EBA · 2019_4923 Final Q&A

C 32.02 - Prudent Valuation: Core approach (PRUVAL 2); column 0260 (DAY1 P&L) and C 32.03 - Prudent Valuation: Model Risk AVA (PRUVAL 3); column 150 (DAY1 P&L)

Name: C 32.02 - Prudent Valuation: Core approach (PRUVAL 2); column 0260 (DAY1 P&L) and C 32.03 - Prudent Valuation: Model Risk AVA (PRUVAL 3); column 150 (DAY1 P&L): EBA Q&A — EU Financial Regulatory Q&A
Creator: European Banking Authority
License: https://creativecommons.org/licenses/by/4.0/

Regulation: Regulation (EU) No 575/2013 (CRR)
Article: 99
Topic: Supervisory reporting - COREP (incl. IP Losses)
Submitted by: Industry association
Submitted: 2019-09-19
Answered: 2021-04-30
Answer provided by: ESAs (EBA, ESMA, EIOPA)

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Question

What sign convention is expected for “Day 1 P&L” amounts in templates C32.02 (column 0260) and C32.03 (column 150)?

Background

In the bank, almost all Day 1 P&L deferrals are losses in nature (equivalently asset value reducing). The instructions request institutions to provide “[…], the deferral of day one gains and losses” in column 0260 of template C32.02, however the sign convention is not specified. We would like to clarify the sign convention (i.e. whether these amounts are expected as positive or negative amounts) in order to maximise comparability across institutions.

Answer

The instructions in Annex II on column c260 of template C 32.02 of Annex I to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) stipulate that the deferral of day one gains and losses (IFRS 9.B5.1.2.A) should be reported. IFRS 9.B5.1.2A explains that an entity shall recognise the difference between (1) the fair value at initial recognition and (2) the transaction price as a gain or loss. Since the difference between the fair value at initial recognition and transaction price on day 1 is to be reported, any Day 1 gain should be reported with a positive sign, while any Day 1 loss should be reported with a negative sign. The same sign convention shall also be applied for column 150 of template C 32.03 of Annex I.

Original source: European Banking Authority, Q&A ID 2019_4923

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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