Question ID
2017_3601
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Supervisory reporting - FINREP (incl. FB&NPE)
Article
99
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
Annex III - F 02.00; Annex V - paragraphs 31 and 35 of Part 2
Name of institution / submitter
National Bank of Romania
Country of incorporation / residence
Romania
Type of submitter
Competent authority
Subject matter
Reporting of the interest income and interest expense from hedging derivatives
Question

Our question is in which item of template F 02.00 (FINREP IFRS 9) interest income and interest expense from hedging derivatives classified in the category ”hedge accounting” should be reported, where:

  1. the hedging derivatives are used to hedge interest rate risk and are measured at fair value through profit or loss;
  2. the dirty price approach is the convention applied by the credit institution; and
  3. the hedged instrument is not measured at fair value through profit or loss (i.e. the hedged instrument is a debt financial instrument whose interest is recognized as “interest income” or “interest expense” in the statement of profit or loss).
Background on the question

According to the provisions of paragraph 31, Annex V, Part 2 of Regulation (EU) No 680/2014, as amended (ITS on supervisory reporting), interest income and interest expense from financial instruments measured at fair value through profit or loss and from hedging derivatives classified in the category “hedge accounting” shall be reported in the template F 02.00 either separately from other gains and losses under items “interest income” and “interest expense” (‘clean price’) or as part of gains or losses from these categories of instruments (‘dirty price’). The clean or dirty price approach shall be applied consistently for all financial instruments measured at fair value through profit or loss and for hedging derivatives classified in the category “hedge accounting”.

According to the provisions of paragraph 35, Annex V, Part 2 of the ITS on supervisory reporting, “Interest income. Derivatives – Hedge accounting, interest rate risk” and “Interest expenses. Derivatives – Hedge accounting, interest rate risk” shall include, where the clean price is used, the amounts related to those derivatives classified in the category “hedge accounting” which cover interest rate risk.

All the Romanian credit institutions apply the dirty price approach.

Submission date
Final publishing date
Final answer

Paragraph 31, Part 2, Annex V of Commission Implementing Regulation (EU) No 680/2014, as amended (ITS on supervisory reporting), allows institutions to report interest income and interest expense from hedging derivatives classified in the category ‘hedge accounting’ either using the clean price approach, or the dirty price approach (see also Q&A 2014_1000). The same paragraph adds that “[t]he clean or dirty price approach shall be applied consistently” by the institution.

In the dirty price approach, interest income and interest expense from hedging derivatives classified in the category ‘hedge accounting’ shall be reported as part of gains or losses from these categories of instruments.

In particular, paragraph 47, Annex V, Part 2 of the ITS on supervisory reporting specifies that the item ‘Gains or (-) losses from hedge accounting, net’ (row 300 of template F 02.00) “shall include gains and losses on hedging instruments and on hedged items, including those on hedged items measured at fair value through other comprehensive income other than equity instruments, in a fair value hedge in accordance with IFRS 9.6.5.8. […] This item shall also include gains on hedges of net positions.”

Paragraph 35 allows institutions to report interest income and interest expense from hedging derivatives – classified in the category ‘hedge accounting’ and covering interest rate risk – in items ‘Interest income. Derivatives – Hedge accounting, interest rate risk’ and ‘Interest expenses. Derivatives – Hedge accounting, interest rate risk’ (rows 70 and 130 of template F 02.00, respectively). These items shall be used by institutions that use the clean price approach.

Q&A 2015_1878 clarifies that the use of dirty price approach for presenting interest income and expense on hedging instruments in economic hedges (where hedged instruments are measured at fair value through profit and loss) shall involve only item ‘Gains or (-) losses on financial assets and liabilities held for trading, net’ (row 280 of template F 02.00).

Option 1 is therefore not applicable under the supervisory reporting framework.

Accordingly, where the dirty price approach is used by institutions, interest income and expense from the hedging instruments classified in the category ‘hedge accounting’, irrespective of the measurement method applied for the hedged instrument, shall be reported in item ‘Gains or (-) losses from hedge accounting, net’ (row 300 of template F 02.00). Option 2 shall therefore be applied.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

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