Single Rulebook Q&A

Question ID: 2018_3926
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Accounting and auditing
Article: 473a
Paragraph: 7
Subparagraph: b
Article/Paragraph : Not applicable
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Type of submitter: Competent authority
Subject matter : IFRS 9 Transitional arrangements – Reporting of impact on Standardised exposure value of transitional credit risk adjustments
Question:

According to Article 473a(7)(b) of CRR, is it possible to report the impact on Standardised exposure value of transitional credit risk adjustments in COREP at an overall level?

Background on the question:

It is not clear whether it might be possible to interpret the new legislation (specifically new CRR Article 473(a) para 7(b)) in such a way as to allow the impact on Standardised exposure value of transitional credit risk adjustments to be reported in COREP at an overall level e.g.: include in COREP CA.2 Row 690 “Other Risk Exposure Amounts” as an additional RWA rather than changing the actual provisions in C.07?

  • The impact on RWA would be the same – it is just a matter of where it is reported and may avoid certain unintended consequences of changing the reported provisions;
  • An overall RWA adjustment would appear to be in line with the intention of the transitional provisions as per recital(8) of the Regulation where the stated purpose is “to ensure that (institutions) do not receive inappropriate capital relief” from a reduced exposure value, so adding back an RWA amount would achieve that.
  • This would also appear to align better with the IRB outcome where provisions per se are not changed as the transitional impact appears to be built into the allowable capital add-back;
  • If the approach is followed of changing the actual reported provisions (in C.07) then it seems there would be a requirement (for the industry/regulators) to address any uncertainty as to whether any other reporting  should show transitional amounts as per COREP rather than the actual amounts (just for standardised).

For example: (i) for Pillar 3 provisions disclosure would banks be required to show transitional amounts rather than the actual amounts and then have to explain each year that an increase in provisions is due to the phase in rates and is not an actual deterioration in credit quality or (ii) is  the new CBI Credit Quality Return based on COREP in which case will it expect transitional provisions?

Date of submission: 23/05/2018
Published as Final Q&A: 25/05/2018
EBA answer:

Article 473a(7)(b) of Regulation (EU) No 575/2013 (CRR) requires institutions applying the Standardised Approach to credit risk to adjust (reduce) the specific credit risk adjustments by which the exposure value shall be reduced by applying a scaling factor. As recital (8) of Regulation (EU) 2017/2395 explains, this ensures that an institution would not benefit from both an increase in its Common Equity Tier 1 capital due to transitional arrangements as well as a reduced exposure value.

That information, which is relevant for the calculation of own funds requirements for credit risk according to the Standardised Approach, has to be reported by institutions applying the Standardised Approach to credit risk in the template C 07.00 of Annex I to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting), in accordance with the reporting requirements established in Annex II to the ITS on Supervisory Reporting. Therefore, the impact of the reduction of the specific credit risk adjustments under Article 473a(7)(b) of the CRR on the total risk exposure amount is captured in the different items of template C 07.00 rather than cumulatively in row 690 of template C 02.00.

Please also see Q&A 3664

Status: Final Q&A
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