Revised answer:

For the purpose of this Q&A, the definitions and the methodologies used in the context of credit risk mitigation are further described in the Guidelines on Credit Risk Mitigation for institutions applying the IRB approach with own estimates of LGDs .
With the exception of the data point ‘Number of obligors’, whose reporting is clarified directly in the ITS, all the data points reported under a given portfolio should correspond to the parameters of the exposures of the given portfolio. As a consequence, in the case of exposures benefiting from unfunded credit protection, the reporting of some data points depends on the methodology used to incorporate the effect of the credit protection in the risk parameters.

1) In the case where a substitution of risk parameters approach is used,

The secured part of the exposure (i.e. exposure to be substituted) should be used for the reporting of: 

- the data point “Original exposure pre conversion factors”, which should be reported in portfolios related to the exposure class of the original obligor (this is “corporate non-SME” in the stated example), under the collateralization status as “Exposures with credit protection” and under the collateral type “guarantees”(or “Credit derivatives” as applicable).

- the other data points, including the Exposure after CRM substitution pre conversion factors”, which should be reported in portfolios related to the exposure class of the guarantor (this is as “Institutions” in the example) and under the collateralization status as “Exposures without credit protection”, under the collateral type “not applicable”. For the sake of clarity, this means that in the case where a substitution of risk parameters approach is used, the risk parameters of the guarantor, such as its PD or LGD, should be reported in these portfolios. The maturity used for RWA calculation should be reported.

The unsecured part of the exposure (i.e. exposure not to be substituted) should be used for the reporting of all the data points based on the characteristics of original obligor, and should be reported under the exposure class of the original obligor. In the case where no other collateral is associated with the exposure, the exposure should be reported under the portfolios related to the collateral type “not applicable” and under the collateralizations status as “exposures without credit protection”. For the sake of clarity, this means that in the case where a substitution of risk parameters approach is used, the risk parameters of the original obligor, such as its PD or LGD, should be reported in these portfolios only in the case of partial guarantee, i.e. when the unsecured part is not empty.

In the particular case of a portfolio composed of solely exposures which are all fully guaranteed, for the portfolio related to the exposure class of the original obligor, all the columns should be left empty with the exception of column 0010 “portfolio ID”, column 0040 “Number of obligors” and column 0080 “Original exposure pre-conversion factors”, which should be filled based on the characteristics of the exposures to the original obligor
In summary, the following reporting is to be applied:

Values to be reported:

Original exposure pre conversion factors

All exposure values except Original exposure pre CRM (e.g. EAD)

Exposure-weighted risk parameters (e.g. PD, LGD, CCF), Maturity, risk figure (e.g. EL, RWA, provisions),

Backtesting figures (e.g. DR1Y, RWA+)

Portfolio of the obligor exposure class, with collateral type = “Guarantees” or “Credit derivatives” to be substituted

Value of Original exposure pre conversion factors to be substituted

0

NULL

Value based on the defaults of the obligor and the other metrics reported for this portfolio[1]

Portfolio of the obligor exposure class, with collateral type ≠ “Guarantees” or “Credit derivatives” not to be substituted

Value of Original exposure pre conversion factors relating to the obligor and the part not to be substituted

Value of all data points relating to the obligor and the part not to be substituted

Value of all data points relating to the obligor and the part not to be substituted

Value based on the defaults of the obligor and the other metrics reported for this portfolio[2]

Portfolio of the guarantor exposure class, with collateralisation status = “Exposures without credit protection”

0

Value of all data points relating to the guarantor and the part to be substituted

Value of all data points relating to the guarantor and the part to be substituted

Value based on the defaults of the guarantors and the other metrics reported for this portfolio[3]

[1] For instance, for the default rate, the “original exposure before applying the conversion factor measured at the reference date minus one year” should be based on the Value of Original exposure pre conversion factors to be substituted

[2] For instance, for the default rate, the “original exposure before applying the conversion factor measured at the reference date minus one year” should be based on the value of the Original exposure relating to the obligor and the part not to be substituted

[3] For instance, for the default rate, the “original exposure before applying the conversion factor measured at the reference date minus one year” should be based on the Value of Original exposure pre conversion factors of the guarantor (0 in the case of no direct exposure toward the guarantor)

2) In the case where another approach than a substitution approach is used to recognize the effect of the credit protection (such as a modelling approach), the exposure should be reported under the exposure class of the obligor (with “collateralization status” as “exposures with credit protection”). For the sake of clarity, this implies that the risk parameters of the original obligor should be reported in the original obligor exposure class. In the case where a modelling approach is used, the adjusted LGD of the obligor should be reported in these portfolios.

