Response to consultation on the ITS on Supervisory Reporting with regard to IRRBB reporting
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Please refer to the attached paper for General comments on timelines and implementation processes.
Various members reported that the templates by far exceed the calculation requirements contained in the underlying regulatory regime for IRRBB. The templates contain position breakdown requirements unrelated from the IRRBB Guidelines, e.g. breakdown of derivatives by collateralisation, a differentiation between behavioural and contractual cash flows as well as stating carrying amounts and fair values. Such information should be out of scope of the ITS and hence the relevant rows removed from the templates.
The breakdown structures developed in other reporting templates (J 02.00, J 03.00, J 04.00) that must be applied by large institutions deviate from the STE package and exceed the requirements of the RTS and the Guidelines to a significant extent. The granularity and the different segmentation compared with what is used in NII/EVE simulation at the moment will cause high implementation costs.
Only information that is needed for a bank’s (reasonable) interest rate risk management should be required for regulatory reporting.
Moreover, a proportionate approach should be designed also for “other institutions”, in particular concerning the (granularity of) breakdowns.
We suggest SNCIs should report only templates J 01.00, J 05.00 and J 08.00.
These new reporting requirements exceed by far the requirements of the guidelines and the RTS on IRRBB which do not demand such a level of detail. We have the impression that the reporting would de facto extend the requirements of the Guidelines and RTS. A regulatory review based on the level of detail required by the proposed templates will implicitly require a realigned interest rate risk management.
In addition to templates J 01.00.and J 08.00, we suggest that other institutions should report templates J 05.00, J 06.00 and J 07.00 (where J 06.00 and J 07.00 would benefit from downsized breakdowns) and SNCIs should only report template J 05.00.
Some members indicated that the calculation of net interest income and interest rate risk is based on position structures defined at the individual bank level. The aggregation is based on contracts with similar properties. Within these structures, it might be possible to differentiate between fixed and floating-rate instruments. But it may not be possible to do this in a systematic/standardised way so that the result of this differentiation could be used directly in a common reporting framework.
Implementing this new dimension in the reporting templates J 03.00 and J 06.00 would entail high additional cost, because the individual position structures must be transferred in this standardised view. Moreover, this transformation does not entail any valuable additional information, neither for supervisors nor for the banks’ internal interest rate risk management.
Question 1: Are the instructions and templates clear to the respondents? More specifically, do respondents consider that all definitions are unambiguous and accurate (e.g. linear and non-linear derivatives, contingent assets and liabilities, total assets/liabilities with impact on MV, etc)?
When looking at the to consolidation perspective, it is not entirely clear how the scope of the group would have to be portrayed: i.e. whether the reports should be created on stand-alone unit level or only on banking group consolidated level, or combined. If unit-level reporting is required, this leads to a substantial number of sheets to be populated (unit * currency * fix-float * modelled/non-modelled view).Please refer to the attached paper for General comments on timelines and implementation processes.
Question 2: Do the respondents identify any discrepancies between these templates and instructions and the calculation of the requirements set out in the underlying regulation?
A fundamentally more open wording would significantly reduce the implementation effort. Central aspects are, e.g., the breakdown of all customer transactions that can have a behavior-based component on an individual transaction basis, as well as the requirement to consider hedge accounting and the mapping of new business based on the category criteria of the previous transaction in the NII risk management. The level of detail should be drastically reduced to prevent costly and unnecessary adjustments to established methods. The proposed templates structurally limit the choice of the applied methodology as stipulated in the Guidelines on IRRBB, since the interest rate risk management of many banks has never been subject to such a granular level of detail.Various members reported that the templates by far exceed the calculation requirements contained in the underlying regulatory regime for IRRBB. The templates contain position breakdown requirements unrelated from the IRRBB Guidelines, e.g. breakdown of derivatives by collateralisation, a differentiation between behavioural and contractual cash flows as well as stating carrying amounts and fair values. Such information should be out of scope of the ITS and hence the relevant rows removed from the templates.
Question 3: Do the respondents agree that the amended ITS fits the purpose of the underlying regulation?
The current proposals for the SNCI templates implicitly limit the NCAS’ leeway concerning the application of the proportionality principle. It remains unclear, why granular data is needed if the relevant results are reported in template J 01.00 – especially, if an institutions’ modelling parameters are not even close to the 5 year cap.The breakdown structures developed in other reporting templates (J 02.00, J 03.00, J 04.00) that must be applied by large institutions deviate from the STE package and exceed the requirements of the RTS and the Guidelines to a significant extent. The granularity and the different segmentation compared with what is used in NII/EVE simulation at the moment will cause high implementation costs.
