The use of the Collateral Simple and Comprehensive Methods under the Large Exposure regime

The third subparagraph of Article 403(1) of Regulation (EU) No 575/2013 (CRR) restricts, for the large exposures requirements in Part Four of the CRR, the partial application of the Financial Collateral Comprehensive Method (FCCM) combined with applying the treatment set out in Article 403(1)(b) to other exposures. This is restricted to cases where the partial application of the FCCM combined with applying the Financial Collateral Simple Method (FCSM) to other exposures is permitted for purposes of calculating capital requirements under Article 92 of the CRR. This is only applicable in the following two cases: An institution that is required by Article 299(2)(b) of the CRR to apply the FCCM for its counterparty risk exposures in the trading book, is not prohibited by this Article from applying the FCSM to those exposures in the non-trading book to which the Standardised Approach (SA) is applied. Consequently, the third subparagraph of Article 403(1) of the CRR allows an institution that has opted for the treatment set out in Article 403(1)(b) CRR for its SA exposures in the non-trading book, to nevertheless opt for the FCCM for its counterparty risk exposures in the trading book. An institution with permission to use the IRB approach is required to apply the FCCM to its IRB exposures because Article 222(1) of the CRR limits the FCSM to SA exposures; but Article 222(1) nevertheless permits using the FCSM for the purposes of Articles 148(1) and 150(1) of the CRR, i.e. to apply the FCSM to exposures to which the SA is transitionally or permanently applied. Consequently, the third subparagraph of Article 403(1) of the CRR allows an institution that has opted for the treatment set out in Article 403(1)(b) for its SA exposures in the non-trading book, to nevertheless opt for the FCCM for its IRB exposures.   Except for these two cases, institutions are prohibited in all other cases by the third subparagraph of Article 403(1) of the CRR from partially applying the FCCM to some exposures combined with applying the treatment set out in Article 403(1)(b) to other exposures for the purposes of the large exposures requirements. This requires an institution to opt for either the FCCM or the treatment set out in Article 403(1)(b) of the CRR, and to apply the selected treatment to all of its exposures for the purposes of the large exposures requirements, regardless of the method chosen for the purposes of calculating capital requirements pursuant to Article 92.