Question ID
2026_7940
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Interest Rate Risk for Banking Book (IRRBB)
Article
7
Paragraph
Article 7(c); Annex V, Section 3 – Treatment of fixed/floating rate instruments
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2016/2070 - ITS on Supervisory Reporting (for benchmarking the internal approaches) (as amended)
Article/Paragraph
Article 7(c); Annex V, Section 3 – Treatment of fixed/floating rate instruments
Type of submitter
Consultancy firm
Subject matter
Classification of spread components of floating-rate instruments for contractual repricing reports
Question

How should institutions classify the fixed spread component of a floating-rate instrument when reporting IRRBB repricing cash flows?

Article 7 of Commission Implementing Regulation (EU) 2024/857 requires institutions to allocate the spread components of floating-rate instruments "up to the final contractual maturity, irrespective of any repricing of the non-amortised principal".

However, Annex V, Section 3, states that the distinction between fixed-rate and floating-rate instruments is to be applied at instrument level. Under this definition, an instrument whose interest payments are contractually linked to an external benchmark is classified as a floating-rate instrument.

In practice, two alternative interpretations have emerged:

  1. Cash-flow level interpretation: the fixed spread component of a floating-rate instrument is treated as a fixed-rate cash flow extending until contractual maturity and therefore reported within the fixed-rate section of the repricing templates.
  2. Instrument level interpretation: the spread component remains associated with the floating-rate instrument and is therefore reported within the floating-rate section, even though Article 7(c) requires the spread cash flows to be allocated up to final maturity.

Should institutions report the spread components of floating-rate instruments in the fixed-rate section because they are allocated until final contractual maturity under Article 7(c), or should they remain in the floating-rate section because the fixed/floating classification applies at instrument level according to Annex V?

Background on the question

Article 7(c) of Commission Implementing Regulation (EU) 2024/857 requires institutions to allocate the spread components of floating-rate instruments up to the final contractual maturity, irrespective of any repricing of the non-amortised principal.

At the same time, Annex V, Section 3 defines fixed-rate and floating-rate instruments at instrument level. This creates uncertainty as to whether the spread component of a floating-rate instrument should be reported in the fixed-rate section due to its contractual treatment until maturity, or remain in the floating-rate section because the underlying instrument is classified as a floating-rate instrument.

This clarification is necessary to ensure consistent reporting across institutions.

Submission date
Rejected publishing date
Rationale for rejection

This question has been rejected because the issue it deals with is already explained or addressed in the regulatory framework, which is sufficiently clear and unambiguous.

The applicable treatment follows directly from the existing framework. Under Articles 1(5) and 5(1)(b) of Commission Delegated Regulation (EU) 2024/857, an instrument whose interest rate resets by reference to a benchmark is a floating-rate instrument and its notional repricing cashflows are treated under Article 7.

Article 7(c) expressly covers spread components pursuant to Article 5(2). Consistently, the J 05.00 reporting instructions assign estimates relating to floating rate instruments to columns 0260-0390. A contractually fixed spread therefore does not reclassify the instrument as fixed-rate.

Status
Rejected question