Only information that is needed for a bank’s (reasonable) interest rate risk management should be required for regulatory reporting.
Question 4: How many full-time equivalent (FTE) employees does your institution expect to involve in the implementation for how many months in order to report in a compliant way? Please provide indications for specific templates and options relevant for your institution. Please also indicate whether the same implementation will be used by many reporting institutions such that costs are shared among them.
Members report that most of the reporting requirements envisaged would in many cases go beyond established concepts for managing interest rate risk and will have to be implemented over time. A technical rollout would be expected to stretch some years.Question 5: What technical and procedural dependencies does the implementation of the ITS imply for your institution? How do they affect the time schedule of the implementation?
Implementation requirements for institutions will imply first of all a considerable effort to map the current product structure, which is individually chosen by each institution, to fulfil the stated reporting structure requirements. Supporting information from IT services and other product service providers will require an equally challenging effort to incorporate these individually chosen product structures.Question 6: Do respondents agree that the decision to simplify reporting templates is the best approach in implementing proportionality? In case you do not agree, what other proposal would be more efficient to reduce costs?
We welcome the fact that from the onset consideration is given to the design of proportionate reporting requirements. However, even with the suggested simplification, the resulting reporting sets still require a tremendous effort from SNCIs, which is not in line with the aim of the Cost of Compliance exercise.Moreover, a proportionate approach should be designed also for “other institutions”, in particular concerning the (granularity of) breakdowns.
Is the expected frequency for templates J 05.00, J 06.00, J 07.00 and J 08.00 feasible and proportionate?
As already mentioned, the requirements contain a level of detail that is currently not used by most SNCIs as well as “other institutions”. To enhance proportionality, a less detailed scheme of assets in the reporting requirements is needed.We suggest SNCIs should report only templates J 01.00, J 05.00 and J 08.00.
Question 8: Do respondents perceive that the reporting requirements are proportionate for institutions other than large institutions and small and non-complex institutions (‘other’ institutions)? Is there some quantitative information contained in Templates J 02.00, J 03.00 and J 04.00 that is overly burdensome? Is the expected frequency for templates J 02.00, J 03.00, J 04.00 and J 08.00 feasible and proportionate? How could proportionality be further improved for these institutions?
The requirement for the extended breakdown in template J 02.00 entails a new dimension in interest rate risk management which, in this manner and granularity, would be new for many market participants.These new reporting requirements exceed by far the requirements of the guidelines and the RTS on IRRBB which do not demand such a level of detail. We have the impression that the reporting would de facto extend the requirements of the Guidelines and RTS. A regulatory review based on the level of detail required by the proposed templates will implicitly require a realigned interest rate risk management.
In addition to templates J 01.00.and J 08.00, we suggest that other institutions should report templates J 05.00, J 06.00 and J 07.00 (where J 06.00 and J 07.00 would benefit from downsized breakdowns) and SNCIs should only report template J 05.00.
Question 9: Do respondents agree that the number of currencies requested in this reporting package is proportionate? Particularly for templates J 02.00 to J 08.00, do these amended ITS request right amount of information for currencies that have a limited/marginal contribution to the IRRBB?
NAWould respondents propose a different approach to reduce the reporting costs (e.g breakdown in rows by fixed/floating rate instrument, or instead of having it in a different dimension duplicate the columns of the panel to fit fixed and floating in different columns)? Please elaborate.
As already anticipated, the approach is new in many respects and the implementation of the requirements for certain IRRBB figures, such as those in templates J 03.00 and J 06.00, would result in substantial costs.Some members indicated that the calculation of net interest income and interest rate risk is based on position structures defined at the individual bank level. The aggregation is based on contracts with similar properties. Within these structures, it might be possible to differentiate between fixed and floating-rate instruments. But it may not be possible to do this in a systematic/standardised way so that the result of this differentiation could be used directly in a common reporting framework.
Implementing this new dimension in the reporting templates J 03.00 and J 06.00 would entail high additional cost, because the individual position structures must be transferred in this standardised view. Moreover, this transformation does not entail any valuable additional information, neither for supervisors nor for the banks’ internal interest rate risk management.