Response to consultation on Implementing Technical Standards amending Commission Implementing Regulation (EU) 2021/451 on supervisory reporting

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Question 1: Are the instructions and templates clear to the respondents?

Please see our response to Question 9, where we recommend several enhancements to the instructions and templates relating to the new subset of exposure classes “secured by mortgages on immovable property and ADC exposures”.

Please also see our response to Question 17, where we request several clarifications to the instructions relating to the reporting on losses stemming from lending collateralised by immovable property ("IP Losses").

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?

Paragraph 123 of Annex 2 contains an error, and should be rectified as highlighted below:

e. Secured by mortgages on commercial immovable property - non-IPRE (unsecured): Same as above paragraph, only for the part of the exposure risk-weighted as an exposure to the counterparty that is not secured by residential [commercial immovable] property, in accordance with Article 126(1), point (b) of Regulation (EU) No 575/2013.

Do you identify any issues related to the introduction of this new subset? Is this proposal clear enough? If you identify any issues, please suggest how to clarify the reporting.

We would like to request the following clarifications to the new subset of exposure classes “secured by mortgages on immovable property and ADC exposures” introduced by the Draft ITS.

 

  1. The “instructions concerning specific positions” for the rows relating to the new sub-exposure classes within C02.00 (i.e. rows 0150 to 0159) and C09.01 (i.e. rows 0090 to 0094 and rows 0900 to 0904) refer to the CR SA template (C 07.00). Within C 07.00, the instructions for such sub-exposure classes are contained under a generic section named “Clarifications on the scope of some specific exposure classes referred to in Article 112 of Regulation (EU) No 575/2013”. 

In our view, corresponding instructions should be included for each row which represent the new sub-exposure classes within C02.00, C07.00 and C09.00. Such instructions shall contain clear regulatory references in order to ensure that reporting requirements are interpreted correctly and consistently by reporting agents.

 

  1. We do not agree with the naming proposed for several rows relating to the new sub-exposure classes, for the reasons described below. 

a) ‘Secured by mortgages on residential immovable property – non IPRE (secured)’

As outlined in the Annex, this sub-exposure class actually represents both Non-IPRE (Article 125(1)(a)) and IPRE exposures (arising from Article 124(2)(a)(ii) points (1) to (4), and Article 125(2) derogation); therefore the standing row identification is not a true representation of the underlying exposure types. We recommend renaming the row using either one of the following options:

  • Option (i): ‘Secured by mortgages on residential immovable property – Loan Splitting Approach (secured)’; or
  • Option (ii): ‘Secured by mortgages on residential immovable property – non IPRE and IPRE (secured)’.

 

b) ‘Secured by mortgages on residential immovable property – non IPRE (unsecured)’

This sub-exposure class actually represents both Non-IPRE (Article 125(1)(b)) and IPRE exposures (i.e. the unsecured element arising from Article 124(2)(a)(ii) points (1) to (4), and Article 125(2) derogation), therefore the standing row identification is not a true representation of the underlying exposure types. We recommend renaming the row using either one of the following options:

  • Option (i): ‘Secured by mortgages on residential immovable property – Loan Splitting Approach (unsecured)’; or
  • Option (ii): ‘Secured by mortgages on residential immovable property – non IPRE and IPRE (unsecured)’.

 

d) ‘Secured by mortgages on commercial immovable property – non IPRE (secured)’

As outlined in the Annex, this sub-exposure class actually represents both Non-IPRE (Article 126(1)(a)) and IPRE exposures (arising from Article 126(2) derogation), therefore the standing row identification is not a true representation of the underlying exposure types. We recommend renaming the row using either one of the following options:

  • Option (i): ‘Secured by mortgages on commercial immovable property – Loan Splitting Approach (secured)’; or
  • Option (ii): ‘Secured by mortgages on commercial immovable property – non IPRE and IPRE (secured)’.

