guidelines and related exclusions with respect to their content, divided into sections relating to (i) internal governance arrangements, (ii) loan origination procedures, (iii) borrowers’ creditworthiness assessments, (iv) loan pricing framework, (v) valuation of movable and immovable collateral and (vi) monitoring of credit exposures.
Finally, the CSSF has granted additional delay with regards to the monitoring framework for the In-Scope Entities. In case the In-Scope Entities do not have all the relevant information and data required pursuant to the Guidelines for the purpose of monitoring of existing borrowers or credit facilities granted before 31 March 2023, such In-Scope Entities have until 30 June 2024 to collect the missing information and data, including through regular credit review of the relevant borrowers, as clarified in the Guidelines.
Although the application of the Guidelines is logically expected to formally increase the administrative burden on the In-Scope Entities, in practice a large part of the In-Scone Entities were already applying and complying with the Guidelines. Formal application of the Guidelines is designed at increasing the stability of the Luxembourg lending sector, especially in the current uncertain economic framework.
Contact information
If you have specific questions and/or requests on this topic, feel free to contact our experts Arnaud Barchman Wuytiers van Vliet or Peggy Muck.
Disclaimer
While the greatest care has been devoted to the contents of this publication, AKD cannot be held liable in any way for the consequences of activities undertaken on the basis of this publication.
On 22 December 2022, the Commission de Surveillance du Secteur Financier (the CSSF) published a new circular CSSF 22/824 (the Circular) on the application in the Grand Duchy of Luxembourg of the guidelines issued by the European Banking Authority (EBA) on Loan Origination and Monitoring (EBA/GL/2020/06) (the Guidelines). These Guidelines were initially adopted by the EBA and published on 29 May 2020 and were to apply to all credit institutions in Europe, impacting existing credit facilities as well as their refinancing, but also new credit facilities, in order to improve practices and associated governance arrangements, processes and mechanisms in relation to the granting of credit. The Guidelines aimed at ensuring that institutions have robust and prudent standards for credit risk taking, management and monitoring of loans granted, and that newly originated loans are of high credit quality. They were also designed to guarantee adequate practices in areas such as consumer protection and AML. The Circular will apply as from 31 March 2023.
In its Circular, the CSSF has undertaken to apply the Guidelines to all credit facilities – but excluding derivatives, debt securities and securities financing transactions – granted by the following entities (referred to collectively as the In-Scope Entities):
- Luxembourg credit institutions;
- Luxembourg branches of EU credit institutions;
- Luxembourg branches of credit institutions having their registered office in a third country;
- partially, to professionals performing lending activities under Article 28-4 of the Law of 5 April 1993 on the financial sector; and
- Luxembourg creditors within the meaning of the Directive 2014/17/EU (the Mortgage Credit Directive) and the Directive 2008/48/EC (the Consumer Credit Directive).
The CSSF further carefully details in the Circular the scope of application of the Guidelines and related exclusions with respect to their content, divided into sections relating to (i) internal governance arrangements, (ii) loan origination procedures, (iii) borrowers’ creditworthiness assessments, (iv) loan pricing framework, (v) valuation of movable and immovable collateral and (vi) monitoring of credit exposures.
Finally, the CSSF has granted additional delay with regards to the monitoring framework for the In-Scope Entities. In case the In-Scope Entities do not have all the relevant information and data required pursuant to the Guidelines for the purpose of monitoring of existing borrowers or credit facilities granted before 31 March 2023, such In-Scope Entities have until 30 June 2024 to collect the missing information and data, including through regular credit review of the relevant borrowers, as clarified in the Guidelines.
Although the application of the Guidelines is logically expected to formally increase the administrative burden on the In-Scope Entities, in practice a large part of the In-Scone Entities were already applying and complying with the Guidelines. Formal application of the Guidelines is designed at increasing the stability of the Luxembourg lending sector, especially in the current uncertain economic framework.
Contact information
If you have specific questions and/or requests on this topic, feel free to contact our experts Arnaud Barchman Wuytiers van Vliet or Peggy Muck.
Disclaimer
While the greatest care has been devoted to the contents of this publication, AKD cannot be held liable in any way for the consequences of activities undertaken on the basis of this publication.