Question
What is practically meant by 'additional exposures related to the lending decision of a third party to the group'?
Background on the question
According to RTS 529/2014, extending the range of the application system is a material change and needs the approval of competent authorities. Among other cases that are mentioned in RTS, extending the appllication to additional exposures that are subject of a lending decision of a third party is mentioned to be a material change or exposures.
Answer
As clarified by the criteria in points (i) and (ii) of Annex 1, Part 1, Section 1, Point 1(c) of RTS 529/2014, 'additional exposures related to the lending decision of a third party to the group' indicates any exposures not originated by the institution itself. The wording 'to the group' clarifies that the third party does not belong to the same group of the institution, while the additional exposures are now exposures of the group to which the institution belongs. This would be the case, for example, of a bank acquiring a portfolio of exposures from another institution or of an institution outsourcing parts of the credit process (including the underwriting) in relation to a portfolio of exposures which is in the balance sheet of the institution.