Response to consultation on supervisory reporting changes related to CRR2 and Backstop Regulation (Framework 3.0)

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NPL backstop

NPL backstop
We agree that the new FINREP template will help monitor the stock of NPEs and the related loss coverage from an accounting perspective.
We expect challenges for compilation and reporting to arise from the increased granularity that is required in template F39. In particular, the breakdown by time passed since exposures’ classification as non-performing will require changes to our reporting systems. The implementation costs of these granular new reporting requirements raise issues of proportionality of the proposal.
The instructions and templates C35.01 to C35.03 are clear.
We have not identified any discrepancies so far.
Overall, we agree that the amended ITS fits the purpose of the underlying regulation.

Credit risk

Credit risk
The proposed changes contribute to achieving the objective, and we expect significant upgrades to our reporting systems will be required to implement the proposed changes.
We would like to point out a potential risk to the implementation timeline for the new reporting templates. Reporting of credit risk templates depends on the underlying IRB models, which are currently subject to change from the wider EBA IRB reforms that all EU banks need to comply with by 2021.
Specifically, we consider the new requirement for PD backtesting with Margin of Conservatism (MoC) the most challenging to implement. Introducing MoC and other new regulatory requirements necessitates a redesign of IRB models. MoC implementation and monitoring happens in phases depending on the supervisory review and approval of the redesigned models. As the requirement to redesign risk models affects the market as whole, supervisory authorities are likely to face resource constraints to review and approve models in a timely manner which may lead to delays and may in turn jeopardise the implementation timeline for template C08.04.
We have identified some consistency issues in the labelling of templates. The title of a template should refer to the information in the template i.e. the risk type displayed. For instance, templates C08.03 and C08.04 are labelled “Credit and Counterparty Credit Risks and Free Deliveries”. However, the instructions for these templates explicitly require the exclusion of counterparty credit risk.
Template C08.04 includes a row for “Other” with instructions that “Institutions could add additional rows between rows 0070 and 0080 to report other material drivers of RWA movements over the reporting period.” We are not aware of any other COREP tables where it is possible to add rows and would welcome some guidance on how this would work in practice, e.g. with respect to the XBRL mappings.
With respect to template C08.07 we would appreciate if instructions could confirm that the scope of this template is not to cover all credit risk exposures (i.e. STD + IRB) but instead to only cover all IRB, those IRB exposures for which we have permission to use the STD approach, and those STD exposures which are subject to roll out.
Instructions for template C08.07 state that the exposure value should be in accordance with Art 429(4). This relates to leverage exposure and not exposure per credit risk requirements. We would welcome clarification of the instructions.
We agree that the amended ITS broadly reflects the underlying regulation.

Counterparty credit risk

Counterparty credit risk
We would welcome additional guidance as to which exposure measure should be used for the ranking in template C34.6. Should it be column 0100, 0110 or something else?
One discrepancy we have identified is that in template C34.1, row 005 states the percentage as row 0010 over 0050, but the correct reference is row 0010 over 0040.
We refer to the response to questions 16 and 17.

Leverage ratio

Leverage ratio
We do not have comments on the structures presented in Section 5.1.2.
Reporting may be challenging as it can be difficult to identify the relevant exposures such as promotional loans from public development banks. In this context, we would welcome if the EBA could make available a list of entities that meet the definition of a public development bank.
The largest components of the leverage ratio susceptible to significant temporary volatility in volume during the quarter are (a) SFTs and (b) Other Assets. The SFT component is volatile as it is based purely on market demand at any given point of time. The item Other Assets includes debt securities, treasury bills and cash and bank balances with central banks. Cash is inherently volatile and movement on debt securities is based on market yields and liquidity demands.
The least susceptible component is the Tier 1 Capital.
While such an alignment is feasible in the reporting systems, we would question whether this alignment would be desirable in terms of costs and benefits. We would find it useful to understand what additional value the EBA expects from this presentation of RWEA.
There are clearly resource implications of the proposed change to pre-CRM exposures in this template. At the same time, we consider the value added of this presentation to be limited. For reasons of consistency, we would prefer to keep reporting requirements in line with RWEA reported in CA2.
Yes, overall the templates and instructions are clear.
No, we have not identified any discrepancies between the templates and instructions and the calculations of the requirements set out in the underlying regulation.
Yes, overall we consider the amended ITS fit for purpose.

