According to Article 473a(7)(b) of CRR, is it possible to report the impact on Standardised exposure value of transitional credit risk adjustments in COREP at an overall level?
It is not clear whether it might be possible to interpret the new legislation (specifically new CRR Article 473(a) para 7(b)) in such a way as to allow the impact on Standardised exposure value of transitional credit risk adjustments to be reported in COREP at an overall level e.g.: include in COREP CA.2 Row 690 “Other Risk Exposure Amounts” as an additional RWA rather than changing the actual provisions in C.07?
For example: (i) for Pillar 3 provisions disclosure would banks be required to show transitional amounts rather than the actual amounts and then have to explain each year that an increase in provisions is due to the phase in rates and is not an actual deterioration in credit quality or (ii) is the new CBI Credit Quality Return based on COREP in which case will it expect transitional provisions?
Article 473a(7)(b) of Regulation (EU) No 575/2013 (CRR) requires institutions applying the Standardised Approach to credit risk to adjust (reduce) the specific credit risk adjustments by which the exposure value shall be reduced by applying a scaling factor. As recital (8) of Regulation (EU) 2017/2395 explains, this ensures that an institution would not benefit from both an increase in its Common Equity Tier 1 capital due to transitional arrangements as well as a reduced exposure value.
That information, which is relevant for the calculation of own funds requirements for credit risk according to the Standardised Approach, has to be reported by institutions applying the Standardised Approach to credit risk in the template C 07.00 of Annex I to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting), in accordance with the reporting requirements established in Annex II to the ITS on Supervisory Reporting. Therefore, the impact of the reduction of the specific credit risk adjustments under Article 473a(7)(b) of the CRR on the total risk exposure amount is captured in the different items of template C 07.00 rather than cumulatively in row 690 of template C 02.00.
Please also see Q&A 3664.