Question ID
2019_4749
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Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)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
Type of submitter
Credit institution
Subject matter
Exposures towards QCCPs under CRR Art. 306 (2) under standardised method (C 07.00) - validation rules v0010_h, v0306_m, v0307_m, v0308_m and v0312_m
Question

"Under Article 306 (2)of the CRR, where assets posted as collateral to a CCP or a clearing member are bankruptcy remote, 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 (C07.00, 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 mentionned in the background, which is contrary to Article 306 (2) of the 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 (2): ""Not with standing paragraph 1, where assets posted as collateral to a CCP or a clearing member are bankruptcy remote in the event that the CCP, the clearing member or one or more of the other clients of the clearing member becomes insolvent, an institution may attribute an exposure value of zero to the counterparty credit risk exposures for those assets."" 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 the instructions of commission implementing regulation (EU) No 680/2014 (ITS on Reporting) for {C07.00; c010}, an asset's original exposure value pre conversion factors shall be its exposure value according to Art. 111 of regulation (EU) No. 575/2013 (CRR) without taking into account value adjustments and provisions, conversion factors and the effect of credit risk mitigation techniques. However, with regard to Art. 111 (2) of CRR a different treatment is required for derivative instruments, repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions subject to part 3 title II chapter 6 of CRR. If the instrument is categorized as one of the above mentioned, its original exposure value shall correspond to the exposure value for counterparty credit risk calculated according to the methods laid down in part 3 title II chapter 6 of CRR which includes article 306 of CRR.
In accordance with article 306 (2) of CRR, assets posted as collateral to a CCP or a clearing member which are bankruptcy remote in the event that the CCP, the clearing member or one or more of its clients become insolvent, an institution may attribute an exposure value of zero to the counterparty credit risk exposures for those assets. As a result, the original exposure reported in {C07.00; c010; r100; r120} should indeed be zero, but only for those assets that fulfill the requirements specified in art. 306 (2) of CRR. Since there might also be other trade exposures with a CCP or a clearing member that require a risk weight according to article 306 (1) of CRR the respective cells should not be greyed out in general.
Following the instructions of the ITS on Reporting, institutions should comply with the EBA validation rules v0010_h, v0306_m, v0307_m, v0308_m and v0312_m because {C07.00; r100; r120} are out of scope for all of these rules.

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

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