Response to consultation on draft ITS amending Regulation (EU) 2021/453 with regard to the specific reporting requirements for market risk

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a) Did you identify any issues regarding the implementation and use of the offsetting group-concept of Article 325b CRR in the context of these ITS?

The offsetting group concept increases the operational burden associated with the reporting of market risk figures without making any meaningful contribution to the overall quality of delivered information. From a market risk perspective, an exposure generates market risks irrespective of the location at which it is booked. While the instructions on reporting by offsetting group are sufficiently detailed, it is not clear what additional information will a user of these reports be able to deduce from the additional level of granularity in the report. At the same time, the concept requires additional dimensions of reporting and quality assurance. To reduce operational burden we would welcome the introduction of a materiality threshold for the reporting on offsetting group level. E.g. if the standalone market risk RWAs of an offsetting group are less than the 10% of the total RWAs for the entire group, the requirement to report on the level of the respective offsetting group should be waived.

b) Are instructions regarding the reporting by offsetting group clear? If you identify any issues, please include suggestions how to rectify them.

The offsetting group concept increases the operational burden associated with the reporting of market risk figures without making any meaningful contribution to the overall quality of delivered information. From a market risk perspective, an exposure generates market risks irrespective of the location at which it is booked. While the instructions on reporting by offsetting group are sufficiently detailed, it is not clear what additional information will a user of these reports be able to deduce from the additional level of granularity in the report. At the same time, the concept requires additional dimensions of reporting and quality assurance. To reduce operational burden we would welcome the introduction of a materiality threshold for the reporting on offsetting group level. E.g. if the standalone market risk RWAs of an offsetting group are less than the 10% of the total RWAs for the entire group, the requirement to report on the level of the respective offsetting group should be waived.

Is it clear how positions in CIUs are to be reflected in the three template groups (SBM, RRAO, DRC) of the A-SA templates? If you identify any issues, please suggest how to clarify their treatment in the templates and/or instructions.

Yes, it is sufficiently clear.

a) Did you identify any issues regarding the representation of A-SA (policy) framework in the reporting templates?

The structure of the templates and the required breakdown of information is overly complex and will represent a formidable challenge to implement and maintain. The issue is further exacerbated by the requirement to report on offsetting group level. The level of complexity could be a discouraging factor for smaller institutions to opt in to use the A-SA approach and motivate them to stay with the SSA. In turn this makes the rollout of a group wide reporting solution based on A-SA cumbersome.

clear? If you identify any issues, please clearly specify the affected templates and instructions and include suggestions how to rectify the issues.

The structure of the templates and the required breakdown of information is overly complex and will represent a formidable challenge to implement and maintain. The issue is further exacerbated by the requirement to report on offsetting group level. The level of complexity could be a discouraging factor for smaller institutions to opt in to use the A-SA approach and motivate them to stay with the SSA. In turn this makes the rollout of a group wide reporting solution based on A-SA cumbersome.

a) Did you identify any issues regarding the representation of the prudential framework for reclassifications and the associated own funds requirement in the reporting template?

Some members worry that the perimeter of application of the template is not very clear and might lead to unnecessary reporting requirements. Therefore ESBG has submitted to the European Commission a request to provide clear and explicit definitions of “risk transfer” and “trading/banking book reclassification" in the CRR. We take the opportunity of this consultation to urge that this change could be done in the context of the ongoing negotiations on the Banking Package and that the EBA supports it.

Please find below a suggested proposal for the above-mentioned definitions:

- Trading/banking reclassification: any transfer of non-own issued se-curities between the trading book and the banking book, including outright transactions performed at market prices, should be consid-ered a reclassification for the purposes of the CRR.

- Risk transfer: any transaction involving derivative instruments used to shift economic risks or funding transaction between the trading book and the banking book or between different desks within the trading book.

Additionally, we note there is no materiality threshold foreseen in the reporting requirement. This in combination with the requirement to provide comments manually, recalculate RWA impact, etc., will lead to disproportionate implementation and maintenance efforts under certain business models. We would therefore highly appreciate:
- Introducing a materiality threshold for reporting/obtaining regulatory permission to reclassify a transaction. Since a transaction contributes to RWAs regardless of the banking/trading book booking logic, the requirements of this ITS are only meaningful if the impact from the reclassification is sufficiently large. We propose the introduction of a materiality threshold based on notional of the transaction to be reclassified, e.g. 1% of total RWAs or similar.
To the extent that under the current proposal all reclassifications must be approved by the competent authorities in advance and subsequently disclosed, it is questionable what the added value of this template actually is. The same information will already have to be made to the competent authorities for obtaining the approval,

The reporting template itself is clear, however it will be beneficial to have standardized options to provide “Reason for the reclassification”.

b) Are the scope of application of the reporting requirement, the scope of transactions to be reported in the template, the template itself and the instructions clear? If you identify any issues, please include suggestions how to rectify them.

Some members worry that the perimeter of application of the template is not very clear and might lead to unnecessary reporting requirements. Therefore ESBG has submitted to the European Commission a request to provide clear and explicit definitions of “risk transfer” and “trading/banking book reclassification" in the CRR. We take the opportunity of this consultation to urge that this change could be done in the context of the ongoing negotiations on the Banking Package and that the EBA supports it.

