Single Rulebook Q&A

Question ID: 2018_4391
Legal act : Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic : Accounting and auditing
Article: 473a
Paragraph:
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Article/Paragraph : 473a
Name of institution / submitter: ECB
Country of incorporation / residence: Germany
Type of submitter: Competent authority
Subject matter : IFRS 9 Transitional Arrangements - Business Combination
Question:

There is a business combination between banks which decided to apply the static and dynamic phase in the arrangements envisaged by Article 473a CRR.

1) How should the static phase-in arrangements envisaged by Article 473a CRR apply on the consolidated basis?

2) How should the dynamic phase-in arrangements envisaged by Article 473a CRR apply on the consolidated basis?

Background on the question:

As a consequence of a business combination, a new banking group has been set up, and a control relation has been established between parent and subsidiaries.

The parent undertaking (which has not changed) and the subsidiaries had informed the competent authority in the past that they would make use of the transitional arrangements (both dynamic and static) of Article 473a CRR.

Now the group has been extended and a number of new entities (which will all be subsidiaries) will become part of the group. All these entities were also IFRS reporters in the past, the parent undertaking also on the previous consolidated basis.

Date of submission: 25/11/2018
Published as Final Q&A: 09/08/2019
EBA answer:

The static component of the transitional arrangement (Article 473a of the Regulation (EU) No. 575/2013) is based on the amounts recognised by institutions as IFRS 9 expected credit losses on “1 January 2018 or on the date of initial application of IFRS 9” and as IAS 39 impairment amounts on “31 December 2017 or the day before the initial application of IFRS 9” respectively. Given that the newly acquired subsidiaries were not part of the consolidated balance sheet of the group at either of those dates, the amount to be considered under the “static approach” would therefore not change as a result of the described business combination.

In the case of the dynamic component calculation, the amount subject to the application of transitional arrangements is calculated at the end of each reporting period by comparing the total amount of expected credit losses for non-credit impaired instruments at the reporting date with the amount as of 1 January 2018 or the date of initial application of IFRS 9 (paragraphs 3(a) and 3(b) respectively of Article 473a). In this case, from the moment that the new subsidiaries are included in the consolidated financial statements of the group, at each specific reporting date, the respective expected credit losses recognised individually by the new subsidiaries that are now part of the consolidated figures are relevant for the calculation of the amount referred to in Article 473a(3)(a).

Status: Final Q&A
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