Application of the SME supporting factor to exposures financing private purposes following CRR III

Following the amendments introduced by Regulation (EU) 2024/1623 (CRR III), Article 501(2)(b) CRR defines an SME by reference to Article 5, point (9), CRR rather than to Commission Recommendation 2003/361/EC. Where the obligor is a natural person who carries out an economic activity and meets the turnover criterion in Article 5, point (9), should SME status be determined once at obligor level — so that the adjustment under Article 501(1) applies to all non-defaulted exposures to that obligor meeting Article 501(2)(a) — or should it continue to be assessed exposure by exposure by reference to the purpose of the individual financing, as set out in EBA Q&A 2021_6301?

EBA Q&A 2021_6301 concluded that a natural person qualifies as an SME only in respect of the economic activity carried out, and that exposures financing private activities of that person do not benefit from the SME supporting factor. That conclusion rested on the then-applicable wording of Article 501(2)(b) CRR, which defined an SME by reference to Commission Recommendation 2003/361/EC. Regulation (EU) 2024/1623 replaced that wording. Article 501(2)(b) CRR now provides that an SME has the meaning laid down in Article 5, point (9), CRR, which defines an SME as a company, enterprise or undertaking whose annual turnover, according to its most recent consolidated accounts, does not exceed EUR 50 000 000. The reference to Recommendation 2003/361/EC — and with it the "engaged in an economic activity" wording on which the 2022 answer was constructed — no longer forms part of Article 501. Under the Italian statistical framework counterparties are assigned a single identifier and a single sector classification, and anti-money-laundering requirements oblige institutions to identify and monitor customers at counterparty level. Assessing SME status exposure by exposure for a single obligor would therefore require a parallel, purpose-based classification with no counterpart elsewhere in the reporting framework.