Clarification on the exclusion of calculation of credit spread portfolio in cases where only approval for general risk of debt instruments is granted

Do only institutions with approval to calculate their own funds requirements for the general risk of debt instruments and specific risk of debt instruments by using their internal models and an internal incremental default and migration risk (IRC) model have to calculate credit spread portfolios?

According to Art. 78 (1) 1.sentence: “Competent authorities shall ensure that institutions permitted to use internal approaches for the calculation of […] own fund requirements except for operational risk report the results of the calculations of their internal approaches for their […] positions that are included in the benchmark portfolios.” According to Recital 11 of the COMMISSION IMPLEMENTING REGULATION (EU) 2016/2070 of 14 September 2016 “An institution that is able to model an instrument included in one of the benchmarking portfolios for market risk and that has received permission from its competent authority to use an internal approach to calculate the […] own funds requirement for that type of instrument should report all the relevant data for that instrument as required by this Regulation, irrespective of whether the institution has such instrument in its books at the time of reporting.[…] “. This requirement is also stated in Art. 3 (2) (a) of the abovementioned regulation: “2.As a derogation from paragraph 1, an institution shall not be required to submit the information referred to in paragraph 1 for an individual portfolio in any of the following cases: (a) the institution does not have the permission from its competent authority to model the relevant instruments or risk factors that are included in the portfolio;”. Based on these requirements, only institutions with approval to calculate their own funds requirements for the general risk of debt instruments and specific risk of debt instruments by using their internal models and an internal incremental default and migration risk (IRC) model have to calculate credit spread portfolios. Reflecting this requirement, institutions with no approval to calculate their own funds requirements for specific risk of debt instruments by using their internal models and an internal incremental default and migration risk (IRC) shall not calculate and report credit spread portfolios.