FMA reminds us of reporting obligations for loans to associated customer groups – cluster risks often occur in the commercial real estate sector

The banking supervision rules for large loans are intended to prevent cluster risks from building up at credit institutions, which lead to sudden large losses. The Austrian Financial Market Authority (FMA) reminds us that in order to avoid such cluster risks and contagion channels, it is crucial to recognize interconnected customer groups as such and report them accordingly. In practice, the economic connections, especially in the area of ​​commercial real estate, are often not obvious at first glance. However, guidelines from the European Banking Authority (EBA) and a European Commission Delegated Regulation, which came into force this summer, have provided greater clarity in definitions and application, as the second edition of the new FMA publication series “Let’s talk about supervision” notes. The frequently observed reluctance to identify group formation will therefore not be able to continue, according to the publication, in which the FMA will in the future explain supervisory expectations on current topics in loose sequence.

“Credit institutions must look behind the facades of their large borrowers in order to recognize dependency relationships,” said FMA board members Helmut Ettl and Eduard Müller. “Economic dependence can be disguised by the nested structures of letterbox companies, and it can take many forms, such as mutual guarantees, equality of management and shareholders or opaque shareholding structures. In the last few months, especially in the real estate sector, we have often seen supposedly independent companies falling like dominoes.”

The FMA series “Let’s talk about supervision” is aimed at supervised parties and interested specialist audiences and is intended to make clear in an understandable manner the FMA’s expectations with regard to the existing legal situation and thus improve compliance. Practical examples and application-related questions are intended to make it easier to implement and meet legal standards.