Question ID
2022_6380
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
33
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Credit institution
Subject matter
Treatment of "not designated elements" for the purpose of computing prudential capital requirements
Question

Our entity will apply IFRS 9 provisions regarding hedge accounting to financial reporting starting from January 2022. IFRS 9 §6.5.15 and §6.5.16 introduce a new type of other comprehensive income: when using hedge accounting, an entity may separate some elements considered as a “cost of hedging”, and recognise them in other comprehensive income as “not designated elements”. 
Commission Implementing Regulation 2021/451, in its template-related instructions (1.3 Equity §27), mentions that such elements shall be reported in a dedicated line “Hedging instruments [not designated elements]” for the purpose of FINREP. Specifically, this line is distinct from “Hedging derivatives. Cash flow hedges reserve [effective portion]”. However, cash flow hedge reserve and not designated elements are very similar elements: as an evidence, our entity will transfer amounts currently in cash flow hedge reserve to the new category “not designated elements”.

We are therefore wondering the regulatory treatment  of “not designated elements” for the purpose of computing prudential capital requirements. 
Cash flow hedges reserve shall not be included in any element of own funds (REGULATION (EU) No 575/2013 §33)


Should “not designated elements” treatment be aligned on that of the cash flow hedge reserve ? or should “not designated elements” be included in prudential own funds ?
 

Background on the question

IFRS 9 §6.5.15 and §6.5.16 introduce a new type of other comprehensive income: when using hedge accounting, an entity may separate some elements considered as a “cost of hedging”, and recognise them in other comprehensive income as “not designated elements”. 

Submission date
Rejected publishing date
Rationale for rejection

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Status
Rejected question