Large Exposures

Large Exposures
Yes, we find the instructions and templates on large exposures reporting to be clear.
The templates on identification of the counterparty (C 27.00) require a ‘Code’ and a ‘National Code’ to be reported for each counterparty. It is not clear exactly how these would be useful in practice.
The Code must be the LEI code or, if the LEI is not available, the National Code. The Code must also be consistent across templates and over time. Given the countries and markets Standard Chartered is operating in, we note that a significant proportion of counterparties do not (yet) have a LEI codes.
We therefore recommend maintaining the status quo and report internal identifiers that are constant across templates and time. In addition, we suggest reporting the LEI code instead of the National Code.
Overall, we agree that the amended ITS reflects the purpose of the underlying regulation.

NSFR

NSFR
The proposed netting by currency does not necessarily correlate to the long-term funding requirement by currency per derivative netting set. We would therefore welcome further clarification on the proposed methodology. A common understanding of the methodology across market participants is essential in order to avoid reporting inconsistencies and, given the scope for CAs to set currency specific requirements in the future, avoid any divergence in market practices between jurisdictions
We note that the methodology as proposed may also increase complexity and costs of reporting.
The applicable factor section is not clear. We assume that this is intended to identify differences between Firm weights vs Standard weights, but we would welcome further guidance. We note that templates 80 and 81 do not automatically display totals / product totals which are reflected in template 84.
We would welcome further clarification of what the intention is behind the reporting of standard factors and applicable factors. Moreover, we would welcome further guidance on which HQLA splits need to be applied to margin and CCP default fund lines. The instructions are not clear with regard to what should be captured here.
Other specific questions that have arisen while reviewing the proposed templates include
• Part II, Article 17: how should encumbrance be reported if the transaction through which the asset has been borrowed (collateral swaps from assets borrowed on unsecured)?
• Row 1.1.1.1 states residual maturity of less than 6 months but the columns require up to > 1 year assets, how should these be reported?
Yes. One discrepancy that we have identified between proposed templates and underlying rules is the HQLA split by LCR haircut percentage which includes haircuts that do not exist in the LCR.
The new templates broadly align with the direction implied via the 2014 templates and try to address some of the questions around netting.
While the removal of tenor splits for HQLA reduces the line items on the RSF side, this decrease in reporting granularity has been offset by additional required reporting requirements relating to LCR haircut percentages.

FINREP

FINREP
Yes, we agree that a separate presentation of POCIs outside the IFRS 9 impairment stages makes sense.
Overall, the criteria to distinguish between “non-performing” and “performing” POCIs are clear.
We anticipate challenges in sourcing the information templates. The proposed changes will also require minor changes to our reporting systems.
We have not identified any inconsistencies.
We have not identified any major challenge, we expect that the number to be reported in these data points will not be significant.
We have not identified any challenges for reporting this information.

Other amendments

Other amendments
Yes, we think that the instructions and templates are clear.
We agree with the approach to harmonise the use of LEI codes in supervisory reporting and to align practices that enable the unequivocal identification of the same entity across different reporting request.
With regard to the changes to Article 105 (11), we would find it helpful if the EBA could provide some working examples for the new linkage to liquidity horizons stipulated in Article 325(bd).
We would also welcome additional guidance on the new fields introduced in template F40.
We strongly support the objective of enhanced consistency and integration between supervisory reporting and disclosures and agree that the proposals contribute to achieving this objective.

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Standard Chartered Bank