Question ID:
2015_2116
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Supervisory reporting - Large Exposures
Article:
394
Paragraph:
1
Subparagraph:
c)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Article/Paragraph:
Annex VIII and IX
Disclose name of institution / entity:
Yes
Name of institution / submitter:
UniCredit Group
Country of incorporation / residence:
Italy
Type of submitter:
Credit institution
Subject Matter:
Consideration and representation within the LE templates in case of existing indirect exposure resulting out of credit risk mitigation (CRM) – here unfunded credit protection under a guarantee between two partners within a Group of connected clients (GCC).
Question:

In case of large exposures to a Central Government (SOV) which is part of a Group of Connected Clients (GCC) according to CRR Art. 4 para 1 (39) and reported as explained in the Q&A 2013_681 (separate aggregation of the SOV and each GCC), in which way would be a guarantee considered if the SOV is the guarantor of the entity A and they are both part of the same GCC?

We see the following options:

  1. the indirect exposure towards the SOV is reported for each Group of connected clients (e.g. GCC1 consisting of SOV and entity A and GCC2 consisting of SOV and entity B) and the direct exposure and the effect from credit risk mitigation is reported only to entity A;
    in this case there is double counting of the exposure (SOV+A) when calculating the original exposure and the exposure before CRM and exemptions of the GCC;
  2. the indirect exposure towards the SOV is reported for each Group of connected clients (e.g. GCC1 consisting of SOV and entity A and GCC2 consisting of SOV and entity B) and the direct exposure to A is omitted (being part of the same GCC): in this case there is no double counting of the exposure (only exposure to SOV);
  3. the indirect exposure towards the SOV is not reported at all while the direct exposure to A is reported (out of the existing intragroup guarantee there is no effect from CRM): in this case there is no double counting of the exposure (only direct exposure to A).
Background on the question:

When an exposure is guaranteed by another entity of the same Group of connected clients a double counting of such exposure could occur and we ask for clarification. The respective Annex IX of the ITS should be amended accordingly for clarification.

Date of submission:
08/07/2015
Published as Final Q&A:
04/08/2017
Final Answer:

Annex IX to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) says in Part II, chapter 1, paragraph 7 that institutions shall report in template LE3 (C 29.00) data regarding the exposures to individual clients belonging to the groups of connected clients, which are reported in template LE2 (C 28.00). In other words, the amount reported for a given group of connected clients (GCC) in C 28.00 is regularly the sum of all amounts reported for the individual clients belonging to that GCC in the corresponding template C 29.00.

For the given example, this leads to the result that the exposure towards entity A guaranteed by the SOV has to be reported in C 29.00 as direct exposure to A with the effect of CRM. The exposure towards the SOV has to be shown in C 29.00 as indirect exposure.
In C 28.00 for the GCC consisting of SOV and A, there has to be reported the direct exposure stemming from A, the indirect exposure stemming from the SOV and the effect of CRM stemming from A. The ‘total original exposure’ in C 28.00 is the sum of both C 29.00 for A and the SOV, the position ‘total exposure value after CRM’ (C 28.00, column 330) shows the real existing risk.

Please note that this is not a case of double counting for the purposes of the application of the large exposures limit according to Article 395 (1) of the CRR. Double counting for large exposures purposes would mean that the value of an exposure is assigned twice to the same client. This is not the case here. For the purposes of applying the large exposures limit to the client ‘SOV-A-GCC’, the value of the exposure originally granted to A and then shifted to SOV is counted only once.

In case of any additional GCC the SOV is being member of, e.g. ‘SOV-B-GCC’, the indirect exposure stemming from SOV’s guarantee (towards A) has also to be reported as indirect exposure.

Status:
Final Q&A
Answer prepared by:
Answer prepared by the EBA.
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