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Standard Chartered Bank

The Group recommends the use of a definition of geographic location that aligns with that already proposed under Common Reporting (COREP) for the 'country of residence of the ultimate obligor', as this will ensure consistency of credit risk reporting to the EBA and reduce the reporting burden for institutions associated with the calculation of the countercyclical capital buffer (CCB) requirement. We would also welcome further guidance from the EBA on the proposed mechanism that will be
employed within the EU for the collection and dissemination of the CCB rates for each of the member states and that of third countries.
The Group agrees with the use of the obligor principle for identifying the geographic location of the majority of its credit risk exposures which aligns with the Group's approach to credit risk management. The use of country of incorporation of the obligor also aligns with credit risk reporting requirements. However, consideration should also be given to the location of the guarantor or collateral provider where significant collateral or guarantors reside in a different geographic location to that of the original
obligor. The requirements under COREP for the reporting of the geographic location of credit risk exposures (CR GB) specifies the use of the 'residence of the obligor' but also requires that consideration is given to the effects of credit risk mitigation (CRM) when reporting the 'country of residence of the ultimate obligor'. In other words, both the 'residence of the obligor' and the 'country of residence of the ultimate obligor' is reported under COREP, however, the calculation of the CCB necessitates only one
approach to be used. We, therefore, recommend that the EBA align the principle for identifying the geographic location of credit risk exposures for the purpose of the CCB with that of the 'country of residence of the ultimate obligor' in order to recognise the effects of CRM and provide consistency of reporting to the EBA with the credit risk capital requirement.
The Group considers it more appropriate to assess the country of obligor on the basis that it is independent of the product provided. If the EBA aligns to the general principle for identifying the geographic location of credit risk exposures with that proposed under COREP as the 'country of residence of the ultimate obligor', there should be no need to consider exceptions, such as specialised lending. Identifying exceptions for products like specialised lending would require institutions to enhance their regulatory reporting infrastructure to capture the data points required in order to determine the country of income for specialised lending exposures, therefore, increasing the costs associated with the EBA's proposed methodology for this asset class. We, therefore, would not support the proposal for specialised lending for both of the above reasons.
Yes, the Group considers in the majority of cases that the primary source of repayment of residential and commercial mortgages is the original obligor, regardless of the collateral and guarantees in place. However, as mentioned above, the guarantor principle in recognising the CRM aligns itself most closely with the COREP calculation of credit risk capital requirement, including circumstances where the bank considers the creditworthiness of the guarantor or collateral provider to be worse than that of
the original obligor. In these cases we would not look to the guarantor or collateral provider as the source of repayment. As per our response to Q2 above, the Group considers it more appropriate to assess the country of obligor on a basis that is independent of the product provided. As already recommended, the EBA
should adopt a general principle for determining the location of credit risk exposures that aligns with the proposals under COREP, and we recommend that this should be on the basis of 'country of residence of the ultimate obligor'.
Given the markets in which the Group operates, the threshold level is such that we do not expect to benefit from these proposals and are, therefore, not expecting any reduction in our reporting burden. We would, however, expect to assess the threshold level at each reporting period and would welcome further guidance from the EBA on the re-calculation frequency.
We agree with the proposed approach as this would ensure consistency in the application of the requirements across institutions. However, institutions may have separate reporting processes and systems associated with their assessment of own funds requirements for credit and market risks, therefore, a requirement to assess these risks side-by-side for the purposes of the CCB could increase the costs of reporting.
The Group agrees that a threshold test for the inclusion of trading book exposures provides an opportunity for institutions to reduce the reporting burden for immaterial trading book portfolios. It also reduces the reporting burden for those institutions that have approval from their competent authorities for the use of internal models for specific risks and an immaterial trading book portfolio.
For securitisation instruments originated by the Group, we would not support the principle of a look-through approach to determine the geographic location of the underlying obligors for programmes, where we have been able to demonstrate to the satisfaction of the competent authority that the structure passes the significant risk transfer test. In these cases the ultimate risk for the Group no longer lies with the underlying obligors. This would also apply to re-securitisation exposures if originated by institutions.
For securitisation instruments purchased, where the Group increases its credit risk, the EBA's proposal would provide a consistent and relatively straight-forward approach in determining the geographic location of exposures and, therefore, we would support the proposal. A look-through approach for the purposes of CIU exposures should only be used at the discretion of the reporting institution, given that Article 132 of the Capital Requirements Regulation (CRR) permits institutions to look-through a CIU to the underlying exposures for the purposes of calculating its own funds requirements for credit risk where the information is available. We would, therefore, not support
the proposal to require the use of a look-through approach for CIU exposures but rather propose that the EBA align the requirement to look-through to underlying exposures as with Article 132 of CRR.
As stated in our response to 07 above, for securitisation instruments originated by the Group, we would not support the principle of a look-through approach, to determine the geographic location of the underlying obligors for programmes, where the Group has been able to demonstrate, to the satisfaction of the competent authority, that the structure passes the significant risk transfer test. In these cases the ultimate risk for the Group no longer lies with the underlying obligors. This would also apply to re-securitisation exposures if originated by institutions. For asset-backed securities purchased by the Group, it would be acceptable to use the geographic location associated with the majority of the obligors, on a weighted-average basis. For those securitisations backed by obligations relating to movable assets, there could be difficulty in
determining the geographic location. However, for such movable assets associated with lease obligations we would normally look to the country of incorporation of the relevant counterparties.
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Marc Berryman
S