According to Article 318(1) CRR, institutions shall develop policies and criteria for mapping the relevant indicator for activities into the framework set out in Article 317. The relevant indicator is defined in Article 316 CRR as the aggregation of seven P/L account items with its positive or negative sign.

Frequently, the network branch carries out diverse banking activities in a supportive manner to lending and/or taking deposits from retail customers though and there is no separate P/L account that registers the specific income and expenses of the said activities. That is to say, the incomes and expenses arising from these activities will be mixed with the corresponding items of lending/taking deposits and other ancillary activities in the internal management P/L account of the so-called network branch “retail banking” area.

Some items of this network branch “retail banking” area P/L (some fees, net income from certain derivatives…) might be mapped into business lines other than Retail Banking (e.g. some fees into “retail brokerage”, “asset management”, etc.), but the relevant indicator for these ancillaries activities cannot be calculated because other incomes and expenses linked to the activity are unknown (e.g. the fraction of the net interest of the clients’ accounts and of fees paid to counterparties, exchange differences in the activity, if it is developed in several currencies etc).

For the sake of clarity, we are considering the mapping of activities for which it is not possible to calculate the relevant indicator in a non-arbitrary way and, consequently, the ancillary activity´s relevant indicator cannot be readily mapped following Article 317(2).

Then, we understand that, following Article 318(2)(b) the activity shall be allocated to the activity it supports (lending/taking deposits) and the relevant indicator calculated from the P/L account of the network branch “retail banking” area mapped into the “retail banking” business line.

Therefore (as in the guideline of the Basel II accord), the relevant indicator of retail banking business line “will consist of net interest income on loans and advances to retail customers and SMEs treated as retail, plus fees related to traditional retail activities, and net income from other swaps and derivatives held to hedge the retail banking book, and income on purchased retail receivables”.

In contrast, sometimes the activity (e.g. “placing of financial instruments without a firm commitment basis”) is carried out by a separate organizational unit for which, even if it is not a different legal entity, internal financial statements are elaborated for management purposes and consequently the relevant indicator could be calculated from the management P/L account.

We understand that to calculate the relevant indicator for the purposes of Articles 317 and 318 CRR it is not a requisite that the P/L account be the one of a legal entity, i. e. internal accounting information is also appropriate, especially if it is used in the management of the unit. Consequently, the calculation of the relevant indicator is feasible and it shall be mapped in the appropriate business line according the Article 317 framework (“retail brokerage” in the example).