Circular CSSF 22/824 is a CSSF circular, published 22 December 2022. Subject: Application of the Guidelines of the European Banking Authority on Loan Origination and Monitoring (EBA/GL/2020/06).
\nLegal basis: Law of 5 April 1993 on the financial sector.
\nRelevant for: Credit institutions, Specialised PFS.
\nKeywords: Consumer protection, Credit risk, Internal governance, Mortgage credit agreement, Risk management.
\nAUTHORITY ON LOAN ORIGINATION AND MONITORING (EBA/GL/2020/06)
\nCircular CSSF 22/824 Re: Application of the Guidelines of the European Banking Authority on Loan Origination and Monitoring (EBA/GL/2020/06)
\nLuxembourg, 22 December 2022 To all Luxembourg credit institutions
\nPurpose of the Circular The purpose of this circular is to inform you that the CSSF, in its capacity as competent authority, applies the Guidelines of the EBA on Loan Origination and Monitoring (EBA/GL/2020/06) (the Guidelines). Consequently, the CSSF has
\nTo Luxembourg branches
\nintegrated the Guidelines into its administrative practice and regulatory approach
\nof EU credit institutions
\nwith a view to promoting supervisory convergence in this field at European level.
\nTo Luxembourg branches
\nCredit institutions are required under the Law of 5 April 1993 on the financial sector
\nof credit institutions
\n(LFS) to implement robust internal governance arrangements, processes and
\nhaving their registered
\nmechanisms 1. With respect to credit granting and monitoring, those arrangements,
\noffice in a third country
\nprocesses and mechanisms are key to ensure that newly originated loans are of a sound credit quality and do not turn into non-performing loans (NPL) which might
\nTo professionals
\nultimately threaten the financial stability of the banking system and negatively affect
\nperforming lending operations under Article
\ncredit institutions’ ability to generate new lending to the real economy. In this context, and as a response to the European Union’s July 2017 Action Plan on
\n28-4 of the LFS To Luxembourg creditors within the meaning of the Mortgage Credit Directive and the Consumer Credit Directive
\ntackling the high level of non-performing exposures 2, the EBA has issued the Guidelines, as well as the EBA Guidelines on management of non-performing and forborne exposures (EBA/GL/2018/06) and the EBA Guidelines on disclosure of nonperforming and forborne exposures (EBA/GL/2018/10) 3, thereby covering the full life cycle of credit facilities (from loan origination to the management and disclosure of NPLs, if applicable). The CSSF, in its capacity as competent authority, has notified to the EBA its intention to apply the Guidelines.
\nSee Articles 5(1a), 38-1 and 53-15 of the LFS.
\nhttps://www.consilium.europa.eu/en/press/press-releases/2017/07/11/conclusions-non-performing-loans/
\nBoth the EBA/GL/2018/06 and the EBA/GL/2018/10 have been implemented through Circular CSSF 20/751.
\nThe Guidelines The Guidelines have been developed with a view to ensuring that In-Scope entities (as defined below) have prudent loan origination and monitoring standards in place to prevent newly originated performing loans from becoming non-performing in the future. The Guidelines pursue not only a prudential objective by imposing on In-Scope entities to implement a prudent risk taking and management process, but also a consumer protection objective to ensure that consumers are treated fairly based on a principle of responsible lending and that their creditworthiness is correctly assessed to avoid any negative consequences both for consumers and In-Scope entities. The Guidelines build upon the EBA Guidelines on internal governance (EBA/2017/11 4), which were implemented through Circular CSSF 12/552, and introduce specific requirements with respect 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. The Guidelines repeal the Guidelines on creditworthiness assessment (EBA/GL/2015/11), which were introduced by Circular CSSF 17/651.
\nThe text above is the opening of the document; the PDF carries the whole.
\nDocument page, PDF. Source: Commission de Surveillance du Secteur Financier (CSSF), reproduced with the CSSF's consent. The French text prevails.
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