Response to consultation on supervisory reporting changes related to CRR2 and Backstop Regulation (Framework 3.0)

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NPL backstop

NPL backstop
We do not envisage any challenges regarding the mentioned template.
Yes.
No.
Yes.

Credit risk

Credit risk
Yes.
Yes.
No.
Yes.

Counterparty credit risk

Counterparty credit risk
Page 13, point 44. of the CP:
Changes such as additional information on LGD scales, supervisory add-ons and internal rating systems will be implemented in the next reporting framework v3.1. -> According to the EBA, some changes/additional information are deemed as critical in supervisory reporting in this respect. As the banks are forced to heavily invest due to EBA v3.0 it would have been more efficient to ensure that all changes in this respect are included in v3.0 and not gradually released which forces the banks to extend the project durations and hence costs.

In most of the legal contracts Initial Margin must be segregated. Nevertheless, there are some exceptions and we would therefore recommend splitting both - variation and initial margin - into a segregated and an unsegregated part.
According to the Consultation Paper on the ITS on Supervisory Reporting (EBA CP 2019/10) the template C 34.01 (size of the derivative business) has been included in the ITS to allow supervi-sors to monitor whether institutions meet the predefined eligibility criteria to apply the more simplified standard methods/approaches. This template should therefore, not be considered mandatory to report, unless institutions want to apply the simplified SA-CCR.

To keep it simple we would propose to use the overall size of the derivative business.
Definitely, but also for banks with larger derivative portfolios the frequency for breakdowns and details (34.5, 34.6, 34.7, 34.8) should be increased only in a second phase in order to allow banks to fully automatize these reporting details.
Templates for supervisory reporting and disclosure are more harmonized but full harmonization was not achieved. From an implementation perspective it would help if the templates relevant for both reports are 100% harmonized.

Yes.
No.
Yes, but as mentioned above the quarterly reporting frequency for details (34.5, 34.6, 34.7, 34.8) should not come into force from the beginning to give banks more time to implement the new requirements.

Leverage ratio

Leverage ratio
Page 15, point 56. of the CP:
Clearer definition and specification of promotional loans is needed as it is currently ambiguous to some extent.

Art. 15, para 4 of the draft ITS:
Can a bank voluntarily report all information, irrespective of being below or above the thresholds mentioned in the paragraph?

Leverage Ratio “Window-Dressing”
Under the draft ITS, the new templates C 48.01 and C 48.02 request large institutions (on solo and consolidated level) to report averages of SFTs over the reporting period and daily values of SFTs (for every business day!) used by the institution to calculation those averages.
• This new reporting requirement is unduly burdensome and cost incentive (with system and resources constraints) and not proportionate to the presumed “window dressing” allegation (without concrete evidence);
• The simplicity of the leverage ratio (as a simple non-risk-based backstop) tends to disappear;
• Daily values are in general not under the same level of scrutiny as the quarterly values (check and controls). Vast adaptation would be necessary to provide the required quality of data for reporting purposes;
• This new requirement is contrary to other EBA initiatives (e.g. cost-benefit-assessment and cost reduction) for small and non-complex institutions, such as Savings Banks within our IPS that do not have SFT business or only small portfolios;
• Overlaps or redundancy in relation to the reporting requirements due to the Securities Fi-nancing Transactions Regulation (SFTR) developed by ESMA, which is applicable from April 2020. For both reporting requirements, two different IT reporting solutions are required, each having a significant cost factor. In order to avoid double reporting, it is feasible for the competent authori-ties and the EBA to align with ESMA on sharing the required information.

Alternatives:
• As of April 2020, the SFTR requires all counterparties to SFTs to report the details of any SFT they have concluded, as well as any modification or termination thereof. This transaction-based reporting requirement developed by ESMA will provide transparency regarding SFTs around re-porting reference dates. Therefore, in order to avoid double reporting, ESMA shall share the in-formation collected according to the SFTR reporting with the competent authorities and the EBA;
• Alternatively, the reporting of daily values of SFTs (as LR component) should only be required after a careful analysis of the SFTR reporting data and based on reasonable and provable concerns that window dressing has been practiced. This would require a reasonable extension of the implementation period (given other complex regulatory projects).

In order to evaluate these structures we would require more specific details and examples.
In order to evaluate these structures we would require more specific details and examples.
Savings and retail banks typically don’t have significant trading portfolios, which could be strongly volatile in transaction volumes. In this context, this new reporting requirement is unduly burden-some and cost incentive (with system and resources constraints) and not at all proportionate to the presumed window dressing allegation without concrete evidence. Also, the simplicity of the leverage ratio as a simple non-risk-based backstop tends to disappear.
Furthermore, this new requirement is in direct contradiction with other EBA mandates (such as the cost-benefit-assessment) for small and non-complex institutions, as many savings banks with-in a group or IPS are indirectly affected.
In addition, we would like to point out that ESMA has introduced a transaction based reporting for SFTs, where detailed information on many attributes (such as type, date, amount and rate) of SFT must be reported. Based on the information received, competent authorities and the EBA should be able to investigate whether an institution may be involved in window dressing related activities. If this data shows a strong indication of activities related to window dressing, ESMA may for-ward the information to other authorities (such as the competent authorities or the EBA) for further investigation.
Yes.
In this context, it is unclear whether these amendments would be only applicable for leverage ratio reporting or as well for other COREP reports. We recommend following a harmonised approach for all COREP reports and not only for the leverage ratio report.
We require further clarification if adjustments for SFT sales accounting transactions are only applicable for reverse repo transactions. If not, please provide examples for other sales accounting adjustments.
No.
Yes.

