Question ID
2023_6825
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Supervisory reporting - FINREP (incl. FB&NPE)
Article
430
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
AnnexV related validation rules under DPM3.0
Type of submitter
Credit institution
Subject matter
Template F 16.01 validation rule v5693_s
Question

Is it possible to report negative income from General Government debt securities in F 16?

Background on the question

Since the entity's assets include debt securities issued by General Governments that are linked to inflation, and since positive or negative changes may happen in said inflation, these securities may present negative interest.

Those securities are covered by hedging derivatives that present positive interest. The net result of the operation (both hedged and hedging instrument) is an income. 

As the net result is an income, when reporting that interest in template F 16, we are presenting both concepts in the 'income' column (negative income corresponding to interest on debt securities in column 0010 and row 0040 and positive income corresponding to hedging derivatives in column 0010 and row 0250).

Submission date
Final publishing date
Final answer

Under FINREP framework, the negative remuneration on financial assets (remuneration proceeding from a negative effective interest rate) shall be reported as an interest expense. Conversely, positive remuneration on financial liabilities should be reported as interest income (see Annex V to Regulation (EU) 2021/451, Part 1, paragraphs 37 and 39).

In particular, referring to the example provided by the submitter, the negative remuneration on General Government debt securities and the related hedging derivatives that present positive interests shall be reported in the following line items:

-FINREP F 02.00 {r0145, c0010} (Interest expense on assets)

-FINREP F 02.00 {r0130, c0010} (Derivatives - Hedge accounting, interest rate risk).

In addition, under FINREP (see Annex V to Regulation (EU) 2021/451, Part 2, paragraph 35), in Template F 02.00, in case of financial assets covered by hedging derivatives, where the clean price is used, the amounts related to those derivatives classified in the category ‘hedge accounting’ which cover interest rate risk shall be reported as interest income and expenses on a gross basis to present correct interest income and expenses from the hedged items to which they are linked. Furthermore, with clean price, FINREP specifies that where the hedged item generates interest income (expense), those amounts shall be reported as an interest income (expense) even where it is a negative (positive) amount.

The same applies to the reporting of hedging derivatives in template F 16.01 (row 0250). Further clarification is given in QA 2014_1203.

In the example provided by the submitter, income and expense from each instrument shall be reported in template F 16.01 in the following line items:

- expenses from General Government debt securities with positive sign in row 0040, column 0020; and

- income from hedging derivatives with negative sign in row 0250 and column 0020.

In accordance with above, the VR v5693_s requires that all rows of the template F 16.01 must have positive sign, expect the row 0250 “Derivatives - Hedge accounting, interest rate risk”. Therefore, there is no need to modify VR v5693_s.

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

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