List of Q&As

Updated: Operational Risk - Gross Losses & Rapidly recovered loss events

A credit institution recently changed the scope of the gross losses for operational risk reported in COREP. The credit institution explained that they do not automatically report some types of incidents in the ‘gross losses’ for operational risk in COREP (C17.01a) when the amount is recovered after 5 days. We refer here to transfer of cash involving e.g. a human input error whereby a cash amount is transferred for a far greater size than intended, at the wrong price, or with any number of other input errors, or to the wrong counterparty. The credit institution explained that gross losses for operational risk should be reported in COREP only if there is a P&L movement in the financial statements. Therefore, if the credit institution considers that there is a high probability to recover the amount linked to the operational risk event, even if they recover the money after more than 5 days, they will not increment any amount in the financial statements, they do not consider it as loss, and therefore they will not report the amount in the COREP ‘gross losses’ for operational risk. According to us, the competent authorities, this interpretation seems to be incorrect. Our interpretation is that the gross losses for operational risk in COREP should not be dependent on the decision of the credit institution to book losses in its financial statements for this operational risk event. Therefore, if there is an operational risk event, the amount should be reported in COREP in the ‘gross losses’ for operational risk. The only exception is if the losses are recovered within 5 days, in which case it is considered as a “rapidly recovered loss events” and can be deducted from the reported gross losses in COREp (C17.01a) Could you please clarify which interpretation is correct?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions

ID: 2020_5261 | Topic: Supervisory reporting - COREP (incl. IP Losses) | Date of submission: 15/05/2020

Leasing - Contagion du défaut aux paiements minimaux - Default contagion for minimum payments

En méthode standard, dans le cadre de contrat de crédit-bail mobilier (leasing véhicule), si plus de trois mois de loyers sont impayés, le déclassement "en défaut" doit-il s'appliquer à ces seuls loyers échus impayés ou une contagion du défaut doit-elle impérativement s'appliquer à l'ensemble des loyers prévisionnels non encore échus (paiements minimaux prévus au contrat de crédit-bail : cf. article 134-7 CRR) ? Under the standardised method, in the context of equipment leasing (vehicle lease), if more than three months of the lease are unpaid, must the default definition be applied to these due and unpaid payments of the lease only, or is it essential that a default contagion be applied to all projected lease payments which are not yet due (minimum payments provided for in the lease: see Article 134(7) CRR?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2016/07 - Guidelines on the application of the definition of default under Article 178 CRR

ID: 2020_5357 | Topic: Credit risk | Date of submission: 06/07/2020

Commitment received to upgrade collateral from Level 2B to Level 1

If a credit institution received a unilateral commitment from another credit institution to trade in 2 business days a collateral upgrade from Level 2B assets to Level 1 assets which last more than 35 business days, could this trade be considered as an inflow?

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: 2019_4971 | Topic: Liquidity risk | Date of submission: 29/10/2019

Partially collateralised loans: CCF - collateral simple method approach

How is the RWA is calculated for the undrawn amount of a partially collateralised loan?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2019_4986 | Topic: Credit risk | Date of submission: 05/11/2019

LCR treatment of settled-to-market derivatives

Should settlement payments (or receipts) made in the context of derivatives structured as "settled-to-market" (or "STM") be considered under Article 2(1) of Delegated Regulation (EU) 2017/208?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2017/208 - RTS for additional liquidity outflows corresponding to collateral needs resulting from the impact of an adverse market scenario on an institution's derivatives transactions

ID: 2019_5020 | Topic: Liquidity risk | Date of submission: 26/11/2019

Is a financial counter-incentive which is triggered in case of a default of a borrower on certain specific contractual obligations considered as an incentive to redeem?

Would a subordinated loan agreement clause, under the terms of which contractual penalties or other similar financial counter-incentives are triggered in case of a default of a borrower on certain specific contractual obligations be considered a provision, which includes an incentive for the principal amount of the subordinated loan to be repaid prior to its maturity?

