In COREP C 17.00, is there a definition of which losses have to be reported related to usury and compound interest? Our bank also includes losses here that are linked to credit risk (to be more specific: fraud linked to credit risk). Although fraud is indeed covered by COREP C 17.00, we understand the underlying rules of COREP C 17.00 to be "operational losses only". However, we are unsure what the correct interpretation of "operational losses" is here. For the determination of capital requirements, should these credit-risk related fraud losses be captured within the operational risk (so COREP C 17.00) or within the credit risk?
With reference to the operational losses deriving from compound interest and the application of usury rates, as from this year the Bank has decided to report the compensation element only (external legal expenses incurred and any part of additional charges connected to the recognition of a client’s “legal” rights) and not the reimbursement element (the part related to compound interest unduly applied).
According to Art. 322 (3) lit. b of Regulation (EU) No 575/2013 (CRR), losses which are caused by an operational risk event but are credit risk as well, should not be included into the data set to determine the own funds requirement for operational risk “provided that the institution is required to continue to treat them as credit risk for the purposes of calculating own funds requirements”. As clarified by Q&A 2014_1233, these credit risk related losses shall be excluded from template C 17.00 of Annex I of Regulation (EU) No 680/2014 (ITS on Supervisory Reporting).
Nevertheless there are boundary loss events or elements of boundary loss events that are not included into the calculation of own funds requirements for credit risk. These cases remain within the scope of the operational risk data set, both with regard to reporting in template C 17.00 and calculation of own funds requirements.
Losses in relation to cases of identity theft and third person fraud, are not always considered as losses relevant for the calculation of own funds requirements for credit risk. Consequently, if they are not included in the calculation of own funds requirements for credit risk, these losses have to be reported in template C 17.00.
Reimbursements of usury and compound interest do not impact the calculation of own funds requirements for credit risk. They are considered as timing losses from an operational risk perspective (see Article 28 (1) lit f of the draft RTS on the specification of the assessment methodology under which competent authorities permit institutions to use Advanced Measurement Approaches (AMA) for operational risk (RTS)). In line with the provisions of the RTS, such reimbursements have to be included into template C 17.00 and the calculation of own funds requirements according to the AMA, where they span more than one financial accounting year and give rise to legal risk.
The guidance provided above shall also apply to institutions using approaches other than advanced measurement approach for the calculation of own funds requirements for operational risk and being obliged to report template C 17.00 in accordance with Article 5 (b) (2) (b) of the ITS on Supervisory Reporting, even though Article 322 (3) lit. b CRR and the other legal provisions cited above are not directly applicable to them.