Single Rulebook Q&A

Question ID: 2018_3836
Legal act : Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic : Transparency and Pillar 3
Article: 111, 166
Paragraph:
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2016/11 - Guidelines on disclosure requirements under Part Eight of CRR
Article/Paragraph : Article 111 and 166 in CRR
Type of submitter: Credit institution
Subject matter : Template 2 EU LI2 EBA/GL/2016/11 (Main sources of differences between regulatory exposure amounts and carrying values in fin statements)
Question:

Should original exposures after provisions or EAD (exposures at default) be used to compile data in Pillar 3 template 2 "EU LI2 - Main sources of differences between regulatory amounts and carrying values in financial statements and specifically row 10 “? (Exposure amounts considered for regulatory purposes)

Background on the question:

EBA/GL/2016/11 of 14 December 2016 (page 53) refer to Article 111 in CRR which regards exposures after provisions in the standardised approach and Article 166 CRR which regards exposures without considered provisions (understandable due to IRB shortfall). The text marked in yellow in the guidelines also refer to Exposure at default for IRB approach, which is contradictory due to Article 166.

Exposure amounts considered for regulatory purposes: The expression designates the aggregate amount considered as a starting point of the RWA calculation before the application of CRM methods other than netting in Part Three, Title II, Chapter 4 of the CRR but after the application of netting requirements in Part Three, Title II, Chapters 4 and 5 and Title IV of the same regulation for each of the risk categories. Under the credit risk framework, this should correspond either to the exposure amount applied in the credit risk standardised approach (see Article 111 in Part Three, Title II, Chapter 2 of the CRR) or to the exposures at default (EAD) in the credit risk – IRB approach. (See Article 166, Article 167 and Article 168 in Part Three, Title II, Chapter 3 of the CRR.)

Securitisation exposures should be defined as in Article 246 in Part Three, Title II, Chapter 5 of the CRR. Counterparty credit exposures are the exposures defined as exposures considered for CCR purposes (see Part Three, Title II, Chapter 6 of the CRR). Market risk exposures correspond to positions subject to the market risk framework (see Part Three, Title IV of the CRR).

Consequently it is not clear how original exposures should be compiled in Pillar 3 template 2 "EU LI2 - Main sources of differences between regulatory amounts and carrying values in financial statements and specifically row 10“.

Date of submission: 08/05/2018
Published as Final Q&A: 15/02/2019
EBA answer:

In order to fill in the Pillar 3 template 2 "EU LI2 - Main sources of differences between regulatory amounts and carrying values in financial statements and specifically row 10 “ (Exposure amounts considered for regulatory purposes) of EBA/GL/2016/11- Guidelines on disclosure requirements under Part Eight of CRR, the aggregate amount considered as a starting point of the RWA calculation should be reported as exposure amounts considered for regulatory purposes.

In case the Standardised Approach (SA) is applied, this is the carrying value after specific credit adjustments, additional value adjustments in accordance with Articles 34 and 110 of Regulation (EU) No 572/2013 (CRR) and other own funds reductions related to the asset item. For off-balance sheet items listed in Annex I, the exposure value is the nominal value after reduction of specific credit risk adjustments, multiplied with the applicable percentage mentioned in Article 111(1) (a) to (d) of the CRR.

For the IRB approach it would be exposure value within the meaning of Articles 166, 167 and 168 of the CRR.

Thus, the carrying values as reported in the financial statements under the scope of regulatory consolidation should be reported in the corresponding rows 1 to 3. Any specific regulatory addition or reduction concerning these amounts is to be included in rows 4 to 9 in order to explain how to reconcile these amounts with the exposure amount for the regulatory starting point of the RWA calculation according to each of the frameworks mentioned in columns (b) to (e). This means that in particular for credit risk, the exposure amounts considered for regulatory purposes to be reported in row 10 will be different from the carrying values as reported in the financial statements under the scope of regulatory consolidation, due to the particular regulatory treatment of accounting provisions for the calculation of the RWAs.

Status: Final Q&A
Permanent link: link