(1)

Identifying ‘groups of connected clients’ as defined in Article 4(1), point (39) of Regulation (EU) No 575/2013 should lead to the identification of natural or legal persons so closely linked by idiosyncratic risk factors that it is prudent to treat them as a single risk. Where it is unclear under which specific category of connections the interconnection between different persons should be classified, a general principle of prudence should prevail and it should be assumed that a single risk exists. Therefore, the circumstances under which the conditions for identifying groups of connected clients are met should be understood as non-exhaustive lists. Cases where natural or legal persons are only linked through their dependence to common geographical or sectoral external factors should not lead to a group of connected clients.

(2)

To clarify the circumstances under which the condition of control is met for the purposes of identifying the existence of a single risk, where two or more legal persons are part of the same financial consolidated statement, the condition of control should be deemed as met, even in the absence of exposures towards the controlling natural or legal person, because the domino effect of financial difficulties within a group may arise even though the institution has no exposure toward the controlling person.

(3)

Because a control relationship is not limited to persons that are part of the same consolidated group, it is necessary to lay down the circumstances in which a single risk between two or more natural or legal persons on the basis of control exists, even where consolidated financial statements are not being prepared, either because natural persons are involved, or because the legal persons are established in a third country or the legal regime applicable to those persons does not require financial consolidation. In particular, where the natural or legal person holds the majority of voting rights, or has the ability to appoint or remove the majority of the management body or exercises a dominant influence over another person, the conditions of control should be deemed as met.

(4)

Furthermore, it is necessary to specify further circumstances in which two or more natural or legal persons may constitute a single risk because one of them, directly or indirectly, has control over the other or others. In particular, where the natural or legal person has the right or ability to decide on the strategy or on important transactions of another person, or has the right or ability to coordinate the management of one or more legal persons, those circumstances should be considered as having a dominant influence and thus meeting the conditions for a single risk on the basis of control.

(5)

It is necessary to specify the circumstances that at least should be considered when assessing economic dependency for the purpose of determining a single risk. Economic dependency requires that the relationship between natural or legal persons has the potential to trigger funding or repayment difficulties and cannot be replaced in a timely manner without incurring excessive additional costs, i.e., costs or reduced revenues that could trigger repayment difficulties.

(6)

Furthermore, it is necessary to lay down the circumstances in which the conditions of control and economic dependency coexist. For that purpose, where two or more natural or legal persons constitute a single risk based on control and one or more of them are so closely interlinked and interdependent with another natural or legal person or persons that they are economically dependent, all those persons should constitute an overall single risk. When assessing the coexistence of control and economic dependency, institutions should consider each case separately, considering the possible connections based on individual circumstances. Where persons that are part of different control groups are also interconnected through economic dependency, all those persons should be grouped into one overall group of connected clients. Such a group should encompass the control group, any economically dependent person or persons and any person or persons being controlled by those economically dependent person or persons.

(7)

To take into account the possibility that the existence of exceptional circumstances might preclude the existence of a single risk, an institution should be able to present adequate evidence that two or more natural or legal persons are not constituting a single risk, despite conditions for being considered as connected clients being met for those persons. In those cases, institutions may not identify those persons as a group of connected clients.

(8)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority.

(9)

The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (2),