3) Example clarifying the reporting of the exposure values in case of the substitution approach:

- Large Corporate exposure of 100, of which 80 is guaranteed by an institution;
- The PD of the Large corporate is 2%, and its LGD is 50%
- The PD of the Institution is 1% and its LGD is 30%
- ‘Portfolio sec’ refers to portfolios with collateralization status as “Exposures with credit protection” and collateral type “guarantee”;
- ‘Portfolio unsec’ refers to portfolios with collateralization status as “Exposures without credit protection” and  collateral type “not applicable”;
- The CRM technique used by the reporting institution is the substitution of risk parameters approach.

Portfolio

Number of Obligor (0040)

PD (0060)

Original exposure pre conversion factors 0080)

EAD (0110)

LGD (0130)

Institutions – total

1

1%

0

80

30%

Institutions – sec[1]

NULL

NULL

NULL

 NULL

NULL

Institutions - unsec

1

1%

0

80

30%

Large corporates - total

1

2%

100

20

50%

Large corporates - sec

1

NULL

80

0

NULL

Large corporates - unsec

1

2%

20

20

50%

[1] This portfolio should hence not be reported in this example.

Please see also Q&A 4091

Previous answer:

The secured part of the exposure should be reported under the relevant option(s) in the column collateral type” in template 102 of Annex I of the ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking), Consequently,  in the case where a substitution of risk parameters approach is used,  the secured part of the exposure should be reported under:  
- the exposure class of the guarantor, this is as “Institutions” in the example, and under the collateralization status as “Exposures without credit protection”, under the collateral type “not applicable”.  
- the exposure class of the original obligor for the purpose of reporting the “Original exposure pre conversion factors” under the collateralization status as “Exposures with credit protection” and under the collateral type “guarantees”(or “Credit derivatives” as applicable).  
The unsecured part of the exposure should be reported under the collateral type “not applicable” and under the collateralizations status as “exposures without credit protection”,
and  under the exposure class of the obligor, this is “corporate non-SME” in the stated example.  

However, it should be noted that in the case where another approach than a substitution approach is used to recognize the effect of the credit protection (such as a modelling approach), the secured part should also be reported under the exposure class of the obligor (with “collateralization status” as “exposures with credit protection”),

The risk parameters should always reflect the risk of the obligor belonging to the benchmarking portfolio:
- The risk parameters of the guarantor should be reported in the guarantor exposure class
- The risk parameters of the original obligor should be reported in the original obligor exposure class. In the case where a modelling approach is used, the adjusted LGD should be reported in the original obligor exposure class.


 Example:   · LC exposure of 100, of which 80 is guaranteed by an institution   · Portfolio sec refers to portfolios with collateralization status as “Exposures with credit protection” & collateral type “guarantee”. Under option 2 and 3 it does not include anything else. Under option 1 it also includes portfolios with collateral type “Unfunded credit protection”.   · Portfolio unsec refers to portfolios with collateralization status as “Exposures without credit protection” & collateral type “not applicable”
           Portfolio                   EAD before CRM (80)                   EAD after CRM (90)                  Institutions - total                   0                   80                  Institutions - sec                   0                                      Institutions - unsec                   0                   80                                                                             Large corporates - total                   100                   20                  Large corporates - sec                   80                   0                  Large corporates - unsec                   20                   20           

Please see also Q&A 2018_4271.and Q&A 4091  

Disclaimer   The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal. The text of the Implementing Regulation may differ from the text of the draft ITS to which this Q&A refers.