On Nov. 29, EBA issued updated FAQs on CRR reporting topics.

  • Follows EBA Nov. 2019 issued updated FAQs on CRR reporting topics, see #67743.
  • Treatment of CFDs Q: 2017_3137
  • Queried whether long (short) positions in CFDs, where the underlying is denominated in foreign currency, should be treated as single long (short) foreign currency position.
  • Equal to market value of notional position of the underlying / market value of the CFD.
  • Answer: treatment specified in 2015_1812 shall be applied analogously for purpose of calculating net open position in foreign currency under CRR, art 352(1), see #24600.
  • Hence, CFDs have to be decomposed into a combination of long and short positions.
  • By way of the clarification provided in this answer, FAQ 2014_1171 has been repealed.
  • Market Risk OFR Q: 2018_4021
  • Separate IMA approval/summation approach for market risk OFR at consolidated level.
  • Assuming parent institution does not have permission by competent authorities to use internal models approach (IMA) on consolidated level, but it has the permission to use the IMA on individual level and/or one (or several) of its subsidiaries have permission.
  • Or it has no permission to use the IMA on individual level and only one (or more) subsidiaries have the permission to use the IMA on individual level.
  • Firstly, queried whether parent institution is compliant with the requirements of the CRR (art 11 and 363(2)) if it calculates the own funds requirements for market risk on consolidated level by summation of the individual VaR, sVaR (and where applicable IRC and CRM) where IMA permission on individual level has been granted.
  • And own funds requirements under the standardized approaches for market risk under chp 2, 3 and 4 of title IV of part three for consolidated entities without permission.
  • Secondly queried whether the assessment depends on whether permission has been granted for the consolidating parent entity on individual level.
  • Answer 1: where own funds requirements are computed for an institution on a consolidated basis, art 11 states that parent institutions are required to comply with the own funds requirements on the basis of their consolidated situation.
  • Compliance on a consolidated basis with requirements of art 363 implies that internal model permission is granted at the consolidated level of an institution for consolidated own funds requirements for that institution to be calculated using internal models.
  • Art 325 provides the conditions, at consolidated level, for positions resulting from the consolidated situation of the group to be allowed to be offset with each other.
  • Where authorities have not granted permission to offset positions, institution is required to compute capital requirements on a consolidated basis separately for each subset of positions on a consolidated basis stemming from each of those institutions.
  • Answer 2: in accordance with art 11, where own funds requirements are computed on a consolidated basis, parent institutions are required to comply with the own funds requirements on the basis of their consolidated situation.
  • As a result, permission is not required to be granted at individual level of the parent institution for own funds requirements to be computed using the IMA on the basis of its consolidated situation, provided permission has been granted at consolidated level.
  • Offset of AVA Against Day One Profits Deferral Q: 2019_4458
  • Question asked whether, under art 8(3), day one profit deferral is eligible to offset the AVAs under art 9 to 17 of regulation (EU) no. 2016/101.
  • Answer: under of reg 2016/101, deferral of day one gains and losses cannot be identified as adjustment to institution's fair value addressing a specific AVA category.
  • Follows that deferral of day one gains and losses is excluded from calculation of AVAs and is not eligible to offset any of the AVAs under art 9 to 17 of that regulation.
  • Dec. 2019 Local Firm Definition Q: 2018_4260
  • On Dec. 6, 2019, EU EBA issued new FAQ on the definition of local firm under CRR.
  • On whether the reference to dealing for its own account set-out in article 4(1)(4) includes acting in role of market maker (as set out in directive 2014/65, MiFID II).
  • Answer: based on a strict legal reading, dealing on own account by a local firm defined in CRR Article 4(1)(4) cannot be inferred to cover acting as a market maker.
  • A local firm is exempt from the prudential requirements of the CRR and, as such, the permitted scope of its activities should be interpreted narrowly.
  • Market making is not explicitly mentioned in this context, only dealing on own account and dealing for the accounts of other members of the markets they are present in.

Regulators EU EBA
Entity Types Auditor; B/D; Bank
Reference FAQ 12/6/2019; FAQ 11/29/2019; Reg 2016/101; CRD/CRR Dir 2013/36, Reg 575/2013, Art 4(1)(4); CRR2 2019/876; CRD5 Dir 2019/878; SRP Reg 680/2014; MIFID/MIFIR Dir 2014/65, Reg 600/2014
Functions Accounting; Financial; Operations; Registration; Reporting; Risk; Tax; Treasury
Countries European Union
Products Banking; Corporate; Derivatives; Equity; Fixed Income; Forex; Futures; Insurance; Issuance/IPO; Loan; Securities; Securitization
Regions EMEA
Rule Type Guidance
Rule Date 11/29/2019
Effective Date 12/6/2019
Rule Id 68324
Linked to Rule :67743
Reg. Last Update 12/6/2019
Report Section EU

Last substantive update on 12/09/2019