Question ID
2017_3509
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Supervisory reporting - COREP (incl. IP Losses)
Article
99
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
Annexes I and II, C 08.02, c020, c280
Type of submitter
Consultancy firm
Subject matter
Treatment of expected loss amounts in validation rule v4772_m
Question

Is validation rules v4772_m correct?

Background on the question

The validation rule v4772_m: [C 08.02 (All rows, All sheets)] {{c280}} <= {{c020}}, indicates that the Expected Loss Amount should be less than the Original Exposure.

We believe this validation will fail where the Credit Risk Mitigation Substitution Approach is used, for example where there is a guarantee. Under this approach, we could have a situation where the Original Exposure is against Counterparty A which is a Corporate but the Expected Loss Amount is against Counterparty B which is an Institution. In this situation the Expected Loss Amount would be reported in C 08.02 (006 – Exposure to Institutions). However, the Original Exposure reported in this sheet would be 0 since the Original Exposure will be reported in C 08.02 (008 – Exposure to Corporates).

Submission date
Final publishing date
Final answer

The expected loss amount reported in column 280 of templates C 08.01 respectively C 08.02 of Annex I to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) shall be based on the risk parameters really used in the internal rating system approved by the respective competent authority and shall take into account all forms of credit risk mitigation techniques that are eligible according to Regulation (EU) No 575/2013 (CRR) and actually applied by the institution, such as credit risk mitigation techniques with substitution effects.

In that regard, the interdependency between columns 020 (original exposure) and 280 (Expected Loss Amount) of templates C 08.01 / C 08.02 as established by validation rules v4772_m for C 08.02 and v4757_m for C 08.01 does not exist, considering that CRM techniques with substitution effect can lead to a reassignment of parts of an exposure to a different exposure class. Both validation rules will therefore be amended.

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

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.