Question ID
2014_1694
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Supervisory reporting - COREP (incl. IP Losses)
Article
99
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
Annex II, chapter 4.2, instructions on template C 17.00
Type of submitter
Competent authority
Subject matter
Treatment of cases spanning more than one year in Own Funds templates (Annex I - Reporting on own funds and own funds requirements) - Six month tables
Question

COREP template C 17.00 – OPERATIONAL RISK: GROSS LOSSES BY BUSINESS LINES AND EVENT TYPES IN THE LAST YEAR (OPR Details) summarises the information on the gross losses registered by an institution in the last year according to event types and business lines, based on the first accounting date of the loss.
What we would like to clarify, is the treatment of incidents that span more than one year, and consequently get recorded in the books of the institution in parts for several years. The question is whether the amount included in this table should be the incremental amount (i.e. the amount that was recorded for an incident only in the last 12 months from the report date, and which could mean positive amounts, due to possible reversals of previous provisions) or if it should be the sum of the amounts (i.e. cumulative amount) recorded for that incident over all the years, including the latest amount which was recorded in the last 12 months.

Please find here three examples illustrating the above question, for which we would like a clarification:

  1. An operational loss event (e.g. a lawsuit against the bank where the probability of a negative outcome is >50%) that was recorded (date of input) in 2009 with an initial estimated loss amount (Potential Loss) of € 300 (28/01/2009).
    • 30/11/2011
      The estimated loss amount has been increased by € 200 to € 500
      Question: 30/11/2011 and next 12 months, should they report € 200 or € 500?
    • At final Settlement (30/06/2014):
      • Case 1:
        Case closed – final settlement – The bank paid € 400 (favourable)
        Question: 30/06/2014 and next 12 months, should they report - € 100 (negative) or € 400?
      • Case 2:
        Case closed – final settlement – The bank paid € 600 (unfavourable)
        Question: 30/06/2014 and next 12 months, should they report € 100 or € 600?
  2. A fraud incident that was recorded (date on input) in 2010 with an initial loss of € 80 (25/05/2010).
    • 02/02/2011 – the loss has been increased by € 50 to € 130.
      Question: 02/02/2011 and next 12 months, should they report € 50 or € 130?
  3. Incidents that are recorded (date of input) with an initial loss amount lower than € 1000 (Lowest threshold) but their loss amount is rising above € 1000 in the subsequent years.
    Question: How should this be treated? Should the full amount of the loss appear on the first time the incident is reported?
Background on the question

There are cases where an incident is identified in one year and a loss is booked, however the case might only close in the following years and the final settlement (e.g. through court) might be different than the amount originally booked. What should be reported in the year when the case is closed? The incremental amount (which could even be a reversal of a recorded loss) or the full amount for the case?

Submission date
Final publishing date
Final answer

The approach is to record incremental amounts in order to avoid double counting and to get a picture of the institution’s losses across several years. In this regard, it needs to be noted that, according to point 129 of the Annex II of the Regulation (EU) No. 680/2014 (ITS on Supervisory Reporting) as amended by Regulation (EU) No. 2015/1278, the report submitted for the June reference date reflects the period from 1 January to 30 June; the report submitted for the year-end reference date reflects the period from 1 January to 31 December (see also Q&A 2013_285).

  1. Positive loss adjustment made during the reporting period

In line with points 124 and 125 of Annex II of the ITS on Supervisory Reporting, assuming the risk event has first been accounted for in an expired reporting period, only the increment (independent whether it concerns a realised loss or an estimated loss in the form of a provision or the like) has to be reported as part of the “total loss amount” and if applicable as the “maximum single loss” and / or as part of “the sum of the five largest losses”. The event itself does not count for the “number of events” any more.

  1. Negative loss adjustment made during the reporting period

Assuming the risk event has first been accounted for in an expired reporting period, the negative adjustment has to be deducted from the “total loss amount”. As the negative adjustment in itself is no loss, it can neither be deducted from the “maximum single loss” nor can it be part of “the sum of the five largest losses”. The event itself does not count for the “number of events” any more.

  1. Initial loss amount below threshold, exceeding threshold in later reporting period

The loss should be reported with its full amount (i.e. the initial loss plus any adjustment of the loss amount made since then until the current reporting period) for the reporting period when it first exceeds the data collection threshold. It is also for this reporting period that the event has to be counted.

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

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