List of Q&As

FINREP: Reporting of insurance subsidiaries

According to new Finrep instructions templates F 1.1/1.2/1.3 should be reported according to the CRR scope of consolidation and template F17 according to the IFRS scope of consolidation. 1)Does this mean all tables (except template F17) should be reported according to CRR scope (which excludes insurance subsidiaries)? 2)CRR scope: Although insurance subsidiaries should not be consolidated according to the instructions, we assume the investments in and intercompany positions with insurance subsidiaries and the related P&L components with/from these subsidiaries should be reported somewhere in the consolidated figures. Is that correct? If yes, which lines in templates F 1.1-1.3 (balance sheet) and template F2 (P&L) should we use for this purpose?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_70| Topic: Supervisory reporting - FINREP (incl. FB&NPE)| Date of submission: 19/07/2013

The meaning of the "amount owed to the institution"

How should institutions understand the "amount owed to the institution" under Article 501(2)(c) in case of off-balance sheet exposures to customers that haven’t yet been used? Is it the exposure value (as understood in Article 111) or the nominal value of such product (for example credit line)?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_416| Topic: Credit risk| Date of submission: 21/10/2013

Applicability of the transitional period under Article 124(3) of Regulation (EU) No. 575/2013

According to Article 124(3) of Regulation (EU) No. 575/2013 (CRR), institutions should have a 6-month transitional period to apply higher risk weights set by competent authorities to exposures secured by mortgages on immovable property. Should this transitional period also apply if the national authority decides under CRR to set risk weights at the same level and to the same extent, i.e. for the same kind of exposures that are currently set under CRD (so in fact such decision would not result in a higher capital requirements for banks in comparison to current national legislation)?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_361| Topic: Credit risk| Date of submission: 08/10/2013

Definition of SME

SMEs are defined by turnover alone (EUR 50 million according to OJ L 124, 20.05.2003). Our question concerns when turnover is recorded. Is it (i) at inception of the loan or (ii) on an on-going basis? We would also like to know what level of documentation/proof is required, if any.

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_343| Topic: Credit risk| Date of submission: 07/10/2013

Outflows on other liabilities for Operational Accounts (Basel para 93 -104)

a. CRR in addition to clearing, custody and cash management CRR considers “other comparable services” eligible for a 5% run off. Are correspondent banking and prime brokerage services included in the definition? b. How does one prove that the client is unable to withdraw without compromising client’s operational functioning over a 30 day horizon? c. How often do you need to check if an account is meeting the criteria for operational accounts?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_305| Topic: Liquidity risk| Date of submission: 30/09/2013

Holdings of own funds instruments issued by financial sector entities included in the scope of consolidated supervision not deducted from own funds on an individual basis

According to Article 49(2) of Regulation (EU) No. 575/2013 (CRR) “for the purposes of calculating own funds on an individual basis and a sub-consolidated basis, institutions subject to supervision on a consolidated basis in accordance with Chapter 2 of Title II of Part One shall not deduct holdings of own funds instruments issued by financial sector entities included in the scope of consolidated supervision, unless the competent authorities determine those deductions to be required for specific purposes, in particular structural separation of banking activities and resolution planning. Such provisions mean, if understood correctly, that starting from 1 January 2014, all significant investments in financial entities of a bank subgroup will not be deducted from own funds on an individual basis, but according to Article 49(4) of the CRR will be risk weighted according to Article 133 (for standardised approach). With the above in mind, what risk weight should be applied for such exposures? According to Article 133(2) of the CRR “equity exposures shall be assigned a risk weight of 100 %, unless they are required to be deducted in accordance with Part Two, assigned a 250 % risk weight in accordance with Article 48(4), assigned a 1250 % risk weight in accordance with Article 89(3) or treated as high risk items in accordance with Article 128.” In Article 133(2) of the CRR there is no reference to equity exposures treated under Article 49(2). Does this mean that such exposures should be treated simply with 100% risk weight?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_268| Topic: Own funds| Date of submission: 20/09/2013

Outflows associated with shorts - net or gross

Can you clarify whether Article 423(4) of Regulation (EU) No 575/2013 (CRR) requires firms to: 1) assess long and short positions gross per ISIN and to treat shorts gross by ISIN, reporting an outflow under Article 423(4) corresponding to the sum of all the gross short positions per ISIN (not covered >30 days); or 2) assess shorts net of any longs currently used to cover shorts via stock collateralised stock borrow e.g. a long in one ISIN (not qualifying as liquid assets per Article 416) that is currently used as collateral to cover a short in another ISIN (stock collateralised stock borrowing) and maturing inside 30 days, can continue to be eligible as collateral to cover shorts thus reducing the outflow reported under Article 423 (4).

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_189| Topic: Liquidity risk| Date of submission: 29/08/2013

Treatment of Tier 1 securities with calls every 5 years (as opposed to quarterly calls)

Could a Tier 1 security with an incentive to redeem and a first call date post January 1, 2014 (say, in 2016) and which is callable every 5 years after the first call date count as Tier 2 if not called at the first call date? This question is partly based on the answer to the question 2013_15, where the EBA gives clarity on the fact that non-called Tier 1 cannot count as Tier 2 post the first call date, as they are callable every quarter on so do not comply with Tier 2 requirement - which is not the case here.

