Following up on the rejected Q&A 2022_6366, we are asking a Q&A again because the feedback from the rejection does not answer our question. We have reworded our explanation and supported it with examples.

The validation rules v10703_h and v10711_h compare the exposure values between C 08.01 and C 34.07 in Annex I to Regulation (EU) 2021/451 (ITS on Reporting).

v10703_h: [C 08.01.a] {C 34.07, r0180, c0010, s0004} = + {C 08.01.a, r0050, c0110, s0004} + {C 08.01.a, r0060, c0110, s0004} + {C 08.01.a, r0040, c0110, s0004}

v10711_h: [C 08.01.a] {C 34.07, r0180, c0010, s0012} = +{C 08.01.a, r0050, c0110, s0012} + {C 08.01.a, r0060, c0110, s0012} + {C 08.01.a, r0040, c0110, s0012}

Due to different definitions in the instructions of Annex II between C34.07 and C08.01 with regard to substitution effects, this validation rules should be deactivated.

 

According to Annex II to the ITS, section 3.9.8.2, instructions on rows '0010-0170' (PD scale), the CCR Exposure in C 34.07 shall be allocated to the appropriate bucket of the fixed PD scale based on the PD estimated for each obligor assigned to this exposure class, without considering any substitution due to the existence of a guarantee or a credit derivative. In C 08.01 the exposure amounts were allocated with considering substitution effect (instructions on column 0090: Exposure assigned in the corresponding obligor grade or pool and exposure class after taking into account outflows and inflows due to CRM techniques with substitution effects on the exposure).

 

For example:

We have a derivative position in the amount of €1000 with a customer assigned to PD 0.05% in the IRB exposure class corporates-other. This derivative position is fully guaranteed by a guarantor from the IRB exposure class Institutions, PD 0.03%.

 

The figures are presented in C08.01, exposure class corporate-other, as shown below (Restricted to the columns relevant for the clarification of the example):

Column 0010 = 0.05%; Column 0020 = 1000 €; Column 0040, 0070 = -1000 €; Column 0090, 0110, 0255, 0260 = 0 €

 

The figures are presented in C08.01, exposure class institutions, as shown below (Restricted to the columns relevant for the clarification of the example):

Column 0010 = 0.03%; Column 0020 = 0 €; Column 0080, 0090, 0110 = 1000 €; Column 0255, 0260 = 153.1 €

 

The figures are presented in C34.07, exposure class corporate-other, as shown below (Restricted to the columns relevant for the clarification of the example):

Column 0010 = 1000 €; Column 0020 = 0.05%; Column 0060 = 153.1 €

 

The figures are presented in C34.07, exposure class institutions, as shown below:

All columns are empty.

 

The allocation to exposure class and PD is done in C34.07 according to the explanations in Annex II without applying substitution effects, i.e. in the exposure class and PD of the original customer. In case of the illustration above the validation rule will fail and the explanation “without considering any substitution” is not comprehensible.

In deviation from this, the allocation in C08.01, also according to the explanations in Annex II, takes place after substitution, i.e. the guaranteed portion in the exposure class and PD of the guarantor.

 

In addition, we refer to the deactivation of the validation rules v10701_h, v10705_h and v10709_h. The validation rules check the same facts (comparison of exposure value between C08.01 and C34.07) and are to be seen as a reference that also v10703_h/ v10711_h should be deactivated.

 

In addition, the following validation rules should also be checked and deactivated, since they check analog facts:

v10521_h, v10523_h, v10524_h, v10525_h, v10527_h, v10528_h, v10529_h, v10530_h, v10531_h, v10532_h, v10533_h, v10534_h, v10535_h, v10536_h, v10537_h, v10538_h, v10540_h, v10541_h, v10542_h, v10544_h, v10545_h, v10546_h, v10548_h, v10549_h, v10550_h, v10551_h, v10552_h, v10553_h, v10554_h, v10700_h, v10702_h, v10704_h, v10706_h, v10707_h, v10708_h, v10710_h, v10712_h, v10713_h, v10714_h, v10715_h, v10716_h