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European Insurance and Occupational Pensions Authority

1490

Q&A

Question ID: 1490

Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities

Article: 166, 35

Template: S.26.01

Status: Final

Date of submission: 13 Nov 2018

Question

We have the following question regarding subordinated loans and interest rate risk:
 
On the one hand, the market value of a subordinated loan itself is sensitive to interest rates. This would imply that according to QRT log files, subordinated loans should be considered in QRT 26.01 R0110-R0120 / C0030-C0050-C0070.

On the other hand, Delegated Acts Article 166 state that the capital requirement for interest rate risk is equal to the loss in basic own funds that would result from a respective interest rate shock. Due the the special nature of subordinated loans for basic own funds, a subordinated loan does not change the basic own funds under changed interest rate curves. Therefore, no SCR should arise from subordinated loans.
 
However, business validations BV565_1, BV566_1, BV567_1 and BV568_1 clearly indicate that the capital requirement for interest rate risk should be calculated directly from sensitive assets and liabilities,
e.g. BV567_1: {S.26.01, r0110,c0080}=MAX(0,({S.26.01, r0110,c0020}-{S.26.01, r0110,c0030})-({S.26.01, r0110,c0040}-{S.26.01, r0110,c0070}))
 
This seems contradictory. Could you please advise how to proceed?

EIOPA answer

Following the Instructions and clarifications provided in Q&A no 443, 583, 807,759 and 1466 it is correct that if the amounts of the assets liabilities are sensible to the risk they should be reported even if the SCR is zero.
Therefore EIOPA confirms that the amount of subordinated liabilities sensible to interest rate risk should be reported. The validations identified will be de-activated.