In Annex II to Regulation (EU) 2021/451, paragraph 77 referring to template C 08.03, it ‘s clearly stated that the “exposures shall be allocated to an appropriate bucket of the fixed PD RANGE based on the PD estimated for each obligor assigned to this exposure class (without considering any substitution effects due to CRM)”.

However, in the illustration given in Q&A 6718, the guaranteed exposure is ventilated in the resultant exposure in contradiction with the ITS.

Considering the example of said Q&A:

"To illustrate this with an example, let us think about an institution that has only one exposure of 1000 EUR to a corporate client, to which it has assigned a 20% PD. Half of this exposure (500 EUR) is guaranteed by a central government, to which the institution has assigned a 0% PD. In this case, the following should be reported: 

1) Under the “Central governments and central banks” sheet, the exposure value post conversion factors and post CRM (column 0040) would be reported under the PD range of 0.00 to 0.15 (row 0010). The institution should report here 500 EUR due to the substitution effects since Central governments and central banks is the resultant obligor. The average PD (column 0050) would be calculated as follows: (500*0)/500=0%. "

In order to comply with the previously cited paragraph in the instructions, we expect here to be under the PD range 20 to 30 (row 0150), accordingly to their obligor.