 

e) ‘Secured by mortgages on commercial immovable property – non IPRE (unsecured)’

This sub-exposure class actually represents both Non-IPRE (Article 126(1)(b)) and IPRE exposures (i.e. the unsecured element arising from Article 126(2) derogation), therefore the standing row identification is not a true representation of the underlying exposure types. We recommend renaming the row using either one of the following options:

  • Option (i): ‘Secured by mortgages on commercial immovable property – Loan Splitting Approach (unsecured)’; or
  • Option (ii): ‘Secured by mortgages on commercial immovable property – non IPRE and IPRE (unsecured)’.

Question 17 – revised instructions for template C 15.00: The instructions have been updated to align with the legal references with the new articles introduced in Regulation (EU) No 575/2013 for exposures secured by immovable property and the revised [Article 430a] on specific reporting obligations. The instructions have been clarified on certain aspects. The template has been amended to remove the two columns referring to the mortgage lending value. Are the revised instructions clear enough? If you identify any issues, please suggest how to clarify the reporting.

We agree with the removal of two columns referring to the mortgage lending value, in line with the amendments to Regulation (EU) No 575/2013 (“CRR 3”). Nevertheless, we would like to clarify the following aspects of the revised instructions within Annex 4.

 

  1. Paragraph 11, point (d) states the following: “In particular, exposures pursuant under Art. 124 (1) CRR shall not be reported.”

We would like to clarify the expected treatment of this amended reporting requirement. In particular, we understand that, a non-ADC exposure that does not meet all of the conditions of Article 124(3), or any part of a non-ADC exposure that exceeds the nominal amount of the lien of the property, shall not be included as “exposures” within the context of column 0050 of template C 15.00.

If our understanding is correct, our reservations are twofold:

i) This represents a major change from the current reporting of IP Losses within template C 15.00 under CRR 2, where there is no such restriction. For example, any exposures secured by residential immovable property under construction, where the obligor is a natural person and the development comprises of 6 housing units, would be out of scope of column 0050 of C15.00 under CRR 3, in view that it does not meet all criteria of Article 124(3) (namely Article 124(3)(a)(iii)); conversely, under CRR 2, such exposures would have been treated as secured by residential immovable property (subject to meeting the eligibility criteria) and reported in column 0050 of template C15.00. Moreover, we wish to understand the regulatory proviso within Article 430a which governs such change in reporting requirement.

ii) The instructions do not contemplate whether the ‘Losses’ and ‘Overall Losses’ arising from such exposures shall also be excluded from Columns 0010 and 0030. If  not, the data across the different columns of the template is not directly comparable.

 

2. Paragraph 13 states the following: “Reference date: The exposure value at the reference date default shall be used. For exposures having defaulted during the period, the exposure value at default shall be used. For exposures having defaulted during past periods, the exposure value at the reference date shall be used.”

In our view, the highlighted instruction is inconsistent with the requirements presented within the rest of the paragraph, such as:

  • Paragraph 13, point (a): “Losses shall be reported for all defaults on loans secured by real estate property that occur during the reporting period and irrespective of whether the recovery has been completed”
  • Paragraph 13, point (b): “For all defaults observed within the reporting period, there are three scenarios…”
  • Paragraph 13, point (c): “As losses shall be reported only for exposures having defaulted during the reporting period, changes to losses of exposures having defaulted during previous reporting periods will not be reflected in the reported data, i.e. proceeds from the realisation of the collateral at a later reporting period or lower realised costs than previously estimated shall not be reported.”

We wish to clarify the expected reporting of exposures and losses within this context. In particular, whether:

  1. Exposures (c0050) shall solely pertain to the reporting period, and defaults occurring during the prior reference dates shall be out of scope of the template C15.00. 
  2. Conversely, if prior year defaults are also to be considered within c0050, this creates an inconsistency across columns 0010 (Losses) and 0030 (Overall losses), whereby the Annex specifies that only losses arising from defaults during the reporting period shall be considered. 

Name of the organization

Bank of Valletta plc