Single Rulebook Q&A

Question ID: 2017_3509
Legal act : Regulation (EU) No 575/2013 (CRR)
Topic : Supervisory reporting
Article: 99
Article/Paragraph : Annexes I and II, C 08.02, c020, c280
COM Delegated or Implementing Acts/EBA RTS/EBA ITS/EBA GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)
Subject matter : Treatment of expected loss amounts in validation rule v4772_m

Is validation rules v4772_m correct?

Background on the question:

The validation rule v4772_m: [C 08.02 (All rows, All sheets)] {{c280}} <= {{c020}}, indicates that the Expected Loss Amount should be less than the Original Exposure.

We believe this validation will fail where the Credit Risk Mitigation Substitution Approach is used, for example where there is a guarantee. Under this approach, we could have a situation where the Original Exposure is against Counterparty A which is a Corporate but the Expected Loss Amount is against Counterparty B which is an Institution. In this situation the Expected Loss Amount would be reported in C 08.02 (006 – Exposure to Institutions). However, the Original Exposure reported in this sheet would be 0 since the Original Exposure will be reported in C 08.02 (008 – Exposure to Corporates).

Date of submission: 01/09/2017
Published as Final Q&A: 08/12/2017
EBA answer:

The expected loss amount reported in column 280 of templates C 08.01 respectively C 08.02 of Annex I to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) shall be based on the risk parameters really used in the internal rating system approved by the respective competent authority and shall take into account all forms of credit risk mitigation techniques that are eligible according to Regulation (EU) No 575/2013 (CRR) and actually applied by the institution, such as credit risk mitigation techniques with substitution effects.

In that regard, the interdependency between columns 020 (original exposure) and 280 (Expected Loss Amount) of templates C 08.01 / C 08.02 as established by validation rules v4772_m for C 08.02 and v4757_m for C 08.01 does not exist, considering that CRM techniques with substitution effect can lead to a reassignment of parts of an exposure to a different exposure class. Both validation rules will therefore be amended.

Status: Final Q&A
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