- Question ID
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2015_1929
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Market risk
- Article
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382
- Paragraph
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4
- Subparagraph
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(b)
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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N/A
- Type of submitter
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Credit institution
- Subject matter
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Exclusion of intragroup transactions from own funds requirements for CVA risk
- Question
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Shall intragroup transactions be excluded from the own funds requirements for CVA risk on a consolidated basis when the intragroup counterparty is established in a third country?
- Background on the question
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According to Article 382(4)(b), “intragroup transactions as provided for in Article 3 of Regulation (EU) No 648/2012” shall be excluded from the own funds requirements for CVA risk.
Consider now an OTC transaction between a credit institution established in the Union and a financial counterparty that belongs to the same group, is consolidated on a full line-by-line basis and is established in a third (non-EU) country for which the Commission has not adopted an implementing act.
On the one hand, following Article 3 Paragraph 2 of Regulation (EU) No 648/2012, such transaction would not qualify as intragroup transaction and therefore shall not be excluded from the own funds requirements for CVA risk, both on a solo and consolidated basis.
On the other hand, such transaction would be offset when calculating CVA for accounting purposes on a consolidated basis and therefore would not ingenerate any CVA risk.
As a result, with relation to the transaction in question, the group would be subject to own funds requirements on a consolidated basis without being exposed to any CVA risk. - Submission date
- Final publishing date
-
- Final answer
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On a consolidated level, intragroup transactions are not considered since netted between each other as clarified in Q&A 471.
On a solo basis however, in accordance with the definition of intragroup entities of Article 3(2) of EU regulation 648/2012 (EMIR), intragroup transactions (meaning transactions with other entities of a same parent institution) with entities established in a third country are exempted of CVA charge if the Commission has adopted an implementing act under Article 13(2) of EU regulation 648/2012 in respect of that third country.
In the absence of such an implementing act, these transactions cannot be excluded from the CVA risk charge under Article 382(4)(b) of the CRR.
Example 1: Consider a group G established in the EU and two entities A and B, included in the scope of consolidation of G, where A is established in the EU and B is established in a third country. A and B have no link with each other; they are sisters with only link with G.
Where own funds requirements for CVA risk are computed at the level of G:
- Transactions between A and B do not give rise to own funds requirements for CVA risk, as they are removed as part of the consolidation process.
Where own funds requirements for CVA risk are computed at the level of A:
- Transactions between A and B:
o Do not give rise to own funds requirements for CVA risk if they qualify as intragroup transactions under Article 3 of EMIR and the Commission has adopted an implementing act under EMIR Article 13(2) in respect of the relevant third country
o Are subject to own funds requirements for CVA risk in all other cases.
Example 2: Consider a group G established in a third country and two entities A and B, included in the scope of consolidation of G, where A and B are established in the EU and B is within the scope of consolidation of A.
Where own funds requirements for CVA risk are computed at the level of A:
- Transactions between G and A and transactions between G and B:
o Do not give rise to own funds requirements for CVA risk if they qualify as intragroup transactions under Article 3 of EMIR and the Commission has adopted an implementing act under EMIR Article 13(2) in respect of the relevant third country
o Are subject to own funds requirements for CVA risk in all other cases
- Transactions between A and B do not give rise to own funds requirements for CVA risk, as they are removed as part of the consolidation process, since B is within the scope of consolidation of A.
Where own funds requirements for CVA risk are computed at the level of B:
- Transactions between B and A do not give rise to own funds requirements for CVA risk if they qualify as intragroup transactions under Article 3 of EMIR
- Transactions between B and G do not give rise to own funds requirements for CVA risk if they qualify as intragroup transactions under Article 3 of EMIR and the Commission has adopted an implementing act under EMIR Article 13(2) in respect of the relevant third country.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the EBA.
- Note to Q&A
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Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.