Question ID
2024_7058
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
325b
Paragraph
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
-
Type of submitter
Competent authority
Subject matter
Level of application of permissions for consolidated netting
Question

How should the term 'consolidated basis' be read in Article 325b CRR? Should permissions in accordance with that article be granted only to the highest EU consolidating entity or is it possible to grant these permissions also to several EU sub-consolidating entities?

If it is possible to apply this requirement also on a sub-consolidated basis, should the offsetting of the positions only refer to undertakings included in such an entity’s sub-consolidated group?

Background on the question

Article 325b of Regulation (EU) No 575/2013 (CRR) introduces the possibility to offset positions among different institutions or undertakings for the purpose of calculating net positions and own funds requirements on a consolidated basis, subject to a permission of the competent authority. It is unclear what should be considered by 'consolidated basis'. Article 4(1), point (8), CRR explains that this means on the basis of the consolidated situation. Article 4(1), point (7), CRR further explains that consolidated situation means prudential consolidation as if that institution formed, together with one or more other entities, a single institution.

However, it is unclear, whether this consolidated basis refers only to a 'EU parent institution' (Article 4(1), point (29), CRR) or also includes a 'parent institution in a Member State' (Article 4(1), point (28), CRR) or a 'parent undertaking (Article 4(1), point (15), CRR).

If this offsetting of the positions is allowed also at the level of a 'parent institution in a Member State' or a 'parent undertaking', such offsetting may be performed only for institutions belonging to that particular sub-consolidated group. It is not possible to include in such offsetting institutions belonging to the same group that are not consolidated into this sub-group (such as positions of the overall EU parent entity or positions of other institutions belonging to other EU entities that are not consolidated within this sub-group).

Submission date
Final publishing date
Final answer

In accordance with Article 4(1), point (47) and (48), of Regulation (EU) No 575/2013 (CRR), compliance with the requirements of the CRR on a consolidated basis can refer to any of the levels at which compliance with the CRR's requirements of a group of entities is required in accordance with Part One, Title II, Chapter 2, of the CRR, including

  • the compliance of the group at the level of the EU parent institution (Article 11(1) CRR),
  • the compliance of the group at the level of a parent institution in a Member State (Article 11(1) CRR),
  • the compliance of the group on a sub-consolidated basis (where applicable, e.g. Articles 11(6) or 22 CRR).

Consequently, competent authorities can grant permissions in accordance with Article 325b CRR for the purposes of the compliance with the requirements of Part Three, Title IV, of the CRR, at any of these levels.

The permission to offset positions granted for a certain (sub)group at a certain level enables only the offsetting of positions between the (specified) entities forming part of that (sub)group.

Example 1

  • X is the ultimate parent of the group
  • P, subsidiary of X, parent in Member State 1, requests the permission for its compliance with the own funds requirements for market risk
  • P has three subsidiaries A, B, C. The permission granted in accordance with Article 325b CRR covers all entities included in that P's scope of consolidation.

In example 1, offsetting would be allowed between P, A, B and C, but not between them and entity X.

The scope of a permission granted in accordance with Article 325b CRR does not have to match the scope of consolidation at which it was granted, i.e. a permission can be granted for subsets of entities, instead of all entities, included in that scope of consolidation.

Example 2

  • X is the ultimate parent of the group
  • P, subsidiary of X, parent in Member State 1, requests the permission for its compliance with the own funds requirements for market risk
  • P has three subsidiaries A, B, C. The permission granted in accordance with Article 325b CRR covers A, B, and C, but excludes P.

In example 2, offsetting would be allowed between A, B and C, but not permitted

  • between A/B/C and an entity X,
  • between A/B/C and an entity P,
  • between X and P.
Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

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