Article 395 CRR – Shadow entities large exposure limits

The large exposures regime set in Part IV of Regulation (EU) No 575/2013, also as amended by Regulation (EU) 2019/876 (CRR2), applies to any asset or off-balance sheet items as defined in Article 389 CRR. Therefore, the large exposures limits laid down in Article 395 apply also to investments in transactions with underlying assets, which is the case of the operation described in the question.  The EBA Guidelines on limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework under Article 395(2) of Regulation (EU) No 575/2013 (EBA GL/2015/20) apply independently from, but in addition to, the general large exposures regime in the CRR. Paragraph 11 of the Guidelines defines a shadow banking entity as an undertaking that carries out one or more credit intermediation activities and that is not one of the excluded undertakings, as also defined in the Guidelines. In principle, a vehicle that purchases loan portfolios to allocate the net proceeds of the loans to self-issued notes through fully-segregated compartment qualifies as a shadow banking entity. The notes issued by the vehicle do not constitute themselves separate shadow banking entities as long as they are not separate undertakings that carry out one or more credit intermediation activities. It follows that all exposures towards the same vehicle must be regarded as one single exposure, irrespective of the segregation of the pay-out under the loan portfolios and of the notes issued by the vehicle when applying the Guidelines.