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.