Large Exposures

Large Exposures
Article 14, para 4. of the draft ITS:
Further clarifications on the definition of Shadow Banking entities would be welcomed.

Most of the relevant RTS for the new large exposure framework are still under development. Therefore, we have currently no clear picture of the impact of the proposed instructions and templates. In this context, the EBA should provide the institutions with sufficient time for imple-mentation by publishing the relevant RTS and ITS on time.

Furthermore, in respect of column 10 of template C 27.00, we believe that the mixed-use of LEI and national codes should be avoided, as many counterparties do not have an LEI code available.
No.
Yes.

NSFR

NSFR
Reporting positions 80. RSF 0940 1.7.2 and ASF 81 0320 2.7:
What is the intention of the asymmetrical treatment of “NSFR derivative assets” and “ASF from net derivatives liabilities”, the first having 100% weight and the latter 0% weight?

Reporting position 80. RSF 0930 1.7.1.:
What is the intention for adding a 5% RSF to “required stable funding for derivative liabilities”?


Yes, we agree with the proposed approach.

Further clarification is needed in Paragraph 4 of Article 428d in the CRR2 “net basis across currencies”; what is currencies referring to?

In addition, we would like to point out that another approach would be to align with LCR DA (Corrigendum).
For informative purposes yes, but the template cannot be effectively populated as further development would be required.
Yes.
No.
Yes.

FINREP

FINREP
Yes. In our opinion, this separate presentation improves the consistency between POCIs presentation and measurement within the FINREP reporting package. Especially considering that the measurement of POCIs differs from the measurement of financial assets in Stage 2 or Stage 3, irrespective of whether they are still credit-impaired or not anymore at the current reporting date. Additionally, this separate presentation improves the consistency between POCIs presentation in the FINREP reporting package and in the IFRS financial statements of the reporting entity.

At the same time, please consider the adequacy of potentially inserting a separate POCI-dedicated linear section also within the off-balance section of the template F12.01 (“Total provisions on commitments and financial guarantees given”). While admitting that IFRS 9 introduces the POCI concept only as an attribute of “financial assets” (hence: of on-balance exposures), we nevertheless believe that, when financial instruments are deemed credit-impaired upon their initial recognition, it can be that some or even all of the related credit risk exposure is not yet on-balance (that is: disbursed) already at that date. Hence, in our view, it could make sense that the requirement of presenting the POCIs outside the three stages in the template FIN 12.01 is extended to also cover the off-balance section of this template. Alternatively, it would be useful to clarify in which of the existing rows (Stage 2 or Stage 3) the movements in the credit loss allowances recognized in respect of such off-balance components shall be reported, potentially depending on whether the related customer is still in default or not anymore at the reporting date
Not fully. As per our understanding of the related draft instructions (Annex V.215), the entity shall report as “non-performing” the POCIs that are still “credit-impaired” (as defined in Appendix A of IFRS 9) at the current reporting date. Also, the entity shall report as “performing” the POCIs that are no longer “credit-impaired” at the current reporting date, provided that all the conditions set out in the Article 47a (4) or (6) of the CRR (as amended by the EU Regulation 2019/630/17.04.2019) are also met at that date. If this understanding is correct, it is not fully clear to us under which category (“non-performing” or “performing”) the entities shall report the POCIs that both (i) are assessed as no longer “credit-impaired” at the current reporting date and (ii) don’t meet all the conditions set out in Article 47a (4) or (6) of the CRR. For instance, POCI assets that are no longer rated “defaulted” at the current reporting date but the obligor still has some amount - lower than the materiality threshold internally set for triggering the 90 DPD default criterion - past due by more than 90 days and having fallen overdue after the date on which forbearance measures were granted. Or, less than one year has passed since the date on which the forbearance measures were granted or the date on which the exposure was classified as non-performing, whichever is later. Alternatively, it may not be necessary to distinguish whether the POCIs are credit-impaired at the current date: in accordance with IFRS 9, the credit-impaired status is relevant at initial recognition of POCI only and subsequently no further tracked. Therefore, from an IFRS perspective, this criterion seems to be redundant. As a result, it may be sufficient to distinguish “non-performing” and “performing” POCIs only based on the regulatory criteria in CCR.

