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List of Q&A's

FINREP – Reporting of accumulated changes in fair value due to credit risk and FINREP sign convention

What is the DPM sign convention for templates where accumulated impairment and accumulated changes in fair value due to credit risk are reported? Are all validation rules applicable?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
  • ID: 2015_2034
  • Topic: Supervisory reporting - FINREP (incl. FB&NPE)
  • Date of submission:
  • Published as final Q&A: 26/06/2015

Reporting of secured lending if an institution has no possession of the collateral

Does a loan qualify as collateralised lending if the collateral has been pledged by the debtor, but the bank can only use the collateral in the event of a default of the customer or should loans only be seen as collateralised lending if the bank is in possession of the collateral (meaning the collateral is included in the bank’s balance sheet)? What does collateralised by collateral that qualifies as a liquid asset mean? Does it mean that the bank has reported the collateral as High Quality Liquid Assets (HQLA) in the LCR, or does it mean that if the bank will call the collateral in case of a default of the debtor the bank can than report that gained collateral as HQLA?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
  • ID: 2015_1855
  • Topic: Liquidity risk
  • Date of submission:
  • Published as final Q&A: 26/06/2015

Inconsistencies in FINREP validation rules for Allowances and provisions for impaired debt instruments, defaulted guarantees and defaulted commitments (F31.01)

Validation rule v3974_s, says that in F31.01 row 130- Allowances and provisions for impaired debt instruments, defaulted guarantees and defaulted commitments [To be replaced by "Accumulated impairment, accumulated changes in fair value due to credit risk and provisions on non-performing exposures" when reporting of non-performing exposures would be final], should be reported with positive signs. Should row 130 include this rule of positive sign? We consider it should be able to report also with negative signs, for example instruments with amortised cost or FVO. v3974_s 2.0 (2013/09) Sign F 31.01 (020;030;040;050;060;070;080;090;100;110;120;130) (010;020;030;040;050)

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
  • ID: 2014_1665
  • Topic: Supervisory reporting - FINREP (incl. FB&NPE)
  • Date of submission:
  • Published as final Q&A: 26/06/2015

Exemption of deduction under transitional arrangements. Calculation of the threshold of Article 470 of Regulation (EU) No 575/2013 (CRR)

When fixing the threshold of Article 470 of Regulation (EU) No 575/2013 (CRR), must it contain the amount of the excess of deductions from Additional Tier 1 (AT1), caused by the transitional arrangements, which cannot be entirely deducted from AT1 - because this latter’s amount is not large enough in order to allow all the deductions - and which was subsequently deducted from Common Equity Tier 1 (CET1)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
  • ID: 2015_1741
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 26/06/2015

Significance of the term ‘without prejudice’ in Article 86 of Regulation (EU) No 575/2013 (CRR)

Article 86 of Regulation (EU) No 575/2013 (CRR) sets out a general principle of limitation of minority interests / external resources on Additional Tier 1 capital. This article explicitly provides that this limitation is ‘without prejudice to Article 84(5) and (6)’. Article 84 of the CRR sets a principle of limitation of minority interests in the computation of consolidated Common Equity Tier 1 (CET1) capital. However, the exception under Article 84(6) CRR allows institutions to recognise all minority interests when included in the scope of an Institutional Protection Scheme (IPS) completed with a cross-guarantee scheme. Does the term ‘without prejudice’ mean that the exception for CET1 capital provided for in Article 84(6) can be applied by analogy to the instruments of Article 86 in order to avoid a partial recognition on the Additional Tier 1 capital.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_1415
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 26/06/2015

Definition of Additional Tier 1 instruments for the purposes of Article 141 of Directive 2013/36/EU

For the application of Article 141 of Directive 2013/36/EU (CRD) regarding distribution limitations (Maximum Distributable Amount (MDA)), should Additional Tier 1 (AT1) instruments be defined as instruments that meet the conditions set out in Article 52 of Regulation (EU) No 575/2013 (CRR) or should it also include instruments that are grandfathered in the AT1 category through the application of the various grandfathering provisions? If grandfathered instruments are also included, how is this consistent with the grandfathering amortisation profile applicable to some instruments (i.e. instruments are not eligible / not eligible on an individual basis but there is simply a maximum stock of old hybrid instruments that are reported as AT1) and with the possible pusher provisions that exist in many old instruments?

  • Legal act: Directive 2013/36/EU (CRD)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_889
  • Topic: Other issues
  • Date of submission:
  • Published as final Q&A: 26/06/2015

Recognition of additional credit protection in the regulatory LGD

It is not clear whether an institution with an IRB Approach permission (Foundation Approach; PD models only) should notify the competent authorities in accordance with Article 143 if they want to recognise additional credit protection in the regulatory LGD in accordance with Article 161(1).

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 529/2014 - RTS on materiality of extensions and changes in the advanced approaches (IRB and AMA)
  • ID: 2015_1792
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 19/06/2015

Securities borrowing - early termination clause vs HQLA

In case securities borrowing contract has a clause for early termination how shall we consider the notification period vs cash outflow for the calculation of LCR? Ex: 2 days notification period for early termination of securities borrowing contract. a) Do you consider this clause as a restriction to liquidation? b) Unless the early termination clause is activated can we omit the securities borrowed from cash outflows within 30 days?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement
  • ID: 2015_1743
  • Topic: Liquidity risk
  • Date of submission:
  • Published as final Q&A: 19/06/2015

Definition for short-term letters of credit

What does short-term in this context mean? 90 days or 1 year? Residual maturity or original effective maturity?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_1757
  • Topic: Other issues
  • Date of submission:
  • Published as final Q&A: 19/06/2015

Application of volatility haircuts adjusted under Article 285(3) (extended margin period of risk)