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: 2020_5202 | Topic: Own funds | Date of submission: 08/04/2020

Territorial scope of the Guidelines on outsourcing arrangements in relation to supervisory cooperation requirements for credit institutions

1. Is it correct to conclude that the cooperation requirements under paragraph 63 of the Guidelines on outsourcing arrangements should be complied with in regard to EU establishments only, considering the distribution of responsibilities between competent supervisors set out in relevant EU law? 2. If a service provider is part of a third-country group but is located in an EU Member State as a separate legal entity, should it be considered outside of the scope of paragraph63 of the GLs?

Legal act: Directive 2013/36/EU (CRD)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2020_5245 | Topic: Internal governance | Date of submission: 12/05/2020

Risk weight for the credit risk of third countries with supervisory and regulatory arrangements at least equivalent to those applied in the Union according to Article 114(7) CRR

If an institution has an exposure to a third country which has supervisory and regulatory arrangements at least equivalent to those applied in the Union (such as Turkey) but do not have fully corresponding liabilities denominated in that currency to cover the entire exposure, what risk weight for the credit risk should assigned to the exposure of this country?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2020_5294 | Topic: Credit risk | Date of submission: 08/06/2020

Allocation of direct costs associated with the realisation of funded credit protection in case of partial coverage of an exposure by unfunded credit protection

Does paragraph 38(c) of the EBA/GL/2020/05 require the allocation of direct costs associated with the realisation of the funded credit protection to the part of the exposure that is covered by the funded credit protection?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2020/05 - Guidelines on credit risk mitigation for institutions applying the IRB approach with own estimates of LGDs

ID: 2021_5677 | Topic: Credit risk | Date of submission: 07/01/2021

Interpreting the definitions of "client activity" and "unexpected" in modern financial services market in the context of CRR

Are “top ups” a “client activity” as defined in Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (herein ‘CRR')? How “unexpected” should they be interpreted in the modern payments environment?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2020_5341 | Topic: Large exposures | Date of submission: 30/06/2020

Does Art. 428h (1) (c) of regulation 2019/876, amending Regulation No 575/2013, imply that the counterparty necessarily must be a bank? More specifically, would this condition also be met if the counterparty is a private limited liabilities company, which according to Regulation 575/2013 is not required to apply the NSFR?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2020_5253 | Topic: Liquidity risk | Date of submission: 13/05/2020

Requirements towards SCA if association is done based on phone call

Does the requirement to apply Strong customer authentication (SCA) under Article 24 paragraph 2 b of Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication apply when customer is served using telephone call? Or is the only possibility to associate authentication credentials with the customer not having active credentials at hand, only possible having customer present?

Legal act: Directive 2015/2366/EU (PSD2)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication

ID: 2020_5650 | Topic: Strong customer authentication and common and secure communication (incl. access) | Date of submission: 09/12/2020

Delegation of 2-Factor Authentication (2FA) to PISP, AISP or other third party

Where a Payment Service Provider (PSP) is providing financial services via a third party application - either through a Payment Initiation Services Provider (PISP), Account Information Service Provider (AISP) or by providing embedded financial products or banking as a service solutions (i.e. financial services via an Application Programming Interface (API)) - is it permitted for the PSP to delegate the application of 2-Factor Authentication (2FA) to the third party?

Legal act: Directive 2015/2366/EU (PSD2)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication

ID: 2020_5643 | Topic: Strong customer authentication and common and secure communication (incl. access) | Date of submission: 03/12/2020

Association with the payment service user by means of a remote channel

Is it sufficient to use a company level knowledge element, in combination with a peronal posession element to associate a user of a business application with personalised security credentials such as authentication software or a knowledge element?

