What counterparty types should be included in the Low Default Portfolio exercise?
Should Pensions / Hedge Funds / other similar investor types of counterparties be included under the scope of "LDP" portfolios and counterparties? And if so, should we report them in the “Not Applicable” or “Institutions” or “Corporate other” category? Similarly for Column 080, would we report the sector as “Other financial corporations” or “Not Applicable”?
As a general rule, only exposures covered by an institution’s approved IRB model have to be reported as part of the benchmarking exercise (see Part 1, paragraph 2 of Annex IV to Regulation (EU) 2016/2070 (ITS on Supervisory Benchmarking).
Having said that, exposures to pensions funds, hedge funds and other similar investor types are expected to be assigned in the same way as they assigned and reported for the purposes of calculating own funds requirements, i.e. usually to the exposure classes ‘exposures to institutions’ or ‘exposures to corporates’ (Article 147 (2) lit. b or c of Regulation (EU) No 575/2013 (CRR)). Consequently, they shall be included in those portfolios of template C 102.00 of Annex I to the ITS on Supervisory Benchmarking which reference these exposure classes.
However, exposures to the mentioned entities which represent ‘equity exposures’ in accordance with Article 147 (2) lit. e CRR are out of scope of the benchmarking exercise, as no portfolios capturing this kind of exposures exist.
The assignment of counterparties to sectors (column 080 of template C 102.00 of Annex I) shall be based on the instructions on c080 of template C 102.00 of Annex I of the ITS on Supervisory Benchmarking, which refer to some of the counterparty sectors, as well as a category (f) not applicable, for which the instructions in Annex V part 1 paragraph 35 of Commission Implementing Regulation (EU) 2016/1702 shall apply. Based on their nature, the mentioned type of entities would usually be characterized as ‘Other financial corporations’.
The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal. The text of the Implementing Regulation may differ from the text of the draft ITS to which this Q&A refers.
Update 26.03.2021: This Q&A has been reviewed in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking and continues to be relevant.