Is the ‘use test’ set out in Article 225(3)(a)/(b) of the CRR intended to be sufficiently strong to invoke the use of haircuts adjusted under Art 285(3) in the non-model exposure calculation for a netting set containing a single SFT?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_1748
  • Topic: Market risk
  • Date of submission:
  • Published as final Q&A: 19/06/2015

When should an external rating be considered as a primary factor determining an internal rating assignment

Concerning the practical application of the RTS on materiality: When should an external rating be considered as a 'primary factor' determining an internal rating assignment, and by what measure is the relative importance of the different variables comprising an internal model for credit risk to be evaluated?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 529/2014 - RTS on materiality of extensions and changes in the advanced approaches (IRB and AMA)
  • ID: 2015_1859
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 19/06/2015

Deduction of direct holdings of CET 1 instruments of FSEs

Article 45 of CRR specifies for the direct deductions in Article 36(1)(h) and (j) that we may calculate a net-long in the same underlying if positions are in the same book and has a contractual maturity of 1 year. Q1. Could a ‘short’ Total Return Swap (TRS) that hedges the economic risk of a long underlying position be included in the net-long calculation, such that it off-sets the direct deduction? Q2. Does the settlement convention of a TRS have any impact on the regulatory treatment (either/cash or physical)? Total Return Swaps are already mentioned in the definitions of synthetic holdings in Article 15b- of the ‘EBA FINAL draft regulatory technical standards on own funds [Part 3]’, however it remains unclear if this paragraph only constitutes definitions of long positions or whether they can net out. Q3. Could EBA confirm that a short synthetic holding could be netted if it is the exact opposite position of a long synthetic holding?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions
  • ID: 2014_1658
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 19/06/2015

Reporting of Liabilities against the initial margin and default fund

As per EBA/GL/2014/03 issued on 27 June 2014, it was stated that initial margin and default fund should be classified as encumbered. We would like to know how to determine the liabilities against those and report into F32.04.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
  • ID: 2014_1653
  • Topic: Supervisory reporting - Asset Encumbrance
  • Date of submission:
  • Published as final Q&A: 19/06/2015

C 45.00 - LEVERAGE RATIO CALCULATION (LRCalc): arithmetic mean of monthly data vs. end of quarter data

According to Art. 429.2 CRR (old version), institutions shall calculate the leverage ratio as the simple arithmetic mean of the monthly leverage ratios over a quarter. This requirement is implemented in table C 45.00 in the current LR-reporting which is applicable as long as the new LR-reporting (currently under public consultation, applicable as of Q4/2015 at the earliest) is not yet in place. However, Art. 429 CRR has already been replaced by the delegated act on LR (already in place since 18 January 2015). Now, paragraph 2 of Art. 429 clearly states that “institutions shall calculate the leverage ratio at the reporting reference date” (i.e. only end-of-quarter leverage ratio). Against this background some of our reporting agents raise the question, whether they are still be obliged to submit the exposures on a monthly basis as of Q1/2015, even the new LR-templates are not yet in place.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
  • ID: 2015_1871
  • Topic: Supervisory reporting - Leverage ratio
  • Date of submission:
  • Published as final Q&A: 12/06/2015

Disclosure of the Leverage Ratio

How shall institutions disclose the Leverage Ratio as set out in Art. 451 CRR and the Delegated Regulation (EU) 2015/62, entered into force on the 18 January 2015, while there is no adopted ITS on Disclosure until now?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_1863
  • Topic: Leverage ratio
  • Date of submission:
  • Published as final Q&A: 12/06/2015

Clarification on Leverage Ratio Delegated Act Reporting

Based on article 2, the COMMISION DELEGATED REGULATION (EU) 2015/62 enters into force on the day following that of its pubblication in the "Official Journal of the European Union". The delegated act was pubblished on January 17th, 2015. We are wondering if the reporting as of March 31th, 2015 should be based on delegated act rules (2015/62) using the actual Data Point Model (ANNEX X-XI COMMISION REGULATION (EU) 2014/680) or should be based on the actual regulation 575/2013 article 429?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
  • ID: 2015_1738
  • Topic: Supervisory reporting - Leverage ratio
  • Date of submission:
  • Published as final Q&A: 12/06/2015

Maturity matching

Articles 45, 59 and 69 of Regulation (EU) No 575/2013 (CRR) each include a condition that “the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year”, in order for the short position to be recognized for the calculation of the net long position. Please confirm that maturities are deemed to match for the purposes of these provisions where the maturity of the long and the short positions occur within the same calendar quarter.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2013_253
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 12/06/2015

Reduction of CET1 by absorbing losses which are already accounted as loss brought forward

Is the prior permission of the supervisor required when an institution reduces its CET1 instruments by absorbing losses which were already accounted for as retained losses (i.e. loss brought forward)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_1815
  • Topic: Own funds
  • Date of submission:
  • Published as final Q&A: 05/06/2015

Usage of the internal model for determining the own funds requirements for the specific risk associated with traded debt positions in the advanced method for Credit Valuation Adjustment (CVA) risk

Are divergent internal models allowed for determining the own funds requirements for the specific risk associated with traded debt positions and for the credit valuation adjustment risk?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 526/2014 - RTS on proxy spread and limited smaller portfolios for CVA risk
  • ID: 2014_1686
  • Topic: Market risk
  • Date of submission:
  • Published as final Q&A: 05/06/2015

Eligible hedge of Credit Valuation Adjustment (CVA)

Please provide additional guidance on the scope of "other equivalent hedging instruments referencing the counterparty directly"

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2014_949
  • Topic: Market risk
  • Date of submission:
  • Published as final Q&A: 05/06/2015