Question ID
2016_3064
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Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)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
C 07.00, column {010}, rows {100} and {120}
Type of submitter
Competent authority
Subject matter
Exposures towards QCCPs under CRR Art. 306(c) under standardised method
Question

Under Article 306(c) CRR, client transactions facing QCCPs where the institution is not liable to the client if said QCCP defaults, should have Exposure Value (C 07.00, column {200}, rows {100}, {120})of zero. Our understanding of the ITS on Supervisory Reporting is that the Original exposure pre conversion factors (C 07.00, column {010}, rows {100}, {120}) of the transactions in question should hence also be zeroed out. The institution is currently reporting the Original exposure pre conversion factors as non-zero. To avoid the blocking errors mentioned below, the institution reports the Exposure Value also as non-zero, which is contrary to Article 306(c) CRR. Could you please confirm if our understanding of the ITS is correct?

Background on the question

The below is the institution's original question:

According to CRR art. 306 c): ‘where an institution is acting as a financial intermediary between a client and a CCP and the terms of the CCP related transaction stipulate that the institution is not obligated to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, the exposure value of the transaction with the CCP that corresponds to that CCP-related transaction is equal to zero’.

Our understanding is that the initial exposure of the aforementioned transactions shall not be null whereas its respective exposure at default shall be zeroed out. On top of creating unjustified discrepancies between Initial Exposure and EAD values, the treatment does not seem to fit the Corep logics nor its structure. It is mainly due to the fact that on balance sheet exposure type, we have zero EAD facing some initial exposures on those type of transactions.

It raises the following blocking errors: v0010_h, v0306_m, v0307_m, v0308_m, v0312_m. The latter control refers to a mismatch between the EAD values by exposure type and the sum of EAD values broken down by risk weight. In order to bypass the blocking errors, we have made the decision to align the EAD values with their respective Initial Exposure amounts. As amounts involved are quite significant and because this treatment impacts a broader spectrum of reporting (Concentration Risk and STE, for example), your input is very much needed at this point.’

Submission date
Final publishing date
Final answer

According to Article 306 (1) lit. c) of Regulation (EU) No 575/2013 (CRR), the exposure value of a transaction with the CCP is zero, when the institution is acting as a financial intermediary between a client and a CCP and the terms of the CCP-related transaction state that the institution is not obligated to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults.

In line with that, this transaction with the exposure value equal to zero shall be reported also with an ‘original exposure pre conversion factors’ of zero in template C 07.00 of Annex I to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting).

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

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