Question ID: 420
Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities
Article: 35
Status: Final
Date of submission: 17 Dec 2015
Question
As per EIOPA’s amended CIC table (Annex V) published on 07 August 2015, asset category ‘Total return swap’ appears under both Swaps (CIC D4) and Credit derivatives (CIC F4).
We also noted that Annex VI: Definitions of the CIC Table, provides the same definition for both D4 and F4.
Can EIOPA confirm if this is intentional or an error?
If this change is intentional can EIOPA provide further guidance as to how we should distinguish between Total return swap under Swaps and Total return swap under Credit derivatives.
EIOPA answer
The amendment was intentional as before we only had “Total Return Swaps” in the category of credit derivatives.
The idea is that “Total Return Swaps” are classified as “F4” by default. There is a credit risk for the party that has to pay the fixed amount, once the payments are calculated considering the total life of the asset, which may go beyond the swap maturity date. Who pays the fixed amount anticipates the future receivables. Only in the cases where this risk is irrelevant/mitigated the contract should be classified as D4.
We would once more highlight that the CIC classification of assets and derivatives is not an exact science and in some cases requires analysis from the undertaking in the classification.