Question ID: 3062
Regulation Reference: (EU) 2022/2454 - ITS with regard to supervisory reporting of risk concentrations and intra-group transactions (FICOD
Topic: Reporting templates on risk concentrations and intra-group transactions for conglomerates (FICOD)
Article: Annex II
Status: Final
Date of submission: 03 Apr 2024
Question
In the draft ITS on the reporting of intra-group transactions and risk concentration, in the section “Current requirements as regards the reporting of information on risk concentration” (starting on page 9) it is proposed to report also the indirect exposures of a credit institution or investment firm belonging to a financial conglomerate (page 11). Here, indirect exposures are defined by the application of the substitution approach in Article 403 of Regulation (EU) No 575/2013, i.e. under the regulation for credit institutions and investment firms. Question: Do exposures of insurance companies belonging to a financial conglomerate therefore not fall under this new reporting requirement?
Background of the question
Confirmation is sought on how to apply the concept of indirect exposure to exposures incurred by entity subject to insurance sectoral rules.
EIOPA answer
In accordance with paragraph 1.4 of the Part I of the Annex II of Commission Implementing Regulation 2022/2454 and for the completion of reporting, “the value of the item shall be stated in accordance with the sectoral rules of the entity within the group” unless otherwise specified.
Accordingly, any risk mitigating technique considered for reducing an exposure to another counterparty for the purpose of monitoring concentration under applicable sectoral rules shall be duly considered and reflected in the template FC.06 to get the value of the exposure gross and net of any risk mitigation technique, i.e. any amount related to a protection received that is considered in reduction of an exposure to another counterparty under the applicable sectoral rules related to significant concentration monitoring shall be in any case be taken into account and reported if in aggregation with other exposures of the financial conglomerate to this protection provider, it exceeds the threshold of significance that apply to the financial conglomerate concerned.
For banking sector entities, the reporting framework related to large exposure requires credit institutions to decompose the exposures following a step-by-step approach and to disclose the amount of exposure transferred to the credit protection provider in accordance with article 403 of Regulation (EU) 575/2013 as indirect exposure. For exposures incurred by insurance sector entities, financial conglomerates may report exposure related to protection received in accordance with insurance sectoral reporting framework by splitting upfront the exposure between the initial counterparty and the provider of the risk mitigation. Please find below a stylised illustration representing reporting expectation for a loan of 100 secured by a collateral assumed to be valued 50 under either banking or insurance sectoral rules as applied by the entities of the financial conglomerate:
|
|
Counterparty |
Direct exposure [FC0160 / FC0120] |
Indirect Exposure [FC0220] |
Risk mitigation [FC0260] |
Exposure after considering risk mitigation [FC0280] |
|
Banking style |
Principal (borrower) |
100 |
|
50 |
50 |
|
Risk mitigation (collateral issuer) |
|
50 |
|
50 |
|
|
Insurance style |
Principal (borrower) |
100 |
|
50 |
50 |
|
Risk mitigation (collateral issuer) |
50 |
|
|
50 |