Question ID
2017_3175
Legal act
Directive 2013/36/EU (CRD)
Topic
Supervisory reporting - Supervisory Benchmarking
Article
78
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2016/2070 - ITS on Supervisory Reporting (for benchmarking the internal approaches) (as amended)
Article/Paragraph
Annex VI, template C 108.00
Name of institution / submitter
HSBC
Country of incorporation / residence
United Kingdom
Type of submitter
Credit institution
Subject matter
Annex VI, template C 108.00, Definition of P&L
Question

Is the definition of P&L, for template C108.00,
(i) the P&L Vector generated using historically simulated daily market price/risk factor movements; ie. the underlying daily P&L distribution used to derive VaR; or
(ii) instead, the actual P&L (adjusted for Theta, settled cash flows, etc)?

Background on the question

Template C 108.00 states that "Institutions that calculate VaR using Historical Simulation shall fill the one-year data series with the portfolio valuation change (i.e. daily P&L) produced on each business day (i.e. by comparing the end-of-day valuation on each business day reported in column 10 with the end-of-day valuation on the previous business day)."

Last year, our supervisors had specifically requested for the latter given the above wording can be interpreted as the actual P&L from MtM changes. However, the actual P&L poses the following problems:

  • it is not available for dates prior to the booking date (13 October 2017), and so, a full year's history is not available;
  • it is more suitable for backtesting, and so, does not validate the computation of the VaR on 17 February 2017 (as submitted in template C107.02), if this is the EBA's reasoning; and
  • if it is linked to backtesting, why it would be restricted to just institutions using Historical Simulation, given all institutions must perform backtesting.
Submission date
Final publishing date
Final answer

The instructions on column 0020 (“Daily P&L”) of template C 108.00 of Annex VII to  the Draft Regulation (EU) 2016/2070 ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (draft ITS on Supervisory Benchmarking) for the 2017-exercise as provided in Annex VI of that ITS foresee that:
‘Institutions that calculate VaR using Hhistorical Ssimulation shall fill the full length historic series used by the institution, with a minimum of one-year data series with the portfolio valuation change (i.e. daily P&L) produced on each business day (i.e. by comparing the end-of-day valuation on each business day reported in column 010 with the end-of-day valuation on the previous business day).
In case a day is a bank holiday in the relevant jurisdiction, this cell shall be left blank (i.e. a zero P&L shall be reported only if there really was no change in the hypothetical value of the portfolio on a given business day).
Figures shall be reported in units in the base currency of the portfolio.’

This means that only banks that are using the Historical Simulation approach shall report this column and that they have to report the one-year daily P&L series used to derive regulatory VaR results.

Disclaimer:
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.

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

Update 03.12.2021: This Q&A has been updated in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.