In accordance with the Delegated Regulation 2024/857, Article 9, paragraph 5, ‘…the prepaid amount of the fixed rate loans referred to in paragraph 1, including penalty fees on the prepaid amount that retail customers pay in the applicable scenario, shall be allocated into the appropriate time buckets of Annex I, point 1…’

In the same direction, during the consultation period related to the IRRBB regulatory requirements, EBA has received feedback from the banks on the treatment of the penalty payments. In this regard, the EBA has changed its treatment to incorporate penalty payment in the cash flow slotting (please see EBA/RTS/2022/09, section Summary of key issues and the EBA's response, p.55).

In compliance with DPM 4.2, one of the validation rules that is applied for the J07.00 Repricing cash flows (behavioural template) is v22322_m. According to this validation rule, the value populated for the notional amount must be greater than or equal to the sum of the nominal cash-flows, as follows:

{c0010} >= {c0070} + {c0080} + {c0090} + {c0100} + {c0110} + {c0120} + {c0130} + {c0140} + {c0150} + {c0160} + {c0170} + {c0180} + {c0190} + {c0200} + {c0210} + {c0220} + {c0230} + {c0240} + {c0250}

From our understanding of the regulatory requirements, the penalty fees must be slotted together with the nominal cash flows in the maturity buckets.

The allocation of penalty fees into maturity buckets together with principal payments and estimated prepayment amount will cause the sum of cash flows (i.e. principal payment + estimated prepayment amount + penalty fees) to exceed the notional amount reported in column 0010. In this situation, for the J07.00 Repricing cash flows (behavioural template), row 0050 Loans and advances, the validation rule will break.