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
Disclose name of institution / entity:
No
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”. 

Date of submission:
18/02/2022
Published as Rejected Q&A
23/09/2022
Rationale for rejection:

This question has been rejected because the issue it raises is beyond the remit of the Q&A process and as such it cannot be addressed via a Q&A. 

The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts. The Q&A process cannot, for example, consider issues which would require changes to the regulatory framework.

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Status:
Rejected question
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