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_48| Topic: Own funds| Date of submission: 08/07/2013

Valuation of qualifying holdings outside the financial sector for the purposes of Article 89 of Regulation (EU) No. 575/2013

What is the correct valuation to determine the 15% threshold of the eligible capital under Article 89(1) of Regulation (EU) No, 575/2013? Are the provisions of Article 4(77) also relevant for this purpose or should it be generally the amortized cost?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_367| Topic: Own funds| Date of submission: 09/10/2013

Assets controlled by a liquidity management function

Would only those assets which are directly controlled by the liquidity management function fall within the definition of liquid asset holdings (subject to meeting the other conditions) under Regulation (EU) No 575/2013 (CRR), or do those assets which are not directly controlled by the liquidity management function also qualify?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_280| Topic: Liquidity risk| Date of submission: 26/09/2013

Tap issues

Article 484 and 486 of Regulation (EU) No. 575/2013 (CRR) provide for the grandfathering treatment of Tier 2 instruments that do not meet the criteria of Articles 62 and 63. Article 63 provides that callable Tier 2 should have a first call date not before five years after the date of issuance or raising (except Article 78(4)). When an institution has issued before 31/12/2011 a callable (non step) Lower Tier 2 bond with a first call date at year 5 and then has made a tap on that issue (i.e. increased the amount of the original issue a year later, for example), what is the grandfathering treatment of the amounts raised through the tap? Is it the same as the original bond (i.e. fully eligible) or should the tap be considered non fully eligible Tier 2 because, as of the tap date, the first call was before year 5, in which case the tap should be included in the amortized stock according to Article 86.

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_238| Topic: Own funds| Date of submission: 11/09/2013

Requirement to establish a risk/audit committee

Article 76(3), first paragraph, requires significant institutions to establish a risk committee. According to the fourth subparagraph, "competent authorities may allow an institution which is not considered significant as referred to in the first subparagraph to combine the risk committee with the audit committee as referred to in Article 41 of Directive 2006/43/EC." Does this mean that all institutions in the EU are required to establish at least a joint risk and audit committee?

Legal act: Directive 2013/36/EU (CRD) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_228| Topic: Internal governance| Date of submission: 10/09/2013

Eligibility of Tier 2 after contractual change if already in amortisation phase

This is a follow up question to 2013_16, where it is stated that "A material change in the terms and conditions of a pre-existing instrument shall be considered in the same way as the issuance of a new instrument, meaning that the changes shall aim at ensuring a full eligibility...". Does this principle apply only to changes that would lead to inclusion in grandfathering or also to instruments which after a contractual change (removal of call rights) would be fully eligible but already are within the last 5 years of their maturity and therefore recognized according to amortization rules?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_174| Topic: Own funds| Date of submission: 21/08/2013

Grandfathering of own funds instruments

Based on the answer to question 2013_16, if a step-up Tier 2 bond’s terms were changed so that all call options were removed – before the entry in force of the Regulation (EU) No 575/2013 (CRR) – could it be considered as fully eligible in Tier 2 capital assuming that the capital instrument meets the other conditions laid down in Article 63 of the Regulation?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_61| Topic: Own funds| Date of submission: 12/07/2013

Meaning of Article 79 (b) of Directive 2013/36/EU (CRD)

What should standardised banks do in order to live up to CRD Article 79 (b)? Should standardised banks make their own assessment of the risk weights assigned to unrated counterparts? I.e. If a banking counterpart (institution) in a 0 % risk weight country is unrated and therefore assigned a risk weight of 20 % according to Article 121of Regulation (EU) No 575/2013 (CRR), but an internal assessment shows that other comparable counterparts with a rating get assigned a 50 % risk weight according to Article 120 of CRR, what should the calculating institution do? Should the calculating institution overwrite the 20% with 50 % or should the calculating institution add the difference in risk weighted assets under Pillar II?

Legal act: Directive 2013/36/EU (CRD) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_249| Topic: Supervisory review and evaluation (SREP) and Pillar 2| Date of submission: 16/09/2013

Inclusion of incurred (IFRS) CVA in the IRB Provision shortfall calculation

Can the incurred CVA charge related to IRB exposures be treated as an eligible provision for the purposes of calculating the own funds reduction for IRB provision shortfall (per Article 159 of Regulation (EU) No 575/2013 (CRR))?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_245| Topic: Own funds| Date of submission: 13/09/2013

Article 416 - Reporting on liquid assets

Can assets issued by credit institutions, investment firms, insurance undertakings, etc. (reference to Article 416(2)) qualify for reporting as liquid assets if these are guaranteed by one of the parties mentioned in article 416(1)(c)?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_222| Topic: Liquidity risk| Date of submission: 10/09/2013

Level of application of the new FINREP framework

Can a competent authority impose FINREP at a solo level. Moreover, would a competent authority be free to add to or delete information from a specific template?

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_197| Topic: Supervisory reporting - FINREP (incl. FB&NPE)| Date of submission: 02/09/2013

Firm shorts covered by client longs

We assume that an outflow should be reflected under Article 423 (4) of Regulation (EU) No 575/2013 (CRR) for any firm short currently covered using a client long position, unless the residual term of the borrowing of the client stock used to cover the short is contractually committed beyond 30 days.

Legal act: Regulation (EU) No 575/2013 (CRR) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_185| Topic: Liquidity risk| Date of submission: 27/08/2013

Possibility to increase the frequency of reporting with regard to information covered by Draft ITS on Supervisory Reporting.

Article 104(1)(j) of Directive 2013/36/EU (CRD) provides for competent authorities to have inter alia the power to impose additional or more frequent reporting requirements, including reporting on capital and liquidity positions. The draft Implementing Technical Standard on reporting (ITS on reporting) submitted by EBA to the European Commission on 26 July 2013 includes strict provisions regarding format and frequency of reporting. In light of this does the competent authority have the power to impose more frequent reporting requirements relating to information that to some extent is covered by parts of Draft ITS on reporting (for instance the tables CA1, CA2) .

Legal act: Directive 2013/36/EU (CRD) as amended

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_175| Topic: Supervisory reporting - Other| Date of submission: 21/08/2013