Legal act: Directive 2015/2366/EU (PSD2)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication

ID: 2020_5626 | Topic: Strong customer authentication and common and secure communication (incl. access) | Date of submission: 18/11/2020

Clarification on level of protection required for the processing of the IBAN outside the inter-PSP environment

Can the IBAN of the payer or payee be handled in cleartext outside the inter Payment Service Provider (PSP) environment? For instance could a payer’s IBAN be contained in cleartext in a payer-presented QR-code provided by the payer’s device to the merchant’s point of interaction for the initiation of an (instant) credit transfer? Or could a merchant’s IBAN be contained in cleartext in a merchant-presented QR-code at the merchant’s point of interaction to be read by the payer’s device for the initiation of an (instant) credit transfer?

Legal act: Directive 2015/2366/EU (PSD2)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication

ID: 2020_5477 | Topic: Security measures for operational and security risks | Date of submission: 04/09/2020

Clarification on the qualification and protection requirements of a CustomerID when included in a payer-presented QR-code for the initiation of (instant) credit transfers at the point of interaction (POI)

Is the CustomerID (i.e. ID issued by an Account Servicing Payment Service Providers (ASPSP) to its Payment Services User (PSU) for accessing the on-line banking system and usually required by PSD2 Application Programming Interfaces (APIs) to identify the PSU) to be qualified as “personalised security credentials of the PSU” within the meaning and for the purposes of Article 66 (3) b), PSD2, and Article 35 (5), RTS, and therefore be treated as “sensitive payment data” within the definition of Article 4 (32), PSD2? Accordingly, can said CustomerID be included in cleartext in the payer-presented QR-code for the initiation of (instant) credit transfers at the point of interaction (e.g. POS, vending machine) without any protection during the QR-code life-cycle, including the generation of the QR-code, storage of the QR-code on the payer’s device, transmission from the payer device to the payee’s point of interaction and in the payee’s (e.g. merchant) point of interaction?

Legal act: Directive 2015/2366/EU (PSD2)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication

ID: 2020_5476 | Topic: Security measures for operational and security risks | Date of submission: 04/09/2020

Intermediaries and Merchant-ID

In the hotel industry, given that when a customer reserves a room, a payment is often not taken at this time, should an entity (intermediary, online travel agent or brand/hotel group) that collects payment details from a customer also facilitate strong customer authentication (SCA), regardless of when or by whom the actual payment transaction may be processed? If yes, should the customer be explicitly informed of the entities involved in order for their consent to be valid?

Legal act: Directive 2015/2366/EU (PSD2)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication

ID: 2019_4796 | Topic: Strong customer authentication and common and secure communication (incl. access) | Date of submission: 19/06/2019

Validity of SCA

If  Strong customer suthentication (SCA) is required at the time of booking which is more than 90 days before the guest’s arrival, will hotels be able to process the payment at location with an expired authentication token? If not, can an SCA be renewed and who would be responsible for doing so?

Legal act: Directive 2015/2366/EU (PSD2)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/389 - RTS on strong customer authentication and secure communication

ID: 2019_4795 | Topic: Strong customer authentication and common and secure communication (incl. access) | Date of submission: 19/06/2019

Application of national decisions pursuant to Article 124(2) CRR

Is it mandatory pursuant to Article 124(5) CRR for an institution in another member state to apply national decisions, which purport to be released pursuant to Article 124(2) CRR, but are not published on the EBA website under Rules and Guidance?Furthermore, if such national decisions are not published under Rules and Guidance, but e.g. under Options and national discretions only, is it mandatory that institutions from other member states apply such decision pursuant to Article 124(5) CRR?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2019_4600 | Topic: Credit risk | Date of submission: 11/03/2019

Inclusion of Held for sale in Other adjustments in template F 12.01

Where shall the changes in allowances for financial assets, which have been reclassified as held for sale prior to a disposal, be reported in FINREP template F 12.01?

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 (as amended)

ID: 2021_5840 | Topic: Supervisory reporting - FINREP (incl. FB&NPE) | Date of submission: 06/05/2021