Please find below a suggested proposal for the above-mentioned definitions:

- Trading/banking reclassification: any transfer of non-own issued se-curities between the trading book and the banking book, including outright transactions performed at market prices, should be consid-ered a reclassification for the purposes of the CRR.

- Risk transfer: any transaction involving derivative instruments used to shift economic risks or funding transaction between the trading book and the banking book or between different desks within the trading book.

Additionally, we note there is no materiality threshold foreseen in the reporting requirement. This in combination with the requirement to provide comments manually, recalculate RWA impact, etc., will lead to disproportionate implementation and maintenance efforts under certain business models. We would therefore highly appreciate:
- Introducing a materiality threshold for reporting/obtaining regulatory permission to reclassify a transaction. Since a transaction contributes to RWAs regardless of the banking/trading book booking logic, the requirements of this ITS are only meaningful if the impact from the reclassification is sufficiently large. We propose the introduction of a materiality threshold based on notional of the transaction to be reclassified, e.g. 1% of total RWAs or similar.
To the extent that under the current proposal all reclassifications must be approved by the competent authorities in advance and subsequently disclosed, it is questionable what the added value of this template actually is. The same information will already have to be made to the competent authorities for obtaining the approval,

The reporting template itself is clear, however it will be beneficial to have standardized options to provide “Reason for the reclassification”.

Which breakdowns do you monitor internally, and are there any constraints regarding the use of certain metrics for certain breakdowns?

In general, we see limited added value in providing quantitative data on the split between trading and banking book. The boundary between the trading and banking book is based on qualitative criteria along the elements of the boundary framework. Therefore, a quantitative breakdown on instrument type is not seen as particularly meaningful since most instruments can be classified in both books. In addition, regardless of the classification, positions have to be capitalized properly and according to the respective RWA treatment in either book. In that sense, a quantitative disclosure on the trading/banking book boundary based on notionals or market values carry limited additional informational value. Deviations from the definitions in the CRR need to be pre-approved by the competent authority and a reconciliation between trading book and banking book for accounting and regulatory purposes is already included in the disclosure. Taking all of the above into account, the benefits of adding a template on the trading/banking book boundary is of limited benefit. At the same time, the additional implementation and running maintenance cost is significant, especially if there is no proportionality principle for the obligation to report.

b) Which benefits and challenges do you foresee as regards this reporting? Which issues should be taken into account or addressed, to maximise the benefit and reduce the cost of compliance with this particular reporting requirement?

In general, we see limited added value in providing quantitative data on the split between trading and banking book. The boundary between the trading and banking book is based on qualitative criteria along the elements of the boundary framework. Therefore, a quantitative breakdown on instrument type is not seen as particularly meaningful since most instruments can be classified in both books. In addition, regardless of the classification, positions have to be capitalized properly and according to the respective RWA treatment in either book. In that sense, a quantitative disclosure on the trading/banking book boundary based on notionals or market values carry limited additional informational value. Deviations from the definitions in the CRR need to be pre-approved by the competent authority and a reconciliation between trading book and banking book for accounting and regulatory purposes is already included in the disclosure. Taking all of the above into account, the benefits of adding a template on the trading/banking book boundary is of limited benefit. At the same time, the additional implementation and running maintenance cost is significant, especially if there is no proportionality principle for the obligation to report.

a) Do you have any comments on the considerations regarding the interactions and links between the ITS on FRTB reporting and the ITS on Supervisory Reporting presented above?

The interaction is sufficiently clear.

b) Did you identify any other issues regarding the interactions and conceptual links between the ITS on FRTB reporting and the ITS on Supervisory Reporting, either resulting from the CRR or the discussion on the CRR3, that should be considered? If yes, please also include suggestions how to rectify those issues.

The interaction is sufficiently clear.

(1) specify which element(s) of the proposal trigger(s) that particularly high cost of compliance, (2) explain the nature/source of the cost (i.e. explain what makes it costly to comply with this particular element of the proposal) and specify whether the cost arises as part of the implementation, or as part of the on-going compliance with the reporting requirements, (3)offer suggestions on alternative ways to achieve the same/a similar result with lower cost of compliance for you.

The level of complexity and detail required in the templates together with the requirement to report on offsetting group level present a significant challenge, both in terms of implementation (given the relatively short implementation deadlines) and running costs. The challenging nature of the templates could motivate smaller institutions within a banking group to adopt the SSA instead of opting in the A-SA. Since the reporting on consolidated level has to be done using the A-SA method and templates, this creates an additional level of complexity for reporting as well as a discrepancy between reported figures on solo vs consolidated level. The required detailed information regarding the individual components of the A-SA calculation goes into extensive details which are not material for the overall market risk charge. At the same time, the information is not sufficient to disclose the true risk profile of the organization in a meaningful and comparable way. The level of detail is likely to cause a significant increase in running costs over time. We would welcome a more concise form of reporting which focuses on the key drivers of the overall market risk charge.

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Name of the organization

WSBI-ESBG