Article 28
Robustness and effectiveness of the process of identifying the default of an obligor
1. When assessing the robustness and effectiveness of the process of identifying the default of an obligor in accordance with Article 178 of Regulation (EU) No 575/2013, competent authorities shall verify that:
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(a) |
there are adequate procedures and mechanisms in place to ensure that all defaults are identified in a timely manner, in particular that the gathering and updating of relevant information are effective and take place with sufficient frequency; |
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(b) |
where the identification of default of an obligor is based on automatic processes, tests are carried out to verify that defaults are correctly identified by the IT system; |
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(c) |
for the purposes of identifying the default of an obligor based on human judgement, the criteria for the assessment of the obligors and triggers of default are set out in sufficient detail in the internal documentation to ensure consistency in the identification of defaults by all members of the staff involved in such identification; |
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(d) |
where the institution applies the definition of default at the obligor level, there are adequate procedures and mechanisms in place to ensure that once default is identified for an obligor, all exposures to that obligor are registered as being in default in all relevant systems, business lines and geographical locations within the institution and its subsidiaries, and where applicable, within its parent undertaking, and its subsidiaries; |
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(e) |
where the assignment of the default status to all exposures to an obligor as referred to in point (d) is delayed following the default of one or several exposures of the obligor, that delay does not lead to errors or inconsistencies in risk management, risk reporting, the calculation of own funds requirements or the use of data in risk quantification. |
2. For the purposes of the verification under paragraph 1, competent authorities shall assess the application of the materiality threshold defined pursuant to Article 178(2)(d) of Regulation (EU) No 575/2013 in the default definition and the consistency of that materiality threshold with the materiality threshold of a credit obligation past due set by the competent authorities in accordance with Delegated Regulation (EU) 2018/171, and shall verify that:
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(a) |
there are adequate procedures and mechanisms in place to ensure that the default status is assigned in accordance with Article 178(1)(b) of Regulation (EU) No 575/2013 on the basis of the assessment set out in Article 178(2)(d) of that Regulation and compliant with the materiality threshold relevant to a credit obligation past due as defined by the competent authorities in accordance with Delegated Regulation (EU) 2018/171; |
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(b) |
the process of counting days past due is consistent with the contractual or legal obligations of the obligor, reflects adequately partial payments and is applied consistently. |
3. In the case of retail exposures, in addition to the verification laid down in paragraph 1 and the assessment laid down in paragraph 2, competent authorities shall verify that:
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(a) |
the institution has a clear policy with regard to the application of the default definition for retail exposures either at the level of the obligor or at the level of the individual credit facility; |
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(b) |
the policy referred to in point (a) is aligned with the institution’s risk management and is applied consistently; |
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(c) |
where the institution applies the definition of default at the level of the individual credit facility:
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