As already hinted in the last part of the answer above, we believe that it might be an unnecessary complication to mix the terms “credit-impaired” and “non-performing” for distinguishing between the two POCI sub-populations to be reported in F18, having also in mind that the new regulation harmonizes the definitions of “non-performing” and respectively “default”.
No particular challenges are foreseen in addressing this new requirement, except for the possible technical difficulties in fully capturing the related credit loss allowance movements given the poten-tially very short contractual maturity (hence: the potentially very intensive turnover) of such expo-sures within any given current reporting period.

For the same reason, it could be that the figures reported in the columns “Increases due to origina-tion” and “Decreases due to de-recognition” end up unnecessarily inflated (without any other movements being reported), e.g. in respect of overnight deposits with central banks and other credit institutions, which could be originated and de-recognized on a daily basis and in large vol-umes. One possibility to avoid such an overstatement could be to request entities to derive the net difference between reporting period’s opening and closing related credit loss allowance balances (separately per each stage), then report it either in the column “Increases due to origination” (if ad-verse) or in the column “Decreases due to de-recognition” (if favourable). Such an approach would also reflect a reasonable expectation that the credit risk associated to such exposures (against cen-tral banks and other credit institutions) is unlikely to change significantly in between the date of origination and the date of de-recognition (contractual maturity).

Otherwise, we believe that, indeed, by including cash balances at central banks and other demand deposits into the scope of the template F12.01, increased consistency and cross-checking possibili-ties will be achieved in between, on the one hand, F12.01 and F12.02 and, on the other hand, F18 and F19. In the same time, strictly from a F12.01 perspective, the additional informative value will be rather limited, given that all or most of such exposures are typically allocated to Stage 1 and the re-lated credit loss allowances are very small (relative to the underlying exposures).
At the first sight, one might observe some inconsistency arising from the fact that “cash balances at central banks and other demand deposits” are newly included as a separate linear category in F12.01 (distinctly for each Stage except the newly introduced POCI “stage”), but not in F12.02. One could argue that this inconsistency is justified by not expecting such exposures to change Stage through-out their contractual life, within any given reporting period. However, this argument seems some-how undermined by the updated F12.01 separately collecting the movements in the related credit loss allowances for each Stage (except POCI).

Also, one can observe that, while proposed to be considered in F12.01, cash balances at central banks and other demand deposits would continue to stay outside the scope of F4.3.1/F4.4.1. It means that, inevitably, closing balances of credit loss allowances reported in the former will not rec-oncile against the accumulated impairments reported in the latter.
We see one potential challenge resulting from the fact that, for the purpose of addressing FIN 12.02, for the reporting entity it is currently sufficient to collect the stage information of the relevant exposures at the two ends of the reporting period, irrespective of how they might have further changed their stage in between. But this new requirement would imply that the stage information would need to be collected and stored continuously throughout the reporting period, so that the “direct” transfers in between the Stages 1 and 3 are distinguished from the “indirect” ones (i.e. those involving a transit through Stage 2).
Additionally, please clarify whether the more particular cases, e.g. the ones described below, would fall in the scope of the would-be newly inserted columns dedicated to direct transfers in between the Stages 1 and 3:

• An exposure is transferred as follows during the reporting period: Stage1->Strage3->Stage2->Stage3. Would this exposure fall in the scope of the sub-column “Direct transfer to Stage3 from Stage1”?

• An exposure is transferred as follows during the reporting period: Stage3->Stage2->Stage3->Stage1. Would this exposure fall in the scope of the sub-column “Direct transfer to Stage1 from Stage3”?

Furthermore, we are of the opinion that the terms “direct transfer” or “without any intermediate passage” can take different meanings (and hence result in different outcomes) depending on the frequency of the impairment assessment process in the reporting entity. For instance, if a SICR (Stage 2) trigger and a credit-impairment (Stage 3) trigger occur both within the same month, the related deal would not be deemed a “direct transfer to Stage 3 from Stage 1” by an entity having a daily frequency of the impairment assessment process, but it would be deemed a “direct transfer to Stage 3 from Stage 1” by an entity having a monthly frequency of the impairment assessment process. This further means that a group including entities with different frequency set-ups of the impairment assessment process would inevitably report inconsistent consolidated figures in these newly proposed columns of FIN 12.02, given that deals behaving identically in respect of credit risk dynamics (and maybe even having the same counterpart) would be reported in different sections of the table, which might result into a misleading overview of inter-stage consolidated exposure transfers in the reporting period.

Other amendments

Other amendments
Since a complete harmonised code instruction is not feasible, due to the fact that not every enti-ty can be identified via LEI code, a mixture of LEI and other codes cannot be the ideal solution.

On the one hand, we welcome the idea of integrating supervisory reporting and disclosure, which ensures coherence between the two requirements, including the standardisation of for-mats and definitions. On the other hand, the integration with the disclosure requirements is not required by the CRR2 but is solely based on a “strategic decision” by the EBA itself. Therefore, we call on the EBA to at least limit the proposed integration to those reporting templates that are already existing and due to be amended under the CRR2 and not to introduce additional templates beyond the new CRR2 requirements at the same time.

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