Article 473a of the Regulation (EU) No. 575/2013 establishes that, under the “static approach”, institutions are required to calculate the difference between the expected credit losses determined in accordance with paragraphs 5.5.5 and 5.5.3 of IFRS 9 at the implementation date (Article 473a(2)(b)(i)) and the amount of impairment losses determined in accordance with paragraphs 63,64, 65, 67, 68 and 70 of IAS 39 determined at 31 December 2017 or the day before the initial application of IFRS 9 (Article 473a(2)(b)(ii)). The resulting amount is the one to be considered for the application of the transitional arrangements.

The same logic, with the exclusion of credit-impaired instruments, is valid for the “dynamic approach” as established in paragraphs 3 and 4 of Article 473a.

This being said, it is important to note that Article 473a does not distinguish expected credit losses recognised for instruments measured at amortised cost from expected credit losses recognised for instruments measured at fair value through other comprehensive income - FVOCI. For this reason, impairment losses on debt instruments classified as FVOCI should, therefore, be included in the calculation required by Article 473a as suggested in the alternative 1 presented by the submitter.

In addition, following the amendments introduced to Article 468 CRR, please note that the treatment of impairment losses recognised on exposures to central governments, regional governments, local authorities or public sector entities measured at FVOCI should follow the specifications under Q&A 5346.