Recognition of non cash variation margin in the calculation for replacement cost of derivatives for Leverage Ratio

According to Article 429a(1)   429c(1) of Regulation (EU) No 575/2013 (CRR), as amended by Regulation (EU) 2015/62, the leverage ratio exposure value of contracts listed in Annex II of the CRR and of credit derivatives should be determined in accordance with the method set out in Article 274 CRR (Mark-to-Market Method for credit risk) Section 3 of Chapter 6 of Title II of Part Three CRR (Standardised Approach for Counterparty Credit Risk) unless provided otherwise in the leverage ratio framework. In particular, as regard the deductions derivatives subject to margin agreements as defined in Article 275(2) and (3) CRR , Article 429a(3)   429c(3)  CRR expressly states that institutions may deduct variation margin received in cash from the counterparty from the current replacement cost portion of the exposure value if under the applicable accounting framework the variation margin has not already been recognised as a reduction of the exposure value and only when all the stringent conditions listed in the same Article are met. Additionally, Article 429c(4) CRR clarifies that regarding non-client cleared contracts institutions shall not include collateral received in the calculation of NICA.  Moreover, Article 429a(4) CRR specifies that the deduction of variation margin received shall be limited to the positive current replacement cost portion of the exposure value and that variation margin received in cash shall not be used to reduce the potential future credit exposure amount. Consequently even though the derivative part of the leverage ratio exposure measure has not been directly covered by point (b) (a) of Article 429 (5) (7) CRR (non-recognition principle of financial collateral, guarantees or credit risk mitigation purchased), it becomes clear from the wording of Article 429a(3) and (4)  429c(3) CRR and its context and objectives that other kinds of variation margin as well as other forms of collateral received cannot be used to reduce the replacement cost or potential future exposure components of the exposure value of derivative s   contracts, other than with clients where those contracts are cleared by a QCCP . The calculation of the NGR as published by  QA 2016_2735  shall thus not be applicable for leverage ratio purposes due to the recognition of collateral received in the formula.