Groups of connected clients when a client is connected through various criteria (interconnection through control and / or economic interconnection)

As described in the EBA Guidelines on connected clients under Article 4(1)(39) of Regulation (EU) No 575/2013   (EBA/GL/2017/15) , the concepts of control and economic dependency are two types of interconnection to be assessed separately on the basis of the individual circumstances. However, there are situations where both types of dependencies are interlinked and could therefore exist within one group of connected clients in such a way that all relevant clients constitute a single risk. Where clients that are part of different control groups are interconnected via economic dependency, all entities for which a chain of contagion exists need to be grouped into one group of connected clients Therefore the chain of contagion leading to possible default of all entities concerned is the relevant factor for the grouping and needs to be assessed in each individual case. Using the example presented in the background, the institution needs to consider the possible chain of contagion leading to possible financial difficulties and further assess the nature of the economic dependency between B, C and D. The institution should clarify whether C and D are economically dependent on B and whether B can be easily replaced by another client or vice versa. Depending on the chain of contagion leading to financial difficulties or possible default, the institution should then form a comprehensive group or several smaller groups of connected clients and submit large exposures reports accordingly. For example, where C and D are so strongly economically dependent on B that B cannot be easily replaced, the group of connected clients will include A, B, C and D (because financial difficulties of A will lead to financial difficulties of B; and financial difficulties of B will likely lead to financial difficulties of C and D). This would also be the case where a mutual dependency exists between B and C and B and D. However, if B is economically dependent on C and D, but C and D are not dependent on B, 3 separate groups of connected clients may be identified: A+B, B+C and B+D (because financial difficulties of A, or C, or D will lead to financial difficulties of B; but financial difficulties of B will not lead to financial difficulties of C or D). *The Q&A was amended on the 24/11/2017 only to update the reference to the then finalised EBA Guidelines on connected clients.